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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 March 31, 2022
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 filerAccelerated filer
Non-accelerated filerSmaller 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.
ClassOutstanding as of April 29, 2022
Common Stock, par value $1.00 per share16,017,265



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,
2022
December 31,
2021
March 31,
2021
ASSETS  
Cash and Due From Banks$38,964 $26,978 $45,602 
Interest-Bearing Deposits at Banks448,614 430,718 406,605 
Investment Securities: 
Available-for-Sale at Fair Value582,428 559,316 464,089 
Held-to-Maturity (Approximate Fair Value of $195,862 at March 31, 2022; $201,292 at December 31, 2021; and $221,360 at March 31, 2021)
196,661 196,566 214,561 
Equity Securities1,877 1,747 1,796 
FHLB and Federal Reserve Bank Stock4,491 5,380 5,360 
Loans2,737,267 2,667,941 2,639,243 
Allowance for Credit Losses(27,661)(27,281)(26,840)
Net Loans2,709,606 2,640,660 2,612,403 
Premises and Equipment, Net48,481 46,217 43,057 
Goodwill21,873 21,873 21,873 
Other Intangible Assets, Net1,818 1,918 2,049 
Other Assets101,589 96,579 86,316 
Total Assets$4,156,402 $4,027,952 $3,903,711 
LIABILITIES  
Noninterest-Bearing Deposits$813,066 $810,274 $751,884 
Interest-Bearing Checking Accounts1,154,068 994,391 992,486 
Savings Deposits1,571,274 1,531,287 1,463,229 
Time Deposits over $250,00048,288 82,811 100,212 
Other Time Deposits128,677 131,734 145,777 
Total Deposits3,715,373 3,550,497 3,453,588 
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase  6,795 
Federal Home Loan Bank Term Advances25,000 45,000 45,000 
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts20,000 20,000 20,000 
Finance Leases5,156 5,169 5,205 
Other Liabilities33,630 36,100 30,710 
Total Liabilities3,799,159 3,656,766 3,561,298 
STOCKHOLDERS’ EQUITY  
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at March 31, 2022, December 31, 2021 and March 31, 2021
   
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (20,800,144 Shares Issued at March 31, 2022 and December 31, 2021 and 20,194,474 at March 31, 2021)
20,800 20,800 20,194 
Additional Paid-in Capital378,758 377,996 354,358 
Retained Earnings62,328 54,078 51,263 
Accumulated Other Comprehensive Loss(20,797)347 (3,096)
Treasury Stock, at Cost (4,787,183 Shares at March 31, 2022; 4,759,414 Shares at December 31, 2021 and 4,651,719 Shares at March 31, 2021)
(83,846)(82,035)(80,306)
Total Stockholders’ Equity357,243 371,186 342,413 
Total Liabilities and Stockholders’ Equity$4,156,402 $4,027,952 $3,903,711 
    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,
 20222021
INTEREST AND DIVIDEND INCOME  
Interest and Fees on Loans$25,739 $25,183 
Interest on Deposits at Banks198 85 
Interest and Dividends on Investment Securities:
Fully Taxable2,189 1,506 
Exempt from Federal Taxes821 920 
Total Interest and Dividend Income28,947 27,694 
INTEREST EXPENSE  
Interest-Bearing Checking Accounts163 219 
Savings Deposits417 565 
Time Deposits over $250,00028 120 
Other Time Deposits109 222 
Federal Funds Purchased and
  Securities Sold Under Agreements to Repurchase
 2 
Federal Home Loan Bank Advances187 193 
Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts
169 169 
Interest on Financing Leases49 49 
Total Interest Expense1,122 1,539 
NET INTEREST INCOME27,825 26,155 
Provision for Credit Losses769 (648)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES27,056 26,803 
NONINTEREST INCOME  
Income From Fiduciary Activities2,596 2,378 
Fees for Other Services to Customers2,795 2,609 
Insurance Commissions1,511 1,640 
Net Gain on Securities130 160 
Net Gain on Sales of Loans52 1,415 
Other Operating Income1,078 406 
Total Noninterest Income8,162 8,608 
NONINTEREST EXPENSE  
Salaries and Employee Benefits11,286 11,138 
Occupancy Expenses, Net1,598 1,593 
Technology and Equipment Expense3,779 3,459 
FDIC Assessments307 270 
Other Operating Expense1,975 2,218 
Total Noninterest Expense18,945 18,678 
INCOME BEFORE PROVISION FOR INCOME TAXES16,273 16,733 
Provision for Income Taxes3,698 3,453 
NET INCOME$12,575 $13,280 
Average Shares Outstanding 1:
  
Basic16,030 15,994 
Diluted16,083 16,030 
Per Common Share:  
Basic Earnings$0.78 $0.83 
Diluted Earnings0.78 0.83 

    1 2021 Share and Per Share Amounts have been restated for the September 24, 2021 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,
20222021
Net Income$12,575 $13,280 
Other Comprehensive (Loss) Income, Net of Tax:
  Net Unrealized Securities Holding Loss
  Arising During the Period
(22,296)(3,812)
  Net Unrealized Gain on Cash Flow Hedge
  Agreements
1,125 1,475 
  Reclassification of Net Unrealized Gain on Cash
  Flow Hedge Agreements to Interest Expense
(21)(20)
  Amortization of Net Retirement Plan Actuarial Loss42 34 
  Amortization of Net Retirement Plan Prior Service Cost 6 43 
Other Comprehensive Loss(21,144)(2,280)
  Comprehensive (Loss) Income$(8,569)$11,000 

    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)
Three Month Period Ended March 31, 2022
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumu-lated
Other Com-
prehensive
Loss
Treasury
Stock
Total
Balance at December 31, 2021$20,800 $377,996 $54,078 $347 $(82,035)$371,186 
Net Income— — 12,575 — — 12,575 
Other Comprehensive Loss— — — (21,144)— (21,144)
Cash Dividends Paid, $.270 per Share
— — (4,325)— — (4,325)
Stock Options Exercised, Net  (12,145 Shares)
— 135 — — 106 241 
Shares Issued Under the Directors’ Stock
  Plan  (2,784 Shares)
— 75 — — 24 99 
Shares Issued Under the Employee Stock
  Purchase Plan  (3,626 Shares)
— 89 — — 31 120 
Shares Issued for Dividend
  Reinvestment Plans (13,917 Shares)
— 353 — — 121 474 
Stock-Based Compensation Expense— 110 — — — 110 
Purchase of Treasury Stock
  (60,241 Shares)
— — — — (2,093)(2,093)
Balance at March 31, 2022
$20,800 $378,758 $62,328 $(20,797)$(83,846)$357,243 
Three Month Period Ended March 31, 2021
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumu-lated
Other Com-
prehensive
Loss
Treasury
Stock
Total
Balance at December 31, 2020
$20,194 353,662 41,899 $(816)$(80,547)$334,392 
Cumulative impact of adoption of ASU 2016-13120120 
Balance at January 1, 2021 as adjusted for impact of adoption of ASU 2016-1320,194 353,662 42,019 (816)(80,547)334,512 
Net Income— — 13,280 — — 13,280 
Other Comprehensive Income— — — (2,280)— (2,280)
Cash Dividends Paid, $.252 per Share 1
— — (4,036)— — (4,036)
Stock Options Exercised, Net (6,927 Shares)
— 94 — — 62 156 
Shares Issued Under the Directors’ Stock
  Plan  (3,172 Shares)
— 70 — — 28 98 
Shares Issued Under the Employee Stock
  Purchase Plan  (4,269 Shares)
— 86 — — 38 124 
Shares Issued for Dividend
  Reinvestment Plans (12,649 Shares)
— 342 — — 113 455 
Stock-Based Compensation Expense— 104 — — — 104 
Balance at March 31, 2021$20,194 $354,358 $51,263 $(3,096)$(80,306)$342,413 



1 Cash dividends paid per share have been adjusted for the September 24, 2021 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:20222021
Net Income$12,575 $13,280 
Provision for Credit Losses769 (648)
Depreciation and Amortization1,945 1,951 
Net Gain on Securities Transactions(130)(160)
Loans Originated and Held-for-Sale(974)(24,037)
Proceeds from the Sale of Loans Held-for-Sale1,349 32,093 
Net Gain on the Sale of Loans(52)(1,415)
Net Loss on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets15 90 
Contributions to Retirement Benefit Plans(171)(146)
Deferred Income Tax (Benefit) Expense(462)349 
Shares Issued Under the Directors’ Stock Plan99 98 
Stock-Based Compensation Expense110 104 
Tax Benefit from Exercise of Stock Options22 13 
Net Decrease (Increase) in Other Assets4,477 (3,077)
Net (Decrease) Increase in Other Liabilities(2,803)1,624 
Net Cash Provided By Operating Activities16,769 20,119 
Cash Flows from Investing Activities:
Proceeds from the Maturities and Calls of Securities Available-for-Sale21,473 25,977 
Purchases of Securities Available-for-Sale(75,049)(130,481)
Proceeds from the Maturities and Calls of Securities Held-to-Maturity4,699 4,291 
Purchases of Securities Held-to-Maturity(4,950)(619)
Net Increase in Loans(70,441)(51,866)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets335 259 
Purchase of Premises and Equipment(3,123)(1,311)
Net Decrease (Increase) in FHLB and Federal Reserve Bank Stock889 (11)
Net Cash Used By Investing Activities(126,167)(153,761)
Cash Flows from Financing Activities:
Net Increase in Deposits164,876 218,862 
Net Decrease in Short-Term Borrowings (10,691)
Finance Lease Payments(13)(12)
Repayments of Federal Home Loan Bank Term Advances(20,000) 
Purchase of Treasury Stock(2,093) 
Stock Options Exercised, Net241 156 
Shares Issued Under the Employee Stock Purchase Plan120 124 
Shares Issued for Dividend Reinvestment Plans474 455 
Cash Dividends Paid(4,325)(4,036)
Net Cash Provided By Financing Activities139,280 204,858 
Net Increase in Cash and Cash Equivalents29,882 71,216 
Cash and Cash Equivalents at Beginning of Period457,696 380,991 
Cash and Cash Equivalents at End of Period$487,578 $452,207 
Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings$1,156 $1,626 
Income Taxes318  
Transfer of Loans to Other Real Estate Owned and Repossessed Assets403 349 

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, 2022, December 31, 2021 and March 31, 2021; the results of operations for the three month periods ended March 31, 2022 and 2021; the consolidated statements of comprehensive income for the three month periods ended March 31, 2022 and 2021; the changes in stockholders' equity for the three month periods ended March 31, 2022 and 2021; and the cash flows for the three month periods ended March 31, 2022 and 2021. 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, 2021 included in Arrow's Annual Report on Form 10-K for the year ended December 31, 2021.

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 (US 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.  Due to the uncertainty regarding the impact of the COVID-19 pandemic, 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 statements, 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 was supplemented with peer information when there was insufficient loss data for Arrow. Peer selection was 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. Upon adoption of CECL, management revised the manner in which loans were pooled for similar risk characteristics. 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 4 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, of which Arrow is included, 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
8


product and 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. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring (TDR) will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by Arrow.
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 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 adjustments are 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 not included in the vintage analysis method 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 a practical expedient 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 where the repayment of a collateral dependent financial asset is expected to be provided substantially through the operating 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.
Except as set forth below, a loan that has been modified or renewed is considered a TDR when two conditions are met:
The borrower is experiencing financial difficulty, and
Concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics.
Arrow's allowance for credit losses reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. Arrow has determined that a TDR is reasonably expected no later than the point it is determined that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession to avoid a default. Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required allowance for credit losses. TDRs performing in accordance with their modified contractual terms for a reasonable period of time may be included in Arrow's existing pools based on the underlying risk characteristics of the loan to measure the allowance for credit losses.

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 noninterest 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 the Bank 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 - Upon adoption of CECL on January 1, 2021, Arrow 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 Arrow's policy to write off accrued interest receivable by reversing interest income. For loans, write off typically occurs upon
9


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.
The mortgage-backed and collateralized mortgage obligations HTM securities are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government as to timely repayment of principal and interest, are highly rated by major rating agencies, and have a long history of no credit losses. 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 - 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, the Bank 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 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 continues to pay dividends and repurchase stock. As such, the Company has not recognized any impairment on its holdings of Federal Reserve Bank and FHLB stock.

There were no additional accounting standards adopted in the first three months of 2022.

Note 2. CASH AND CASH EQUIVALENTS (In Thousands)

The following table is the schedule of Cash and Cash Equivalents at March 31, 2022, December 31, 2021 and March 31, 2021.
March 31, 2022December 31, 2021March 31, 2021
Cash and Due From Banks$38,964 $26,978 $45,602 
Interest-Bearing Deposits at Banks448,614 430,718 406,605 
Total Cash and Cash Equivalents$487,578 457,696 452,207 
10


Note 3.    INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at March 31, 2022, December 31, 2021 and March 31, 2021:
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, 2022
Available-For-Sale Securities,
  at Amortized Cost
$140,000 $380 $471,829 $1,000 $613,209 
Gross Unrealized Gains21  211  232 
Gross Unrealized Losses (7,277) (23,536)(200)(31,013)
Available-For-Sale Securities,
  at Fair Value
132,744 380 448,504 800 582,428 
Available-For-Sale Securities,
  Pledged as Collateral, at Fair
  Value
397,138 
Maturities of Debt Securities,
  at Amortized Cost:
Within One Year$5,000 $20 $86 $ $5,106 
From 1 - 5 Years135,000  249,495  384,495 
From 5 - 10 Years 360 222,248 1,000 223,608 
Over 10 Years     
Maturities of Debt Securities,
  at Fair Value:
Within One Year$5,021 $20 $88 $ $5,129 
From 1 - 5 Years127,723  241,614  369,337 
From 5 - 10 Years 360 206,802 800 207,962 
Over 10 Years     
Securities in a Continuous
  Loss Position, at Fair Value:
Less than 12 Months$43,518 $ $358,688 $ $402,206 
12 Months or Longer84,205  74,546 800 159,551 
Total$127,723 $ $433,234 $800 $561,757 
Number of Securities in a
  Continuous Loss Position
18  129 1 148 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
Less than 12 Months$1,482 $ $16,949 $ $18,431 
12 Months or Longer5,795  6,587 200 12,582 
Total$7,277 $ $23,536 $200 $31,013 
Disaggregated Details:
US Agency Obligations,
  at Amortized Cost
$140,000 
US Agency Obligations,
  at Fair Value
132,744 
US Government Agency
  Securities, at Amortized Cost
$8,853 
US Government Agency
  Securities, at Fair Value
8,667 
Government Sponsored Entity
  Securities, at Amortized Cost
462,976 
Government Sponsored Entity
  Securities, at Fair Value
439,837 
11


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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, 2021
Available-For-Sale Securities,
  at Amortized Cost
$110,000 $400 $448,742 $1,000 $560,142 
Gross Unrealized Gains63  3,617  3,680 
Gross Unrealized Losses(1,698) (2,608)(200)(4,506)
Available-For-Sale Securities,
  at Fair Value
108,365 400 449,751 800 559,316 
Available-For-Sale Securities,
  Pledged as Collateral,
  at Fair Value
298,106 
Securities in a Continuous
  Loss Position, at Fair Value:
Less than 12 Months$74,088 $ $263,292 $ $337,380 
12 Months or Longer29,214   800 30,014 
Total$103,302 $ $263,292 $800 $367,394 
Number of Securities in a
  Continuous Loss Position
14  39 1 54 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
Less than 12 Months$912 $ $2,608 $ $3,520 
12 Months or Longer786   200 986 
Total$1,698 $ $2,608 $200 $4,506 
Disaggregated Details:
US Agency Obligations,
  at Amortized Cost
$110,000 
US Agency Obligations,
  at Fair Value
108,365 
US Government Agency
  Securities, at Amortized Cost