Arrow Financial Earnings 2019-03-31

AROW 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 arowform10-qmarch2019.htm 10-Q 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 March 31, 2019

[ ] 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. x Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). x 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
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. __

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

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, Par Value $1.00 per share	AROW	NASDAQ Global Select Market

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 April 30, 2019
Common Stock, par value $1.00 per share		14,484,215

ARROW FINANCIAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS

# 2

PART I - FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts) (Unaudited)

	March 31, 2019			December 31, 2018			March 31, 2018
ASSETS
Cash and Due From Banks	$	36,198		$	56,529		$	29,525
Interest-Bearing Deposits at Banks	25,031			27,710			70,747
Investment Securities:
Available-for-Sale	298,812			317,535			305,589
Held-to-Maturity (Approximate Fair Value of $280,414 at March 31, 2019; $280,338 at December 31, 2018; and $324,937 at March 31, 2018)	279,400			283,476			330,124
Equity Securities	1,850			1,774			1,579
Other Investments	7,878			15,506			4,780
Loans	2,235,208			2,196,215			1,993,037
Allowance for Loan Losses	(20,373		)	(20,196		)	(19,057		)
Net Loans	2,214,835			2,176,019			1,973,980
Premises and Equipment, Net	34,949			30,446			27,815
Goodwill	21,873			21,873			21,873
Other Intangible Assets, Net	1,777			1,852			2,172
Other Assets	62,280			55,614			58,503
Total Assets	$	2,984,883		$	2,988,334		$	2,826,687
LIABILITIES
Noninterest-Bearing Deposits	$	453,089		$	472,768		$	452,347
Interest-Bearing Checking Accounts	823,301			790,781			944,161
Savings Deposits	866,861			818,048			762,220
Time Deposits over $250,000	83,834			73,583			85,403
Other Time Deposits	263,012			190,404			167,142
Total Deposits	2,490,097			2,345,584			2,411,273
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	58,407			54,659			74,957
Federal Home Loan Bank Overnight Advances	74,500			234,000			—
Federal Home Loan Bank Term Advances	35,000			45,000			45,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000			20,000			20,000
Finance Leases	2,946			—			—
Other Liabilities	27,324			19,507			22,723
Total Liabilities	2,708,274			2,718,750			2,573,953
STOCKHOLDERS’ EQUITY
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized	—			—			—
Common Stock, $1 Par Value; 20,000,000 Shares Authorized (19,035,565 Shares Issued at March 31, 2019; 19,035,565 at December 31, 2018 and 18,481,301 at March 31, 2018)	19,035			19,035			18,481
Additional Paid-in Capital	315,262			314,533			290,980
Retained Earnings	34,231			29,257			34,093
Unallocated ESOP Shares (5,001 Shares at March 31, 2019; 5,001 Shares at December 31, 2018 and 9,643 Shares at March 31, 2018)	(100		)	(100		)	(200		)
Accumulated Other Comprehensive Loss	(11,567		)	(13,810		)	(11,285		)
Treasury Stock, at Cost (4,556,083 Shares at March 31, 2019; 4,558,207 Shares at December 31, 2018 and 4,516,444 Shares at March 31, 2018)	(80,252		)	(79,331		)	(79,335		)
Total Stockholders’ Equity	276,609			269,584			252,734
Total Liabilities and Stockholders’ Equity	$	2,984,883		$	2,988,334		$	2,826,687

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 March 31,
	2019		2018
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans	$	22,403	$	18,858
Interest on Deposits at Banks	195		134
Interest and Dividends on Investment Securities:
Fully Taxable	2,369		1,893
Exempt from Federal Taxes	1,246		1,533
Total Interest and Dividend Income	26,213		22,418
INTEREST EXPENSE
Interest-Bearing Checking Accounts	482		387
Savings Deposits	1,601		522
Time Deposits over $250,000	396		204
Other Time Deposits	713		259
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	22		16
Federal Home Loan Bank Advances	1,594		414
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	269		214
Interest on Financing Leases	15		—
Total Interest Expense	5,092		2,016
NET INTEREST INCOME	21,121		20,402
Provision for Loan Losses	472		746
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	20,649		19,656
NONINTEREST INCOME
Income From Fiduciary Activities	2,107		2,197
Fees for Other Services to Customers	2,402		2,380
Insurance Commissions	1,719		1,903
Net Gain on Securities Transactions	76		18
Net Gain on Sales of Loans	104		38
Other Operating Income	479		353
Total Noninterest Income	6,887		6,889
NONINTEREST EXPENSE
Salaries and Employee Benefits	9,319		9,369
Occupancy Expenses, Net	1,420		1,340
Technology and Equipment Expense	3,141		2,698
FDIC Assessments	212		217
Other Operating Expense	2,560		2,332
Total Noninterest Expense	16,652		15,956
INCOME BEFORE PROVISION FOR INCOME TAXES	10,884		10,589
Provision for Income Taxes	2,150		2,058
NET INCOME	$	8,734	$	8,531
Average Shares Outstanding ¹:
Basic	14,469		14,354
Diluted	14,520		14,436
Per Common Share:
Basic Earnings	$	0.60	$	0.59
Diluted Earnings	0.60		0.59

¹2018 Share and Per Share Amounts have been restated for the September 27, 2018 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 March 31,
	2019		2018
Net Income	$	8,734	$	8,531
Other Comprehensive Income (Loss), Net of Tax:
Net Unrealized Securities Holding Gains (Losses) Arising During the Period	2,080		(2,485		)
Amortization of Net Retirement Plan Actuarial Loss	121		46
Amortization (Accretion) of Net Retirement Plan Prior Service Cost (Credit)	42		(1		)
Other Comprehensive Income (Loss)	2,243		(2,440		)
Comprehensive Income	$	10,977	$	6,091

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, 2018	$	19,035	$	314,533	$	29,257		$	(100	)	$	(13,810	)	$	(79,331	)	$	269,584
Net Income	—		—		8,734			—			—			—			8,734
Other Comprehensive Income	—		—		—			—			2,243			—			2,243
Cash Dividends Paid, $.26 per Share	—		—		(3,760		)	—			—			—			(3,760		)
Stock Options Exercised, Net (26,135 Shares)	—		249		—			—			—			286			535
Shares Issued Under the Employee Stock Purchase Plan (3,709 Shares)	—		76		—			—			—			41			117
Shares Issued for Dividend Reinvestment Plans (13,132 Shares)	—		309		—			—			—			144			453
Stock-Based Compensation Expense	—		95		—			—			—			—			95
Purchase of Treasury Stock (40,852 Shares)	—		—		—			—			—			(1,392		)	(1,392		)
Balance at March 31, 2019	$	19,035	$	315,262	$	34,231		$	(100	)	$	(11,567	)	$	(80,252	)	$	276,609

Balance at December 31, 2017	18,481		290,219		28,818			(200		)	$	(8,514	)	$	(79,201	)	$	249,603
Net Income	—		—		8,531			—			—			—			8,531
Other Comprehensive Loss	—		—		—			—			(2,440		)	—			(2,440		)
Impact of the Adoption of ASU 2014-09					(102		)										(102		)
Impact of the Adoption of ASU2016-01					331						(331		)				—
Cash Dividends Paid, $.243 per Share ¹	—		—		(3,485		)	—			—			—			(3,485		)
Stock Options Exercised, Net (27,662 Shares)	—		307		—			—			—			303			610
Shares Issued Under the Employee Stock Purchase Plan (3,674 Shares)	—		76		—			—			—			40			116
Shares Issued for Dividend Reinvestment Plans (12,459 Shares)	—		289		—			—			—			142			431
Stock-Based Compensation Expense	—		89		—			—			—			—			89
Purchase of Treasury Stock (18,715 Shares)	—		—		—			—			—			(619		)	(619		)
Balance at March 31, 2018	$	18,481	$	290,980	$	34,093		$	(200	)	$	(11,285	)	$	(79,335	)	$	252,734

¹ Cash dividends paid per share have been adjusted for the September 27, 2018 3% stock dividend.

See Notes to Unaudited Interim Consolidated Financial Statements.

# 6

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)



	Three Months Ended March 31,
Cash Flows from Operating Activities:	2019			2018
Net Income	$	8,734		$	8,531
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses	472			746
Depreciation and Amortization	1,309			1,199
Net Gain on Securities Transactions	(76		)	(18		)
Loans Originated and Held-for-Sale	(4,223		)	(12,326		)
Proceeds from the Sale of Loans Held-for-Sale	3,718			12,520
Net Gain on the Sale of Loans	(104		)	(38		)
Net Loss on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	130			32
Contributions to Retirement Benefit Plans	(153		)	(134		)
Deferred Income Tax Benefit	(297		)	(220		)
Stock-Based Compensation Expense	95			89
Tax Benefit from Exercise of Stock Options	78			112
Net Increase in Other Assets	(1,565		)	(395		)
Net Increase in Other Liabilities	2,613			2,185
Net Cash Provided By Operating Activities	10,731			12,283
Cash Flows from Investing Activities:
Proceeds from the Maturities and Calls of Securities Available-for-Sale	21,261			9,380
Purchases of Securities Available-for-Sale	—			(19,979		)
Proceeds from the Maturities and Calls of Securities Held-to-Maturity	5,319			6,459
Purchases of Securities Held-to-Maturity	(1,457		)	(921		)
Net Increase in Loans	(39,545		)	(42,968		)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	442			437
Purchase of Premises and Equipment	(2,099		)	(627		)
Net Decrease in Other Investments	7,628			5,169
Net Cash Used By Investing Activities	(8,451		)	(43,050		)
Cash Flows from Financing Activities:
Net Increase in Deposits	144,513			166,157
Net Decrease in Short-Term Federal Home Loan Bank Borrowings	(159,500		)	(105,000		)
Net Increase in Short-Term Borrowings	3,748			9,991
Finance Lease Payments	(4		)	—
Repayments of Federal Home Loan Bank Term Advances	(10,000		)	(10,000		)
Purchase of Treasury Stock	(1,392		)	(619		)
Stock Options Exercised, Net	535			610
Shares Issued Under the Employee Stock Purchase Plan	117			116
Shares Issued for Dividend Reinvestment Plans	453			431
Cash Dividends Paid	(3,760		)	(3,485		)
Net Cash (Used) Provided By Financing Activities	(25,290		)	58,201
Net (Decrease) Increase in Cash and Cash Equivalents	(23,010		)	27,434
Cash and Cash Equivalents at Beginning of Period	84,239			72,838
Cash and Cash Equivalents at End of Period	$	61,229		$	100,272

Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings	$	4,924		$	1,949
Income Taxes	311			390
Non-cash Investing and Financing Activity:
Transfer of Loans to Other Real Estate Owned and Repossessed Assets	728			270

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 Company, we, or us), the accompanying unaudited interim consolidated financial statements contain all of the adjustments necessary to present fairly the financial position as of March 31, 2019, December 31, 2018 and March 31, 2018; the results of operations for the three-month periods ended March 31, 2019 and 2018; the consolidated statements of comprehensive income for the three-month periods ended March 31, 2019 and 2018; the changes in stockholders' equity for the three-month periods ended March 31, 2019 and 2018; and the cash flows for the three-month periods ended March 31, 2019 and 2018. All such adjustments are of a normal recurring nature.

Management’s Use of Estimates -The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Our most significant estimate is the allowance for loan losses. Other estimates include the evaluation of other-than-temporary impairment of investment securities, goodwill impairment, pension and other postretirement liabilities and an analysis of a need for a valuation allowance for deferred tax assets. Actual results could differ from those estimates.

A material estimate that is particularly susceptible to significant change in the near term is the allowance for loan losses. In connection with the determination of the allowance for loan losses, management obtains appraisals for properties. The allowance for loan losses is management’s best estimate of probable loan losses incurred as of the balance sheet date. While management uses available information to recognize losses on loans, future adjustments to the allowance for loan losses may be necessary based on changes in economic conditions.

The unaudited interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements of Arrow for the year ended December 31, 2018 included in Arrow's Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Adopted and Recently Issued Accounting Standards

The following accounting standards have been adopted in the first three months of 2019:

In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-08 "Receivables-Nonrefundable Fees and Other Costs" which amends the amortization period for certain purchased callable debt securities held at a premium. This shortens the amortization period for the premium to the earliest call date. Under United States generally accepted accounting principles (GAAP), entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. For Arrow, the standard was effective in the first quarter of 2019 and did not have a material impact on its financial position or the results of operations in the current quarter or in future periods.

In February 2016, the FASB issued ASU 2016-02, "Leases" (Topic 842) which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842): "Land Easement Practical Expedient for Transition to Topic 842". In July 2018, the FASB issued ASU 2018-10 "Codification Improvements to Topic 842, Leases" which provided clarification on certain components of the original guidance, including that the rate implicit in the lease cannot be less than zero. Also in July 2018, the FASB issued ASU 2018-11 "Targeted Improvements" to Leases (Topic 842) which amends the original guidance to allow for the adoption of this standard to be applied retrospectively at the beginning of the period of adoption, which was January 1, 2019 for Arrow, without revising prior comparative periods.

The Company adopted this standard as of January 1, 2019 using the effective date method, also known as the modified retrospective method, with the cumulative-effect adjustment recorded at the beginning of the period of adoption. As a result of this adoption, the Company's assets increased $7.9 million and the Company's liabilities increased $8.0 million with no adjustment required to retained earnings and no material impact to the Consolidated Statements of Income.

Practical Expedients Elected At Adoption: The package of practical expedients were elected that did not require the Company to reassess whether an existing contract contains a lease, to reassess existing leases between operating leases and finance leases and to not reassess initial direct costs for any existing leases. These practical expedients were applied together. In addition, the Company also elected a practical expedient, which was required to be applied consistently to all of its leases, to use hindsight in determining the lease term when considering lessee options to extend or terminate the lease and in assessing impairment in the right-of-use asset.

Accounting Policy Elections: The Company also made two accounting policy elections related to the adoption of this standard. The first is a determination not to separate lease and non-lease components and account for the resulting combined component as a single lease component. The second election is to account for short-term leases, those leases with a "lease term" of twelve months or less, like an operating lease under current GAAP.

Determination of the Discount Rate to Calculate the Lease Liability: Since the Company was unable to determine the rate implicit in its leases, the secured borrowing rate from the Federal Home Loan Bank of New York as of the January 1, 2019 adoption date was utilized for existing leases for the effective lease term beginning with the effective date of each existing lease. The expected expiration date of each lease was determined on a lease-by-lease basis based on the availability of renewal options in the lease contracts, the amount of leasehold improvements at each location, total branch deposits at each location in addition to the feasibility of growth potential at each location. A similar process is followed to determine the expected lease expiration date for all leases executed subsequent to the January 1, 2019 adoption date.

# 8

The following accounting standards have been issued and will become effective for the Company at a future date:

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses" (Topic 326) which will change the way financial entities measure expected credit losses for financial assets, primarily loans. Under this ASU, the "incurred loss" model will be replaced with an "expected loss" model which will recognize losses over the life of the instrument and requires consideration of a broader range of reasonable and supportable information. Currently, credit losses on available-for-sale securities reduce the carrying value of the instrument and cannot be reversed. Under this ASU, the amount of the credit loss is carried as a valuation allowance and can be reversed. The standard also requires expanded credit quality disclosures. For Arrow, the standard is effective for the first quarter of 2020 and early adoption is allowed in 2019. The Company plans on adopting the standard in the first quarter of 2020, in order to maximize the accumulation of data needed to calculate the new current expected credit loss (CECL) methodologies. The ASU describes several acceptable methodologies for calculating expected losses on a loan or a pool of loans and requires additional disclosures. The initial adjustment will not be reported in earnings, but as the cumulative effect of a change in accounting principle. The FASB’s Transition Research Group for credit losses still has several outstanding unresolved questions, some of which may have a significant impact on CECL calculations. The Company has continued its implementation efforts with the development and testing of various methods within its core model, and has tentatively identified the discounted cash flow method for determining losses for the commercial loan portfolios and the residential real estate portfolios, and the vintage method for the consumer indirect loan portfolio. Based on further testing, these methods may change prior to adoption. As a result of analyses performed, including the availability of future economic data, the Company plans to utilize a two-year reasonable and supportable forecast period and is in the process of identifying which economic data best correlates with expected loan losses. The Company continues to monitor new regulatory guidance and is updating relevant internal controls and processes. The adoption of this standard will likely have the effect of increasing the allowance for loan and lease losses and reducing shareholders' equity, the extent of which will depend upon the nature and characteristics of the Company's loan portfolio and economic conditions and forecasts at the adoption date. The Company expects to remain a well-capitalized financial institution under current regulatory calculations.

In August 2018, the FASB issued ASU 2018-13 "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" which as part of its disclosure framework, the FASB has eliminated, amended and added disclosure requirements for fair value measurements. The following disclosure requirements were eliminated: Amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy of the timing of transfers between levels of the fair value hierarchy; the valuation processes for Level 3 fair value measurements. For public companies such as Arrow, the following new disclosures will be required: Changes in unrealized gains and losses for the period included in other comprehensive income (OCI); the range and weighted average of significant unobservable inputs used; alternatively, a company may choose to disclose other quantitative information if it determines that it is a more reasonable and rational method that reflects the distribution of unobservable inputs used. For Arrow, the standard becomes effective in the first quarter of 2020. The Company does not expect that the adoption of this change in fair value disclosure will have a material impact on its financial position or the results of operations in periods subsequent to its adoption.

In August 2018, the FASB issued ASU 2018-14 "Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans" which applies to all companies that provide defined benefit pension or other postretirement benefit plans for their employees. Certain disclosure requirements have been eliminated such as reporting the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next year, and reporting the effects of a one-percentage-point change in the assumed healthcare cost trend rate on the aggregate of the service cost and interest cost components of net periodic benefit cost and on the benefit obligation for postretirement healthcare benefits. New required disclosures for reporting the weighted-average interest rate used to credit cash balance and similar plans that have a promised interest credit, the reasons for significant gains and losses affecting benefit obligations and other requirements for reporting aggregate information related to pension plans. For Arrow, the standard becomes effective at December 31, 2020. The Company does not expect that the adoption of this change affecting defined benefit plan disclosures will have a material impact on its financial position or the results of operations.

In August 2018, the FASB issued ASU 2018-15 "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" which will require companies to defer potentially significant, specified implementation costs incurred in a cloud computing arrangement that are often expensed under current US GAAP. For Arrow, the standard becomes effective at January 1, 2020. The Company is in the process of assessing the impact of this new accounting standard on its financial position and the results of operations in periods subsequent to its adoption.

# 9

Note 2. INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at March 31, 2019, December 31, 2018 and March 31, 2018:



Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities		Corporate and Other Debt Securities		Total Available- For-Sale Securities
March 31, 2019
Available-For-Sale Securities, at Amortized Cost	$	35,519	$	1,114	$	263,347	$	1,000	$	300,980
Available-For-Sale Securities, at Fair Value	35,383		1,116		261,513		800		298,812
Gross Unrealized Gains	—		2		657		—		659
Gross Unrealized Losses	136		—		2,491		200		2,827
Available-For-Sale Securities, Pledged as Collateral									255,028

Maturities of Debt Securities, at Amortized Cost:
Within One Year	$	30,516	$	201	$	494	$	—	$	31,211
From 1 - 5 Years	5,003		433		125,267		—		130,703
From 5 - 10 Years	—		—		117,616		—		117,616
Over 10 Years	—		480		19,970		1,000		21,450

Maturities of Debt Securities, at Fair Value:
Within One Year	$	30,432	$	203	$	498	$	—	$	31,133
From 1 - 5 Years	4,951		433		124,175		—		129,559
From 5 - 10 Years	—		—		117,008		—		117,008
Over 10 Years	—		480		19,832		800		21,112

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	53,131	$	—	$	53,131
12 Months or Longer	35,383		—		155,108		800		191,291
Total	$	35,383	$	—	$	208,239	$	800	$	244,422
Number of Securities in a Continuous Loss Position	7		—		80		1		88

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	—	$	—	$	258	$	—	$	258
12 Months or Longer	136		—		2,233		200		2,569
Total	$	136	$	—	$	2,491	$	200	$	2,827

Disaggregated Details:
US Treasury Obligations, at Amortized Cost	$	—
US Treasury Obligations, at Fair Value	—
US Agency Obligations, at Amortized Cost	35,519
US Agency Obligations, at Fair Value	35,383
US Government Agency Securities, at Amortized Cost					$	70,358
US Government Agency Securities, at Fair Value					70,034
Government Sponsored Entity Securities, at Amortized Cost					192,989
Government Sponsored Entity Securities, at Fair Value					191,479

# 10



Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities		Corporate and Other Debt Securities		Total Available- For-Sale Securities
December 31, 2018
Available-For-Sale Securities, at Amortized Cost	$	47,071	$	1,193	$	273,227	$	1,000	$	322,491
Available-For-Sale Securities, at Fair Value	46,765		1,195		268,775		800		317,535
Gross Unrealized Gains	—		2		288		—		290
Gross Unrealized Losses	306		—		4,740		200		5,246
Available-For-Sale Securities, Pledged as Collateral, at Fair Value									236,163

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	107,550	$	—	$	107,550
12 Months or Longer	46,765		—		124,627		800		172,192
Total	$	46,765	$	—	$	232,177	$	800	$	279,742
Number of Securities in a Continuous Loss Position	10		—		86		1		97

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	—	$	—	$	841	$	—	$	841
12 Months or Longer	306		—		3,899		200		4,405
Total	$	306	$	—	$	4,740	$	200	$	5,246

Disaggregated Details:
US Treasury Obligations, at Amortized Cost	$	—
US Treasury Obligations, at Fair Value	—
US Agency Obligations, at Amortized Cost	47,071
US Agency Obligations, at Fair Value	46,765
US Government Agency Securities, at Amortized Cost					$	72,095
US Government Agency Securities, at Fair Value					71,800
Government Sponsored Entity Securities, at Amortized Cost					201,132
Government Sponsored Entity Securities, at Fair Value					196,975

# 11



Available-For-Sale Securities
	U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities		Corporate and Other Debt Securities		Total Available- For-Sale Securities
March 31, 2018
Available-For-Sale Securities, at Amortized Cost	$	60,264	$	9,741	$	240,033	$	1,000	$	311,038
Available-For-Sale Securities, at Fair Value	59,657		9,743		235,389		800		305,589
Gross Unrealized Gains	—		7		347		—		354
Gross Unrealized Losses	607		5		4,991		200		5,803
Available-For-Sale Securities, Pledged as Collateral									229,857

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	17,128	$	7,421	$	112,078	$	—	$	136,627
12 Months or Longer	42,529		—		80,759		800		124,088
Total	$	59,657	$	7,421	$	192,837	$	800	$	260,715
Number of Securities in a Continuous Loss Position	14		29		69		1		113

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	266	$	6	$	1,940	$	—	$	2,212
12 Months or Longer	341		—		3,050		200		3,591
Total	$	607	$	6	$	4,990	$	200	$	5,803

Disaggregated Details:
US Treasury Obligations, at Amortized Cost	$	—
US Treasury Obligations, at Fair Value	—
US Agency Obligations, at Amortized Cost	60,264
US Agency Obligations, at Fair Value	59,657
US Government Agency Securities, at Amortized Cost					$	59,446
US Government Agency Securities, at Fair Value					59,469
Government Sponsored Entity Securities, at Amortized Cost					180,587
Government Sponsored Entity Securities, at Fair Value					175,920

# 12

The following table is the schedule of Held-To-Maturity Securities at March 31, 2019, December 31, 2018 and March 31, 2018:



Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities		Total Held-To Maturity Securities
March 31, 2019
Held-To-Maturity Securities, at Amortized Cost	$	234,454	$	44,946	$	279,400
Held-To-Maturity Securities, at Fair Value	235,576		44,838		280,414
Gross Unrealized Gains	1,695		97		1,792
Gross Unrealized Losses	573		205		778
Held-To-Maturity Securities, Pledged as Collateral					265,465

Maturities of Debt Securities, at Amortized Cost:
Within One Year	$	25,205	$	—	$	25,205
From 1 - 5 Years	94,100		44,946		139,046
From 5 - 10 Years	112,788		—		112,788
Over 10 Years	2,361		—		2,361

Maturities of Debt Securities, at Fair Value:
Within One Year	$	25,244	$	—	$	25,244
From 1 - 5 Years	94,590		44,838		139,428
From 5 - 10 Years	113,343		—		113,343
Over 10 Years	2,399		—		2,399

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	—
12 Months or Longer	71,450		26,021		97,471
Total	$	71,450	$	26,021	$	97,471

Number of Securities in a Continuous Loss Position	193		29		222

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	—	$	—	$	—
12 Months or Longer	573		205		778
Total	$	573	$	205	$	778

Disaggregated Details:
US Government Agency Securities, at Amortized Cost			$	2,069
US Government Agency Securities, at Fair Value			2,012
Government Sponsored Entity Securities, at Amortized Cost			42,877
Government Sponsored Entity Securities, at Fair Value			42,826

# 13



Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities		Total Held-To Maturity Securities
December 31, 2018
Held-To-Maturity Securities, at Amortized Cost	$	235,782	$	47,694	$	283,476
Held-To-Maturity Securities, at Fair Value	233,359		46,979		280,338
Gross Unrealized Gains	486		—		486
Gross Unrealized Losses	2,909		715		3,624
Held-To-Maturity Securities, Pledged as Collateral					266,341

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	32,093	$	33,309	$	65,402
12 Months or Longer	110,947		13,670		124,617
Total	$	143,040	$	46,979	$	190,019
Number of Securities in a Continuous Loss Position	411		47		458

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	162	$	456	$	618
12 Months or Longer	2,747		259		3,006
Total	$	2,909	$	715	$	3,624

Disaggregated Details:
US Government Agency Securities, at Amortized Cost			$	2,180
US Government Agency Securities, at Fair Value			2,143
Government Sponsored Entity Securities, at Amortized Cost			45,514
Government Sponsored Entity Securities, at Fair Value			44,836

March 31, 2018
Held-To-Maturity Securities, at Amortized Cost	$	272,938	$	57,186	$	330,124
Held-To-Maturity Securities, at Fair Value	268,604		56,333		324,937
Gross Unrealized Gains	646		—		646
Gross Unrealized Losses	4,979		853		5,832
Held-To-Maturity Securities, Pledged as Collateral					307,273

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	101,695	$	53,076	$	154,771
12 Months or Longer	65,012		3,257		68,269
Total	$	166,707	$	56,333	$	223,040
Number of Securities in a Continuous Loss Position	495		47		542

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	1,981	$	767	$	2,748
12 Months or Longer	2,998		86		3,084
Total	$	4,979	$	853	$	5,832

# 14

Held-To-Maturity Securities

State and

Municipal

Obligations

Mortgage-

Backed

Securities

Total

Held-To

Maturity

Securities

March 31, 2018

Disaggregated Details:

US Government Agency

Securities, at Amortized Cost

2,530

US Government Agency

Securities, at Fair Value

2,483

Government Sponsored Entity

Securities, at Amortized Cost

54,656

Government Sponsored Entity
Securities, at Fair Value

53,850

In the tables above, maturities of mortgage-backed securities are included based on their expected average lives. Actual maturities will differ because issuers may have the right to call or prepay obligations with or without prepayment penalties.

Securities in a continuous loss position, in the tables above for March 31, 2019, December 31, 2018 and March 31, 2018, do not reflect any deterioration of the credit worthiness of the issuing entities. U.S. government agency securities, including mortgage-backed securities, are all rated AAA by Moody's and 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 New York State Comptroller. That analysis shows no deterioration in the credit worthiness of the municipalities. Subsequent to March 31, 2019, 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 we would be required to sell the securities prior to recovery, the impairment is considered temporary.

Pledged securities, in the tables above, are primarily used to collateralize state and municipal deposits, as required under New York State law. A small portion of the pledged securities are used to collateralize repurchase agreements and pooled deposits of our trust customers.

The following table is the schedule of Equity Securities at March 31, 2019, December 31, 2018 and March 31, 2018:



Equity Securities

	March 31, 2019	December 31, 2018	March 31, 2018
Equity Securities, at Fair Value	$1,850	$1,774	$1,579

The following is a summary of realized and unrealized gains and losses recognized in net income on equity securities during the three-month period ended March 31, 2019:



	Three months ended March 31, 2019
Net Gain on Equity Securities	$	76
Less: Net gain (loss) recognized during the reporting period on equity securities sold during the period	—
Unrealized net gain recognized during the reporting period on equity securities still held at the reporting date	$	76

# 15

Note 3. LOANS (In Thousands)

Loan Categories and Past Due Loans

The following table presents loan balances outstanding as of March 31, 2019, December 31, 2018 and March 31, 2018 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 when the borrower is two payments past due.



Schedule of Past Due Loans by Loan Category
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
March 31, 2019
Loans Past Due 30-59 Days	$	168	$	208	$	4,758	$	1,345	$	6,479
Loans Past Due 60-89 Days	—		—		1,387		207		1,594
Loans Past Due 90 or more Days	17		108		369		1,610		2,104
Total Loans Past Due	185		316		6,514		3,162		10,177
Current Loans	133,091		493,071		740,285		858,584		2,225,031
Total Loans	$	133,276	$	493,387	$	746,799	$	861,746	$	2,235,208

Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	—	$	64	$	64
Nonaccrual Loans	415		248		588		3,892		5,143

December 31, 2018
Loans Past Due 30-59 Days	$	121	$	108	$	5,369	$	281	$	5,879
Loans Past Due 60-89 Days	49		—		2,136		1,908		4,093
Loans Past Due 90 or more Days	—		789		572		1,844		3,205
Total Loans Past Due	170		897		8,077		4,033		13,177
Current Loans	136,720		483,665		711,433		851,220		2,183,038
Total Loans	$	136,890	$	484,562	$	719,510	$	855,253	$	2,196,215

Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	144	$	1,081	$	1,225
Nonaccrual Loans	403		789		658		2,309		4,159

March 31, 2018
Loans Past Due 30-59 Days	$	45	$	156	$	3,673	$	1,711	$	5,585
Loans Past Due 60-89 Days	60		—		751		481		1,292
Loans Past Due 90 or more Days	41		807		252		321		1,421
Total Loans Past Due	146		963		4,676		2,513		8,298
Current Loans	127,528		454,095		621,964		781,152		1,984,739
Total Loans	$	127,674	$	455,058	$	626,640	$	783,665	$	1,993,037

Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	—	$	—	$	—
Nonaccrual Loans	652		807		441		2,570		4,470

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 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, w

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$33.87	14	$490

10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-07-22	Earnings, Exhibits
8-K	2019-06-03	Amend Bylaw, Exhibits
8-K	2019-05-08	Shareholder Vote
8-K	2019-04-24	Other Events, Exhibits
8-K	2019-04-23	Earnings, Exhibits
8-K	2019-02-04	Officers, Other Events, Exhibits
8-K	2019-01-29	Earnings, Exhibits
8-K	2018-10-31	Other Events, Exhibits
8-K	2018-10-22	Earnings, Exhibits
8-K	2018-08-29	Other Events, Exhibits
8-K	2018-07-25	Other Events, Exhibits
8-K	2018-07-23	Earnings, Exhibits
8-K	2018-04-25	Shareholder Vote
8-K	2018-04-23	Earnings, Exhibits
8-K	2018-02-06	Officers, Exhibits
8-K	2018-01-31	Other Events, Exhibits
8-K	2018-01-30	Earnings, Exhibits

EXLS	Exlservice Holdings	2,060
PAR	Par Technology	392
DSPG	DSP Group	344
AWRE	Aware	71
TATT	TAT Technologies	58
FLKS	Flex Pharma	8
OCLR	Oclaro	0
JDCC	Deere John Capital	0
CLTH	Cleantech Biofuels	0
BUKS	Butler National	0

EX-15	ex15awarenesslettermarch20.htm
EX-31.1	ex311ceoq12019.htm
EX-31.2	ex312cfoq12019.htm
EX-32	ex32906cert-q12019.htm



	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3. Quantitative and Qualitative Disclosures About Market Risk	58
Item 4. Controls and Procedures	58


PART II - OTHER INFORMATION
Item 1. Legal Proceedings	59
Item 1.A. Risk Factors	59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3. Defaults Upon Senior Securities	59
Item 4. Mine Safety Disclosures	59
Item 5. Other Information	60
Item 6. Exhibits	60

SIGNATURES	61