Investments, Debt and Equity Securities

3 Months Ended

Sep. 30, 2011

Investments, Debt and Equity Securities

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

4.   Investments, Debt and Equity Securities (In Thousands)

A summary of the amortized costs and the approximate fair values of securities at September 30, 2011, December 31, 2010, and September 30, 2010 are presented below.  Amortized cost is reported net of other-than-temporary impairment charges.

Securities Available-for-Sale:

	Amortized Cost	Fair Value	Gross Unrealized Gains	Gross Unrealized Losses
September 30, 2011:
U.S. Agency Securities	$ 43,058	$ 43,416	$   358	$   ---
State and Municipal Obligations	48,564	48,850	286	---
Collateralized Mortgage Obligation - Residential	133,587	138,633	5,312	266
Mortgage-Backed Securities – Residential	232,898	238,742	5,844	---
Corporate and Other Debt Securities	1,330	1,318	---	12
Mutual Funds and Equity Securities	1,365	1,381	41	25
Total Securities Available-for-Sale	$460,802	$472,340	$11,841	$ 303
December 31, 2010:
U.S. Agency Securities	$  97,943	$  98,173	$   326	$      96
State and Municipal Obligations	89,471	89,528	72	15
Collateralized Mortgage Obligations - Residential	161,247	166,964	6,692	975
Mortgage-Backed Securities – Residential	159,636	159,926	2,532	2,242
Corporate and Other Debt Securities	1,516	1,417	---	99
Mutual Funds and Equity Securities	1,333	1,356	70	47
Total Securities Available-for-Sale	$511,146	$517,364	$9,692	$3,474
September 30, 2010:
U.S. Agency Securities	$166,940	$167,655	$     715	$    --
State and Municipal Obligations	65,941	66,148	210	3
Collateralized Mortgage Obligations - Residential	146,625	154,196	7,638	67
Mortgage-Backed Securities – Residential	74,819	78,154	3,335	---
Corporate and Other Debt Securities	1,497	1,390	---	107
Mutual Funds and Equity Securities	1,379	1,398	53	34
Total Securities Available-for-Sale	$457,201	$468,941	$11,951	$211

Securities Held-to-Maturity:

	Amortized Cost	Fair Value	Gross Unrealized Gains	Gross Unrealized Losses
September 30, 2011:
State and Municipal Obligations	$145,416	$152,131	$6,715	$---
Corporate and Other Debt Securities	1,000	1,000	---	---
Total Securities Held-to-Maturity	$146,416	$153,131	$6,715	$---
December 31, 2010:
State and Municipal Obligations	$158,938	$161,713	$2,911	$136
Corporate and Other Debt Securities	1,000	1,000	---	---
Total Securities Held-to-Maturity	$159,938	$162,713	$2,911	$136
September 30, 2010:
State and Municipal Obligations	$157,106	$164,070	$6,980	$ 16
Corporate and Other Debt Securities	1,000	1,000	---	---
Total Securities Held-to-Maturity	$158,106	$165,070	$6,980	$ 16

4.     Investments, Debt and Equity Securities, continued

As reported in the Consolidated Balance Sheets, Other Investments include Federal Home Loan Bank of New York (“FHLBNY”) and Federal Reserve Bank (“FRB”) stock, which are reported at cost.  FHLBNY and FRB stock are restricted investment securities and amounted to $3,801 and $959 at September 30, 2011, respectively, $7,743 and $859 at December 31, 2010, respectively, and $8,642 and $832 at September 30, 2010, respectively.  The required level of FHLBNY stock is based on the amount of FHLBNY borrowings and is pledged to secure those borrowings.   While some Federal Home Loan Banks have stopped paying dividends and repurchasing stock upon reductions in debt levels, the FHLBNY continues to pay dividends and repurchase its stock.  Accordingly, we have not recognized any impairment on our holdings of FHLBNY common stock.  However, the FHLBNY has reported impairment issues among its holdings of mortgage-backed securities.

A summary of the maturities of securities as of September 30, 2011 is presented below.  Mutual funds and equity securities, which have no stated maturity, are not included in the table below.  Collateralized mortgage obligations and other mortgage-backed-securities are included in the schedule based on their expected average lives.  Actual maturities will differ from the table below because issuers may have the right to call or prepay obligations with or without prepayment penalties.

Maturities of Debt Securities:	Available-for-Sale		Held-to-Maturity
	Amortized Cost	Fair Value	Amortized Cost	Fair Value
Within One Year:
U.S. Agency Securities	$ 24,042	$  24,082	$         ---	$          ---
State and Municipal Obligations	24,312	24,340	16,992	17,140
Collateralized Mortgage Obligations - Residential	3,464	3,498	---	---
Mortgage-Backed Securities – Residential	1,771	1,822	---	---
Total	53,589	53,742	16,992	17,140
From 1 - 5 Years:
U.S. Agency Securities	19,016	19,334	---	---
State and Municipal Obligations	20,551	20,769	63,139	64,744
Collateralized Mortgage Obligations - Residential	99,512	102,730	---	---
Mortgage-Backed Securities – Residential	200,132	204,354	---	---
Corporate and Other Debt Securities	1	1	---	---
Total	339,212	347,188	63,139	64,744
From 5 - 10 Years:
State and Municipal Obligations	1,093	1,133	55,886	60,426
Collateralized Mortgage Obligations - Residential	30,611	32,405	---	---
Mortgage-Backed Securities – Residential	13,414	14,245	---	---
Total	45,118	47,783	55,886	60,426
Over 10 Years:
State and Municipal Obligations - Residential	2,608	2,608	9,399	9,821
Mortgage-Backed Securities – Residential	17,581	18,321	---	---
Corporate and Other Debt Securities	1,329	1,317	1,000	1,000
Total	21,518	22,246	10,399	10,821
Total Debt Securities	$459,437	$470,959	$146,416	$153,131

The fair value of securities pledged to secure repurchase agreements amounted to $47,644, $51,581 and $67,336 at September 30, 2011, December 31, 2010 and September 30, 2010, respectively.  The fair value of securities pledged to secure public and trust deposits and for other purposes totaled $443,113, $382,142 and $418,838 at September 30, 2011, December 31, 2010, and September 30, 2010, respectively.  Mortgage-backed securities - residential at September 30, 2011, December 31, 2010 and September 30, 2010 included $1,032, $1,598 and $1,736 respectively, of loans previously securitized by Arrow, which it continues to service.

4.     Investments, Debt and Equity Securities, continued

Temporarily Impaired Securities
September 30, 2011	Less than 12 Months		12 Months or Longer		Total
Available-for-Sale Portfolio:	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
U.S. Agency Securities	$        ---	$   ---	$   ---	$     ---	$       ---	$     ---
State & Municipal Obligations	257	---	---	---	257	---
Collateralized Mortgage Obligations - Residential	17,637	251	4,390	15	22,027	266
Corporate & Other Debt Securities	---	---	317	12	317	12
Mutual Funds and Equity Securities	148	25	---	---	148	25
Total Securities Available-for-Sale	$18,042	$276	$4,707	$     27	$ 22,749	$  303

The table above for September 30, 2011 consists of 16 securities where the current fair value is less than the related amortized cost.  These unrealized losses do not reflect any deterioration of the credit worthiness of the issuing entities.  The municipal obligations are general obligations supported by the general taxing authority of the issuer, and in some cases are insured.  Obligations issued by school districts are supported by state aid.  For any non-rated municipal securities, credit analysis shows no widespread deterioration in the credit worthiness of the municipalities.  All of the CMO’s are agency backed and are all rated Aaa, as are the mortgage-backed securities.  Corporate and other debt securities consist of one private placement trust preferred, and one trust preferred pool.  The private placement trust preferred is rated Aaa by Standard & Poor’s; the trust preferred pool is rated investment grade, with the privately issued securities securing the note performing.  Subsequent to September 30, 2011, there were no securities downgraded below investment grade. 

The unrealized losses on these temporarily impaired securities are primarily the result of changes in interest rates for fixed rate securities where the interest rate received is less than the current rate available for new offerings of similar securities, changes in market spreads as a result of shifts in supply and demand, and/or changes in the level of prepayments for mortgage related securities.   Because we do not currently intend to sell any of our temporarily impaired securities, and because it is not more likely than not that we would be required to sell the securities prior to recovery, the impairment is considered temporary.

Temporarily Impaired Securities
December 31, 2010	Less than 12 Months		12 Months or Longer		Total
Available-for-Sale Portfolio:	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
U.S. Agency Securities	$  23,928	$    72	$  5,976	$  24	$  29,904	$    96
State & Municipal Obligations	11,632	11	2,432	4	14,064	15
Collateralized Mortgage Obligations –Residential	32,027	975	---	---	32,027	975
Mortgage-Backed Securities - Residential	69,461	1,957	12,129	285	81,590	2,242
Corporate & Other Debt Securities	283	48	949	51	1,232	99
Mutual Funds and Equity Securities	1,095	47	---	---	1,095	47
Total Securities Available-for-Sale	$138,426	$3,110	$21,486	$364	$159,912	$3,474
Held-to-Maturity Portfolio
State & Municipal Obligations	$6,449	$73	$4,552	$63	$11,001	$136

The table above for December 31, 2010 consists of 104 securities where the current fair value is less than the related amortized cost.  These unrealized losses do not reflect any deterioration of the credit worthiness of the issuing entities.  The municipal obligations are general obligations supported by the general taxing authority of the issuer, and in some cases are insured.  Obligations issued by school districts are supported by state aid.  For any non-rated municipal securities, third party credit analysis shows no deterioration in the credit worthiness of the municipalities.  Agency-backed CMOs are all rated Aaa, as are the mortgage-backed securities.    Corporate and other debt securities consist of one private placement trust preferred, and one trust preferred pool.  The private placement trust preferred is rated Aaa by Standard & Poor’s; the trust preferred pool is rated investment grade, with the privately issued securities securing the note performing.  Subsequent to December 31, 2010, there were no securities downgraded below investment grade. 

4.     Investments, Debt and Equity Securities, continued

Temporarily Impaired Securities
September 30, 2010	Less than 12 Months		12 Months or Longer		Total
Available-for-Sale Portfolio:	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
State & Municipal Obligations	$  7,499	$     3	$     ---	$    --	$  7,499	$    3
Collateralized Mortgage Obligations - Residential	14,314	67	---	---	14,314	67
Corporate & Other Debt Securities	---	---	1,274	107	1,274	107
Mutual Funds and Equity Securities	1,112	28	42	6	1,154	34
Total Securities Available-for-Sale	$22,925	$   98	$1,316	$113	$24,241	$211
Held-to-Maturity Portfolio
State & Municipal Obligations	$   ---	$---	$  690	$16	$  690	$ 16

The table above for September 30, 2010 consists of 18 securities where the current fair value is less than the related amortized cost.  These unrealized losses do not reflect any deterioration of the credit worthiness of the issuing entities.  The municipal obligations are general obligations supported by the general taxing authority of the issuer, and in some cases are insured.  Obligations issued by school districts are supported by state aid.  For any non-rated municipal securities, credit analysis shows no deterioration in the credit worthiness of the municipalities.  Agency-backed CMOs are all rated Aaa, as are the mortgage-backed securities.  Corporate and other debt securities consist of one private placement trust preferred, and one trust preferred pool.  The private placement trust preferred is rated Aaa by Standard & Poor’s; the trust preferred pool is rated investment grade, with the privately issued securities securing the note performing.  Subsequent to September 30, 2010, there were no securities downgraded below investment grade. 

Other-Than-Temporary Impairment

On a quarterly basis, Arrow performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. If impaired, Arrow then assesses whether the unrealized loss is other-than-temporary. An unrealized loss on a debt security is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss is recognized, net of tax, in other comprehensive income provided that Arrow does not intend to sell the underlying debt security and it is more-likely-than not that Arrow would not have to sell the debt security prior to recovery.