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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2024
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 York22-2448962
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

250 Glen StreetGlens FallsNew York12801
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:518 745-1000

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, Par Value $1.00 per shareAROWNASDAQ Global Select Market

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 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). ☑ 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☑
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   ☑ 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 August 2, 2024
Common Stock, par value $1.00 per share16,732,668


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)
 June 30,
2024		December 31,
2023		June 30,
2023
ASSETS  
Cash and Due From Banks$30,372 $36,755 $33,803 
Interest-Bearing Deposits at Banks169,826 105,781 139,798 
Investment Securities: 
Available-for-Sale at Fair Value450,786 497,769 543,708 
Held-to-Maturity (Fair Value of $96,454 at June 30, 2024; $128,837 at December 31, 2023; and $139,143 at June 30, 2023)
99,348 131,395 143,460 
Equity Securities1,996 1,925 1,889 
Other Investments4,274 5,049 4,932 
Loans3,315,523 3,212,908 3,069,897 
Allowance for Credit Losses(31,009)(31,265)(31,170)
Net Loans3,284,514 3,181,643 3,038,727 
Premises and Equipment, Net59,243 59,642 59,773 
Goodwill21,873 21,873 21,873 
Other Intangible Assets, Net927 1,110 1,302 
Other Assets121,248 126,926 114,388 
Total Assets$4,244,407 $4,169,868 $4,103,653 
LIABILITIES  
Noninterest-Bearing Deposits$704,707 $758,425 $759,495 
Interest-Bearing Checking Accounts856,788 799,785 856,016 
Savings Deposits1,446,821 1,466,280 1,517,937 
Time Deposits over $250,000173,526 179,301 140,694 
Other Time Deposits501,797 483,775 228,082 
Total Deposits3,683,639 3,687,566 3,502,224 
Borrowings106,500 26,500 171,800 
Junior Subordinated Obligations Issued to Unconsolidated
  Subsidiary Trusts		20,000 20,000 20,000 
Finance Leases5,038 5,066 5,093 
Other Liabilities46,212 50,964 43,093 
Total Liabilities3,861,389 3,790,096 3,742,210 
STOCKHOLDERS’ EQUITY  
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at June 30, 2024, December 31, 2023 and June 30, 2023
— — — 
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (22,066,559 Shares Issued at June 30, 2024 and December 31, 2023 and 21,423,992 Shares Issued at June 30, 2023)
22,067 22,067 21,424 
Additional Paid-in Capital412,917 412,551 401,069 
Retained Earnings72,980 65,792 71,076 
Accumulated Other Comprehensive Loss(31,632)(33,416)(47,613)
Treasury Stock, at Cost (5,343,295 Shares at June 30, 2024; 5,124,073 Shares at December 31, 2023 and 4,870,934 Shares at June 30, 2023)
(93,314)(87,222)(84,513)
Total Stockholders’ Equity383,018 379,772 361,443 
Total Liabilities and Stockholders’ Equity$4,244,407 $4,169,868 $4,103,653 
    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 30Six Months Ended June 30
 2024202320242023
INTEREST AND DIVIDEND INCOME  
Interest and Fees on Loans$42,141 $34,618 $82,517 $66,504 
Interest on Deposits at Banks2,185 1,674 4,632 2,153 
Interest and Dividends on Investment Securities:
Fully Taxable3,009 2,951 6,195 5,899 
Exempt from Federal Taxes637 770 1,305 1,567 
Total Interest and Dividend Income47,972 40,013 94,649 76,123 
INTEREST EXPENSE  
Interest-Bearing Checking Accounts1,903 820 3,544 1,190 
Savings Deposits10,571 8,514 20,801 14,101 
Time Deposits over $250,0001,869 1,119 3,842 1,693 
Other Time Deposits5,074 1,196 10,157 1,670 
Borrowings1,186 2,373 2,262 3,166 
Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts		170 171 341 340 
Interest on Financing Leases47 48 95 97 
Total Interest Expense20,820 14,241 41,042 22,257 
NET INTEREST INCOME27,152 25,772 53,607 53,866 
Provision for Credit Losses on Loans
775 948 1,392 2,502 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES26,377 24,824 52,215 51,364 
NON-INTEREST INCOME  
Income From Fiduciary Activities2,451 2,428 4,908 4,703 
Fees for Other Services to Customers2,706 2,717 5,249 5,312 
Insurance Commissions1,662 1,560 3,344 3,080 
Net Gain (Loss) on Securities54 (181)71 (285)
Net Gain on Sales of Loans5 — 9 4 
Other Operating Income978 382 2,133 769 
Total Non-Interest Income7,856 6,906 15,714 13,583 
NON-INTEREST EXPENSE  
Salaries and Employee Benefits13,036 12,039 25,929 23,986 
Occupancy Expenses, Net1,774 1,583 3,545 3,211 
Technology and Equipment Expense4,734 4,362 9,554 8,779 
FDIC Assessments698 484 1,413 963 
Other Operating Expense3,076 5,615 6,889 9,440 
Total Non-Interest Expense23,318 24,083 47,330 46,379 
INCOME BEFORE PROVISION FOR INCOME TAXES10,915 7,647 20,599 18,568 
Provision for Income Taxes2,311 1,600 4,335 3,959 
NET INCOME$8,604 6,047 $16,264 $14,609 
Average Shares Outstanding 1:
  
Basic16,685 17,050 16,764 17,050 
Diluted16,709 17,050 16,789 17,050 
Per Common Share:  
Basic Earnings$0.52 $0.35 $0.97 $0.85 
Diluted Earnings0.52 0.35 0.97 0.85 


    1 2023 Share and Per Share Amounts have been restated for the September 26, 2023 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 June 30,Six Months Ended June 30,
2024202320242023
Net Income$8,604 $6,047 $16,264 $14,609 
Other Comprehensive Income (Loss), Net of Tax:
  Net Unrealized Securities Holding Gain (Loss)
  Arising During the Period		751 (3,849)(779)2,250 
  Net Unrealized Gain (Loss) on Cash Flow Hedge
  Agreements		505 59 2,895 (534)
  Reclassification of Net Unrealized (Gain) Loss on
  Cash Flow Hedge Agreements to Interest Expense		(159)163 (317)310 
  Amortization of Net Retirement Plan Actuarial (Gain)
(66)(42)(116)(60)
  Amortization of Net Retirement Plan Prior Service Cost 51 39 101 76 
Other Comprehensive Income (Loss)1,082 (3,630)1,784 2,042 
  Comprehensive Income $9,686 $2,417 $18,048 $16,651 

    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)
Six Month Period Ended June 30, 2024
Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumu-lated
Other Com-
prehensive
Income (Loss)		Treasury
Stock		Total
Balance at December 31, 2023
$22,067 $412,551 $65,792 $(33,416)$(87,222)$379,772 
Net Income— — 16,264 — — 16,264 
Other Comprehensive Income— — — 1,784 — 1,784 
Cash Dividends Paid, $.54 per Share
— — (9,076)— — (9,076)
Stock Options Exercised, Net  (8,620 Shares)
— 97 — — 69 166 
Shares Issued Under the Directors’ Stock
  Plan  (10,602 Shares)
— 172 — — 84 256 
Shares Issued Under the Employee Stock
  Purchase Plan  (5,843 Shares)
— 82 — — 47 129 
Shares Issued Related to Restricted Share Awards (22,230 Shares)
— (179)— — 179 — 
Compensation expense related to Employee Stock purchase Plan— 13— — — 13 
Stock-Based Compensation Expense— 151 — — — 151 
Tax Benefit from Exercise of Stock Options— 30 — — — 30 
Purchase of Treasury Stock
  (266,517 Shares)
— — — — (6,471)(6,471)
Balance at June 30, 2024
$22,067 $412,917 $72,980 $(31,632)$(93,314)$383,018 
Three Month Period Ended June 30, 2024
Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumu-lated
Other Com-
prehensive
Loss		Treasury
Stock		Total
Balance at March 31, 2024
$22,067 $412,823 $68,887 $(32,714)$(93,077)$377,986 
Net Income— — 8,604 — — 8,604 
Other Comprehensive Income— — — 1,082 — 1,082 
Cash Dividends Paid, $.27 per Share
— — (4,511)— — (4,511)
Stock Options Exercised, Net  (2,560 Shares)
— 30 — — 20 50 
Shares Issued Under the Directors’ Stock
  Plan  (5,715 Shares)
— 83 — — 45 128 
Shares Issued Under the Employee Stock
  Purchase Plan  (3,572 Shares)
— 49 — — 29 78 
Shares Issued Related to Restricted Share Awards (22,230 Shares)
— (179)— — 179 — 
Compensation expense related to Employee Stock purchase Plan— 8 — — — 8 
Stock-Based Compensation Expense— 73 — — — 73 
Tax Benefit from Exercise of Stock Options— 30 — — — 30 
Purchase of Treasury Stock
  (21,037 Shares)
— — — — (510)(510)
Balance at June 30, 2024
$22,067 $412,917 $72,980 $(31,632)$(93,314)$383,018 
6

Six Month Period Ended June 30, 2023
Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumu-lated
Other Com-
prehensive
Loss		Treasury
Stock		Total
Balance at December 31, 2022$21,424 400,270 65,401 $(49,655)$(83,902)$353,538 
Net Income— — 14,609 — — 14,609 
Other Comprehensive Income— — — 2,042 — 2,042 
Cash Dividends Paid, $.524 per Share 1
— — (8,934)— — (8,934)
Stock Options Exercised, Net (3,772 Shares)
— 50 — — 33 83 
Shares Issued Under the Directors’ Stock
  Plan  (3,418 Shares)
— 85 — — 29 114 
Shares Issued Under the Employee Stock
  Purchase Plan  (3,872 Shares)
— 87 — — 33 120 
Shares Issued for Dividend
  Reinvestment Plans (17,753 Shares)
— 330 — — 142 472 
Stock-Based Compensation Expense— 247 — — — 247 
Purchase of Treasury Stock
 (27,395 Shares)
— — — — (848)(848)
Balance at June 30, 2023
$21,424 $401,069 $71,076 $(47,613)$(84,513)$361,443 
Three Month Period Ended June 30, 2023
Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumu-lated
Other Com-
prehensive
Loss		Treasury
Stock		Total
Balance at March 31, 2023$21,424 $400,944 $69,499 $(43,983)$(84,513)$363,371 
Net Income— — 6,047 — — 6,047 
Other Comprehensive Loss— — — (3,630)— (3,630)
Cash Dividends Paid, $.262 per Share 1
— — (4,470)— — (4,470)
Stock-Based Compensation Expense— 125 — — — 125 
Balance at June 30, 2023
$21,424 $401,069 $71,076 $(47,613)$(84,513)$361,443 



1 Cash dividends paid per share have been adjusted for the September 26, 2023 3% stock dividend.
See Notes to Unaudited Interim Consolidated Financial Statements.



7

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Six Months Ended June 30
Cash Flows from Operating Activities:20242023
Net Income$16,264 $14,609 
Provision for Credit Losses1,392 2,502 
Depreciation and Amortization2,644 3,432 
Net (Gain) Loss on Securities Transactions(71)285 
Loans Originated and Held-for-Sale(833)344 
Proceeds from the Sale of Loans Held-for-Sale9 4 
Net Gain on the Sale of Loans(9)(4)
Net (Gain) Loss on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets
(334)86 
Contributions to Retirement Benefit Plans(336)(273)
Deferred Income Tax Benefit
(252)(71)
Shares Issued Under the Directors’ Stock Plan256 114 
Stock-Based Compensation Expense164 247 
Tax Benefit from Exercise of Stock Options39 11 
Net (Increase) Decrease in Other Assets
(2,970)1,023 
Net Decrease in Other Liabilities3,465 3,390 
Net Cash Provided By Operating Activities19,428 25,699 
Cash Flows from Investing Activities:
Proceeds from the Maturities and Calls of Securities Available-for-Sale46,298 32,134 
Proceeds from the Maturities and Calls of Securities Held-to-Maturity33,076 34,198 
Purchases of Securities Held-to-Maturity(1,197)(2,552)
Net Increase in Loans(109,992)(89,638)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets2,230 1,305 
Purchase of Premises and Equipment(2,719)(5,064)
Net Decrease in FHLB and Federal Reserve Bank Stock
775 1,132 
Net Cash Used By Investing Activities(31,529)(28,485)
Cash Flows from Financing Activities:
Net (Decrease) Increase in Deposits
(3,927)3,860 
Finance Lease Payments(28)(26)
Other Borrowings - Advances 100,000 250,000 
Other Borrowings - Paydowns(20,000)(133,000)
Net Cash Collateral Received from Derivative Counterparties8,970 — 
Purchase of Treasury Stock(6,471)(848)
Stock Options Exercised, Net166 83 
Shares Issued Under the Employee Stock Purchase Plan129 120 
Shares Issued for Dividend Reinvestment Plans— 472 
Cash Dividends Paid(9,076)(8,934)
Net Cash Provided By Financing Activities69,763 111,727 
Net Increase in Cash and Cash Equivalents57,662 108,941 
Cash and Cash Equivalents at Beginning of Period142,536 64,660 
Cash and Cash Equivalents at End of Period$200,198 $173,601 
Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings$37,625 $19,179 
Income Taxes3,553 3,269 
Transfer of Loans to Other Real Estate Owned and Repossessed Assets1,079 1,320 

See Notes to Unaudited Interim Consolidated Financial Statements.
8

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.RISKS AND UNCERTAINTIES

Nature of Operations - Arrow Financial Corporation, a New York corporation ("Arrow," the "Company," "we," or "us"), was incorporated on March 21, 1983 and is registered as a bank holding company within the meaning of the Bank Holding Company Act of 1956.  The banking subsidiaries are Glens Falls National Bank and Trust Company ("GFNB") whose main office is located in Glens Falls, New York, and Saratoga National Bank and Trust Company ("SNB") whose main office is located in Saratoga Springs, New York. The two subsidiary banks provide a full range of services to individuals and small to mid-size businesses in northeastern New York State from Albany, the State's capitol, to the Canadian border. Both banks have wealth management departments which provide investment management and administrative services. An active subsidiary of GFNB is Upstate Agency LLC, offering insurance services including property and casualty insurance, group health insurance and individual life insurance products. North Country Investment Advisers, Inc., a registered investment adviser that provides investment advice to our proprietary mutual fund, and Arrow Properties, Inc., a real estate investment trust (REIT), are subsidiaries of GFNB. Arrow also owns directly two subsidiary business trusts, organized in 2003 and 2004 to issue trust preferred securities (TRUPs), which are still outstanding.

Concentrations of Credit - With the exception of some indirect auto lending, Arrow's loans are primarily with borrowers in upstate New York.  Although the loan portfolios of the subsidiary banks are well diversified, tourism has a substantial impact on the northeastern New York economy. The commitments to extend credit are fairly consistent with the distribution of loans presented in Note 5, "Loans," generally have the same credit risk and are subject to normal credit policies.  Generally, the loans are secured by assets and are expected to be repaid from cash flow or the sale of selected assets of the borrowers.  Arrow evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Arrow upon extension of credit, is based upon management's credit evaluation of the counterparty.  The nature of the collateral varies with the type of loan and may include: residential real estate, cash and securities, inventory, accounts receivable, property, plant and equipment, income producing commercial properties and automobiles.

Liquidity - The objective of effective liquidity management is to ensure that Arrow has the ability to raise cash when needed at a reasonable cost. This includes the capability of meeting expected and unexpected obligations to Arrow's customers at any time. Given the uncertain nature of customer demands and the need to maximize earnings, Arrow must have available reasonably priced sources of funds, both on- and off-balance sheet, that can be accessed quickly in times of need. Arrow’s liquidity position should provide the Company with the necessary flexibility to address any unexpected near-term disruptions such as reduced cash flows from the investment and loan portfolio, unexpected deposit runoff, or increased loan originations. Arrow's primary sources of available liquidity are overnight investments in federal funds sold, interest bearing bank balances at the Federal Reserve Bank of New York ("FRBNY"), advances from the FRBNY Bank Term Funding Program ("BTFP") and cash flow from investment securities and loans.

Note 2.     ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements contain all of the adjustments necessary to present fairly the financial position as of June 30, 2024, December 31, 2023 and June 30, 2023; the results of operations for the three and six month periods ended June 30, 2024 and 2023; the consolidated statements of comprehensive income for the three and six month periods ended June 30, 2024 and 2023; the changes in stockholders' equity for the three and six month periods ended June 30, 2024 and 2023; and the cash flows for the six month periods ended June 30, 2024 and 2023. All such adjustments are of a normal recurring nature. 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, 2023 included in Arrow's Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K").

Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." On January 7, 2021, the FASB issued ASU 2021-01, which refines the scope of ASC 848 and clarifies some of its guidance. The ASU and related amendments provide temporary optional expedients and exceptions to the existing guidance for applying GAAP to affected contract modifications and hedge accounting relationships in the transition away from the LIBOR or other interbank offered rate on financial reporting. The guidance also allows a one-time election to sell and/or reclassify to AFS or trading HTM debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective March 12, 2020 through December 31, 2022 and permit relief solely for reference rate reform actions and different elections over the effective date for legacy and new activity. In December 2022, FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848)" which deferred the sunset date of Topic 848 to December 31, 2024, to allow for a transition period after the sunset of LIBOR. Arrow does not expect ASU 2022-06 will have a material impact on its consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This ASU amends FASB Topic 280 to permit the disclosure of multiple measures of a segment's profit or loss, and requires an entity with a single reportable segment to apply FASB Topic 280 in its entirety. In addition, this ASU requires new segment disclosures. Arrow does not expect this new standard will have a material impact on the consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09,1 which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide
9

greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. Arrow does not expect this new standard will have a material impact on the consolidated financial statements.

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 (GAAP) 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.  Management utilized estimates and assumptions in its evaluation of potential impairment of Arrow's right-of-use lease assets, goodwill and intangible assets. Our most significant estimate is the allowance for credit losses. Other estimates include the fair value of financial instruments, evaluation of pension and other post-retirement liabilities, an analysis of a need for a valuation allowance for deferred tax assets and a reserve for unfunded loan commitments recorded as an other liability. 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 credit losses.  In connection with the determination of the allowance for credit losses management obtains economic forecasts from reliable sources and appraisals for properties.  The allowance for credit losses is management’s best estimate of the life of loan losses as of the balance sheet date.  While management uses available information to recognize losses on loans, future adjustments to the allowance for credit losses may be necessary based on changes in economic conditions.

Allowance for Credit Losses – Loans - Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). It replaces the incurred loss approach’s threshold that required the recognition of a credit loss when it was probable that a loss event was incurred. The allowance for credit losses is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to present the net lifetime amount expected to be collected on the loans. Credit losses are charged off against the allowance when management believes a loan balance is confirmed to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.
Management estimates the allowance using relevant available information from internal and external sources related to past events, current conditions, and a reasonable and supportable single economic forecast. Historical credit loss experience provides the basis for the estimation of expected credit losses. Arrow's historical loss experience is supplemented with peer information when there is insufficient loss data for Arrow. Peer selection is based on a review of institutions with comparable loss experience as well as loan yield, bank size, portfolio concentration and geography. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in credit concentrations, delinquency level, collateral values and underwriting standards as well as changes in economic conditions or other relevant factors. Management judgment is required at each point in the measurement process.
Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Management developed portfolio segments for estimating loss based on type of borrower and collateral as follows:

Commercial Loans
Commercial Real Estate Loans
Consumer Loans
Residential Loans

Further details related to loan portfolio segments is included in Note 5 Loans.
Historical credit loss experience for both Arrow and segment-specific peers provides the basis for the estimation of expected credit losses. Arrow utilized regression analyses of peer data where observed credit losses and selected economic factors were utilized to determine suitable loss drivers for modeling lifetime probability of default (PD) rates. Arrow uses the discounted cash flow (DCF) method to estimate expected credit losses for the commercial, commercial real estate, and residential segments. For each of these loan segments, Arrow generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, PD, and segment-specific loss given default (LGD) risk factors. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions.
For the loan segments utilizing the DCF method, (commercial, commercial real estate, and residential) management utilizes externally developed economic forecast of the following economic factors as loss drivers: national unemployment, gross domestic product and Case-Shiller U.S. National Home Price Index ("HPI"). The economic forecast is applied over a reasonable and supportable forecast period. Arrow utilizes a six quarter reasonable and supportable forecast period with an eight quarter reversion to the historic mean on a straight-line basis.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (NPV). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.
Arrow uses the vintage analysis method to estimate expected credit losses for the consumer loan segment. The vintage method was selected since the loans within the consumer loan segment are homogeneous, not just by risk characteristic, but by loan structure. Under the vintage analysis method, a loss rate is calculated based on the quarterly net charge-offs to the outstanding loan balance for each vintage year over the lookback period. Once this periodic loss rate is calculated for each quarter in the lookback period, the
10

periodic rates are averaged into the loss rate. The loss rate is then applied to the outstanding loan balances based on the loan's vintage year. Arrow maintains, over the life of the loan, the loss curve by vintage year. If estimated losses computed by the vintage method need to be adjusted based on current conditions and the reasonable and supportable economic forecast, these adjustments would be incorporated over a six quarter reasonable and supportable forecast period, reverting to historical losses using a straight-line method over an eight quarter period. Based on current conditions and the reasonable and supportable economic forecast, no adjustment to the loss rate for each vintage is currently required.
The vintage and DCF models also consider the need to qualitatively adjust expected loss estimates for information not already captured in the quantitative loss estimation process. Qualitative considerations include limitations inherent in the quantitative model; trends experienced in nonperforming and delinquent loans; changes in value of underlying collateral; changes in lending policies and procedures; nature and composition of loans; portfolio concentrations that may affect loss experience across one or more components or the portfolio; the experience, ability and depth of lending management and staff; Arrow's credit review system; and the effect of external factors such as competition, legal and regulatory requirements. These qualitative factor adjustments may increase or decrease Arrow's estimate of expected credit losses so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date.
All loans that exceed $250,000 which are on nonaccrual, are evaluated on an individual basis. For collateral dependent financial assets where Arrow has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and Arrow expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, Arrow has elected to measure the allowance for credit loss as the difference between the fair value of the collateral less cost to sell, and the amortized cost basis of the asset as of the measurement date. In the event the repayment of a collateral dependent financial asset is expected to be provided substantially through the operation of the collateral, Arrow will use fair value of the collateral at the reporting date when recording the net carrying amount of the asset and determining the allowance for credit losses. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
As part of ASU No. 2022-02, Arrow evaluates whether the modification represents a new loan or a continuation of an existing loan, consistent with the current GAAP treatment for other loan modifications. In addition, Arrow evaluates and if necessary, discloses if loan modifications made to borrowers experiencing financial difficulty contain a financial concession.

Estimated Credit Losses on Off-Balance Sheet Credit Exposures Recognized as Other Liabilities - Arrow estimates expected credit losses over the contractual period in which Arrow has exposure to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Arrow. The allowance for credit losses on off-balance sheet credit exposures recognized in other liabilities, is adjusted as an expense in other non-interest expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. Estimating credit losses on unfunded commitments requires Arrow to consider the following categories of off-balance sheet credit exposure: unfunded commitments to extend credit, unfunded lines of credit, and standby letters of credit. Each of these unfunded commitments is then analyzed for a probability of funding to calculate a probable funding amount. The life of loan loss factor by related portfolio segment from the loan allowance for credit loss calculation is then applied to the probable funding amount to calculate the estimated credit losses on off-balance sheet credit exposures recognized as other liabilities.

Accrued Interest Receivable - Arrow has made the following elections regarding accrued interest receivable: (1) presented accrued interest receivable balances separately within the other assets balance sheet line item; (2) excluded interest receivable that is included in amortized cost of financing receivables from related disclosures requirements and (3) continued its policy to write off accrued interest receivable by reversing interest income. For loans, write off typically occurs upon becoming over 90 to 120 days past due and therefore the amount of such write offs are immaterial. Historically, Arrow has not experienced uncollectible accrued interest receivable on investment securities.

Allowance for Credit Losses – Held-to-Maturity (HTM) Debt Securities - Arrow's HTM debt securities are also required to utilize the CECL approach to estimate expected credit losses. Management measures expected credit losses on HTM debt securities on a collective basis by major security types that share similar risk characteristics, such as financial asset type and collateral type adjusted for current conditions and reasonable and supportable forecasts. Management classifies the HTM portfolio into the following major security types: U.S. government agency or U.S. government sponsored mortgage-backed and collateralized mortgage obligations securities, and state and municipal debt securities.
Arrow's HTM debt securities are comprised of U.S. government-sponsored enterprises (GSEs) or state and municipal obligations. GSE securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Therefore, Arrow did not record a credit loss for these securities.
State and municipal bonds carry an investment grade from an accredited ratings agency, primarily with an investment grade rating. In addition, Arrow has a limited amount of New York state local municipal bonds that are not rated. The estimate of expected credit losses on the HTM portfolio is based on the expected cash flows of each individual CUSIP over its contractual life and utilized a municipal loss forecast model for determining PD and LGD rates. Management may exercise discretion to make adjustments based on environmental factors. A calculated expected credit loss for individual securities was determined using the PD and LGD rates. Arrow determined that the expected credit loss on its municipal bond portfolio was de minimis, and therefore, an allowance for credit losses was not recorded.

Allowance for Credit Losses – Available-for-Sale (AFS) Debt Securities - Arrow's AFS debt securities are comprised of U.S. Treasuries, U.S. Government & Agency Obligations, State and Municipal Obligations, Mortgage-Backed Securities and Corporate and Other Debt Securities. The impairment model for AFS debt securities differs from the CECL approach utilized by HTM debt securities since AFS debt securities are measured at fair value rather than amortized cost. For AFS debt securities in an unrealized loss position,
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Arrow first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, in making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, adverse conditions specifically related to the security, failure of the issuer of the debt security to make scheduled interest or principal payments, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. The cash flows are estimated using information relevant to the collectability of the security, including information about past events, current conditions and reasonable and supportable forecasts. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Investments in Federal Reserve Bank ("FRB") and Federal Home Loan Bank ("FHLB") stock are required for membership in those organizations and are carried at cost since there is no market value available. The FHLB New York ("FHLBNY") continues to pay dividends and repurchase stock. As such, the Company has not recognized any impairment on its holdings of FRB and FHLB stock.

Cybersecurity Risk Management, Strategy, Governance and Incident Disclosure:

Cybersecurity Risk management and strategy - Annually, registrants are required to describe the processes, if any, for assessing, identifying,and managing material risks from cybersecurity threats in sufficient detail for a reasonable investor to understand those processes.

The registrant must also describe whether and how any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect the registrant, including its business strategy, results of operations, or financial condition.

Governance - Disclosure is required about management’s and the board of directors’ oversight of cybersecurity risk, including a description of the board of directors’ oversight of risks from cybersecurity threats and a description of management’s role in assessing and managing the registrant’s material risks from cybersecurity threats.

The annual disclosure requirements became effective for the Company beginning with the 2023 Form 10-K.

Note 3. CASH AND CASH EQUIVALENTS (In Thousands)

The following table is the schedule of Cash and Cash Equivalents at June 30, 2024, December 31, 2023 and June 30, 2023:
June 30, 2024December 31, 2023June 30, 2023
Cash and Due From Banks$30,372 $36,755 $33,803 
Interest-bearing Deposits at Banks169,826 105,781 139,798 
Total Cash and Cash Equivalents$200,198 142,536 173,601 



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Note 4.    INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at June 30, 2024, December 31, 2023 and June 30, 2023:
Available-For-Sale Securities
U.S. TreasuriesU.S. Government & Agency
Obligations		State and
Municipal
Obligations		Mortgage-
Backed
Securities		Corporate
and Other
Debt
Securities		Total
Available-
For-Sale
Securities
June 30, 2024
Available-For-Sale Securities,
  at Amortized Cost		$49,559 $160,000 $240 $283,468 $1,000 $494,267 
Gross Unrealized Gains— — — 17 — 17 
Gross Unrealized Losses (103)(6,647)— (36,695)(53)(43,498)
Available-For-Sale Securities,
  at Fair Value 		49,456 153,353 240 246,790 947 450,786 
Available-For-Sale Securities,
  Pledged as Collateral, at Fair
  Value		299,368 
Maturities of Debt Securities,
  at Amortized Cost:
Within One Year$24,621 $60,000 $— $2,058 $— $86,679 
From 1 - 5 Years24,938 100,000 — 179,619 — 304,557 
From 5 - 10 Years— — 240 101,791 1,000 103,031 
Over 10 Years— — — — — — 
Maturities of Debt Securities,
  at Fair Value:
Within One Year$24,608 $59,355 $— $2,011 $— $85,974 
From 1 - 5 Years24,848 93,998 — 160,000 — 278,846 
From 5 - 10 Years— — 240 84,779 947 85,966 
Over 10 Years— — — — — — 
Securities in a Continuous
  Loss Position, at Fair Value:
Less than 12 Months$49,456 $14,978 $— $3,922 $— $68,356 
12 Months or Longer— 138,375 — 241,405 947 380,727 
Total$49,456 $153,353 $— $245,327 $947 $449,083 
Number of Securities in a
  Continuous Loss Position		2 21 — 98 1 122 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
Less than 12 Months$103 $22 $— $6 $— $131 
12 Months or Longer— 6,625 — 36,689 53 43,367 
Total$103 $6,647 $— $36,695 $53 $43,498 
Disaggregated Details:
US Treasuries,
  at Amortized Cost		$49,559 
US Treasuries,
  at Fair Value		49,456 
US Agency Obligations,
  at Amortized Cost		$160,000 
US Agency Obligations,
  at Fair Value		153,353 
Local Municipal Obligations,
  at Amortized Cost		$240 
Local Municipal Obligations,
  at Fair Value		240 
US Government Agency
  Securities, at Amortized Cost		$7,051 
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Available-For-Sale Securities
U.S. TreasuriesU.S. Government & Agency
Obligations		State and
Municipal
Obligations		Mortgage-
Backed
Securities		Corporate
and Other
Debt
Securities		Total
Available-
For-Sale
Securities
US Government Agency
  Securities, at Fair Value		6,714 
Government Sponsored Entity
  Securities, at Amortized Cost		276,417 
Government Sponsored Entity
  Securities, at Fair Value		240,076 
Corporate Trust Preferred Securities, at Amortized Cost$1,000 
Corporate Trust Preferred Securities, at Fair Value947 
December 31, 2023
Available-For-Sale Securities,
  at Amortized Cost		$73,761 $160,000 $280 $305,161 $1,000 $540,202 
Gross Unrealized Gains243 51 — 6 — 300 
Gross Unrealized Losses— (7,126)— (35,407)(200)(42,733)
Available-For-Sale Securities,
  at Fair Value		74,004 152,925 280 269,760 800 497,769 
Available-For-Sale Securities,
  Pledged as Collateral,
  at Fair Value		242,938 
Securities in a Continuous
  Loss Position, at Fair Value:
Less than 12 Months$— $— $— $— $— $— 
12 Months or Longer— 137,874 — 269,286 800 407,960 
Total$— $137,874 $— $269,286 $800 $407,960 
Number of Securities in a
  Continuous Loss Position		— 19 — 97 1 117 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
Less than 12 Months$— $— $— $— $— $— 
12 Months or Longer— 7,126 — 35,407 200 42,733 
Total$— $7,126 $— $35,407 $200 $42,733 
Disaggregated Details:
US Treasuries,
  at Amortized Cost		$73,761 
US Treasuries,
  at Fair Value		74,004 
US Agency Obligations,
  at Amortized Cost		$160,000 
US Agency Obligations,
  at Fair Value		152,925 
Local Municipal Obligations,
  at Amortized Cost		$280 
Local Municipal Obligations,
  at Fair Value		280 
US Government Agency
  Securities, at Amortized Cost		$7,291 
US Government Agency
  Securities, at Fair Value		6,864 
Government Sponsored Entity
  Securities, at Amortized Cost		297,870 
Government Sponsored Entity
  Securities, at Fair Value		262,896 
Corporate Trust Preferred Securities, at Amortized Cost$1,000 
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Available-For-Sale Securities
U.S. TreasuriesU.S. Government & Agency
Obligations		State and
Municipal
Obligations		Mortgage-
Backed
Securities		Corporate
and Other
Debt
Securities		Total
Available-
For-Sale
Securities
Corporate Trust Preferred Securities, at Fair Value800 
June 30, 2023
Available-For-Sale Securities,
  at Amortized Cost		$— $190,000 $280 $414,995 $1,000 $606,275 
Gross Unrealized Gains— — — 3 — 3 
Gross Unrealized Losses— (13,984)— (48,386)(200)(62,570)
Available-For-Sale Securities,
  at Fair Value		— 176,016 280 366,612 800 543,708 
Available-For-Sale Securities,
  Pledged as Collateral, at Fair
  Value		362,707 
Securities in a Continuous
  Loss Position, at Fair Value:
Less than 12 Months$— $29,509 $— $24,851 $— $54,360 
12 Months or Longer— 146,505 — 341,648 800 488,953 
Total$— $176,014 $— $366,499 $800 $543,313 
Number of Securities in a
  Continuous Loss Position		— 25 — 154 1 180 
Unrealized Losses on Securities
  in a Continuous Loss Position: