AROW Form 10-Q Jun 2013


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2013

or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-12507

ARROW FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

New York
 
22-2448962
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
250 GLEN STREET, GLENS FALLS, NEW YORK 12801
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code:   (518) 745-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes          No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes          No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer     
Accelerated filer   x 
Non-accelerated filer     
Smaller reporting company     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      x   No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding as of July 31, 2013
Common Stock, par value $1.00 per share
 
12,052,744
 







ARROW FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
 
 







# 2



PART I - Financial Information


ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
 
June 30, 2013
 
December 31, 2012
 
June 30, 2012
ASSETS
 
 
 
 
 
Cash and Due From Banks
$
32,706

 
$
37,076

 
$
31,391

Interest-Bearing Deposits at Banks
11,894

 
11,756

 
26,360

Investment Securities:
 
 
 
 
 
Available-for-Sale
501,574

 
478,698

 
431,010

Held-to-Maturity (Approximate Fair Value of $252,691 at June 30, 2013,
    $248,252 at December 31, 2012, and $261,574 at June 30, 2012)
248,914

 
239,803

 
252,902

Federal Home Loan Bank and Federal Reserve Bank Stock
6,136

 
5,792

 
4,479

Loans
1,204,734

 
1,172,341

 
1,146,641

Allowance for Loan Losses
(14,678
)
 
(15,298
)
 
(15,211
)
Net Loans
1,190,056

 
1,157,043

 
1,131,430

Premises and Equipment, Net
29,301

 
28,897

 
24,823

Other Real Estate and Repossessed Assets, Net
1,175

 
1,034

 
837

Goodwill
22,003

 
22,003

 
22,003

Other Intangible Assets, Net
4,384

 
4,492

 
4,608

Accrued Interest Receivable
5,708

 
5,486

 
5,712

Other Assets
29,318

 
30,716

 
31,421

Total Assets
$
2,083,169

 
$
2,022,796

 
$
1,966,976

LIABILITIES
 
 
 
 
 
Noninterest-Bearing Deposits
$
261,910

 
$
247,232

 
$
248,224

NOW Accounts
754,371

 
758,287

 
691,001

Savings Deposits
494,586

 
442,363

 
437,568

Time Deposits of $100,000 or More
87,369

 
93,375

 
108,277

Other Time Deposits
181,669

 
189,898

 
219,813

Total Deposits
1,779,905

 
1,731,155

 
1,704,883

Federal Funds Purchased and
  Securities Sold Under Agreements to Repurchase
14,738

 
12,678

 
16,097

Federal Home Loan Bank Overnight Advances
40,000

 
29,000

 

Federal Home Loan Bank Term Advances
30,000

 
30,000

 
30,000

Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts
20,000

 
20,000

 
20,000

Accrued Interest Payable
493

 
584

 
898

Other Liabilities
20,426

 
23,554

 
23,158

Total Liabilities
1,905,562

 
1,846,971

 
1,795,036

STOCKHOLDERS’ EQUITY
 
 
 
 
 
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized

 

 

Common Stock, $1 Par Value; 20,000,000 Shares Authorized (16,416,163
   Shares Issued at June 30, 2013 and December 31, 2012 and
   16,094,277 Shares Issued at June 30, 2012)
16,416

 
16,416

 
16,094

Additional Paid-in Capital
219,772

 
218,650

 
209,354

Retained Earnings
30,625

 
26,251

 
28,951

Unallocated ESOP Shares (95,172 Shares at June 30, 2013, 102,890
   Shares at December 31, 2012 and 105,211 Shares at June 30, 2012)
(1,900
)
 
(2,150
)
 
(2,250
)
Accumulated Other Comprehensive Loss
(11,739
)
 
(8,462
)
 
(6,289
)
Treasury Stock, at Cost (4,277,680 Shares at June 30, 2013, 4,288,617
    Shares at December 31, 2012, and 4,223,388 Shares at June 30, 2012)
(75,567
)
 
(74,880
)
 
(73,920
)
Total Stockholders’ Equity
177,607

 
175,825

 
171,940

Total Liabilities and Stockholders’ Equity
$
2,083,169

 
$
2,022,796

 
$
1,966,976

See Notes to Unaudited Interim Consolidated Financial Statements.

# 3



ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
INTEREST AND DIVIDEND INCOME
 
 
 
 
 
 
 
Interest and Fees on Loans
$
12,650

 
$
13,628

 
$
25,433

 
$
27,586

Interest on Deposits at Banks
19

 
36

 
46

 
57

Interest and Dividends on Investment Securities:
 
 
 
 
 
 
 
Fully Taxable
1,639

 
2,480

 
3,435

 
5,118

Exempt from Federal Taxes
1,501

 
1,389

 
2,891

 
2,710

Total Interest and Dividend Income
15,809

 
17,533

 
31,805

 
35,471

INTEREST EXPENSE
 
 
 
 
 
 
 
NOW Accounts
786

 
976

 
1,564

 
2,035

Savings Deposits
277

 
329

 
545

 
686

Time Deposits of $100,000 or More
305

 
569

 
624

 
1,177

Other Time Deposits
505

 
1,074

 
1,059

 
2,220

Federal Funds Purchased and
  Securities Sold Under Agreements to Repurchase
6

 
5

 
9

 
11

Federal Home Loan Bank Advances
199

 
172

 
372

 
369

Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts
145

 
154

 
289

 
313

Total Interest Expense
2,223

 
3,279

 
4,462

 
6,811

NET INTEREST INCOME
13,586

 
14,254

 
27,343

 
28,660

Provision for Loan Losses
100

 
240

 
200

 
520

NET INTEREST INCOME AFTER PROVISION FOR
   LOAN LOSSES
13,486

 
14,014

 
27,143

 
28,140

NONINTEREST INCOME
 
 
 
 
 
 
 
Income From Fiduciary Activities
1,758

 
1,601

 
3,332

 
3,223

Fees for Other Services to Customers
2,371

 
2,054

 
4,653

 
4,014

Insurance Commissions
2,176

 
2,107

 
4,204

 
3,996

Gain on Securities Transactions
13

 
143

 
540

 
645

Net Gain on Sales of Loans
498

 
537

 
1,105

 
894

Other Operating Income
255

 
366

 
411

 
595

Total Noninterest Income
7,071

 
6,808

 
14,245

 
13,367

NONINTEREST EXPENSE
 
 
 
 
 
 
 
Salaries and Employee Benefits
7,637

 
7,794

 
15,258

 
15,697

Occupancy Expenses, Net
2,119

 
1,970

 
4,395

 
3,994

FDIC Assessments
267

 
256

 
531

 
511

Other Operating Expense
3,251

 
2,631

 
6,501

 
5,595

Total Noninterest Expense
13,274

 
12,651

 
26,685

 
25,797

INCOME BEFORE PROVISION FOR INCOME TAXES
7,283

 
8,171

 
14,703

 
15,710

Provision for Income Taxes
2,076

 
2,577

 
4,315

 
4,828

NET INCOME
$
5,207


$
5,594


$
10,388


$
10,882

Average Shares Outstanding:
 
 
 
 
 
 
 
Basic
12,021

 
11,994

 
12,026

 
12,000

Diluted
12,038

 
12,009

 
12,044

 
12,019

Per Common Share:
 
 
 
 
 
 
 
Basic Earnings
$
0.43

 
$
0.47

 
$
0.86

 
$
0.91

Diluted Earnings
0.43

 
0.47

 
0.86

 
0.91


Share and Per Share Amounts have been restated for the September 2012 2% stock dividend.
See Notes to Unaudited Interim Consolidated Financial Statements.

# 4



ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net Income
$
5,207

 
$
5,594

 
$
10,388

 
$
10,882

Other Comprehensive Income (Loss), Net of Tax:
 
 
 
 
 
 
 
  Net Unrealized Securities Holding (Losses) Gains
     Arising During the Period
(3,643
)
 
445

 
(3,423
)
 
347

  Reclassification Adjustment for Securities Gains
     Included in Net Income
(8
)
 
(86
)
 
(326
)
 
(389
)
  Amortization of Net Retirement Plan Actuarial Loss
236

 
229

 
472

 
457

  Accretion of Net Retirement Plan Prior Service Credit

 
(5
)
 

 
(9
)
Other Comprehensive Income (Loss)
(3,415
)
 
583

 
(3,277
)
 
406

  Comprehensive Income
$
1,792

 
$
6,177

 
$
7,111

 
$
11,288

 
 
 
 
 
 
 
 

See Notes to Unaudited Interim Consolidated Financial Statements.


# 5



ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)

    

 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Unallo-cated ESOP
Shares
 
Accumu-lated
Other Com-
prehensive
Income
(Loss)
 
Treasury
Stock
 
Total
Balance at December 31, 2012
$
16,416

 
$
218,650

 
$
26,251

 
$
(2,150
)
 
$
(8,462
)
 
$
(74,880
)
 
$
175,825

Net Income

 

 
10,388

 

 

 

 
10,388

Other Comprehensive (Loss) Income

 

 

 

 
(3,277
)
 

 
(3,277
)
Cash Dividends Paid, $.50 per Share 1

 

 
(6,014
)
 

 

 

 
(6,014
)
Stock Options Exercised
  (23,685 Shares)

 
262

 

 

 

 
233

 
495

Shares Issued Under the Directors’ Stock
  Plan  (4,255 Shares)

 
64

 

 

 

 
42

 
106

Shares Issued Under the Employee Stock
  Purchase Plan  (10,402 Shares)

 
141

 

 

 

 
103

 
244

Shares Issued for Dividend
  Reinvestment Plans (17,323 Shares)

 
260

 

 

 

 
170

 
430

Stock-Based Compensation Expense

 
189

 

 

 

 

 
189

Tax Benefit for Disposition of Stock Options

 
9

 

 

 

 

 
9

Purchase of Treasury Stock
  (54,231 Shares)

 

 

 

 

 
(1,329
)
 
(1,329
)
Acquisition of Subsidiaries  (9,503 Shares)

 
139

 

 

 

 
94

 
233

Allocation of ESOP Stock  (7,718 Shares)

 
58

 

 
250

 

 

 
308

Balance at June 30, 2013
$
16,416

 
$
219,772

 
$
30,625

 
$
(1,900
)
 
$
(11,739
)
 
$
(75,567
)
 
$
177,607

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2011
$
16,094

 
$
207,600

 
$
23,947

 
$
(2,500
)
 
$
(6,695
)
 
$
(72,061
)
 
$
166,385

Net Income

 

 
10,882

 

 

 

 
10,882

Other Comprehensive (Loss) Income

 

 

 

 
406

 

 
406

Cash Dividends Paid, $.49 per Share 1

 

 
(5,878
)
 

 

 

 
(5,878
)
Stock Options Exercised
  (52,502 Shares)

 
627

 

 

 

 
522

 
1,149

Shares Issued Under the Directors’ Stock
  Plan  (3,667 Shares)

 
51

 

 

 

 
36

 
87

Shares Issued Under the Employee Stock
  Purchase Plan  (10,377 Shares)

 
139

 

 

 

 
103

 
242

Shares Issued for Dividend
  Reinvestment Plans (38,227 Shares)

 
549

 

 

 

 
380

 
929

Stock-Based Compensation Expense

 
207

 

 

 

 

 
207

Tax Benefit for Disposition of Stock Options

 
53

 

 

 

 

 
53

Purchase of Treasury Stock
 (120,117 Shares)

 

 

 

 

 
(2,954
)
 
(2,954
)
Acquisition of Subsidiaries  (5,426 Shares)

 
79

 

 

 

 
54

 
133

Allocation of ESOP Stock  (12,291 Shares)

 
49

 

 
250

 

 

 
299

Balance at June 30, 2012
$
16,094

 
$
209,354

 
$
28,951

 
$
(2,250
)
 
$
(6,289
)
 
$
(73,920
)
 
$
171,940


1 Cash dividends paid per share have been adjusted for the September 2012 2% stock dividend.

See Notes to Unaudited Interim Consolidated Financial Statements.

# 6



ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
Six Months Ended June 30,
Cash Flows from Operating Activities:
2013
 
2012
Net Income
$
10,388

 
$
10,882

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 
 
 
Provision for Loan Losses
200

 
520

Depreciation and Amortization
4,785

 
4,363

Allocation of ESOP Stock
308

 
299

Gains on the Sale of Securities Available-for-Sale
(527
)
 
(645
)
Gains on the Sale of Securities Held-to-Maturity
(18
)
 

Losses on the Sale of Securities Held-to-Maturity
5

 

Loans Originated and Held-for-Sale
(32,465
)
 
(27,593
)
Proceeds from the Sale of Loans Held-for-Sale
35,868

 
27,680

Net Gains on the Sale of Loans
(1,105
)
 
(894
)
Net Losses (Gains) on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets
106

 
(38
)
Contributions to Pension Plans
(221
)
 
(160
)
Deferred Income Tax Benefit
(93
)
 
(311
)
Shares Issued Under the Directors’ Stock Plan
106

 
87

Stock-Based Compensation Expense
189

 
207

Net Decrease in Other Assets
3,760

 
1,564

Net (Decrease) Increase in Other Liabilities
(2,690
)
 
775

Net Cash Provided By Operating Activities
18,596

 
16,736

Cash Flows from Investing Activities:
 
 
 
Proceeds from the Sale of Securities Available-for-Sale
16,273

 
16,385

Proceeds from the Maturities and Calls of Securities Available-for-Sale
60,679

 
125,354

Purchases of Securities Available-for-Sale
(107,772
)
 
(18,041
)
Proceeds from the Sale of Securities Held-to-Maturity
1,181

 

Proceeds from the Maturities and Calls of Securities Held-to-Maturity
17,905

 
22,454

Purchases of Securities Held-to-Maturity
(29,112
)
 
(125,207
)
Net Increase in Loans
(36,195
)
 
(15,544
)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets
440

 
583

Purchase of Premises and Equipment
(1,453
)
 
(3,055
)
Cash Paid for Subsidiaries, Net
(75
)
 
(75
)
Net (Increase) Decrease in Other Investments
(344
)
 
2,243

Net Cash (Used In) Provided By Investing Activities
(78,473
)
 
5,097

Cash Flows from Financing Activities:
 
 
 
Net Increase in Deposits
48,750

 
60,837

Net Decrease (Increase) Decrease in Short-Term Borrowings
13,060

 
(52,196
)
Repayments of Federal Home Loan Bank Term Advances

 
(10,000
)
Purchase of Treasury Stock
(1,329
)
 
(2,954
)
Stock Options Exercised
495

 
1,149

Shares Issued Under the Employee Stock Purchase Plan
244

 
242

Tax Benefit from Exercise of Stock Options
9

 
53

Shares Issued for Dividend Reinvestment Plans
430

 
929

Cash Dividends Paid
(6,014
)
 
(5,878
)
Net Cash Provided By (Used In) Financing Activities
55,645

 
(7,818
)
Net (Decrease) Increase in Cash and Cash Equivalents
(4,232
)
 
14,015

Cash and Cash Equivalents at Beginning of Period
48,832

 
43,736

Cash and Cash Equivalents at End of Period
$
44,600

 
$
57,751

 
 
 
 
Supplemental Disclosures to Statements of Cash Flow Information:
 
 
 
Interest on Deposits and Borrowings
$
4,552

 
$
7,059

Income Taxes
4,011

 
3,316

Non-cash Investing and Financing Activity:
 
 
 
Transfer of Loans to Other Real Estate Owned and Repossessed Assets
684

 
855

 Acquisition of Subsidiaries
233

 
133


See Notes to Unaudited Interim Consolidated Financial Statements.

# 7



NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.     ACCOUNTING POLICIES

In the opinion of the management of Arrow Financial Corporation (Arrow), the accompanying unaudited consolidated interim financial statements contain all of the adjustments necessary to present fairly the financial position as of June 30, 2013, December 31, 2012 and June 30, 2012; the results of operations for the three and six-month periods ended June 30, 2013 and 2012; the consolidated statements of comprehensive income for the three and six-month periods ended June 30, 2013 and 2012; the changes in stockholders' equity for the six-month periods ended June 30, 2013 and 2012; and the cash flows for the six-month periods ended June 30, 2013 and 2012. All such adjustments are of a normal recurring nature. The preparation of financial statements requires the use of management estimates. The unaudited consolidated interim financial statements should be read in conjunction with the audited annual consolidated financial statements of Arrow for the year ended December 31, 2012, included in Arrow's 2012 Form 10-K.

New Accounting Standards Updates (ASU): During 2013, through the date of this report, the FASB issued nine accounting standards updates. Eight did not apply to Arrow. ASU 2013-02 "Comprehensive Income" requires additional disclosures relating to reclassifications out of accumulated other comprehensive income. Since the ASU was effective for this Form 10-Q, the new disclosures are included in the Consolidating Statements of Income and Note 5 - Comprehensive Income.


Note 2.    INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at June 30, 2013, December 31, 2012 and June 30, 2012:
Available-For-Sale Securities
 
 
U.S. Agency
Obligations
 
State and
Municipal
Obligations
 
Mortgage-
Backed
Securities -
Residential
 
Corporate
and Other
Debt
Securities
 
Mutual Funds
and Equity
Securities
 
Total
Available-
For-Sale
Securities
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Available-For-Sale Securities,
  at Amortized Cost
 
$
151,199

 
$
131,154

 
$
197,775

 
$
17,219

 
$
1,120

 
$
498,467

Available-For-Sale Securities,
  at Fair Value
 
150,046

 
130,444

 
203,230

 
16,711

 
1,143

 
501,574

Gross Unrealized Gains
 

 
135

 
5,586

 

 
23

 
5,744

Gross Unrealized Losses
 
1,153

 
845

 
131

 
508

 

 
2,637

Available-For-Sale Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
 
 
 
 
270,243

 
 
 
 
 
 
 
 
 
 
 
 
 
Maturities of Debt Securities,
  at Amortized Cost:
 
 
 
 
 
 
 
 
 
 
 
 
Within One Year
 

 
47,464

 
19,226

 

 
 
 
66,690

From 1 - 5 Years
 
151,199

 
80,191

 
168,347

 
16,219

 
 
 
415,956

From 5 - 10 Years
 

 
2,819

 
10,202

 

 
 
 
13,021

Over 10 Years
 

 
680

 

 
1,000

 
 
 
1,680

 
 
 
 
 
 
 
 
 
 
 
 
 
Maturities of Debt Securities,
  at Fair Value:
 
 
 
 
 
 
 
 
 
 
 
 
Within One Year
 

 
47,501

 
19,969

 

 
 
 
67,470

From 1 - 5 Years
 
150,046

 
79,434

 
172,421

 
15,911

 
 
 
417,812

From 5 - 10 Years
 

 
2,829

 
10,840

 

 
 
 
13,669

Over 10 Years
 

 
680

 

 
800

 
 
 
1,480

 
 
 
 
 
 
 
 
 
 
 
 
 
Securities in a Continuous
  Loss Position, at Fair Value:
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
150,048

 
$
80,443

 
$
6,750

 
$
15,910

 
$

 
$
253,151

12 Months or Longer
 

 
4,228

 

 
800

 

 
5,028

Total
 
$
150,048

 
$
84,671

 
$
6,750

 
$
16,710

 
$

 
$
258,179

Number of Securities in a
  Continuous Loss Position
 
47

 
347

 
3

 
22

 

 
419

 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
1,153

 
$
826

 
$
131

 
$
308

 
$

 
$
2,418


# 8



Available-For-Sale Securities
 
 
U.S. Agency
Obligations
 
State and
Municipal
Obligations
 
Mortgage-
Backed
Securities -
Residential
 
Corporate
and Other
Debt
Securities
 
Mutual Funds
and Equity
Securities
 
Total
Available-
For-Sale
Securities
12 Months or Longer
 

 
19

 

 
200

 

 
219

Total
 
$
1,153

 
$
845

 
$
131

 
$
508

 
$

 
$
2,637

December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Available-For-Sale Securities,
  at Amortized Cost
 
$
122,297

 
$
84,798

 
$
252,480

 
$
8,689

 
$
1,120

 
$
469,384

Available-For-Sale Securities,
  at Fair Value
 
122,457

 
84,838

 
261,804

 
8,451

 
1,148

 
478,698

Gross Unrealized Gains
 
204

 
206

 
9,405

 

 
28

 
9,843

Gross Unrealized Losses
 
44

 
166

 
81

 
238

 

 
529

Available-For-Sale Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
 
 
 
 
260,292

 
 
 
 
 
 
 
 
 
 
 
 
 
Securities in a Continuous
  Loss Position, at Fair Value:
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
72,531

 
$
46,627

 
$
10,230

 
$
8,451

 
$

 
$
137,839

12 Months or Longer
 

 
2,149

 
4,968

 

 

 
7,117

Total
 
$
72,531

 
$
48,776

 
$
15,198

 
$
8,451

 
$

 
$
144,956

Number of Securities in a
  Continuous Loss Position
 
22

 
198

 
7

 
11

 

 
238

 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
44

 
$
160

 
$
50

 
$
238

 
$

 
$
492

12 Months or Longer
 

 
6

 
31

 

 

 
37

Total
 
$
44

 
$
166

 
$
81

 
$
238

 
$

 
$
529

 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Available-For-Sale Securities,
  at Amortized Cost
 
$
48,300

 
$
54,746

 
$
314,394

 
$
1,001

 
$
1,364

 
$
419,805

Available-For-Sale Securities,
  at Fair Value
 
48,655

 
55,013

 
325,076

 
801

 
1,465

 
431,010

Gross Unrealized Gains
 
355

 
284

 
10,863

 

 
107

 
11,609

Gross Unrealized Losses
 

 
17

 
181

 
200

 
6

 
404

Available-For-Sale Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
 
 
 
 
184,631

 
 
 
 
 
 
 
 
 
 
 
 
 
Securities in a Continuous
  Loss Position, at Fair Value:
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
$

 
$
8,637

 
$
23,477

 
$
800

 
$

 
$
32,914

12 Months or Longer
 

 

 

 

 
39

 
39

Total
 
$

 
$
8,637

 
$
23,477

 
$
800

 
$
39

 
$
32,953

Number of Securities in a
  Continuous Loss Position
 

 
29

 
9

 
1

 
1

 
40

 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
$

 
$
17

 
$
181

 
$
200

 
$

 
$
398

12 Months or Longer
 

 

 

 

 
6

 
6

Total
 
$

 
$
17

 
$
181

 
$
200

 
$
6

 
$
404





# 9



The following table is the schedule of Held-To-Maturity Securities at June 30, 2013, December 31, 2012 and June 30, 2012:
Held-To-Maturity Securities
 
 
State and
Municipal
Obligations
 
Mortgage-
Backed
Securities -
Residential
 
Corporate
and Other
Debt
Securities
 
Total
Held-To
Maturity
Securities
June 30, 2013
 
 
 
 
 
 
 
 
Held-To-Maturity Securities,
  at Amortized Cost
 
$
200,182

 
$
47,732

 
$
1,000

 
$
248,914

Held-To-Maturity Securities,
  at Fair Value
 
204,153

 
47,538

 
1,000

 
252,691

Gross Unrealized Gains
 
4,833

 
8

 

 
4,841

Gross Unrealized Losses
 
862

 
202

 

 
1,064

Held-To-Maturity Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
247,914

 
 
 
 
 
 
 
 
 
Maturities of Debt Securities,
  at Amortized Cost:
 
 
 
 
 
 
 
 
Within One Year
 
53,463

 

 

 
53,463

From 1 - 5 Years
 
75,659

 
47,732

 

 
123,391

From 5 - 10 Years
 
67,248

 

 

 
67,248

Over 10 Years
 
3,812

 

 
1,000

 
4,812

 
 
 
 
 
 
 
 
 
Maturities of Debt Securities,
  at Fair Value:
 
 
 
 
 
 
 
 
Within One Year
 
53,490

 

 

 
53,490

From 1 - 5 Years
 
76,624

 
47,538

 

 
124,162

From 5 - 10 Years
 
70,091

 

 

 
70,091

Over 10 Years
 
3,948

 

 
1,000

 
4,948

 
 
 
 
 
 
 
 
 
Securities in a Continuous
  Loss Position, at Fair Value:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
39,598

 
$
42,813

 
$

 
$
82,411

12 Months or Longer
 
13,204

 

 

 
13,204

Total
 
$
52,802

 
$
42,813

 
$

 
$
95,615

Number of Securities in a
  Continuous Loss Position
 
172

 
27

 

 
199

 
 
 
 
 
 
 
 
 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
712

 
$
203

 
$

 
$
915

12 Months or Longer
 
149

 

 

 
149

Total
 
$
861

 
$
203

 
$

 
$
1,064

 
 
 
 
 
 
 
 
 

# 10



Held-To-Maturity Securities
 
 
State and
Municipal
Obligations
 
Mortgage-
Backed
Securities -
Residential
 
Corporate
and Other
Debt
Securities
 
Total
Held-To
Maturity
Securities
December 31, 2012
 
 
 
 
 
 
 
 
Held-To-Maturity Securities,
  at Amortized Cost
 
$
183,373

 
$
55,430

 
$
1,000

 
$
239,803

Held-To-Maturity Securities,
  at Fair Value
 
191,196

 
56,056

 
1,000

 
248,252

Gross Unrealized Gains
 
7,886

 
626

 

 
8,512

Gross Unrealized Losses
 
63

 

 

 
63

Held-To-Maturity Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
238,803

 
 
 
 
 
 
 
 
 
Securities in a Continuous
  Loss Position, at Fair Value:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
21,583

 
$

 
$

 
$
21,583

12 Months or Longer
 
503

 

 

 
503

Total
 
$
22,086

 
$

 
$

 
$
22,086

Number of Securities in a
  Continuous Loss Position
 
61

 

 

 
61

 
 
 
 
 
 
 
 
 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
62

 
$

 
$

 
$
62

12 Months or Longer
 
1

 

 

 
1

Total
 
$
63

 
$

 
$

 
$
63

 
 
 
 
 
 
 
 

June 30, 2012
 
 
 
 
 
 
 
 
Held-To-Maturity Securities,
  at Amortized Cost
 
$
183,277

 
$
68,625

 
$
1,000

 
$
252,902

Held-To-Maturity Securities,
  at Fair Value
 
191,297

 
69,277

 
1,000

 
261,574

Gross Unrealized Gains
 
8,055

 
652

 

 
8,707

Gross Unrealized Losses
 
35

 

 

 
35

Held-To-Maturity Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
251,902

 
 
 
 
 
 
 
 
 
Securities in a Continuous
  Loss Position, at Fair Value:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
14,908

 
$

 
$

 
$
14,908

12 Months or Longer
 

 

 

 

Total
 
$
14,908

 
$

 
$

 
$
14,908

Number of Securities in a
  Continuous Loss Position
 
34

 

 

 
34

 
 
 
 
 
 
 
 
 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
35

 
$

 
$

 
$
35

12 Months or Longer
 

 

 

 

Total
 
$
35

 
$

 
$

 
$
35

 
 
 
 
 
 
 
 


In the tables above, maturities of mortgage-backed-securities - residential are included 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.


# 11



In the available-for-sale category at June 30, 2013, U.S. agency obligations consisted solely of U.S. Government Agency securities with an amortized cost of $151.2 million and a fair value of $150.0 million. Mortgage-backed securities-residential consisted of U.S. Government Agency securities with an amortized cost of $34.1 million and a fair value of $35.1 million and GSE securities with an amortized cost of $163.7 million and a fair value of $168.1 million. In the held-to-maturity category at June 30, 2013, mortgage-backed securities-residential consisted of GSEs with an amortized cost of $47.7 million and a fair value of $47.5 million.
    
In the available-for-sale category at June 30, 2012, U.S. agency obligations consisted solely of U.S. Government Agency securities with an amortized cost of $48.3 million and a fair value of $48.7 million. Mortgage-backed securities-residential consisted of US Government Agency securities with an amortized cost of $42.5 million and a fair value of $44.0 million and GSEs with an amortized cost of $271.9 million and a fair value of $281.1 million. In the held-to-maturity category at June 30, 2012, mortgage-backed securities-residential consisted of GSEs with an amortized cost of $68.6 million and a fair value of $69.3 million.

Securities in a continuous loss position, in the tables above for June 30, 2013, December 31, 2012 and June 30, 2012 do not reflect any deterioration of the credit worthiness of the issuing entities.  U.S. Agency issues, including agency-backed collateralized mortgage obligations and mortgage-backed securities, are all rated at least Aaa by Moody's or AA+ by Standard and Poor's.  The state and 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 is performed in-house based upon data that has been submitted by the issuers to the NY State Comptroller. That analysis shows no deterioration in the credit worthiness of the municipalities.  Subsequent to June 30, 2013, 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.


Note 3.    LOANS (In Thousands)

Loan Categories and Past Due Loans

The following table presents loan balances outstanding as of June 30, 2013, December 31, 2012 and June 30, 2012 and an analysis of the recorded investment in loans that are past due at these dates.  Generally, Arrow considers a loan past due 30 or more days if the borrower is two or more payments past due.   Loans held-for-sale of $503, $2,801 and $1,699 as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively, are included in the residential real estate loan balances.


# 12



Past Due Loans
 
 
 
Commercial
 
Commercial
 
Other
 
 
 
 
 
 
 
Commercial
 
Construction
 
Real Estate
 
Consumer
 
Automobile
 
Residential
 
Total
June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Past Due 30-59 Days
$
765

 
$

 
$
262

 
$
16

 
$
2,346

 
$
1,161

 
$
4,550

Loans Past Due 60-89 Days
655

 

 
997

 
15

 
527

 
1,196

 
3,390

Loans Past Due 90 or more Days
220

 

 
1,875

 
4

 
114

 
1,402

 
3,615

Total Loans Past Due
1,640

 

 
3,134

 
35

 
2,987

 
3,759

 
11,555

Current Loans
85,909

 
30,980

 
256,665

 
7,421

 
372,073

 
440,131

 
1,193,179

Total Loans
$
87,549

 
$
30,980

 
$
259,799

 
$
7,456

 
$
375,060

 
$
443,890

 
$
1,204,734

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans 90 or More Days Past Due
  and Still Accruing Interest
$
154

 
$

 
$

 
$

 
$

 
$
606

 
$
760

Nonaccrual Loans
$
299

 
$

 
$
1,941

 
$
7

 
$
264

 
$
3,080

 
$
5,591

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Past Due 30-59 Days
$
1,045

 
$

 
$
534

 
$
43

 
$
2,427

 
$
407

 
$
4,456

Loans Past Due 60-89 Days
1,588

 

 
1,332

 
17

 
793

 
2,466

 
6,196

Loans Past Due 90 or more Days
494

 

 
1,871

 

 
185

 
1,462

 
4,012

Total Loans Past Due
3,127

 

 
3,737

 
60

 
3,405

 
4,335

 
14,664

Current Loans
102,409

 
29,149

 
241,440

 
6,624

 
345,695

 
432,360

 
1,157,677

Total Loans
$
105,536

 
$
29,149

 
$
245,177

 
$
6,684

 
$
349,100

 
$
436,695

 
$
1,172,341

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans 90 or More Days Past Due
  and Still Accruing Interest
$
126

 
$

 
$
378

 
$

 
$
42

 
$
374

 
$
920

Nonaccrual Loans
$
1,787

 
$

 
$
2,026

 
$
1

 
$
419

 
$
2,400

 
$
6,633

 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans Past Due 30-59 Days
$
441

 
$

 
$
371

 
$
13

 
$
2,225