Document


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 September 30, 2016

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 Web site, 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 the definitions 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 October 31, 2016
Common Stock, par value $1.00 per share
 
13,467,310

 







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)
 
September 30, 2016
 
December 31, 2015
 
September 30, 2015
ASSETS
 
 
 
 
 
Cash and Due From Banks
$
66,556

 
$
34,816

 
$
43,870

Interest-Bearing Deposits at Banks
35,503

 
16,252

 
25,821

Investment Securities:
 
 
 
 
 
Available-for-Sale
339,190

 
402,309

 
397,559

Held-to-Maturity (Approximate Fair Value of $347,441 at September 30, 2016; $325,930 at December 31, 2015; and $324,009 at September 30, 2015)

338,238

 
320,611

 
317,480

Federal Home Loan Bank and Federal Reserve Bank Stock
5,371

 
8,839

 
5,143

Loans
1,707,216

 
1,573,952

 
1,536,925

Allowance for Loan Losses
(16,975
)
 
(16,038
)
 
(15,774
)
Net Loans
1,690,241

 
1,557,914

 
1,521,151

Premises and Equipment, Net
26,718

 
27,440

 
28,186

Goodwill
21,873

 
21,873

 
22,003

Other Intangible Assets, Net
2,802

 
3,107

 
3,263

Other Assets
53,993

 
53,027

 
55,075

Total Assets
$
2,580,485

 
$
2,446,188

 
$
2,419,551

LIABILITIES
 
 
 
 
 
Noninterest-Bearing Deposits
$
381,760

 
$
358,751

 
$
347,963

NOW Accounts
993,221

 
887,317

 
971,252

Savings Deposits
629,201

 
594,538

 
568,022

Time Deposits of $100,000 or More
79,222

 
59,792

 
60,978

Other Time Deposits
129,783

 
130,025

 
133,836

Total Deposits
2,213,187

 
2,030,423

 
2,082,051

Federal Funds Purchased and
  Securities Sold Under Agreements to Repurchase
38,589

 
23,173

 
24,414

Federal Home Loan Bank Overnight Advances

 
82,000

 

Federal Home Loan Bank Term Advances
55,000

 
55,000

 
55,000

Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts
20,000

 
20,000

 
20,000

Other Liabilities
24,501

 
21,621

 
26,944

Total Liabilities
2,351,277

 
2,232,217

 
2,208,409

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

 

 

Common Stock, $1 Par Value; 20,000,000 Shares Authorized (17,943,201 Shares Issued at September 30, 2016; 17,420,776 at December 31, 2015 and 17,420,776 at September 30, 2015)
17,943

 
17,421

 
17,421

Additional Paid-in Capital
269,680

 
250,680

 
249,931

Retained Earnings
25,400

 
32,139

 
28,791

Unallocated ESOP Shares (38,396 Shares at September 30, 2016; 55,275 Shares at December 31, 2015; and 55,185 Shares at September 30, 2015)
(750
)
 
(1,100
)
 
(1,100
)
Accumulated Other Comprehensive Loss
(5,442
)
 
(7,972
)
 
(6,520
)
Treasury Stock, at Cost (4,479,257 Shares at September 30, 2016; 4,426,072 Shares at December 31, 2015; and 4,460,654 Shares at September 30, 2015)
(77,623
)
 
(77,197
)
 
(77,381
)
Total Stockholders’ Equity
229,208

 
213,971

 
211,142

Total Liabilities and Stockholders’ Equity
$
2,580,485

 
$
2,446,188

 
$
2,419,551

    
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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
INTEREST AND DIVIDEND INCOME
 
 
 
 
 
 
 
Interest and Fees on Loans
$
15,833

 
$
14,364

 
$
46,565

 
$
41,953

Interest on Deposits at Banks
34

 
13

 
100

 
60

Interest and Dividends on Investment Securities:
 
 
 
 
 
 
 
Fully Taxable
1,889

 
1,979

 
5,994

 
5,936

Exempt from Federal Taxes
1,526

 
1,475

 
4,486

 
4,279

Total Interest and Dividend Income
19,282

 
17,831

 
57,145

 
52,228

INTEREST EXPENSE
 
 
 
 
 
 
 
NOW Accounts
320

 
292

 
941

 
960

Savings Deposits
231

 
189

 
677

 
538

Time Deposits of $100,000 or More
128

 
89

 
313

 
267

Other Time Deposits
164

 
179

 
497

 
566

Federal Funds Purchased and
  Securities Sold Under Agreements to Repurchase
9

 
5

 
24

 
15

Federal Home Loan Bank Advances
390

 
353

 
1,013

 
804

Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts
163

 
146

 
487

 
432

Total Interest Expense
1,405

 
1,253

 
3,952

 
3,582

NET INTEREST INCOME
17,877

 
16,578

 
53,193

 
48,646

Provision for Loan Losses
480

 
537

 
1,550

 
882

NET INTEREST INCOME AFTER PROVISION FOR
   LOAN LOSSES
17,397

 
16,041

 
51,643

 
47,764

NONINTEREST INCOME
 
 
 
 
 
 
 
Income From Fiduciary Activities
1,923

 
1,923

 
5,854

 
5,907

Fees for Other Services to Customers
2,491

 
2,331

 
7,144

 
6,904

Insurance Commissions
2,127

 
2,343

 
6,468

 
6,849

Net Gain on Securities Transactions

 

 
144

 
106

Net Gain on Sales of Loans
310

 
236

 
649

 
488

Other Operating Income
263

 
304

 
925

 
1,183

Total Noninterest Income
7,114

 
7,137

 
21,184

 
21,437

NONINTEREST EXPENSE
 
 
 
 
 
 
 
Salaries and Employee Benefits
8,693

 
8,699

 
25,223

 
24,577

Occupancy Expenses, Net
2,425

 
2,275

 
7,223

 
7,106

FDIC Assessments
217

 
297

 
844

 
873

Other Operating Expense
3,747

 
3,579

 
11,047

 
10,632

Total Noninterest Expense
15,082

 
14,850

 
44,337

 
43,188

INCOME BEFORE PROVISION FOR INCOME TAXES
9,429

 
8,328

 
28,490

 
26,013

Provision for Income Taxes
2,691

 
2,395

 
8,556

 
7,920

NET INCOME
$
6,738


$
5,933


$
19,934


$
18,093

Average Shares Outstanding:
 
 
 
 
 
 

Basic
13,407

 
13,275

 
13,374

 
13,273

Diluted
13,497

 
13,317

 
13,439

 
13,314

Per Common Share:
 
 
 
 
 
 
 
Basic Earnings
$
0.50

 
$
0.45

 
$
1.49

 
$
1.36

Diluted Earnings
0.50

 
0.45

 
1.48

 
1.36


Share and Per Share Amounts have been restated for the September 29, 2016 3% 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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net Income
$
6,738

 
$
5,933

 
$
19,934

 
$
18,093

Other Comprehensive Income, Net of Tax:
 
 
 
 
 
 
 
  Net Unrealized Securities Holding (Losses) Gains
     Arising During the Period
(810
)
 
543

 
2,309

 
384

Reclassification Adjustments for Securities Gains Included in Net Income
          

 

 
(88
)
 
(65
)
  Amortization of Net Retirement Plan Actuarial Loss
111

 
117

 
314

 
352

  Accretion of Net Retirement Plan Prior
     Service Credit
(1
)
 
(9
)
 
(5
)
 
(25
)
Other Comprehensive Income Gain (Loss)
(700
)
 
651

 
2,530

 
646

  Comprehensive Income
$
6,038

 
$
6,584

 
$
22,464

 
$
18,739

 
 
 
 
 
 
 
 

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
Loss
 
Treasury
Stock
 
Total
Balance at December 31, 2015
$
17,421

 
$
250,680

 
$
32,139

 
$
(1,100
)
 
$
(7,972
)
 
$
(77,197
)
 
$
213,971

Net Income

 

 
19,934

 

 

 

 
19,934

Other Comprehensive Income

 

 

 

 
2,530

 

 
2,530

3% Stock Dividend (522,425 Shares)
522

 
16,415

 
(16,937
)
 

 

 

 

Cash Dividends Paid, $.728 per Share

 

 
(9,736
)
 

 

 

 
(9,736
)
Stock Options Exercised, Net  (80,449 Shares)

 
980

 

 

 

 
795

 
1,775

Shares Issued Under the Directors’ Stock
  Plan  (3,522 Shares)

 
76

 

 

 

 
36

 
112

Shares Issued Under the Employee Stock
  Purchase Plan  (13,041 Shares)

 
229

 

 

 

 
129

 
358

Shares Issued for Dividend
  Reinvestment Plans (44,448 Shares)

 
862

 

 

 

 
440

 
1,302

Stock-Based Compensation Expense

 
215

 

 

 

 

 
215

Tax Benefit from Exercise of Stock Options

 
63

 

 

 

 

 
63

Purchase of Treasury Stock
  (64,146 Shares)

 

 

 

 

 
(1,826
)
 
(1,826
)
Allocation of ESOP Stock  (17,997 Shares)

 
160

 

 
350

 

 

 
510

Balance at September 30, 2016
$
17,943

 
$
269,680

 
$
25,400

 
$
(750
)
 
$
(5,442
)
 
$
(77,623
)
 
$
229,208

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
17,079

 
$
239,721

 
$
29,458

 
$
(1,450
)
 
$
(7,166
)
 
$
(76,716
)
 
$
200,926

Net Income

 

 
18,093

 

 

 

 
18,093

Other Comprehensive Income

 

 

 

 
646

 

 
646

2% Stock Dividend (341,400 Shares)
342

 
8,939

 
(9,281
)
 

 

 

 

Cash Dividends Paid, $.714 per Share 1

 

 
(9,479
)
 

 

 

 
(9,479
)
Stock Options Exercised, Net  (24,554 Shares)

 
289

 

 

 

 
242

 
531

Shares Issued Under the Directors’ Stock
  Plan  (4,579 Shares)

 
73

 

 

 

 
45

 
118

Shares Issued Under the Employee Stock
  Purchase Plan  (13,990 Shares)

 
222

 

 

 

 
137

 
359

Shares Issued for Dividend
  Reinvestment Plans (16,112 Shares)

 
281

 

 

 

 
158

 
439

Stock-Based Compensation Expense

 
233

 

 

 

 

 
233

Tax Benefit for Disposition of Stock Options

 
31

 

 

 

 

 
31

Purchase of Treasury Stock
 (46,403 Shares)

 

 

 

 

 
(1,247
)
 
(1,247
)
Allocation of ESOP Stock  (17,645 Shares)

 
142

 

 
350

 

 

 
492

Balance at September 30, 2015
$
17,421

 
$
249,931

 
$
28,791

 
$
(1,100
)
 
$
(6,520
)
 
$
(77,381
)
 
$
211,142


1 Cash dividends paid per share have been adjusted for the September 29, 2016 3.0% 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)
 
Nine Months Ended September 30,
Cash Flows from Operating Activities:
2016
 
2015
Net Income
$
19,934

 
$
18,093

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 
 
 
Provision for Loan Losses
1,550

 
882

Depreciation and Amortization
4,605

 
4,844

Allocation of ESOP Stock
510

 
492

Gains on the Sale of Securities Available-for-Sale
(144
)
 
(106
)
Loans Originated and Held-for-Sale
(20,025
)
 
(15,733
)
Proceeds from the Sale of Loans Held-for-Sale
19,557

 
15,615

Net Gains on the Sale of Loans
(649
)
 
(488
)
Net Losses on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets
120

 
136

Contributions to Retirement Benefit Plans
(534
)
 
(574
)
Deferred Income Tax (Benefit) Expense
(464
)
 
1,242

Shares Issued Under the Directors’ Stock Plan
112

 
118

Stock-Based Compensation Expense
215

 
233

Net Increase in Other Assets
(3,045
)
 
(9,134
)
Net Increase in Other Liabilities
3,427

 
4,393

Net Cash Provided By Operating Activities
25,169

 
20,013

Cash Flows from Investing Activities:
 
 
 
Proceeds from the Sale of Securities Available-for-Sale
10,568

 
21,449

Proceeds from the Maturities and Calls of Securities Available-for-Sale
65,965

 
70,971

Purchases of Securities Available-for-Sale
(10,920
)
 
(124,906
)
Proceeds from the Maturities and Calls of Securities Held-to-Maturity
42,295

 
38,403

Purchases of Securities Held-to-Maturity
(60,786
)
 
(54,796
)
Net Increase in Loans
(133,616
)
 
(125,942
)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets
1,743

 
997

Purchase of Premises and Equipment
(1,083
)
 
(1,231
)
Proceeds from the Sale of a Subsidiary, Net
72

 

Net Decrease (Increase) in Other Investments
3,468

 
(292
)
Net Cash Used By Investing Activities
(82,294
)
 
(175,347
)
Cash Flows from Financing Activities:
 
 
 
Net Increase in Deposits
182,764

 
179,103

Net Decrease in Short-Term Borrowings
(66,584
)
 
(36,007
)
Federal Home Loan Bank Advances

 
45,000

Purchase of Treasury Stock
(1,826
)
 
(1,247
)
Stock Options Exercised, Net
1,775

 
531

Shares Issued Under the Employee Stock Purchase Plan
358

 
359

Tax Benefit from Exercise of Stock Options
63

 
31

Shares Issued for Dividend Reinvestment Plans
1,302

 
439

Cash Dividends Paid
(9,736
)
 
(9,479
)
Net Cash Provided By Financing Activities
108,116

 
178,730

Net Increase in Cash and Cash Equivalents
50,991

 
23,396

Cash and Cash Equivalents at Beginning of Period
51,068

 
46,295

Cash and Cash Equivalents at End of Period
$
102,059

 
$
69,691

 
 
 
 
Supplemental Disclosures to Statements of Cash Flow Information:
 
 
 
Interest on Deposits and Borrowings
$
3,932

 
$
3,548

Income Taxes
9,761

 
8,257

Non-cash Investing and Financing Activity:
 
 
 
Transfer of Loans to Other Real Estate Owned and Repossessed Assets
856

 
2,213


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 September 30, 2016, December 31, 2015 and September 30, 2015; the results of operations for the three-month period ended September 30, 2016; the consolidated statements of comprehensive income for the three- and nine-month periods ended September 30, 2016; the changes in stockholders' equity for the nine-month periods ended September 30, 2016 and 2015; and the cash flows for the nine-month periods ended September 30, 2016 and 2015. All such adjustments are of a normal recurring nature. Certain prior period amounts have been reclassified to conform to the current presentation. 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, 2015, included in Arrow's 2015 Form 10-K.

New Accounting Standards Updates (ASU): During 2016, through the date of this report, the FASB issued 15 accounting standards updates. Some of the standards listed below did not have an immediate impact on Arrow, but could in the future.
ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" will significantly change the income statement impact of equity investments. For Arrow, the standard is effective for the first quarter of 2018, and will require that equity investments be measured at fair value, with changes in fair value measured in net income. As of September 30, 2016 , we hold a $1.1 million cost basis in a small portfolio of equity investments and we do not expect that the adoption of this change in accounting for equity investments will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.
ASU 2016-02 "Leases" will require the recognition of operating leases. For Arrow, the standard becomes effective in the first quarter of 2019. We do not expect that the adoption of this change in accounting for operating leases will have a material impact on our financial position or the results of operations in periods subsequent to its adoption. As of September 30, 2016, we have less than $3.0 million in operating leases.
ASU 2016-09 "Compensation - Stock Compensation" simplifies certain aspects of accounting for share-based payment transactions, including the tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For Arrow, the standard becomes effective in the first quarter of 2017. We do not expect that the adoption of this change in accounting for stock-based compensation will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.
ASU 2016-13 "Financial Instruments - Credit Losses" will change the way we and other financial entities recognize losses on assets measured at amortized costs and change the method for recognizing credit losses on securities available-for-sale. Currently, loan losses are recognized using an "incurred loss" methodology. Under ASU 2016-13, the methodology will change to a current expected loss over the life of the loan. Currently, credit losses on available-for-sale securities reduce the carrying value of the instrument and cannot be reversed. Under ASU 2016-13, the amount of the credit loss is carried as a valuation allowance and can be reversed. For Arrow, the standard is effective for the first quarter of 2020 and early adoption is allowed in 2019. The Company is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements. The initial adjustment will not be reported in earnings, but as the cumulative effect of a change in accounting principle.
ASU 2016-15 "Statement of Cash Flows" provides guidance on the classification of eight specific cash flow issues in order to increase consistency in reporting. Currently, GAAP is either unclear or does not include specific guidance on the cash flow issues addressed in this Update. Arrow currently reports the specifically identified cash flow transactions using the appropriate classification as outlined in the Update. For Arrow, the standard becomes effective in the first quarter of 2017. We do not expect that the adoption of this change in classification for financial reporting will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.

    


# 8




Note 2.    INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at September 30, 2016, December 31, 2015 and September 30, 2015:
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
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Available-For-Sale Securities,
  at Amortized Cost
 
$
152,511

 
$
31,562

 
$
144,598

 
$
4,500

 
$
1,120

 
$
334,291

Available-For-Sale Securities,
  at Fair Value
 
153,926

 
31,628

 
148,087

 
4,299

 
1,250

 
339,190

Gross Unrealized Gains
 
1,415

 
69

 
3,489

 

 
130

 
5,103

Gross Unrealized Losses
 

 
3

 

 
201

 

 
204

Available-For-Sale Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
 
 
 
 
277,832

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

 
$
19,303

 
$
10,214

 
$
2,000

 
$

 
$
31,517

From 1 - 5 Years
 
152,511

 
11,191

 
129,956

 
1,500

 

 
295,158

From 5 - 10 Years
 

 
508

 
4,370

 

 

 
4,878

Over 10 Years
 

 
560

 
58

 
1,000

 

 
1,618

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

 
$
19,304

 
$
10,294

 
$
1,999

 
$

 
$
31,597

From 1 - 5 Years
 
153,926

 
11,256

 
132,916

 
1,500

 

 
299,598

From 5 - 10 Years
 

 
508

 
4,814

 

 

 
5,322

Over 10 Years
 

 
560

 
63

 
800

 

 
1,423

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

 
$
9,237

 
$

 
$
1,022

 
$

 
$
10,259

12 Months or Longer
 

 

 

 
1,800

 

 
1,800

Total
 
$

 
$
9,237

 
$

 
$
2,822

 
$

 
$
12,059

Number of Securities in a
  Continuous Loss Position
 

 
1

 
2

 
3

 

 
6

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

 
$
3

 
$

 
$
1

 
$

 
$
4

12 Months or Longer
 

 

 

 
200

 

 
200

Total
 
$

 
$
3

 
$

 
$
201

 
$

 
$
204

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Available-For-Sale Securities,
  at Amortized Cost
 
$
155,932

 
$
52,306

 
$
177,376

 
$
14,544

 
$
1,120

 
$
401,278

Available-For-Sale Securities,
  at Fair Value
 
155,782

 
52,408

 
178,588

 
14,299

 
1,232

 
402,309

Gross Unrealized Gains
 
264

 
105

 
2,236

 

 
112

 
2,717

Gross Unrealized Losses
 
414

 
3

 
1,024

 
245

 

 
1,686

Available-For-Sale Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
 
 
 
 
310,857

 
 
 
 
 
 
 
 
 
 
 
 
 

# 9



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
Securities in a Continuous
  Loss Position, at Fair Value:
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
76,802

 
$
4,289

 
$
99,569

 
$
3,616

 
$

 
$
184,276

12 Months or Longer
 

 
1,443

 
903

 
10,671

 

 
13,017

Total
 
$
76,802

 
$
5,732

 
$
100,472

 
$
14,287

 
$

 
$
197,293

Number of Securities in a
  Continuous Loss Position
 
21

 
19

 
30

 
19

 

 
89

 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
413

 
$
2

 
$
1,023

 
$
2

 
$

 
$
1,440

12 Months or Longer
 
1

 
1

 
1

 
243

 

 
246

Total
 
$
414

 
$
3

 
$
1,024

 
$
245

 
$

 
$
1,686

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Available-For-Sale Securities,
  at Amortized Cost
 
$
161,253

 
$
55,263

 
$
158,351

 
$
16,871

 
$
1,120

 
$
392,858

Available-For-Sale Securities,
  at Fair Value
 
162,518

 
55,486

 
161,637

 
16,672

 
1,246

 
397,559

Gross Unrealized Gains
 
1,269

 
223

 
3,292

 
12

 
125

 
4,921

Gross Unrealized Losses
 
4

 

 
6

 
211

 

 
221

Available-For-Sale Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
 
 
 
 
348,115

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

 
$

 
$

 
$

 
$

 
$

12 Months or Longer
 
12,996

 
406

 
4,775

 
7,162

 

 
25,339

Total
 
$
12,996

 
$
406

 
$
4,775

 
$
7,162

 
$

 
$
25,339

Number of Securities in a
  Continuous Loss Position
 
3

 
1

 
1

 
11

 

 
16

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

 
$

 
$

 
$

 
$

 
$

12 Months or Longer
 
4

 

 
6

 
211

 

 
221

Total
 
$
4

 
$

 
$
6

 
$
211

 
$

 
$
221


The following table is the schedule of Held-To-Maturity Securities at September 30, 2016, December 31, 2015 and September 30, 2015:
Held-To-Maturity Securities
 
 
State and
Municipal
Obligations
 
Mortgage-
Backed
Securities -
Residential
 
Corporate
and Other
Debt
Securities
 
Total
Held-To
Maturity
Securities
September 30, 2016
 
 
 
 
 
 
 
 
Held-To-Maturity Securities,
  at Amortized Cost
 
$
257,255

 
$
79,983

 
$
1,000

 
$
338,238

Held-To-Maturity Securities,
  at Fair Value
 
263,897

 
82,544

 
1,000

 
347,441

Gross Unrealized Gains
 
6,712

 
2,561

 

 
9,273

Gross Unrealized Losses
 
70

 

 

 
70

Held-To-Maturity Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
320,774

 
 
 
 
 
 
 
 
 

# 10



Held-To-Maturity Securities
 
 
State and
Municipal
Obligations
 
Mortgage-
Backed
Securities -
Residential
 
Corporate
and Other
Debt
Securities
 
Total
Held-To
Maturity
Securities
Maturities of Debt Securities,
  at Amortized Cost:
 
 
 
 
 
 
 
 
Within One Year
 
$
35,911

 
$

 
$

 
$
35,911

From 1 - 5 Years
 
87,464

 
72,422

 

 
159,886

From 5 - 10 Years
 
129,891

 
7,561

 

 
137,452

Over 10 Years
 
3,989

 

 
1,000

 
4,989

 
 
 
 
 
 
 
 
 
Maturities of Debt Securities,
  at Fair Value:
 
 
 
 
 
 
 
 
Within One Year
 
$
35,966

 
$

 
$

 
$
35,966

From 1 - 5 Years
 
89,979

 
74,680

 

 
164,659

From 5 - 10 Years
 
133,817

 
7,864

 

 
141,681

Over 10 Years
 
4,135

 

 
1,000

 
5,135

 
 
 
 
 
 
 
 
 
Securities in a Continuous
  Loss Position, at Fair Value:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
11,891

 
$

 
$

 
$
11,891

12 Months or Longer
 
1,172

 

 

 
1,172

Total
 
$
13,063

 
$

 
$

 
$
13,063

 
 
 
 
 
 
 
 
 
Number of Securities in a
  Continuous Loss Position
 
3

 

 

 
3

 
 
 
 
 
 
 
 
 
Unrealized Losses on Securities
   in a Continuous Loss Position:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
68

 
$

 
$

 
$
68

12 Months or Longer
 
2

 

 

 
2

Total
 
$
70

 
$

 
$

 
$
70

 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
Held-To-Maturity Securities,
  at Amortized Cost
 
$
226,053

 
$
93,558

 
$
1,000

 
$
320,611

Held-To-Maturity Securities,
  at Fair Value
 
230,621

 
94,309

 
1,000

 
325,930

Gross Unrealized Gains
 
4,619

 
868

 

 
5,487

Gross Unrealized Losses
 
51

 
117

 

 
168

Held-To-Maturity Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
299,767

 
 
 
 
 
 
 
 
 
Securities in a Continuous
  Loss Position, at Fair Value:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
2,302

 
$
6,000

 
$

 
$
8,302

12 Months or Longer
 
11,764

 
4,154

 

 
15,918

Total
 
$
14,066

 
$
10,154

 
$

 
$
24,220

Number of Securities in a
  Continuous Loss Position
 
54

 
8

 

 
62

 
 
 
 
 
 
 
 
 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
 
 
 
 
 
 
 
 
Less than 12 Months
 
$
11

 
$
93

 
$

 
$
104

12 Months or Longer
 
40

 
24

 

 
64

Total
 
$
51

 
$
117

 
$

 
$
168

 
 
 
 
 
 
 
 


# 11



Held-To-Maturity Securities
 
 
State and
Municipal
Obligations
 
Mortgage-
Backed
Securities -
Residential
 
Corporate
and Other
Debt
Securities
 
Total
Held-To
Maturity
Securities
September 30, 2015
 
 
 
 
 
 
 
 
Held-To-Maturity Securities,
  at Amortized Cost
 
$
218,502

 
$
97,978

 
$
1,000

 
$
317,480

Held-To-Maturity Securities,
  at Fair Value
 
223,050

 
99,959

 
1,000

 
324,009

Gross Unrealized Gains
 
4,633

 
1,981

 

 
6,614

Gross Unrealized Losses
 
85

 

 

 
85

Held-To-Maturity Securities,
  Pledged as Collateral
 
 
 
 
 
 
 
296,921

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

 
$

 
$

 
$

12 Months or Longer
 
14,896

 

 

 
14,896

Total
 
$
14,896

 
$

 
$

 
$
14,896

Number of Securities in a
  Continuous Loss Position
 
51

 

 

 
51

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

 
$

 
$

 
$

12 Months or Longer
 
85

 

 

 
85

Total
 
$
85

 
$

 
$

 
$
85

 
 
 
 
 
 
 
 

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 above because issuers may have the right to call or prepay obligations with, or without, prepayment penalties.
In the available-for-sale category at September 30, 2016, U.S. agency obligations consisted solely of U.S. Government Agency securities with an amortized cost of $152.5 million and a fair value of $153.9 million. Mortgage-backed securities - residential consisted of U.S. Government Agency securities with an amortized cost of $10.8 million and a fair value of $11.0 million and government sponsored entity (GSE) securities with an amortized cost of $133.7 million and a fair value of $137.1 million. In the held-to-maturity category at September 30, 2016, mortgage-backed securities-residential consisted of U.S Government Agency securities with an amortized cost of $3.5 million and a fair value of $3.6 million and GSE securities with an amortized cost of $76.5 million and a fair value of $78.9 million.
In the available-for-sale category at December 31, 2015, U.S. agency obligations consisted solely of U.S. Government Agency securities with an amortized cost of $155.9 million and a fair value of $155.8 million. Mortgage-backed securities - residential consisted of U.S. Government Agency securities with an amortized cost of $15.7 million and a fair value of $15.8 million and GSE securities with an amortized cost of $161.7 million and a fair value of $162.7 million. In the held-to-maturity category at December 31, 2015, mortgage-backed securities-residential consisted of U.S. Government Agency securities with an amortized cost of $3.8 million and a fair value of $3.9 million and GSE securities with an amortized cost of $89.8 million and a fair value of $90.5 million.
In the available-for-sale category at September 30, 2015, U.S. agency obligations consisted solely of U.S. Government Agency securities with an amortized cost of $161.3 million and a fair value of $162.5 million. Mortgage-backed securities - residential consisted of US Government Agency securities with an amortized cost of $27.5 million and a fair value of $28.1 million and GSE securities with an amortized cost of $130.8 million and a fair value of $133.5 million. In the held-to-maturity category at September 30, 2015, mortgage-backed securities-residential consisted of U.S. Government Agency securities with an amortized cost of $27.8 million and a fair value of $28.4 million and GSE securities with an amortized cost of $70.2 million and a fair value of $71.5 million.
Securities in a continuous loss position, in the tables above for September 30, 2016, December 31, 2015 and September 30, 2015, 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 reflects satisfactory credit worthiness of the municipalities.  Corporate and other debt securities continue to be rated above investment grade according to Moody's and Standard and Poor's. Subsequent to September 30, 2016, and through the date of filing this report, 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.


# 12



Note 3.    LOANS (In Thousands)

Loan Categories and Past Due Loans

The following table presents loan balances outstanding as of September 30, 2016, December 31, 2015 and September 30, 2015 and an analysis of the recorded investment in loans that are past due at these dates.  Generally, Arrow considers an amortizing loan past due 30 or more days when the borrower is two payments past due. Loans held-for-sale of $1,414, $298 and $1,004 as of September 30, 2016, December 31, 2015 and September 30, 2015, respectively, are included in the residential real estate balances for current loans.
 
 
 
 
Commercial
 
 
 
 
 
 
 
Commercial
 
Real Estate
 
Consumer
 
Residential
 
Total
September 30, 2016
 
 
 
 
 
 
 
 
 
Loans Past Due 30-59 Days
$
38

 
$

 
$
3,793

 
$
271

 
$
4,102

Loans Past Due 60-89 Days
67

 

 
1,412

 
1,450

 
2,929

Loans Past Due 90 or more Days
160

 
1,106

 
343

 
1,467

 
3,076

Total Loans Past Due
265

 
1,106

 
5,548

 
3,188

 
10,107

Current Loans
102,789

 
427,905

 
518,155

 
648,260

 
1,697,109

Total Loans
$
103,054

 
$
429,011

 
$
523,703

 
$
651,448

 
$
1,707,216

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

 
$

 
$

 
$
548

 
$
548

Nonaccrual Loans
160

 
3,689

 
532

 
1,726

 
6,107

 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
Loans Past Due 30-59 Days
$
98

 
$

 
$
4,598

 
$
955

 
$
5,651

Loans Past Due 60-89 Days
186

 

 
1,647

 
1,370

 
3,203

Loans Past Due 90 or more Days
203

 
1,469

 
295

 
2,184

 
4,151

Total Loans Past Due
487

 
1,469

 
6,540

 
4,509

 
13,005

Current Loans
102,100

 
383,470

 
457,983

 
617,394

 
1,560,947

Total Loans
$
102,587

 
$
384,939

 
$
464,523

 
$
621,903

 
$
1,573,952

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

 
$

 
$

 
$
187

 
$
187

Nonaccrual Loans
387

 
2,401

 
450

 
3,195

 
6,433

 
 
 
 
 
 
 
 
 
 
September 30, 2015
 
 
 
 
 
 
 
 
 
Loans Past Due 30-59 Days
$
47

 
$

 
$
4,258

 
$
427

 
$
4,732

Loans Past Due 60-89 Days
68

 

 
1,234

 
658

 
1,960

Loans Past Due 90 or more Days
371

 
1,817

 
350

 
2,909

 
5,447

Total Loans Past Due
486

 
1,817

 
5,842

 
3,994

 
12,139

Current Loans
102,403

 
371,855

 
453,078

 
597,450

 
1,524,786

Total Loans
$
102,889

 
$
373,672

 
$
458,920

 
$
601,444

 
$
1,536,925

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

 
$

 
$
1

 
$
962

 
$
963

Nonaccrual Loans
466

 
2,752

 
439

 
4,134

 
7,791

    

The Company disaggregates its loan portfolio into the following four categories:

Commercial - The Company offers a variety of loan options to meet the specific needs of our commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment or other assets owned by the borrower. These loans carry a higher risk than commercial real estate loans due to the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable and generally have a lower liquidation value than real estate. In the event of default by the borrower, the Company may be required to liquidate collateral at deeply discounted values. To reduce the risk, management usually obtains personal guarantees of the borrowers.


# 13



Commercial Real Estate - The Company offers commercial real estate loans to finance real est