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Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES (Dollars In Thousands)
The provision for income taxes is summarized below:
Current Tax Expense:202520242023
Federal$8,903 $7,187 $4,611 
State2,339 1,251 1,035 
Total Current Tax Expense11,242 8,438 5,646 
Deferred Tax Expense (Benefit):
Federal384 (631)1,825 
State(191)(158)(26)
Total Deferred Tax Expense (Benefit) 193 (789)1,799 
Total Provision for Income Taxes$11,435 $7,649 $7,445 

In December 2023, the FASB issued ASU No. 2023-09—Income Taxes (Topic 740)—Improvements to Income Tax Disclosures, intended to enhance the transparency of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 became effective for the Company on January 1, 2025 for annual reporting periods on a prospective basis.
The provisions for income taxes differed from the amounts computed by applying the Federal Income Tax Rate of 21% to pre-tax income as a result of the following:
2025
AmountPercent
Statutory Federal Tax Rate$11,632 21.0 %
State Taxes, Net of Federal Income Tax Benefit (1)
1,697 3.1 
Nontaxable or Nondeductible Items
Tax-Exempt Investment Income(655)(1.2)
Bank Owned Life Insurance (349)(0.6)
Other Items, Net (2)
189 0.3 
Tax Credits
Low Income Housing Credits(53)(0.1)
Purchased Energy Production Credits(1,026)(1.9)
Provision for Income Taxes$11,435 20.6 %
(1) State taxes in New York made up the majority (greater than 50%) of the tax effect in
       this category.
(2) The "Nontaxable or Nondeductible Items" category includes items such as meals and
       entertainment, compensation related deductions and other non-deductible
       expenses. None of those items individually or in the aggregate exceeded the 5%
       quantitative threshold for separate disaggregation in the current year.
The provision for income taxes differed from the amounts computed by applying the Federal Income Tax Rate of 21% to pre-tax income as a result of the following:
20242023
Statutory Federal Tax Rate21.0%21.0%
(Decrease) Increase Resulting From:
Tax-Exempt Investment Income(2.1)(2.3)
State Taxes, Net of Federal Income Tax Benefit2.32.3
Bank Owned Life Insurance(0.9)(1.0)
Other Items, Net0.2(0.2)
Effective Tax Rate20.5%19.8%
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2025 and 2024 are presented below:
20252024
Deferred Tax Assets:
Net Unrealized Losses on Securities Available-for-Sale Included in Accumulated Other Comprehensive Income$4,392 $9,427 
Allowance for Credit Losses8,859 9,068 
Lease liabilities2,403 2,539 
Pension and Deferred Compensation Plans3,308 3,460 
Other1,734 773 
Total Gross Deferred Tax Assets20,696 25,267 
Valuation Allowance for Deferred Tax Assets— — 
Total Gross Deferred Tax Assets, Net of Valuation Allowance$20,696 $25,267 
Deferred Tax Liabilities:
Pension Plans$5,349 $5,397 
Depreciation5,515 4,692 
ROU assets2,136 2,298 
Deferred Income3,452 3,524 
Prepaid Pension Included in Accumulated Other Comprehensive Income2,183 1,445 
Net Unrealized Gains on Equity Securities381 241 
Goodwill3,413 3,373 
Gain on Cash Flow Hedge Agreements Included in Accumulated Other Comprehensive Income855 1,620 
Other— 64 
Total Gross Deferred Tax Liabilities$23,284 $22,654 
Deferred Tax (Liability) Asset, Net$(2,588)$2,613 

Management believes that the realization of the recognized gross deferred tax assets at December 31, 2025 and 2024 is more likely than not, based on historic earnings and expectations as to future taxable income.

The following table presents income taxes paid for the year ended December 31, 2025.

Federal Taxes Paid
$6,100 
New York State Taxes Paid
1,307 
Purchase of Energy Tax Credits
11,241 
Total Paid
$18,648 

Interest and penalties are recorded as a component of the provision for income taxes, if any.  There are no current examinations of our Federal income tax returns, nor have we been notified of any upcoming examinations. During 2024 the State of New York completed a desk audit of the Special Additional Mortgage Recording Tax Credit that Arrow claimed on the 2021 New York State income tax return. The audit resulted in an insignificant balance due. Our tax years 2022 through 2025 are subject to Federal and New York State examination. Management annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of December 31, 2025.

Purchased Energy Production Credits
In December 2025, Arrow Bank entered into a Tax Credit Transfer Agreement for the purchase of 2025 federal transferable tax credits pursuant to Section 45X under Section 6418 of the Internal Revenue Code (IRC), as enacted by the Inflation Reduction Act (IRA) to be generated by the production and sale of torque tubes. Arrow's approximate purchase price was $14.8 million to acquire tax credits of approximately $15.8 million. The difference between the face amount of the credit and the purchase price is recognized as a reduction of 2025 income tax expense. $11.2 million was paid in December 2025 with the remaining amount paid in January 2026 and recorded as a payable as of December 31, 2025. Arrow utilized the purchased tax credits to offset amounts that will be due and payable to the IRS with the 2025 income tax return with the excess to be carried back to prior tax years. The accounting treatment is an offset to federal income taxes payable, a liability to the seller, and a reduction to 2025 income tax expense.