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~~September 30, 2020

☐ 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

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 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 ~~July 31,~~October 30, 2020
Common Stock, par value $1.00 per share						~~15,015,056~~15,491,432

ARROW FINANCIAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS

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, 2020		December 31, 2019		June 30, 2019			September 30, 2020		December 31, 2019		September 30, 2019
ASSETS	ASSETS							ASSETS
Cash and Due From Banks	Cash and Due From Banks	$	38,267	$	47,035	$	34,650	Cash and Due From Banks	$	54,286	$	47,035	$	65,882
Interest-Bearing Deposits at Banks	Interest-Bearing Deposits at Banks	215,003		23,186		28,045		Interest-Bearing Deposits at Banks	396,380		23,186		26,416
Investment Securities:	Investment Securities:							Investment Securities:
Available-for-Sale at Fair Value	Available-for-Sale at Fair Value	378,778		357,334		285,878		Available-for-Sale at Fair Value	374,928		357,334		314,182
Held-to-Maturity (Approximate Fair Value of $241,875,000 at June 30, 2020; $249,618,000 at December 31, 2019; and $266,068,000 at June 30, 2019)		233,517		245,065		262,541
Held-to-Maturity (Approximate Fair Value of $233,501 at September 30, 2020; $249,618 at December 31, 2019; and $259,128 at September 30, 2019)								Held-to-Maturity (Approximate Fair Value of $233,501 at September 30, 2020; $249,618 at December 31, 2019; and $259,128 at September 30, 2019)	224,799		245,065		255,095
Equity Securities	Equity Securities	1,583		2,063		1,850		Equity Securities	1,511		2,063		1,996
FHLB and Federal Reserve Bank Stock	FHLB and Federal Reserve Bank Stock	5,574		10,317		8,202		FHLB and Federal Reserve Bank Stock	5,574		10,317		6,627
Loans	Loans	2,561,915		2,386,120		2,280,308		Loans	2,592,455		2,386,120		2,335,591
Allowance for Loan Losses	Allowance for Loan Losses	(26,300)		(21,187)		(20,695)		Allowance for Loan Losses	(28,446)		(21,187)		(20,931)
Net Loans	Net Loans	2,535,615		2,364,933		2,259,613		Net Loans	2,564,009		2,364,933		2,314,660
Premises and Equipment, Net	Premises and Equipment, Net	41,231		40,629		38,836		Premises and Equipment, Net	42,075		40,629		40,228
Goodwill	Goodwill	21,873		21,873		21,873		Goodwill	21,873		21,873		21,873
Other Intangible Assets, Net	Other Intangible Assets, Net	1,662		1,661		1,730		Other Intangible Assets, Net	1,789		1,661		1,713
Other Assets	Other Assets	74,074		70,179		62,532		Other Assets	90,460		70,179		64,150
Total Assets	Total Assets	$	3,547,177	$	3,184,275	$	3,005,750	Total Assets	$	3,777,684	$	3,184,275	$	3,112,822
LIABILITIES	LIABILITIES							LIABILITIES
Noninterest-Bearing Deposits	Noninterest-Bearing Deposits	$	667,585	$	484,944	$	467,179	Noninterest-Bearing Deposits	$	690,232	$	484,944	$	516,876
Interest-Bearing Checking Accounts	Interest-Bearing Checking Accounts	791,521		689,221		741,395		Interest-Bearing Checking Accounts	912,980		689,221		801,446
Savings Deposits	Savings Deposits	1,262,102		1,046,568		908,642		Savings Deposits	1,354,956		1,046,568		929,691
Time Deposits over $250,000	Time Deposits over $250,000	130,935		123,968		97,220		Time Deposits over $250,000	112,555		123,968		96,770
Other Time Deposits	Other Time Deposits	216,630		271,353		289,317		Other Time Deposits	194,135		271,353		269,764
Total Deposits	Total Deposits	3,068,773		2,616,054		2,503,753		Total Deposits	3,264,858		2,616,054		2,614,547
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	47,599		51,099		51,149		Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	73,949		51,099		72,869
Federal Home Loan Bank Overnight Advances	Federal Home Loan Bank Overnight Advances	—		130,000		83,000		Federal Home Loan Bank Overnight Advances	0		130,000		48,000
Federal Home Loan Bank Term Advances	Federal Home Loan Bank Term Advances	50,000		30,000		30,000		Federal Home Loan Bank Term Advances	50,000		30,000		30,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		20,000		Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		20,000
Finance Leases	Finance Leases	5,239		5,254		5,270		Finance Leases	5,228		5,254		5,263
Other Liabilities	Other Liabilities	37,879		30,140		27,929		Other Liabilities	37,989		30,140		29,915
Total Liabilities	Total Liabilities	3,229,490		2,882,547		2,721,101		Total Liabilities	3,452,024		2,882,547		2,820,594
STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY							STOCKHOLDERS’ EQUITY
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at June 30, 2020, December 31, 2019 and June 30, 2019		—		—		—
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (19,606,449 Shares Issued at June 30, 2020 and December 31, 2019 and 19,035,565 at June 30, 2019)		19,606		19,606		19,035
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at September 30, 2020, December 31, 2019 and September 30, 2019								Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at September 30, 2020, December 31, 2019 and September 30, 2019	0		0		0
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (20,194,474 Shares Issued at September 30, 2020 and 19,606,449 at December 31, 2019 and September 30, 2019)								Common Stock, $1 Par Value; 30,000,000 Shares Authorized (20,194,474 Shares Issued at September 30, 2020 and 19,606,449 at December 31, 2019 and September 30, 2019)	20,194		19,606		19,606
Additional Paid-in Capital	Additional Paid-in Capital	336,643		335,355		316,229		Additional Paid-in Capital	353,062		335,355		334,597
Retained Earnings	Retained Earnings	42,704		33,218		39,397		Retained Earnings	33,434		33,218		27,375
Unallocated ESOP Shares (NaN at June 30, 2020 and December 31, 2019 and 5,001 Shares at June 30, 2019)		—		—		(100)
Unallocated ESOP Shares (NaN at September 30, 2020 and December 31, 2019 and 5,151 Shares at September 30, 2019)								Unallocated ESOP Shares (NaN at September 30, 2020 and December 31, 2019 and 5,151 Shares at September 30, 2019)	0		0		(100)
Accumulated Other Comprehensive Loss	Accumulated Other Comprehensive Loss	(276)		(6,357)		(9,647)		Accumulated Other Comprehensive Loss	(253)		(6,357)		(8,979)
Treasury Stock, at Cost (4,595,891 Shares at June 30, 2020; 4,608,258 Shares at December 31, 2019 and 4,517,412 Shares at June 30, 2019)		(80,990)		(80,094)		(80,265)
Treasury Stock, at Cost (4,705,102 Shares at September 30, 2020; 4,608,258 Shares at December 31, 2019 and 4,632,657 Shares at September 30, 2019)								Treasury Stock, at Cost (4,705,102 Shares at September 30, 2020; 4,608,258 Shares at December 31, 2019 and 4,632,657 Shares at September 30, 2019)	(80,777)		(80,094)		(80,271)
Total Stockholders’ Equity	Total Stockholders’ Equity	317,687		301,728		284,649		Total Stockholders’ Equity	325,660		301,728		292,228
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	3,547,177	$	3,184,275	$	3,005,750	Total Liabilities and Stockholders’ Equity	$	3,777,684	$	3,184,275	$	3,112,822

See Notes to Unaudited Interim Consolidated Financial Statements.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)


		Three Months Ended June 30						Six Months Ended June 30,							Three Months Ended September 30				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
INTEREST AND DIVIDEND INCOME	INTEREST AND DIVIDEND INCOME									INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans	Interest and Fees on Loans	$	25,077	$	23,520	$	49,951	$	45,923	Interest and Fees on Loans	$	24,706	$	24,620	$	74,657	$	70,543
Interest on Deposits at Banks	Interest on Deposits at Banks	41		195		165		390		Interest on Deposits at Banks	64		182		229		572
Interest and Dividends on Investment Securities:	Interest and Dividends on Investment Securities:									Interest and Dividends on Investment Securities:
Fully Taxable	Fully Taxable	1,871		2,284		4,064		4,653		Fully Taxable	1,557		2,018		5,621		6,671
Exempt from Federal Taxes	Exempt from Federal Taxes	1,013		1,228		2,048		2,474		Exempt from Federal Taxes	969		1,132		3,017		3,606
Total Interest and Dividend Income	Total Interest and Dividend Income	28,002		27,227		56,228		53,440		Total Interest and Dividend Income	27,296		27,952		83,524		81,392
INTEREST EXPENSE	INTEREST EXPENSE									INTEREST EXPENSE
Interest-Bearing Checking Accounts	Interest-Bearing Checking Accounts	310		453		797		935		Interest-Bearing Checking Accounts	264		500		1,061		1,435
Savings Deposits	Savings Deposits	1,173		2,008		3,644		3,609		Savings Deposits	806		2,317		4,450		5,926
Time Deposits over $250,000	Time Deposits over $250,000	438		515		971		911		Time Deposits over $250,000	292		451		1,263		1,362
Other Time Deposits	Other Time Deposits	784		1,131		1,784		1,844		Other Time Deposits	576		1,255		2,360		3,099
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	16		25		38		47		Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	17		28		55		75
Federal Home Loan Bank Advances	Federal Home Loan Bank Advances	217		1,099		646		2,693		Federal Home Loan Bank Advances	219		820		865		3,513
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	173		261		401		530		Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	173		250		574		780
Interest on Financing Leases	Interest on Financing Leases	49		28		99		43		Interest on Financing Leases	49		28		148		71
Total Interest Expense	Total Interest Expense	3,160		5,520		8,380		10,612		Total Interest Expense	2,396		5,649		10,776		16,261
NET INTEREST INCOME	NET INTEREST INCOME	24,842		21,707		47,848		42,828		NET INTEREST INCOME	24,900		22,303		72,748		65,131
Provision for Loan Losses	Provision for Loan Losses	3,040		455		5,812		927		Provision for Loan Losses	2,271		518		8,083		1,445
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	21,802		21,252		42,036		41,901		NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	22,629		21,785		64,665		63,686
NONINTEREST INCOME	NONINTEREST INCOME									NONINTEREST INCOME
Income From Fiduciary Activities	Income From Fiduciary Activities	2,135		2,252		4,348		4,359		Income From Fiduciary Activities	2,265		2,212		6,613		6,571
Fees for Other Services to Customers	Fees for Other Services to Customers	2,278		2,545		4,729		4,947		Fees for Other Services to Customers	2,619		2,623		7,348		7,570
Insurance Commissions	Insurance Commissions	1,732		1,935		3,364		3,654		Insurance Commissions	1,713		1,936		5,077		5,590
Net (Loss) Gain on Securities	Net (Loss) Gain on Securities	(106)		—		(480)		76		Net (Loss) Gain on Securities	(72)		146		(552)		222
Net Gain on Sales of Loans	Net Gain on Sales of Loans	547		140		760		244		Net Gain on Sales of Loans	1,433		257		2,193		501
Other Operating Income	Other Operating Income	578		24		2,137		503		Other Operating Income	739		517		2,876		1,020
Total Noninterest Income	Total Noninterest Income	7,164		6,896		14,858		13,783		Total Noninterest Income	8,697		7,691		23,555		21,474
NONINTEREST EXPENSE	NONINTEREST EXPENSE									NONINTEREST EXPENSE
Salaries and Employee Benefits	Salaries and Employee Benefits	10,212		9,727		20,595		19,046		Salaries and Employee Benefits	10,408		10,015		31,003		29,061
Occupancy Expenses, Net	Occupancy Expenses, Net	1,345		1,279		2,794		2,699		Occupancy Expenses, Net	1,427		1,324		4,221		4,023
Technology and Equipment Expense	Technology and Equipment Expense	3,227		3,243		6,579		6,384		Technology and Equipment Expense	3,228		3,305		9,807		9,689
FDIC Assessments	FDIC Assessments	242		212		461		424		FDIC Assessments	309		(480)		770		(56)
Other Operating Expense	Other Operating Expense	2,219		2,447		4,570		5,007		Other Operating Expense	2,115		2,627		6,685		7,634
Total Noninterest Expense	Total Noninterest Expense	17,245		16,908		34,999		33,560		Total Noninterest Expense	17,487		16,791		52,486		50,351
INCOME BEFORE PROVISION FOR INCOME TAXES	INCOME BEFORE PROVISION FOR INCOME TAXES	11,721		11,240		21,895		22,124		INCOME BEFORE PROVISION FOR INCOME TAXES	13,839		12,685		35,734		34,809
Provision for Income Taxes	Provision for Income Taxes	2,562		2,306		4,609		4,456		Provision for Income Taxes	2,793		2,618		7,402		7,074
NET INCOME	NET INCOME	$	9,159	$	8,934	$	17,286	$	17,668	NET INCOME	$	11,046	$	10,067	$	28,332	$	27,735
Average Shares Outstanding ¹:	Average Shares Outstanding ¹:									Average Shares Outstanding 1:
Basic	Basic	14,992		14,922		14,994		14,912		Basic	15,472		15,404		15,453		15,375
Diluted	Diluted	14,998		14,963		15,010		14,958		Diluted	15,481		15,441		15,467		15,417
Per Common Share:	Per Common Share:									Per Common Share:
Basic Earnings	Basic Earnings	$	0.61	$	0.60	$	1.15	$	1.19	Basic Earnings	$	0.71	$	0.65	$	1.83	$	1.80
Diluted Earnings	Diluted Earnings	0.61		0.60		1.15		1.18		Diluted Earnings	0.71		0.65		1.83		1.80

¹2019 Share and Per Share Amounts have been restated for the September ~~27, 2019~~25, 2020 3% stock dividend.

See Notes to Unaudited Interim Consolidated Financial Statements.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

~~Three Months Ended June 30~~

~~Six Months Ended June 30,~~

~~2020~~

~~2019~~

~~2020~~

~~2019~~

~~Net Income~~

~~9,159~~

~~8,934~~

~~17,286~~

~~17,668~~

~~Other Comprehensive Income, Net of Tax:~~

~~Net Unrealized Securities Holding Gains Arising During   the Period~~

~~2,021~~

~~1,744~~

~~6,119~~

~~3,824~~

Net Unrealized Gain (Loss) on Cash Flow Hedge
Agreements

—

~~(201)~~

—

~~Amortization of Net Retirement Plan Actuarial Loss~~

~~133~~

~~254~~

~~Amortization of Net Retirement Plan Prior Service Cost~~

~~Other Comprehensive Income~~

~~2,136~~

~~1,920~~

~~6,081~~

~~4,163~~

~~Comprehensive Income~~

~~11,295~~

~~10,854~~

~~23,367~~

~~21,831~~


	Three Months Ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
Net Income	$	11,046	$	10,067	$	28,332	$	27,735
Other Comprehensive Income, Net of Tax:
Net Unrealized Securities Holding (Losses) Gains Arising During the Period	(296)		499		5,823		4,323

Net Unrealized Gain on Cash Flow Hedge Agreements	238		0		37		0


Amortization of Net Retirement Plan Actuarial Loss	42		127		127		381
Amortization of Net Retirement Plan Prior Service Cost	39		42		117		127
Other Comprehensive Income	23		668		6,104		4,831
Comprehensive Income	$	11,069	$	10,735	$	34,436	$	32,566

See Notes to Unaudited Interim Consolidated Financial Statements.

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, 2020																											Nine Month Period Ended September 30, 2020
		Common Stock		Additional Paid-In Capital		Retained Earnings		Unallo-cated ESOP Shares		Accumu-lated Other Com- prehensive Loss		Treasury Stock		Total			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, 2019	Balance at December 31, 2019	$	19,606	$	335,355	$	33,218	$	—	$	(6,357)	$	(80,094)	$	301,728	Balance at December 31, 2019	$	19,606	$	335,355	$	33,218	$	0	$	(6,357)	$	(80,094)	$	301,728

Net Income	Net Income	—		—		17,286		—		—		—		17,286		Net Income	—		—		28,332		—		—		—		28,332
Other Comprehensive Income	Other Comprehensive Income	—		—		—		—		6,081		—		6,081		Other Comprehensive Income	—		—		—		—		6,104		—		6,104

Cash Dividends Paid, $.52 per Share		—		—		(7,800)		—		—		—		(7,800)
Stock Options Exercised, Net (17,155 Shares)		—		237		—		—		—		171		408
3% Stock Dividend (588,025 Shares)																3% Stock Dividend (588,025 Shares)	588		15,818		(16,406)		—		—		—		0
Cash Dividends Paid, $.757 per Share																Cash Dividends Paid, $.757 per Share	—		—		(11,710)		—		—		—		(11,710)
Stock Options Exercised, Net (26,039 Shares)																Stock Options Exercised, Net (26,039 Shares)	—		344		—		—		—		252		596
Shares Issued Under the Directors’ Stock Plan (4,245 Shares)	Shares Issued Under the Directors’ Stock Plan (4,245 Shares)	—		83		—		—		—		42		125		Shares Issued Under the Directors’ Stock Plan (4,245 Shares)	—		83		—		—		—		42		125
Shares Issued Under the Employee Stock Purchase Plan (8,958 Shares)		—		176		—		—		—		89		265
Shares Issued for Dividend Reinvestment Plans (32,030 Shares)		—		583		—		—		—		309		892
Shares Issued Under the Employee Stock Purchase Plan (13,697 Shares)																Shares Issued Under the Employee Stock Purchase Plan (13,697 Shares)	—		260		—		—		—		132		392
Shares Issued for Dividend Reinvestment Plans (48,473 Shares)																Shares Issued for Dividend Reinvestment Plans (48,473 Shares)	—		887		—		—		—		462		1,349
Stock-Based Compensation Expense	Stock-Based Compensation Expense	—		209		—		—		—		—		209		Stock-Based Compensation Expense	—		315		—		—		—		—		315

Purchase of Treasury Stock (50,021 Shares)		—		—		—		—		—		(1,507)		(1,507)
Purchase of Treasury Stock (52,257 Shares)																Purchase of Treasury Stock (52,257 Shares)	—		—		—		—		—		(1,571)		(1,571)

Balance at September 30, 2020																Balance at September 30, 2020	$	20,194	$	353,062	$	33,434	$	0	$	(253)	$	(80,777)	$	325,660

																	Three Month Period Ended September 30, 2020
																	Common Stock		Additional Paid-In Capital		Retained Earnings		Unallo-cated ESOP Shares		Accumu-lated Other Com- prehensive Loss		Treasury Stock		Total
Balance at June 30, 2020	Balance at June 30, 2020	$	19,606	$	336,643	$	42,704	$	—	$	(276)	$	(80,990)	$	317,687	Balance at June 30, 2020	$	19,606	$	336,643	$	42,704	$	0	$	(276)	$	(80,990)	$	317,687

		Three-Month Period Ended June 30, 2020
		Common Stock		Additional Paid-In Capital		Retained Earnings		Unallo-cated ESOP Shares		Accumu-lated Other Com- prehensive Loss		Treasury Stock		Total
Balance at March 31, 2020		$	19,606	$	336,021	$	37,441	$	—	$	(2,412)	$	(81,258)	$	309,398
Net Income	Net Income	—		—		9,159		—		—		—		9,159		Net Income	—		—		11,046		—		—		—		11,046
Other Comprehensive Income	Other Comprehensive Income	—		—		—		—		2,136		—		2,136		Other Comprehensive Income	—		—		—		—		23		—		23

3% Stock Dividend (588,025 Shares)																3% Stock Dividend (588,025 Shares)	588		15,818		(16,406)		—		—		—		0
Cash Dividends Paid, $.252 per Share																Cash Dividends Paid, $.252 per Share	—		—		(3,910)		—		—		—		(3,910)
Stock Options Exercised, Net (8,884 Shares)																Stock Options Exercised, Net (8,884 Shares)	—		107		—		—		—		81		188

Cash Dividends Paid, $.26 per Share		—		—		(3,896)		—		—		—		(3,896)
Stock Options Exercised, Net (2,873 Shares)		—		38		—		—		—		27		65
Shares Issued Under the Directors’ Stock Plan (4,245 Shares)		—		83		—		—		—		42		125
Shares Issued Under the Employee Stock Purchase Plan (5,310 Shares)		—		92		—		—		—		52		144
Shares Issued for Dividend Reinvestment Plans (16,029 Shares)		—		303		—		—		—		147		450
Shares Issued Under the Employee Stock Purchase Plan (4,739 Shares)																Shares Issued Under the Employee Stock Purchase Plan (4,739 Shares)	—		84		—		—		—		43		127
Shares Issued for Dividend Reinvestment Plans (16,443 Shares)																Shares Issued for Dividend Reinvestment Plans (16,443 Shares)	—		304		—		—		—		153		457
Stock-Based Compensation Expense	Stock-Based Compensation Expense	—		106		—		—		—		—		106		Stock-Based Compensation Expense	—		106		—		—		—		—		106

Purchase of Treasury Stock (2,236 Shares)																Purchase of Treasury Stock (2,236 Shares)	—		—		—		—		—		(64)		(64)

Balance at September 30, 2020																Balance at September 30, 2020	$	20,194	$	353,062	$	33,434	$	0	$	(253)	$	(80,777)	$	325,660

Balance at June 30, 2020		$	19,606	$	336,643	$	42,704	$	—	$	(276)	$	(80,990)	$	317,687

Six-Month Period Ended June 30, 2019
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 — — 17,668 — — — 17,668
Other Comprehensive Loss — — — — 4,163 — 4,163
Cash Dividends Paid, $.505 per Share ¹
— — (7,528) — — — (7,528)
Stock Options Exercised, Net (62,712 Shares) — 638 — — — 687 1,325
Shares Issued Under the Directors’ Stock
  Plan (3,997 Shares)
— 86 — — — 44 130
Shares Issued Under the Employee Stock
  Purchase Plan (7,948 Shares)
— 163 — — — 87 250
Shares Issued for Dividend
  Reinvestment Plans (26,698 Shares)
— 615 — — — 289 904
Stock-Based Compensation Expense — 194 — — — — 194
Purchase of Treasury Stock
(60,560 Shares)
— — — — — (2,041) (2,041)
Balance at June 30, 2019 $ 19,035 $ 316,229 $ 39,397 $ (100) $ (9,647) $ (80,265) $ 284,649


	Nine Month Period Ended September 30, 2019
	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	—		—		27,735		—		—		—		27,735
Other Comprehensive Income	—		—		—		—		4,831		—		4,831


3% Stock Dividend (570,884 Shares)	571		17737		(18,308)		—		—		—		0
Cash Dividends Paid, $.735 per Share 1	—		—		(11,309)		—		—		—		(11,309)
Stock Options Exercised, Net (76,775 Shares)	—		802		—		—		—		838		1,640
Shares Issued Under the Directors’ Stock Plan (3,997 Shares)	—		86		—		—		—		44		130
Shares Issued Under the Employee Stock Purchase Plan (11,403 Shares)	—		236		—		—		—		124		360
Shares Issued for Dividend Reinvestment Plans (39,078 Shares)	—		911		—		—		—		422		1,333
Stock-Based Compensation Expense	—		292		—		—		—		—		292

Purchase of Treasury Stock (70,711 Shares)	—		—		—		—		—		(2,368)		(2,368)


Balance at September 30, 2019	$	19,606	$	334,597	$	27,375	$	(100)	$	(8,979)	$	(80,271)	$	292,228

Three-Month Period Ended June 30, 2019
Common
Stock Additional
Paid-In
Capital Retained
Earnings Unallo-cated ESOP
Shares Accumu-lated
Other Com-
prehensive
Loss Treasury
Stock Total
Balance at March 31, 2019 $ 19,035 $ 315,262 $ 34,231 $ (100) $ (11,567) $ (80,252) $ 276,609
Net Income — — 8,934 — — — 8,934
Other Comprehensive Loss — — — — 1,920 — 1,920
Cash Dividends Paid, $.252 per Share ¹
— — (3,768) — — — (3,768)
Stock Options Exercised, Net (36,577 Shares) — 389 — — — 401 790
Shares Issued Under the Directors’ Stock
  Plan (3,997 Shares)
— 86 — — — 44 130
Shares Issued Under the Employee Stock
  Purchase Plan (4,239 Shares)
— 87 — — — 46 133
Shares Issued for Dividend
  Reinvestment Plans (13,566 Shares)
— 306 — — — 145 451
Stock-Based Compensation Expense — 99 — — — — 99
Purchase of Treasury Stock
(19,708 Shares)
— — — — — (649) (649)
Balance at June 30, 2019 $ 19,035 $ 316,229 $ 39,397 $ (100) $ (9,647) $ (80,265) $ 284,649


	Three Month Period Ended September 30, 2019
	Common Stock		Additional Paid-In Capital		Retained Earnings		Unallo-cated ESOP Shares		Accumu-lated Other Com- prehensive Loss		Treasury Stock		Total
Balance at June 30, 2019	$	19,035	$	316,229	$	39,397	$	(100)	$	(9,647)	$	(80,265)	$	284,649
Net Income	—		—		10,067		—		—		—		10,067
Other Comprehensive Income	—		—		—		—		668		—		668


3% Stock Dividend (570,884 Shares)	571		17,737		(18,308)		—		—		—		0
Cash Dividends Paid, $.245 per Share 1	—		—		(3,781)		—		—		—		(3,781)
Stock Options Exercised, Net (14,063 Shares)	—		164		—		—		—		151		315

Shares Issued Under the Employee Stock Purchase Plan (3,455 Shares)	—		73		—		—		—		37		110
Shares Issued for Dividend Reinvestment Plans (12,380 Shares)	—		296		—		—		—		133		429
Stock-Based Compensation Expense	—		98		—		—		—		—		98

Purchase of Treasury Stock (10,151 Shares)	—		—		—		—		—		(327)		(327)


Balance at September 30, 2019	$	19,606	$	334,597	$	27,375	$	(100)	$	(8,979)	$	(80,271)	$	292,228

¹ Cash dividends paid per share have been adjusted for the September ~~27, 2019~~25, 2020 3% stock dividend.

See Notes to Unaudited Interim Consolidated Financial Statements.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)


		Six Months Ended June 30,							Nine Months Ended September 30,
Cash Flows from Operating Activities:	Cash Flows from Operating Activities:	2020		2019		Cash Flows from Operating Activities:	2020		2019
Net Income	Net Income	$	17,286	$	17,668	Net Income	$	28,332	$	27,735
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:	Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:					Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses	Provision for Loan Losses	5,812		927		Provision for Loan Losses	8,083		1,445
Depreciation and Amortization	Depreciation and Amortization	3,499		2,516		Depreciation and Amortization	4,669		3,994

Net Loss (Gain) on Securities Transactions	Net Loss (Gain) on Securities Transactions	480		(76)		Net Loss (Gain) on Securities Transactions	552		(222)
Loans Originated and Held-for-Sale	Loans Originated and Held-for-Sale	(33,590)		(10,310)		Loans Originated and Held-for-Sale	(60,335)		(20,612)
Proceeds from the Sale of Loans Held-for-Sale	Proceeds from the Sale of Loans Held-for-Sale	22,493		9,336		Proceeds from the Sale of Loans Held-for-Sale	52,099		19,424
Net Gain on the Sale of Loans	Net Gain on the Sale of Loans	(760)		(244)		Net Gain on the Sale of Loans	(2,193)		(501)
Net (Gain) Loss on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	Net (Gain) Loss on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	(97)		432		Net (Gain) Loss on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	(157)		798
Contributions to Retirement Benefit Plans	Contributions to Retirement Benefit Plans	(370)		(324)		Contributions to Retirement Benefit Plans	(540)		(492)
Deferred Income Tax Benefit	Deferred Income Tax Benefit	(1,742)		(569)		Deferred Income Tax Benefit	(2,255)		(644)
Shares Issued Under the Directors’ Stock Plan	Shares Issued Under the Directors’ Stock Plan	125		130		Shares Issued Under the Directors’ Stock Plan	125		130
Stock-Based Compensation Expense	Stock-Based Compensation Expense	209		194		Stock-Based Compensation Expense	315		292
Tax Benefit from Exercise of Stock Options	Tax Benefit from Exercise of Stock Options	33		179		Tax Benefit from Exercise of Stock Options	41		199
Net Increase in Other Assets	Net Increase in Other Assets	(1,086)		(2,062)		Net Increase in Other Assets	(5,924)		(9,302)
Net Increase in Other Liabilities	Net Increase in Other Liabilities	3,564		3,294		Net Increase in Other Liabilities	4,751		10,480
Net Cash Provided By Operating Activities	Net Cash Provided By Operating Activities	15,856		21,091		Net Cash Provided By Operating Activities	27,563		32,724
Cash Flows from Investing Activities:	Cash Flows from Investing Activities:					Cash Flows from Investing Activities:

Proceeds from the Maturities and Calls of Securities Available-for-Sale	Proceeds from the Maturities and Calls of Securities Available-for-Sale	42,640		51,686		Proceeds from the Maturities and Calls of Securities Available-for-Sale	75,449		79,077
Purchases of Securities Available-for-Sale	Purchases of Securities Available-for-Sale	(56,832)		(15,390)		Purchases of Securities Available-for-Sale	(86,832)		(70,418)

Proceeds from the Maturities and Calls of Securities Held-to-Maturity	Proceeds from the Maturities and Calls of Securities Held-to-Maturity	16,186		22,608		Proceeds from the Maturities and Calls of Securities Held-to-Maturity	26,570		31,161
Purchases of Securities Held-to-Maturity	Purchases of Securities Held-to-Maturity	(5,006)		(2,095)		Purchases of Securities Held-to-Maturity	(6,848)		(3,398)
Net Increase in Loans	Net Increase in Loans	(164,764)		(84,695)		Net Increase in Loans	(197,577)		(140,360)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	804		779		Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	2,332		1,282
Purchase of Premises and Equipment	Purchase of Premises and Equipment	(2,040)		(4,389)		Purchase of Premises and Equipment	(3,639)		(6,698)

Net Decrease in Other Investments	Net Decrease in Other Investments	4,743		7,304		Net Decrease in Other Investments	4,743		8,879

Purchase of Bank Owned Life Insurance						Purchase of Bank Owned Life Insurance	(12,000)		0
Net Cash Used By Investing Activities	Net Cash Used By Investing Activities	(164,269)		(24,192)		Net Cash Used By Investing Activities	(197,802)		(100,475)
Cash Flows from Financing Activities:	Cash Flows from Financing Activities:					Cash Flows from Financing Activities:
Net Increase in Deposits	Net Increase in Deposits	452,719		158,169		Net Increase in Deposits	648,804		268,963
Net Decrease in Short-Term Federal Home Loan Bank Borrowings	Net Decrease in Short-Term Federal Home Loan Bank Borrowings	(130,000)		(151,000)		Net Decrease in Short-Term Federal Home Loan Bank Borrowings	(130,000)		(186,000)
Net Decrease in Short-Term Borrowings		(3,500)		(3,510)
Net Increase in Short-Term Borrowings						Net Increase in Short-Term Borrowings	22,850		18,210
Finance Lease Payments	Finance Lease Payments	(15)		(12)		Finance Lease Payments	(26)		(19)
Federal Home Loan Bank Advances	Federal Home Loan Bank Advances	40,000		—		Federal Home Loan Bank Advances	40,000		0
Repayments of Federal Home Loan Bank Term Advances	Repayments of Federal Home Loan Bank Term Advances	(20,000)		(15,000)		Repayments of Federal Home Loan Bank Term Advances	(20,000)		(15,000)
Purchase of Treasury Stock	Purchase of Treasury Stock	(1,507)		(2,041)		Purchase of Treasury Stock	(1,571)		(2,368)
Stock Options Exercised, Net	Stock Options Exercised, Net	408		1,325		Stock Options Exercised, Net	596		1,640
Shares Issued Under the Employee Stock Purchase Plan	Shares Issued Under the Employee Stock Purchase Plan	265		250		Shares Issued Under the Employee Stock Purchase Plan	392		360

Shares Issued for Dividend Reinvestment Plans	Shares Issued for Dividend Reinvestment Plans	892		904		Shares Issued for Dividend Reinvestment Plans	1,349		1,333

Cash Dividends Paid	Cash Dividends Paid	(7,800)		(7,528)		Cash Dividends Paid	(11,710)		(11,309)
Net Cash Provided (Used) By Financing Activities		331,462		(18,443)
Net Increase (Decrease) in Cash and Cash Equivalents		183,049		(21,544)
Net Cash Provided By Financing Activities						Net Cash Provided By Financing Activities	550,684		75,810
Net Increase in Cash and Cash Equivalents						Net Increase in Cash and Cash Equivalents	380,445		8,059
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	70,221		84,239		Cash and Cash Equivalents at Beginning of Period	70,221		84,239
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	253,270	$	62,695	Cash and Cash Equivalents at End of Period	$	450,666	$	92,298

Supplemental Disclosures to Statements of Cash Flow Information:	Supplemental Disclosures to Statements of Cash Flow Information:					Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings	Interest on Deposits and Borrowings	$	8,896	$	9,990	Interest on Deposits and Borrowings	$	11,367	$	15,329
Income Taxes	Income Taxes	5,044		5,031		Income Taxes	8,369		7,131
Non-cash Investing and Financing Activity:	Non-cash Investing and Financing Activity:					Non-cash Investing and Financing Activity:
Transfer of Loans to Other Real Estate Owned and Repossessed Assets	Transfer of Loans to Other Real Estate Owned and Repossessed Assets	133		1,098		Transfer of Loans to Other Real Estate Owned and Repossessed Assets	711		1,530

See Notes to Unaudited Interim Consolidated Financial Statements.

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 ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019; the results of operations for the three and ~~six-month~~nine month periods ended ~~June~~September 30, 2020 and 2019; the consolidated statements of comprehensive income for the ~~six-month~~three and nine month periods ended ~~June~~September 30, 2020 and 2019; the changes in stockholders' equity for the three and ~~six-month~~nine month periods ended ~~June~~September 30, 2020 and 2019; and the cash flows for the ~~six-month~~nine month periods ended ~~June~~September 30, 2020 and 2019. 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 (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 the Company's right-of-use lease assets, goodwill and intangible assets. Our most significant estimate is the allowance for loan losses. Other estimates include the evaluation of other-than-temporary impairment of investment securities, pension and other post-retirement 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, 2019 included in Arrow's Annual Report on Form 10-K for the year ended December 31, 2019.

The following accounting standards have been adopted in the first ~~six~~nine months of 2020:

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-13 "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" as part of its disclosure framework, and pursuant to which FASB has eliminated, amended and added disclosure requirements for fair value measurements. For Arrow, the standard became effective, on a prospective basis, on January 1, 2020. The adoption of this change in fair value disclosure did not have a material impact on its financial position or the results of operations in the period subsequent to its adoption.

In August 2018, the FASB issued Accounting Standards Update (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 currently often expensed under US GAAP. For Arrow, the standard was adopted, on a prospective basis, on January 1, 2020. The adoption of this standard did not have a material impact on its financial position or the results of operations in the period subsequent to its adoption.

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("ASU 2018-17"). ASU 2018-17 provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. For Arrow, the standard was effective on January 1, 2020 and the adoption of this standard did not have a material impact on its financial position or the results of operations in the period subsequent to its adoption.

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 ("ASU 2020-04"). ASU 2020-04 provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued, such as LIBOR. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022), and provides optional relief for contract modifications, hedge accounting and Held-to-maturity debt securities. For Arrow, this standard was effective January 1, 2020 and can be applied prospectively beginning January 1, 2020 for contract modifications and hedging relationships. The one-time election to sell and/or transfer securities classified as Held-to-maturity may be made at any point after March 12, 2020. Arrow is evaluating the impact of this standard as it will provide relief for contracts currently tied to LIBOR and hedge accounting relationships.

Note 2. INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019:


Available-For-Sale Securities	Available-For-Sale Securities																				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			U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities		Corporate and Other Debt Securities			Total Available- For-Sale Securities
June 30, 2020
September 30, 2020												September 30, 2020
Available-For-Sale Securities, at Amortized Cost	Available-For-Sale Securities, at Amortized Cost	$	5,002	$	593	$	363,339	$	1,000	$	369,934	Available-For-Sale Securities, at Amortized Cost	$	35,001	$	593	$	329,887	$	1,000		$	366,481
Gross Unrealized Gains	Gross Unrealized Gains	190		—		9,278		—		9,468		Gross Unrealized Gains	184		0		8,700		0			8,884
Gross Unrealized Losses	Gross Unrealized Losses	—		—		(424)		(200)		(624)		Gross Unrealized Losses	(18)		0		(219)		(200)			(437)
Available-For-Sale Securities, at Fair Value	Available-For-Sale Securities, at Fair Value	5,192		593		372,193		800		378,778		Available-For-Sale Securities, at Fair Value	35,167		593		338,368		800			374,928
Available-For-Sale Securities, Pledged as Collateral, at Fair Value	Available-For-Sale Securities, Pledged as Collateral, at Fair Value									240,747		Available-For-Sale Securities, Pledged as Collateral, at Fair Value										308,879

Maturities of Debt Securities, at Amortized Cost:	Maturities of Debt Securities, at Amortized Cost:											Maturities of Debt Securities, at Amortized Cost:
Within One Year	Within One Year	$	—	$	68	$	10,777	$	—	$	10,845	Within One Year	$	0	$	68	$	7,383	$	0		$	7,451
From 1 - 5 Years	From 1 - 5 Years	5,002		125		326,971		—		332,098		From 1 - 5 Years	20,001		125		297,144		0			317,270
From 5 - 10 Years	From 5 - 10 Years	—		400		25,591		1,000		26,991		From 5 - 10 Years	15,000		400		25,360		1,000			41,760
Over 10 Years	Over 10 Years	—		—		—		—		—		Over 10 Years	0		0		0		0			0

Maturities of Debt Securities, at Fair Value:	Maturities of Debt Securities, at Fair Value:											Maturities of Debt Securities, at Fair Value:
Within One Year	Within One Year	$	—	$	68	$	11,079	$	—	$	11,147	Within One Year	$	—	$	68	$	7,575	$	0		$	7,643
From 1 - 5 Years	From 1 - 5 Years	5,192		125		335,672		—		340,989		From 1 - 5 Years	20,171		125		305,562		0			325,858
From 5 - 10 Years	From 5 - 10 Years	—		400		25,442		800		26,642		From 5 - 10 Years	14,996		400		25,231		800			41,427
Over 10 Years	Over 10 Years	—		—		—		—		—		Over 10 Years	0		0		0		0			0

Securities in a Continuous Loss Position, at Fair Value:	Securities in a Continuous Loss Position, at Fair Value:											Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	Less than 12 Months	$	—	$	—	$	28,008	$	—	$	28,008	Less than 12 Months	$	29,982	$	0	$	13,847	$	0		$	43,829
12 Months or Longer	12 Months or Longer	—		—		57,482		800		58,282		12 Months or Longer	0		0		54,239		800			55,039
Total	Total	$	—	$	—	$	85,490	$	800	$	86,290	Total	$	29,982	$	0	$	68,086	$	800		$	98,868
Number of Securities in a Continuous Loss Position	Number of Securities in a Continuous Loss Position	—		—		27		1		28		Number of Securities in a Continuous Loss Position	4		0		26		1			31

Unrealized Losses on Securities in a Continuous Loss Position:	Unrealized Losses on Securities in a Continuous Loss Position:											Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	Less than 12 Months	$	—	$	—	$	82	$	—	$	82	Less than 12 Months	$	18	$	0	$	36	$	0		$	54
12 Months or Longer	12 Months or Longer	—		—		342		200		542		12 Months or Longer	0		0		183		200			383
Total	Total	$	—	$	—	$	424	$	200	$	624	Total	$	18	$	0	$	219	$	200		$	437

Disaggregated Details:	Disaggregated Details:											Disaggregated Details:

US Agency Obligations, at Amortized Cost	US Agency Obligations, at Amortized Cost	$	5,002									US Agency Obligations, at Amortized Cost	$	35,001
US Agency Obligations, at Fair Value	US Agency Obligations, at Fair Value	5,192										US Agency Obligations, at Fair Value	35,167
US Government Agency Securities, at Amortized Cost	US Government Agency Securities, at Amortized Cost					$	73,546					US Government Agency Securities, at Amortized Cost					$	69,575
US Government Agency Securities, at Fair Value	US Government Agency Securities, at Fair Value					73,193						US Government Agency Securities, at Fair Value					69,407
Government Sponsored Entity Securities, at Amortized Cost	Government Sponsored Entity Securities, at Amortized Cost					289,793						Government Sponsored Entity Securities, at Amortized Cost					260,312
Government Sponsored Entity Securities, at Fair Value	Government Sponsored Entity Securities, at Fair Value					299,000						Government Sponsored Entity Securities, at Fair Value					268,961


Available-For-Sale Securities	Available-For-Sale Securities																				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			U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities		Corporate and Other Debt Securities			Total Available- For-Sale Securities
December 31, 2019	December 31, 2019											December 31, 2019
Available-For-Sale Securities, at Amortized Cost	Available-For-Sale Securities, at Amortized Cost	$	5,002	$	764	$	349,944	$	1,000	$	356,710	Available-For-Sale Securities, at Amortized Cost	$	5,002	$	764	$	349,944	$	1,000		$	356,710
Gross Unrealized Gains	Gross Unrealized Gains	52		—		1,852		—		1,904		Gross Unrealized Gains	52		0		1,852		0			1,904
Gross Unrealized Losses	Gross Unrealized Losses	—		—		(1,080)		(200)		(1,280)		Gross Unrealized Losses	0		0		(1,080)		(200)			(1,280)
Available-For-Sale Securities, at Fair Value	Available-For-Sale Securities, at Fair Value	5,054		764		350,716		800		357,334		Available-For-Sale Securities, at Fair Value	5,054		764		350,716		800			357,334
Available-For-Sale Securities, Pledged as Collateral, at Fair Value	Available-For-Sale Securities, Pledged as Collateral, at Fair Value									164,426		Available-For-Sale Securities, Pledged as Collateral, at Fair Value										164,426

Securities in a Continuous Loss Position, at Fair Value:	Securities in a Continuous Loss Position, at Fair Value:											Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	Less than 12 Months	$	—	$	—	$	52,491	$	—	$	52,491	Less than 12 Months	$	0	$	0	$	52,491	$	0		$	52,491
12 Months or Longer	12 Months or Longer	—		—		97,164		800		97,964		12 Months or Longer	0		0		97,164		800			97,964
Total	Total	$	—	$	—	$	149,655	$	800	$	150,455	Total	$	0	$	0	$	149,655	$	800		$	150,455
Number of Securities in a Continuous Loss Position	Number of Securities in a Continuous Loss Position	—		—		54		1		55		Number of Securities in a Continuous Loss Position	0		0		54		1			55

Unrealized Losses on Securities in a Continuous Loss Position:	Unrealized Losses on Securities in a Continuous Loss Position:											Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	Less than 12 Months	$	—	$	—	$	317	$	—	$	317	Less than 12 Months	$	0	$	0	$	317	$	0		$	317
12 Months or Longer	12 Months or Longer	—		—		763		200		963		12 Months or Longer	0		0		763		200			963
Total	Total	$	—	$	—	$	1,080	$	200	$	1,280	Total	$	0	$	0	$	1,080	$	200		$	1,280

Disaggregated Details:	Disaggregated Details:											Disaggregated Details:

US Agency Obligations, at Amortized Cost	US Agency Obligations, at Amortized Cost	$	5,002									US Agency Obligations, at Amortized Cost	$	5,002
US Agency Obligations, at Fair Value	US Agency Obligations, at Fair Value	5,054										US Agency Obligations, at Fair Value	5,054
US Government Agency Securities, at Amortized Cost	US Government Agency Securities, at Amortized Cost					$	61,102					US Government Agency Securities, at Amortized Cost					$	61,102
US Government Agency Securities, at Fair Value	US Government Agency Securities, at Fair Value					60,616						US Government Agency Securities, at Fair Value					60,616
Government Sponsored Entity Securities, at Amortized Cost	Government Sponsored Entity Securities, at Amortized Cost					288,842						Government Sponsored Entity Securities, at Amortized Cost					288,842
Government Sponsored Entity Securities, at Fair Value	Government Sponsored Entity Securities, at Fair Value					290,100						Government Sponsored Entity Securities, at Fair Value					290,100


Available-For-Sale Securities	Available-For-Sale Securities																				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			U.S. Government & Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities		Corporate and Other Debt Securities			Total Available- For-Sale Securities
June 30, 2019
September 30, 2019												September 30, 2019
Available-For-Sale Securities, at Amortized Cost	Available-For-Sale Securities, at Amortized Cost	$	17,506	$	965	$	266,235	$	1,000	$	285,706	Available-For-Sale Securities, at Amortized Cost	$	5,003	$	965	$	306,374	$	1,000		$	313,342
Gross Unrealized Gains	Gross Unrealized Gains	31		2		1,293		—		1,326		Gross Unrealized Gains	53		0		1,482		0			1,535
Gross Unrealized Losses	Gross Unrealized Losses	(13)		—		(941)		(200)		(1,154)		Gross Unrealized Losses	0		0		(495)		(200)			(695)
Available-For-Sale Securities, at Fair Value	Available-For-Sale Securities, at Fair Value	17,524		967		266,587		800		285,878		Available-For-Sale Securities, at Fair Value	5,056		965		307,361		800			314,182
Available-For-Sale Securities, Pledged as Collateral, at Fair Value	Available-For-Sale Securities, Pledged as Collateral, at Fair Value									246,202		Available-For-Sale Securities, Pledged as Collateral, at Fair Value										232,043

Securities in a Continuous Loss Position, at Fair Value:	Securities in a Continuous Loss Position, at Fair Value:											Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	Less than 12 Months	$	35	$	—	$	24,948	$	—	$	24,983	Less than 12 Months	$	0	$	0	$	4,763	$	0		$	4,763
12 Months or Longer	12 Months or Longer	12,454		—		130,229		800		143,483		12 Months or Longer	0		0		114,483		800			115,283
Total	Total	$	12,489	$	—	$	155,177	$	800	$	168,466	Total	$	0	$	0	$	119,246	$	800		$	120,046
Number of Securities in a Continuous Loss Position	Number of Securities in a Continuous Loss Position	2		—		61		1		64		Number of Securities in a Continuous Loss Position	0		0		48		1			49

Unrealized Losses on Securities in a Continuous Loss Position:	Unrealized Losses on Securities in a Continuous Loss Position:											Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	Less than 12 Months	$	—	$	—	$	234	$	—	$	234	Less than 12 Months	$	0	$	0	$	70	$	0		$	70
12 Months or Longer	12 Months or Longer	13		—		707		200		920		12 Months or Longer	0		0		425		200			625
Total	Total	$	13	$	—	$	941	$	200	$	1,154	Total	$	0	$	0	$	495	$	200		$	695

Disaggregated Details:	Disaggregated Details:											Disaggregated Details:

US Agency Obligations, at Amortized Cost	US Agency Obligations, at Amortized Cost	$	17,506									US Agency Obligations, at Amortized Cost	$	5,003
US Agency Obligations, at Fair Value	US Agency Obligations, at Fair Value	17,524										US Agency Obligations, at Fair Value	5,056
US Government Agency Securities, at Amortized Cost	US Government Agency Securities, at Amortized Cost					$	67,760					US Government Agency Securities, at Amortized Cost					$	64,455
US Government Agency Securities, at Fair Value	US Government Agency Securities, at Fair Value					67,613						US Government Agency Securities, at Fair Value					64,364
Government Sponsored Entity Securities, at Amortized Cost	Government Sponsored Entity Securities, at Amortized Cost					198,475						Government Sponsored Entity Securities, at Amortized Cost					241,919
Government Sponsored Entity Securities, at Fair Value	Government Sponsored Entity Securities, at Fair Value					198,974						Government Sponsored Entity Securities, at Fair Value					242,997

The following table is the schedule of Held-To-Maturity Securities at ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019:


Held-To-Maturity Securities	Held-To-Maturity Securities												Held-To-Maturity Securities
		State and Municipal Obligations		Mortgage- Backed Securities		Total Held-To Maturity Securities			State and Municipal Obligations		Mortgage- Backed Securities			Total Held-To Maturity Securities
June 30, 2020
September 30, 2020								September 30, 2020
Held-To-Maturity Securities, at Amortized Cost	Held-To-Maturity Securities, at Amortized Cost	$	201,592	$	31,925	$	233,517	Held-To-Maturity Securities, at Amortized Cost	$	195,735	$	29,064		$	224,799
Gross Unrealized Gains	Gross Unrealized Gains	7,056		1,438		8,494		Gross Unrealized Gains	7,488		1,257			8,745
Gross Unrealized Losses	Gross Unrealized Losses	(136)		—		(136)		Gross Unrealized Losses	(43)		0			(43)
Held-To-Maturity Securities, at Fair Value	Held-To-Maturity Securities, at Fair Value	208,512		33,363		241,875		Held-To-Maturity Securities, at Fair Value	203,180		30,321			233,501
Held-To-Maturity Securities, Pledged as Collateral, at Fair Value	Held-To-Maturity Securities, Pledged as Collateral, at Fair Value					227,528		Held-To-Maturity Securities, Pledged as Collateral, at Fair Value						221,844

Maturities of Debt Securities, at Amortized Cost:	Maturities of Debt Securities, at Amortized Cost:							Maturities of Debt Securities, at Amortized Cost:
Within One Year	Within One Year	$	19,115	$	3,800	$	22,915	Within One Year	$	15,605	$	4,685		$	20,290
From 1 - 5 Years	From 1 - 5 Years	138,225		28,125		166,350		From 1 - 5 Years	138,412		24,379			162,791
From 5 - 10 Years	From 5 - 10 Years	43,189		—		43,189		From 5 - 10 Years	40,656		0			40,656
Over 10 Years	Over 10 Years	1,063		—		1,063		Over 10 Years	1,062		0			1,062

Maturities of Debt Securities, at Fair Value:	Maturities of Debt Securities, at Fair Value:							Maturities of Debt Securities, at Fair Value:
Within One Year	Within One Year	$	19,199	$	3,933	$	23,132	Within One Year	$	15,677	$	4,812		$	20,489
From 1 - 5 Years	From 1 - 5 Years	142,973		29,430		172,403		From 1 - 5 Years	143,598		25,509			169,107
From 5 - 10 Years	From 5 - 10 Years	45,260		—		45,260		From 5 - 10 Years	42,825		0			42,825
Over 10 Years	Over 10 Years	1,080		—		1,080		Over 10 Years	1,080		0			1,080

Securities in a Continuous Loss Position, at Fair Value:	Securities in a Continuous Loss Position, at Fair Value:							Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	Less than 12 Months	$	1,433	$	—	$	1,433	Less than 12 Months	$	1,476	$	0		$	1,476
12 Months or Longer	12 Months or Longer	1,358		—		1,358		12 Months or Longer	0		0			0
Total	Total	$	2,791	$	—	$	2,791	Total	$	1,476	$	0		$	1,476

Number of Securities in a Continuous Loss Position	Number of Securities in a Continuous Loss Position	8		—		8		Number of Securities in a Continuous Loss Position	4		0			4

Unrealized Losses on Securities in a Continuous Loss Position:	Unrealized Losses on Securities in a Continuous Loss Position:							Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	Less than 12 Months	$	87	$	—	$	87	Less than 12 Months	$	42	$	0		$	42
12 Months or Longer	12 Months or Longer	49		—		49		12 Months or Longer	1		0			1
Total	Total	$	136	$	—	$	136	Total	$	43	$	0		$	43

Disaggregated Details:	Disaggregated Details:							Disaggregated Details:
US Government Agency Securities, at Amortized Cost	US Government Agency Securities, at Amortized Cost			$	11,706			US Government Agency Securities, at Amortized Cost			$	10,669
US Government Agency Securities, at Fair Value	US Government Agency Securities, at Fair Value			12,131				US Government Agency Securities, at Fair Value			11,049
Government Sponsored Entity Securities, at Amortized Cost	Government Sponsored Entity Securities, at Amortized Cost			20,219				Government Sponsored Entity Securities, at Amortized Cost			18,395
Government Sponsored Entity Securities, at Fair Value	Government Sponsored Entity Securities, at Fair Value			21,232				Government Sponsored Entity Securities, at Fair Value			19,272


Held-To-Maturity Securities	Held-To-Maturity Securities												Held-To-Maturity Securities
		State and Municipal Obligations		Mortgage- Backed Securities		Total Held-To Maturity Securities			State and Municipal Obligations		Mortgage- Backed Securities			Total Held-To Maturity Securities
December 31, 2019	December 31, 2019							December 31, 2019
Held-To-Maturity Securities, at Amortized Cost	Held-To-Maturity Securities, at Amortized Cost	$	208,243	$	36,822	$	245,065	Held-To-Maturity Securities, at Amortized Cost	$	208,243	$	36,822		$	245,065
Gross Unrealized Gains	Gross Unrealized Gains	4,170		477		4,647		Gross Unrealized Gains	4,170		477			4,647
Gross Unrealized Losses	Gross Unrealized Losses	(94)		—		(94)		Gross Unrealized Losses	(94)		0			(94)
Held-To-Maturity Securities, at Fair Value	Held-To-Maturity Securities, at Fair Value	212,319		37,299		249,618		Held-To-Maturity Securities, at Fair Value	212,319		37,299			249,618
Held-To-Maturity Securities, Pledged as Collateral, at Fair Value	Held-To-Maturity Securities, Pledged as Collateral, at Fair Value					237,969		Held-To-Maturity Securities, Pledged as Collateral, at Fair Value						237,969

Securities in a Continuous Loss Position, at Fair Value:	Securities in a Continuous Loss Position, at Fair Value:							Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	Less than 12 Months	$	1,438	$	—	$	1,438	Less than 12 Months	$	1,438	$	0		$	1,438
12 Months or Longer	12 Months or Longer	1,994		—		1,994		12 Months or Longer	1,994		0			1,994
Total	Total	$	3,432	$	—	$	3,432	Total	$	3,432	$	0		$	3,432
Number of Securities in a Continuous Loss Position	Number of Securities in a Continuous Loss Position	10		—		10		Number of Securities in a Continuous Loss Position	10		0			10

Unrealized Losses on Securities in a Continuous Loss Position:	Unrealized Losses on Securities in a Continuous Loss Position:							Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	Less than 12 Months	$	85	$	—	$	85	Less than 12 Months	$	85	$	0		$	85
12 Months or Longer	12 Months or Longer	9		—		9		12 Months or Longer	9		0			9
Total	Total	$	94	$	—	$	94	Total	$	94	$	0		$	94

Disaggregated Details:	Disaggregated Details:							Disaggregated Details:
US Government Agency Securities, at Amortized Cost	US Government Agency Securities, at Amortized Cost			$	1,703			US Government Agency Securities, at Amortized Cost			$	1,703
US Government Agency Securities, at Fair Value	US Government Agency Securities, at Fair Value			1,720				US Government Agency Securities, at Fair Value			1,720
Government Sponsored Entity Securities, at Amortized Cost	Government Sponsored Entity Securities, at Amortized Cost			35,119				Government Sponsored Entity Securities, at Amortized Cost			35,119
Government Sponsored Entity Securities, at Fair Value	Government Sponsored Entity Securities, at Fair Value			35,579				Government Sponsored Entity Securities, at Fair Value			35,579

June 30, 2019
September 30, 2019								September 30, 2019
Held-To-Maturity Securities, at Amortized Cost	Held-To-Maturity Securities, at Amortized Cost	$	220,529	$	42,012	$	262,541	Held-To-Maturity Securities, at Amortized Cost	$	215,661	$	39,434		$	255,095
Gross Unrealized Gains	Gross Unrealized Gains	3,206		415		3,621		Gross Unrealized Gains	3,669		408			4,077
Gross Unrealized Losses	Gross Unrealized Losses	(81)		(13)		(94)		Gross Unrealized Losses	(34)		(10)			(44)
Held-To-Maturity Securities, at Fair Value	Held-To-Maturity Securities, at Fair Value	223,654		42,414		266,068		Held-To-Maturity Securities, at Fair Value	219,296		39,832			259,128
Held-To-Maturity Securities, Pledged as Collateral, at Fair Value	Held-To-Maturity Securities, Pledged as Collateral, at Fair Value					251,639		Held-To-Maturity Securities, Pledged as Collateral, at Fair Value						244,373

Securities in a Continuous Loss Position, at Fair Value:	Securities in a Continuous Loss Position, at Fair Value:							Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	Less than 12 Months	$	159	$	(67)	$	92	Less than 12 Months	$	763	$	3,082		$	3,845
12 Months or Longer	12 Months or Longer	14,374		1,711		16,085		12 Months or Longer	6,764		1,711			8,475
Total	Total	$	14,533	$	1,644	$	16,177	Total	$	7,527	$	4,793		$	12,320
Number of Securities in a Continuous Loss Position	Number of Securities in a Continuous Loss Position	36		1		37		Number of Securities in a Continuous Loss Position	19		19			38

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


Held-To-Maturity Securities	Held-To-Maturity Securities												Held-To-Maturity Securities
		State and Municipal Obligations		Mortgage- Backed Securities		Total Held-To Maturity Securities			State and Municipal Obligations		Mortgage- Backed Securities			Total Held-To Maturity Securities
Unrealized Losses on Securities in a Continuous Loss Position:								Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months								Less than 12 Months	$	1	$	9		$	10
12 Months or Longer	12 Months or Longer	81		13		94		12 Months or Longer	33		1			34
Total	Total	$	81	$	13	$	94	Total	$	34	$	10		$	44

June 30, 2019

Disaggregated Details:	Disaggregated Details:							Disaggregated Details:
US Government Agency Securities, at Amortized Cost	US Government Agency Securities, at Amortized Cost			$	1,942			US Government Agency Securities, at Amortized Cost			$	1,844
US Government Agency Securities, at Fair Value	US Government Agency Securities, at Fair Value			1,948				US Government Agency Securities, at Fair Value			1,854
Government Sponsored Entity Securities, at Amortized Cost	Government Sponsored Entity Securities, at Amortized Cost			40,070				Government Sponsored Entity Securities, at Amortized Cost			37,590
Government Sponsored Entity Securities, at Fair Value	Government Sponsored Entity Securities, at Fair Value			40,466				Government Sponsored Entity Securities, at Fair Value			37,978

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 ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019, 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. 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 ~~June~~September 30, 2020, 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 there is no current intention to sell any of our temporarily impaired securities, and because it is not more likely than not that it 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 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 ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019:

Equity Securities

June 30, 2020

December 31, 2019

June 30, 2019

September 30, 2020

December 31, 2019

September 30, 2019

Equity Securities, at Fair Value

$1,583

$2,063

$1,850

Equity Securities, at Fair Value

$1,511

$2,063

$1,996

The following is a summary of realized and unrealized gains and losses recognized in net income on equity securities during the ~~three-~~three and ~~six-month~~nine month periods ended ~~June~~September 30, 2020 and 2019:


		Quarterly Period Ended:						Year-to-Date Period Ended:					Quarterly Period Ended:				Year-to-Date Period Ended:
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Net (Loss) Gain on Equity Securities	Net (Loss) Gain on Equity Securities	$	(106)	$	—	$	(480)	$	76	Net (Loss) Gain on Equity Securities	$	(72)	$	146	$	(552)	$	222
Less: Net gain (loss) recognized during the reporting period on equity securities sold during the period	Less: Net gain (loss) recognized during the reporting period on equity securities sold during the period	—		—		—		—		Less: Net gain (loss) recognized during the reporting period on equity securities sold during the period	0		0		0		0
Unrealized net (loss) gain recognized during the reporting period on equity securities still held at the reporting date	Unrealized net (loss) gain recognized during the reporting period on equity securities still held at the reporting date	$	(106)	$	—	$	(480)	$	76	Unrealized net (loss) gain recognized during the reporting period on equity securities still held at the reporting date	$	(72)	$	146	$	(552)	$	222

Note 3. LOANS (In Thousands)

Loan Categories and Past Due Loans

The following table presents loan balances outstanding as of ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019 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. Loans held-for-sale of ~~$12,007,~~$10,580, $150 and ~~$1,433~~$1,905 as of ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019, respectively, are included in the residential real estate balances for current loans.


Schedule of Past Due Loans by Loan Category	Schedule of Past Due Loans by Loan Category																					Schedule of Past Due Loans by Loan Category
				Commercial											Commercial
		Commercial		Real Estate		Consumer		Residential		Total			Commercial		Real Estate		Consumer		Residential		Total
June 30, 2020
September 30, 2020												September 30, 2020
Loans Past Due 30-59 Days	Loans Past Due 30-59 Days	$	172	$	—	$	4,696	$	194	$	5,062	Loans Past Due 30-59 Days	$	43	$	0	$	4,238	$	428	$	4,709
Loans Past Due 60-89 Days	Loans Past Due 60-89 Days	128		—		3,227		481		3,836		Loans Past Due 60-89 Days	79		85		2,853		765		3,782
Loans Past Due 90 or more Days	Loans Past Due 90 or more Days	116		1,481		1,572		1,637		4,806		Loans Past Due 90 or more Days	22		1,475		1,303		1,517		4,317
Total Loans Past Due	Total Loans Past Due	416		1,481		9,495		2,312		13,704		Total Loans Past Due	144		1,560		8,394		2,710		12,808
Current Loans	Current Loans	276,255		531,551		818,998		921,407		2,548,211		Current Loans	275,777		539,673		841,132		923,065		2,579,647
Total Loans	Total Loans	$	276,671	$	533,032	$	828,493	$	923,719	$	2,561,915	Total Loans	$	275,921	$	541,233	$	849,526	$	925,775	$	2,592,455

Loans 90 or More Days Past Due and Still Accruing Interest	Loans 90 or More Days Past Due and Still Accruing Interest	$	8	$	237	$	505	$	151	$	901	Loans 90 or More Days Past Due and Still Accruing Interest	$	0	$	0	$	0	$	121	$	121
Nonaccrual Loans	Nonaccrual Loans	163		1,439		1,304		2,555		5,461		Nonaccrual Loans	72		1,475		1,559		2,898		6,004

December 31, 2019	December 31, 2019											December 31, 2019
Loans Past Due 30-59 Days	Loans Past Due 30-59 Days	$	150	$	—	$	5,670	$	152	$	5,972	Loans Past Due 30-59 Days	$	150	$	0	$	5,670	$	152	$	5,972
Loans Past Due 60-89 Days	Loans Past Due 60-89 Days	42		266		2,700		2,027		5,035		Loans Past Due 60-89 Days	42		266		2,700		2,027		5,035
Loans Past Due 90 or more Days	Loans Past Due 90 or more Days	21		326		445		1,807		2,599		Loans Past Due 90 or more Days	21		326		445		1,807		2,599
Total Loans Past Due	Total Loans Past Due	213		592		8,815		3,986		13,606		Total Loans Past Due	213		592		8,815		3,986		13,606
Current Loans	Current Loans	150,447		509,949		802,383		909,735		2,372,514		Current Loans	150,447		509,949		802,383		909,735		2,372,514
Total Loans	Total Loans	$	150,660	$	510,541	$	811,198	$	913,721	$	2,386,120	Total Loans	$	150,660	$	510,541	$	811,198	$	913,721	$	2,386,120

Loans 90 or More Days Past Due and Still Accruing Interest	Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	—	$	253	$	253	Loans 90 or More Days Past Due and Still Accruing Interest	$	0	$	0	$	0	$	253	$	253
Nonaccrual Loans	Nonaccrual Loans	81		326		663		2,935		4,005		Nonaccrual Loans	81		326		663		2,935		4,005

June 30, 2019
September 30, 2019												September 30, 2019
Loans Past Due 30-59 Days	Loans Past Due 30-59 Days	$	119	$	—	$	4,935	$	1,606	$	6,660	Loans Past Due 30-59 Days	$	99	$	0	$	5,216	$	241	$	5,556
Loans Past Due 60-89 Days	Loans Past Due 60-89 Days	73		—		948		268		1,289		Loans Past Due 60-89 Days	48		30		1,624		1,011		2,713
Loans Past Due 90 or more Days	Loans Past Due 90 or more Days	—		328		177		1,337		1,842		Loans Past Due 90 or more Days	0		328		415		2,387		3,130
Total Loans Past Due	Total Loans Past Due	192		328		6,060		3,211		9,791		Total Loans Past Due	147		358		7,255		3,639		11,399
Current Loans	Current Loans	138,139		489,946		772,964		869,468		2,270,517		Current Loans	141,988		497,725		798,542		885,937		2,324,192
Total Loans	Total Loans	$	138,331	$	490,274	$	779,024	$	872,679	$	2,280,308	Total Loans	$	142,135	$	498,083	$	805,797	$	889,576	$	2,335,591

Loans 90 or More Days Past Due and Still Accruing Interest	Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	220	$	45	$	192	$	457	Loans 90 or More Days Past Due and Still Accruing Interest	$	0	$	0	$	86	$	980	$	1,066
Nonaccrual Loans	Nonaccrual Loans	58		248		412		4,231		4,949		Nonaccrual Loans	28		465		564		2,408		3,465

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. Generally, these loans carry a higher risk than commercial real estate loans, due primarily to the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable and generally have a lower liquidation value than real estate. In the event of default by the borrower, the Company may be required to liquidate collateral at deeply discounted values. To reduce the risk, management usually obtains personal guarantees to support the borrowing, as permitted by applicable law.

Commercial Real Estate - The Company offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. Commercial real estate loans are often made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are typically secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, healthcare facilities, and both owner- and non-owner-occupied facilities. These loans are typically less risky than commercial loans, since they are secured by real estate and buildings, and are generally originated in amounts of no more than 80% of the appraised value of the property. However, the Company also offers commercial construction and land development loans to finance projects. Many projects will ultimately be used by the borrowers' businesses, while others are developed for resale. These real estate loans are also typically secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, healthcare facilities and both owner-occupied and non-owner-occupied facilities. There is enhanced risk during the construction period, since the loan is secured by an incomplete project.

Consumer Loans - Included in this category are automobile loans. The Company primarily finances the purchases of automobiles indirectly through dealer relationships located throughout upstate New York and Vermont. Most of these indirect consumer loans carry a fixed rate of interest with principal repayment terms typically ranging from one to five years. Indirect consumer loans are underwritten on a secured basis using the underlying collateral being financed. The Company also offers a variety of consumer installment loans to finance personal expenditures. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from one to five years, based upon the nature of the collateral and the size of the loan. In addition to installment loans, the Company also offers personal lines of credit and overdraft protection. Several of these consumer loans are unsecured, which carry a higher risk of loss.

Residential - Residential real estate loans consist primarily of loans secured by first or second mortgages on primary residences. The Company originates fixed-rate and adjustable-rate one-to-four-family residential real estate loans for construction, the purchase of real estate or refinancing of an existing mortgage. These loans are collateralized primarily by owner-occupied properties generally located in the Company’s market area. Loans on one-to-four-family residential real estate are generally originated in amounts of no more than 80% of the purchase price or appraised value (whichever is lower), or have private mortgage insurance. The Company’s underwriting analysis for residential mortgage loans typically includes credit verification, independent appraisals, and a review of the borrower’s financial condition. Mortgage title insurance and hazard insurance are normally required. It is the Company's general practice to underwrite residential real estate loans to secondary market standards. Construction loans have a unique risk, because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period. In addition, the Company offers fixed home equity loans, as well as variable rate home equity lines of credit, to consumers to finance home improvements, debt consolidation, education and other uses. The Company's policy allows for a maximum loan to value ratio of 80%, although periodically higher advances are allowed. The Company originates home equity lines of credit and second mortgage loans (loans secured by a second junior lien position on one-to-four-family residential real estate). Risk is generally reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate.

Allowance for Loan Losses

The following table presents a roll-forward of the allowance for loan losses and other information pertaining to the allowance for loan losses:


Allowance for Loan Losses	Allowance for Loan Losses																					Allowance for Loan Losses
				Commercial											Commercial
		Commercial		Real Estate		Consumer		Residential		Total			Commercial		Real Estate		Consumer		Residential		Total
Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:	Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:											Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:
March 31, 2020		$	1,639	$	7,065	$	10,004	$	4,929	$	23,637
June 30, 2020												June 30, 2020	$	1,917	$	8,361	$	10,639	$	5,383	$	26,300
Charge-offs	Charge-offs	(6)		—		(431)		(50)		(487)		Charge-offs	(17)		(5)		(370)		0		(392)
Recoveries	Recoveries	3		—		107		—		110		Recoveries	0		0		267		0		267
Provision	Provision	281		1,296		959		504		3,040		Provision	419		1,013		609		230		2,271
June 30, 2020		$	1,917	$	8,361	$	10,639	$	5,383	$	26,300
September 30, 2020												September 30, 2020	$	2,319	$	9,369	$	11,145	$	5,613	$	28,446

March 31, 2019		$	1,250	$	5,589	$	9,409	$	4,125	$	20,373
June 30, 2019												June 30, 2019	$	1,231	$	5,459	$	9,654	$	4,351	$	20,695
Charge-offs	Charge-offs	—		—		(368)		—		(368)		Charge-offs	(11)		0		(351)		(40)		(402)
Recoveries	Recoveries	—		—		235		—		235		Recoveries	0		0		120		0		120
Provision	Provision	(19)		(130)		378		226		455		Provision	42		162		263		51		518
June 30, 2019		$	1,231	$	5,459	$	9,654	$	4,351	$	20,695
September 30, 2019												September 30, 2019	$	1,262	$	5,621	$	9,686	$	4,362	$	20,931


Allowance for Loan Losses	Allowance for Loan Losses																					Allowance for Loan Losses
				Commercial											Commercial
		Commercial		Real Estate		Consumer		Residential		Total			Commercial		Real Estate		Consumer		Residential		Total

Roll-forward of the Allowance for Loan Losses for the Year-to-Date Periods:	Roll-forward of the Allowance for Loan Losses for the Year-to-Date Periods:											Roll-forward of the Allowance for Loan Losses for the Year-to-Date Periods:
December 31, 2019	December 31, 2019	$	1,386	$	5,830	$	9,408	$	4,563	$	21,187	December 31, 2019	$	1,386	$	5,830	$	9,408	$	4,563	$	21,187
Charge-offs	Charge-offs	(20)		—		(898)		(50)		(968)		Charge-offs	(37)		(5)		(1,268)		(50)		(1,360)
Recoveries	Recoveries	3		—		266		—		269		Recoveries	3		0		533		0		536
Provision	Provision	548		2,531		1,863		870		5,812		Provision	967		3,544		2,472		1,100		8,083
June 30, 2020		$	1,917	$	8,361	$	10,639	$	5,383	$	26,300
September 30, 2020												September 30, 2020	$	2,319	$	9,369	$	11,145	$	5,613	$	28,446

December 31, 2018	December 31, 2018	$	1,218	$	5,644	$	8,882	$	4,452	$	20,196	December 31, 2018	$	1,218	$	5,644	$	8,882	$	4,452	$	20,196
Charge-offs	Charge-offs	(1)		(29)		(786)		(14)		(830)		Charge-offs	(12)		(29)		(1,137)		(54)		(1,232)
Recoveries	Recoveries	—		—		402		—		402		Recoveries	98		0		424		0		522
Provision	Provision	14		(156)		1,156		(87)		927		Provision	(42)		6		1,517		(36)		1,445
June 30, 2019		$	1,231	$	5,459	$	9,654	$	4,351	$	20,695
September 30, 2019												September 30, 2019	$	1,262	$	5,621	$	9,686	$	4,362	$	20,931

June 30, 2020
September 30, 2020												September 30, 2020
Allowance for loan losses - Loans Individually Evaluated for Impairment	Allowance for loan losses - Loans Individually Evaluated for Impairment	$	19	$	—	$	—	$	37	$	56	Allowance for loan losses - Loans Individually Evaluated for Impairment	$	18	$	0	$	0	$	28	$	46
Allowance for loan losses - Loans Collectively Evaluated for Impairment	Allowance for loan losses - Loans Collectively Evaluated for Impairment	1,898		8,361		10,639		5,346		26,244		Allowance for loan losses - Loans Collectively Evaluated for Impairment	2,301		9,369		11,145		5,585		28,400
Ending Loan Balance - Individually Evaluated for Impairment	Ending Loan Balance - Individually Evaluated for Impairment	51		1,134		116		952		2,253		Ending Loan Balance - Individually Evaluated for Impairment	47		1,128		124		1,427		2,726
Ending Loan Balance - Collectively Evaluated for Impairment	Ending Loan Balance - Collectively Evaluated for Impairment	$	276,620	$	531,898	$	828,377	$	922,767	$	2,559,662	Ending Loan Balance - Collectively Evaluated for Impairment	$	275,874	$	540,105	$	849,402	$	924,348	$	2,589,729

December 31, 2019	December 31, 2019											December 31, 2019
Allowance for loan losses - Loans Individually Evaluated for Impairment	Allowance for loan losses - Loans Individually Evaluated for Impairment	$	5	$	—	$	—	$	42	$	47	Allowance for loan losses - Loans Individually Evaluated for Impairment	$	5	$	0	$	0	$	42	$	47
Allowance for creditlosses - Loans Collectively Evaluated for Impairment	Allowance for creditlosses - Loans Collectively Evaluated for Impairment	1,381		5,830		9,408		4,521		21,140		Allowance for creditlosses - Loans Collectively Evaluated for Impairment	1,381		5,830		9,408		4,521		21,140
Ending Loan Balance - Individually Evaluated for Impairment	Ending Loan Balance - Individually Evaluated for Impairment	35		—		107		959		1,101		Ending Loan Balance - Individually Evaluated for Impairment	35		0		107		959		1,101
Ending Loan Balance - Collectively Evaluated for Impairment	Ending Loan Balance - Collectively Evaluated for Impairment	$	150,625	$	510,541	$	811,091	$	912,762	$	2,385,019	Ending Loan Balance - Collectively Evaluated for Impairment	$	150,625	$	510,541	$	811,091	$	912,762	$	2,385,019


Allowance for Loan Losses	Allowance for Loan Losses																					Allowance for Loan Losses
				Commercial											Commercial
		Commercial		Real Estate		Consumer		Residential		Total			Commercial		Real Estate		Consumer		Residential		Total
June 30, 2019
September 30, 2019												September 30, 2019
Allowance for loan losses - Loans Individually Evaluated for Impairment	Allowance for loan losses - Loans Individually Evaluated for Impairment	$	5	$	—	$	—	$	—	$	5	Allowance for loan losses - Loans Individually Evaluated for Impairment	$	5	$	0	$	0	$	0	$	5
Allowance for credit losses - Loans Collectively Evaluated for Impairment	Allowance for credit losses - Loans Collectively Evaluated for Impairment	1,226		5,459		9,654		4,351		20,690		Allowance for credit losses - Loans Collectively Evaluated for Impairment	1,257		5,621		9,686		4,362		20,926
Ending Loan Balance - Individually Evaluated for Impairment	Ending Loan Balance - Individually Evaluated for Impairment	37		1		124		2,402		2,564		Ending Loan Balance - Individually Evaluated for Impairment	36		0		113		575		724
Ending Loan Balance - Collectively Evaluated for Impairment	Ending Loan Balance - Collectively Evaluated for Impairment	$	138,294	$	490,273	$	778,900	$	870,277	$	2,277,744	Ending Loan Balance - Collectively Evaluated for Impairment	$	142,099	$	498,083	$	805,684	$	889,001	$	2,334,867

Through the provision for loan losses, an allowance for loan losses is maintained that reflects the best estimate of the incurred risk of loss in the Company’s loan portfolio as of the balance sheet date. Additions are made to the allowance for loan losses through a periodic provision for loan losses. Actual loan losses are charged against the allowance for loan losses when loans are deemed uncollectible and recoveries of amounts previously charged off are recorded as credits to the allowance for loan losses.

Our loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with certain criticized and classified commercial-related relationships. In addition, our independent internal loan review department performs periodic reviews of the credit quality indicators on individual loans in the commercial loan portfolio.

The Company uses a two-step process to determine the provision for loan losses and the amount of the allowance for loan losses. An evaluation of impaired loans is performed on a quarterly basis. Impaired loans are generally nonaccrual loans over $250 thousand and all troubled debt restructured loans. Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off. In general, Arrow's impaired loans are collateral dependent impaired loans that have limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis.

The remainder of the portfolio is evaluated on a pooled basis, as described below. For each homogeneous loan pool, a total loss factor is estimated based on the historical net loss rates adjusted for applicable qualitative factors. The total loss factors assigned to each loan category are updated on a quarterly basis. For the commercial, commercial construction and commercial real estate categories, the loan categories are further segregated by credit risk profile (pools of loans graded pass, special mention and accruing substandard). Additional description of the credit risk classifications is detailed in the Credit Quality Indicators section of this note.

The historical net loss rate is determined for each loan category using a trailing three-year net charge-off average. While historical net loss experience provides a reasonable starting point for analysis, historical net losses, or even recent trends in net losses, do not by themselves form a sufficient basis to determine the appropriate level of the allowance for loan losses. Therefore, historical net loss factors are considered and adjusted for qualitative factors that impact the incurred risk of loss associated with the loan categories within the total loan portfolio. These include:

•Changes in the volume and severity of past due, nonaccrual and adversely classified loans

•Changes in the nature and volume of the portfolio and in the terms of loans

•Changes in the value of the underlying collateral for collateral dependent loans

•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses

•Changes in the quality of the loan review system

•Changes in the experience, ability, and depth of lending management and other relevant staff

•Changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the portfolio

•The existence and effect of any concentrations of credit, and changes in the level of such concentrations

•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio or pool

Loan Credit Quality Indicators

The following table presents the credit quality indicators by loan category at ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019:


Loan Credit Quality Indicators	Loan Credit Quality Indicators																					Loan Credit Quality Indicators
				Commercial											Commercial
		Commercial		Real Estate		Consumer		Residential		Total			Commercial		Real Estate		Consumer		Residential		Total
June 30, 2020
September 30, 2020												September 30, 2020
Credit Risk Profile by Creditworthiness Category:	Credit Risk Profile by Creditworthiness Category:											Credit Risk Profile by Creditworthiness Category:
Satisfactory	Satisfactory	$	268,315	$	498,049					$	766,364	Satisfactory	$	264,094	$	493,982					$	758,076
Special Mention	Special Mention	1,560		5,830						7,390		Special Mention	1,485		12,620						14,105
Substandard	Substandard	6,796		29,153						35,949		Substandard	10,342		34,631						44,973
Doubtful	Doubtful	—		—						—		Doubtful	0		0						0

Credit Risk Profile Based on Payment Activity:	Credit Risk Profile Based on Payment Activity:											Credit Risk Profile Based on Payment Activity:
Performing	Performing					$	826,684	$	921,013	$	1,747,697	Performing					$	847,967	$	922,756	$	1,770,723
Nonperforming	Nonperforming					1,809		2,706		4,515		Nonperforming					1,559		3,019		4,578

December 31, 2019	December 31, 2019											December 31, 2019
Credit Risk Profile by Creditworthiness Category:	Credit Risk Profile by Creditworthiness Category:											Credit Risk Profile by Creditworthiness Category:
Satisfactory	Satisfactory	$	144,283	$	484,267					$	628,550	Satisfactory	$	144,283	$	484,267					$	628,550
Special Mention	Special Mention	32		263						295		Special Mention	32		263						295
Substandard	Substandard	6,345		26,011						32,356		Substandard	6,345		26,011						32,356
Doubtful	Doubtful	—		—						—		Doubtful	0		0						0

Credit Risk Profile Based on Payment Activity:	Credit Risk Profile Based on Payment Activity:											Credit Risk Profile Based on Payment Activity:
Performing	Performing					$	810,535	$	910,533	$	1,721,068	Performing					$	810,535	$	910,533	$	1,721,068
Nonperforming	Nonperforming					663		3,188		3,851		Nonperforming					663		3,188		3,851

June 30, 2019
September 30, 2019												September 30, 2019
Credit Risk Profile by Creditworthiness Category:	Credit Risk Profile by Creditworthiness Category:											Credit Risk Profile by Creditworthiness Category:
Satisfactory	Satisfactory	$	131,886	$	461,211					$	593,097	Satisfactory	$	135,355	$	471,637					$	606,992
Special Mention	Special Mention	123		2,524						2,647		Special Mention	107		2,484						2,591
Substandard	Substandard	6,322		26,539						32,861		Substandard	6,673		23,962						30,635
Doubtful	Doubtful	—		—						—		Doubtful	0		0						0
Credit Risk Profile Based on Payment Activity:	Credit Risk Profile Based on Payment Activity:											Credit Risk Profile Based on Payment Activity:
Performing	Performing					$	778,567	$	868,256	$	1,646,823	Performing					$	805,147	$	886,188	$	1,691,335
Nonperforming	Nonperforming					457		4,423		4,880		Nonperforming					650		3,388		4,038

For the purposes of the table above, nonperforming consumer and residential loans are those loans on nonaccrual status or are 90 days or more past due and still accruing interest.

The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is ~~$1.4~~$1.3 million.

For the allowance calculation, an internally developed system of five credit quality indicators is used to rate the credit worthiness of each commercial loan defined as follows:

1) Satisfactory - "Satisfactory" borrowers have acceptable financial condition with satisfactory record of earnings and sufficient historical and projected cash flow to service the debt. Borrowers have satisfactory repayment histories and primary and secondary sources of repayment can be clearly identified;

2) Special Mention - Loans in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. "Special mention" assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Loans which might be assigned this credit quality indicator include loans to borrowers with deteriorating financial strength and/or earnings record and loans with potential for problems due to weakening economic or market conditions;

3) Substandard - Loans classified as “substandard” are inadequately protected by the current sound net worth or paying capacity of the borrower or the collateral pledged, if any. Loans in this category have well defined weaknesses that jeopardize the repayment. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. “Substandard” loans may include loans which are likely to require liquidation of collateral to effect repayment, and other loans where character or ability to repay has become suspect. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard;

4) Doubtful - Loans classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. Although possibility of loss is extremely high, classification of these loans as “loss” has been deferred due to specific pending factors or events which may strengthen the value (e.g. possibility of additional collateral, injection of capital, collateral liquidation, debt restructure, economic recovery, etc). Loans classified as “doubtful” need to be placed on non-accrual; and

5) Loss - Loans classified as “loss” are considered uncollectible with collateral of such little value that their continuance as bankable assets is not warranted. As of the date of the balance sheet, all loans in this category have been charged-off to the allowance for loan losses.

Commercial loans are generally evaluated on an annual basis depending on the size and complexity of the loan relationship, unless the credit related quality indicator falls to a level of "special mention" or below, when the loan is evaluated quarterly. The credit quality indicator is one of the factors used in assessing the level of incurred risk of loss in our commercial related loan portfolios.

Impaired Loans

The following table presents information on impaired loans as of ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019 based on whether the impaired loan has a recorded related allowance or has no recorded related allowance:


Impaired Loans	Impaired Loans																					Impaired Loans
				Commercial											Commercial
		Commercial		Real Estate		Consumer		Residential		Total			Commercial		Real Estate		Consumer		Residential		Total
June 30, 2020
September 30, 2020												September 30, 2020
Recorded Investment:	Recorded Investment:											Recorded Investment:
With No Related Allowance	With No Related Allowance	$	3	$	1,130	$	116	$	697	$	1,946	With No Related Allowance	$	0	$	1,124	$	124	$	1,178	$	2,426
With a Related Allowance	With a Related Allowance	46		—		—		256		302		With a Related Allowance	46		0		0		249		295
Unpaid Principal Balance:	Unpaid Principal Balance:											Unpaid Principal Balance:
With No Related Allowance	With No Related Allowance	3		1,134		116		697		1,950		With No Related Allowance	0		1,128		124		1,178		2,430
With a Related Allowance	With a Related Allowance	47		—		—		256		303		With a Related Allowance	47		0		0		249		296

December 31, 2019	December 31, 2019											December 31, 2019
Recorded Investment:	Recorded Investment:											Recorded Investment:
With No Related Allowance	With No Related Allowance	$	—	$	—	$	108	$	699	$	807	With No Related Allowance	$	0	$	0	$	108	$	699	$	807
With a Related Allowance	With a Related Allowance	34		—		—		260		294		With a Related Allowance	34		0		0		260		294
Unpaid Principal Balance:	Unpaid Principal Balance:											Unpaid Principal Balance:
With No Related Allowance	With No Related Allowance	—		—		107		699		806		With No Related Allowance	0		0		107		699		806
With a Related Allowance	With a Related Allowance	35		—		—		260		295		With a Related Allowance	35		0		0		260		295

June 30, 2019
September 30, 2019												September 30, 2019
Recorded Investment:	Recorded Investment:											Recorded Investment:
With No Related Allowance	With No Related Allowance	$	—	$	1	$	124	$	2,402	$	2,527	With No Related Allowance	$	0	$	0	$	114	$	575	$	689
With a Related Allowance	With a Related Allowance	37		—		—		—		37		With a Related Allowance	35		0		0		0		35
Unpaid Principal Balance:	Unpaid Principal Balance:											Unpaid Principal Balance:
With No Related Allowance	With No Related Allowance	—		1		124		2,402		$	2,527	With No Related Allowance	0		0		113		575		$	688
With a Related Allowance	With a Related Allowance	36		—		—		—		36		With a Related Allowance	36		0		0		0		36

For the Quarter Ended:	For the Quarter Ended:											For the Quarter Ended:
June 30, 2020
September 30, 2020												September 30, 2020
Average Recorded Balance:	Average Recorded Balance:											Average Recorded Balance:
With No Related Allowance	With No Related Allowance	$	2	$	565	$	112	$	698	$	1,377	With No Related Allowance	$	2	$	1,127	$	120	$	938	$	2,187
With a Related Allowance	With a Related Allowance	40		—		—		258		298		With a Related Allowance	46		0		0		253		299
Interest Income Recognized:	Interest Income Recognized:											Interest Income Recognized:
With No Related Allowance	With No Related Allowance	—		10		—		—		10		With No Related Allowance	0		0		0		0		0
With a Related Allowance	With a Related Allowance	—		—		—		—		—		With a Related Allowance	0		0		0		0		0
Cash Basis Income:	Cash Basis Income:											Cash Basis Income:
With No Related Allowance	With No Related Allowance	—		—		—		—		—		With No Related Allowance	0		0		0		0		0
With a Related Allowance	With a Related Allowance	—		—		—		—		—		With a Related Allowance	0		0		0		0		0

June 30, 2019
September 30, 2019												September 30, 2019
Average Recorded Balance:	Average Recorded Balance:											Average Recorded Balance:
With No Related Allowance	With No Related Allowance	$	19	$	195	$	113	$	2,410	$	2,737	With No Related Allowance	$	0	$	1	$	119	$	1,489	$	1,609
With a Related Allowance	With a Related Allowance	19		—		—		—		19		With a Related Allowance	36		0		0		0		36
Interest Income Recognized:	Interest Income Recognized:											Interest Income Recognized:
With No Related Allowance	With No Related Allowance	—		—		—		—		—		With No Related Allowance	0		0		0		0		0
With a Related Allowance	With a Related Allowance	—		—		—		—		—		With a Related Allowance	0		0		0		0		0
Cash Basis Income:	Cash Basis Income:											Cash Basis Income:
With No Related Allowance	With No Related Allowance	—		—		—		—		—		With No Related Allowance	0		0		0		0		0
With a Related Allowance	With a Related Allowance	—		—		—		—		—		With a Related Allowance	0		0		0		0		0

At ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019, all impaired loans were considered to be collateral dependent and were therefore evaluated for impairment based on the fair value of collateral less estimated cost to sell. Interest income recognized in the table above represents income earned after the loans became impaired and includes restructured loans in compliance with their modified terms and nonaccrual loans where interest income was recognized on a cash basis.

Loans Modified in Trouble Debt Restructurings

The following table presents information on loans modified in trouble debt restructurings during the periods indicated.


Loans Modified in Trouble Debt Restructurings During the Period	Loans Modified in Trouble Debt Restructurings During the Period																					Loans Modified in Trouble Debt Restructurings During the Period
				Commercial											Commercial
		Commercial		Real Estate		Consumer		Residential		Total			Commercial		Real Estate		Consumer		Residential		Total
For the Quarter Ended:	For the Quarter Ended:											For the Quarter Ended:
June 30, 2020
September 30, 2020												September 30, 2020
Number of Loans	Number of Loans	—		—		1		—		1		Number of Loans	0		0		0		0		0
Pre-Modification Outstanding Recorded Investment	Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	16	$	—	$	16	Pre-Modification Outstanding Recorded Investment	$	0	$	0	$	0	$	0	$	0
Post-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment	—		—		16		—		16		Post-Modification Outstanding Recorded Investment	0		0		0		0		0
Subsequent Default, Number of Contracts	Subsequent Default, Number of Contracts	—		—		—		—		—		Subsequent Default, Number of Contracts	0		0		0		0		0
Subsequent Default, Recorded Investment	Subsequent Default, Recorded Investment	—		—		—		—		—		Subsequent Default, Recorded Investment	0		0		0		0		0

June 30, 2019
September 30, 2019												September 30, 2019
Number of Loans	Number of Loans	—		—		4		—		4		Number of Loans	0		0		0		0		0
Pre-Modification Outstanding Recorded Investment	Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	34	$	—	$	34	Pre-Modification Outstanding Recorded Investment	$	0	$	0	$	0	$	0	$	0
Post-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment	—		—		34		—		34		Post-Modification Outstanding Recorded Investment	0		0		0		0		0
Subsequent Default, Number of Contracts	Subsequent Default, Number of Contracts	—		—		—		—		—		Subsequent Default, Number of Contracts	0		0		0		0		0
Subsequent Default, Recorded Investment	Subsequent Default, Recorded Investment	—		—		—		—		—		Subsequent Default, Recorded Investment	0		0		0		0		0

In general, prior to the novel coronavirus (COVID-19) pandemic, loans requiring modification are restructured to accommodate the projected cash-flows of the borrower. Such modifications may involve a reduction of the interest rate, a significant deferral of payments or forgiveness of a portion of the outstanding principal balance. As indicated in the table above, no loans modified during the preceding twelve months subsequently defaulted as of ~~June~~September 30, 2020. In accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, if a short-term loan modification (e.g. six months) is made for a borrower as the result of the COVID-19 pandemic, and who was current on contractual payments as of December 31, 2019, this modification is not considered a troubled debt restructuring (TDR).

Note 4. COMMITMENTS AND CONTINGENCIES (In Thousands)

The following table presents the notional amount and fair value of Arrow's off-balance sheet commitments to extend credit and commitments under standby letters of credit as of ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019:


Commitments to Extend Credit and Letters of Credit	Commitments to Extend Credit and Letters of Credit													Commitments to Extend Credit and Letters of Credit
		June 30, 2020		December 31, 2019		June 30, 2019			September 30, 2020		December 31, 2019		September 30, 2019
Notional Amount:	Notional Amount:							Notional Amount:
Commitments to Extend Credit	Commitments to Extend Credit	$	378,430	$	349,718	$	329,337	Commitments to Extend Credit	$	364,861	$	349,718	$	340,976
Standby Letters of Credit	Standby Letters of Credit	3,276		3,129		4,396		Standby Letters of Credit	3,330		3,129		3,164
Fair Value:	Fair Value:							Fair Value:
Commitments to Extend Credit	Commitments to Extend Credit	$	—	$	—	$	—	Commitments to Extend Credit	$	0	$	0	$	0
Standby Letters of Credit	Standby Letters of Credit	29		31		20		Standby Letters of Credit	30		31		26

Arrow is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Commitments to extend credit include home equity lines of credit, commitments for residential and commercial construction loans and other personal and commercial lines of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of the involvement Arrow has in particular classes of financial instruments.

Arrow's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Arrow uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are not expected to be fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Arrow evaluates each customer's creditworthiness on a case-by-case basis. Home equity lines of credit are secured by residential real estate. Construction lines of credit are secured by underlying real estate. For other lines of credit, the amount of collateral obtained, if deemed necessary by Arrow upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Most of the commitments are variable rate instruments.

Arrow does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit.

Arrow has issued conditional commitments in the form of standby letters of credit to guarantee pa~~yment~~payment on behalf of a customer and guarantee the performance of a customer to a third party. Standby letters of credit generally arise in connection with commercial lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit at ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019 represent the maximum potential future payments Arrow could be required to make. Typically, these instruments have terms of 12 months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension. Loan-to-value ratios will generally range from 50% for movable assets, such as inventory, to 100% for liquid assets, such as bank CD's. Fees for standby letters of credit range from 1% to 3% of the notional amount. Fees are collected upfront and amortized over the life of the commitment. The carrying amount and fair value of Arrow's standby letters of credit at ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019, were insignificant. The fair value of standby letters of credit is based on the fees currently charged for similar agreements or the cost to terminate the arrangement with the counterparties.

The fair value of commitments to extend credit is determined by estimating the fees to enter into similar agreements, taking into account the remaining terms and present creditworthiness of the counterparties, and for fixed rate loan commitments, the difference between the current and committed interest rates. Arrow provides several types of commercial lines of credit and standby letters of credit to its commercial customers. The pricing of these services is not isolated as Arrow considers the customer's complete deposit and borrowing relationship in pricing individual products and services. The commitments to extend credit also include commitments under home equity lines of credit, for which Arrow charges no fee. The carrying value and fair value of commitments to extend credit are not material and Arrow does not expect to incur any material loss as a result of these commitments.

In the normal course of business, Arrow and its subsidiary banks become involved in a variety of routine legal proceedings. At present, there are no legal proceedings pending or threatened, which in the opinion of management and counsel, would result in a material loss to Arrow.

Note 5. COMPREHENSIVE INCOME (In Thousands)

The following table presents the components of other comprehensive income for the three and ~~six-month~~nine month periods ended ~~June~~September 30, 2020 and 2019:


Schedule of Comprehensive Income	Schedule of Comprehensive Income																									Schedule of Comprehensive Income
		Three Months Ended June 30										Six Months Ended June 30,											Three Months Ended September 30				Nine Months Ended September 30,
				Tax						Tax							Tax						Tax
		Before-Tax		(Expense)		Net-of-Tax		Before-Tax		(Expense)		Net-of-Tax			Before-Tax		(Expense)		Net-of-Tax		Before-Tax		(Expense)		Net-of-Tax
		Amount		Benefit		Amount		Amount		Benefit		Amount			Amount		Benefit		Amount		Amount		Benefit		Amount
2020	2020													2020
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period		$	2,716	$	(695)	$	2,021	$	8,220	$	(2,101)	$	6,119
Net Unrealized Gains (Losses) on Cash Flow Swap		25		(7)		18		(269)		68		(201)
Net Unrealized Securities Holding (Losses) Gains on Securities Available-for-Sale Arising During the Period														Net Unrealized Securities Holding (Losses) Gains on Securities Available-for-Sale Arising During the Period	$	(397)	$	101	$	(296)	$	7,823	$	(2,000)	$	5,823
Net Unrealized Gains on Cash Flow Swap														Net Unrealized Gains on Cash Flow Swap	317		(79)		238		48		(11)		37

Amortization of Net Retirement Plan Actuarial Loss	Amortization of Net Retirement Plan Actuarial Loss	78		(20)		58		114		(29)		85		Amortization of Net Retirement Plan Actuarial Loss	57		(15)		42		171		(44)		127
Amortization of Net Retirement Plan Prior Service Cost	Amortization of Net Retirement Plan Prior Service Cost	52		(13)		39		106		(28)		78		Amortization of Net Retirement Plan Prior Service Cost	53		(14)		39		159		(42)		117
Other Comprehensive Income	Other Comprehensive Income	$	2,871	$	(735)	$	2,136	$	8,171	$	(2,090)	$	6,081	Other Comprehensive Income	$	30	$	(7)	$	23	$	8,201	$	(2,097)	$	6,104

2019	2019													2019
Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	$	2,340	$	(596)	$	1,744	$	5,128	$	(1,304)	$	3,824	Net Unrealized Securities Holding Gains on Securities Available-for-Sale Arising During the Period	$	668	$	(169)	$	499	$	5,796	$	(1,473)	$	4,323

Amortization of Net Retirement Plan Actuarial Loss	Amortization of Net Retirement Plan Actuarial Loss	179		(46)		133		342		(88)		254		Amortization of Net Retirement Plan Actuarial Loss	172		(45)		127		514		(133)		381
Amortization of Net Retirement Plan Prior Service Cost	Amortization of Net Retirement Plan Prior Service Cost	57		(14)		43		113		(28)		85		Amortization of Net Retirement Plan Prior Service Cost	56		(14)		42		169		(42)		127
Other Comprehensive Income	Other Comprehensive Income	$	2,576	$	(656)	$	1,920	$	5,583	$	(1,420)	$	4,163	Other Comprehensive Income	$	896	$	(228)	$	668	$	6,479	$	(1,648)	$	4,831

The following table presents the changes in accumulated other comprehensive income by component:


Changes in Accumulated Other Comprehensive Income (Loss) by Component ⁽¹⁾	Changes in Accumulated Other Comprehensive Income (Loss) by Component ⁽¹⁾																										Changes in Accumulated Other Comprehensive Income (Loss) by Component (1)

		Unrealized Gains and Losses on Available-for-Sale Securities		Unrealized Loss on Cash Flow Swap		Defined Benefit Plan Items								Total	Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Loss on Cash Flow Swap					Defined Benefit Plan Items							Total
								Net Actuarial Gain (Loss)		Net Prior Service (Cost) Credit							Unrealized Gains and Losses on Available-for-Sale Securities			Unrealized Loss on Cash Flow Swap					Net Actuarial Gain (Loss)				Net Prior Service (Cost) Credit				Total
																							Total

For the Quarter-To-Date periods ended:	For the Quarter-To-Date periods ended:																									For the Quarter-To-Date periods ended:

March 31, 2020		$	4,563	$	(219)	$	(5,820)	$	(936)	$	(2,412)
June 30, 2020												June 30, 2020	$	6,584	$	(201)					$	(5,762)					$	(897)			$	(276)
Other comprehensive income or loss before reclassifications	Other comprehensive income or loss before reclassifications	2,021		18		—		—		2,039		Other comprehensive income or loss before reclassifications	(296)		238			0					0			(58)
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	—		—		58		39		97		Amounts reclassified from accumulated other comprehensive income	0		0			42					39			81
Net current-period other comprehensive income	Net current-period other comprehensive income	2,021		18		58		39		2,136		Net current-period other comprehensive income	(296)		238			42					39			23

June 30, 2020		$	6,584	$	(201)	$	(5,762)	$	(897)	$	(276)
September 30, 2020												September 30, 2020	$	6,288	$	37		$	(5,720)				$	(858)		$	(253)

March 31, 2019		$	(1,617)	$	—	$	(8,850)	$	(1,100)	$	(11,567)
June 30, 2019												June 30, 2019	$	127	$	0		$	(8,717)				$	(1,057)		$	(9,647)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	1,744		—		—		—		1,744		Other comprehensive loss before reclassifications	499		0			0					0			499
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	—		—		133		43		176		Amounts reclassified from accumulated other comprehensive loss	0		0			127					42			169
Net current-period other comprehensive income	Net current-period other comprehensive income	1,744		—		133		43		1,920		Net current-period other comprehensive income	499		0			127					42			668

June 30, 2019		$	127	$	—	$	(8,717)	$	(1,057)	$	(9,647)
September 30, 2019												September 30, 2019	$	626	$	0		$	(8,590)				$	(1,015)		$	(8,979)

For the Year-To-Date periods ended:	For the Year-To-Date periods ended:											For the Year-To-Date periods ended:

December 31, 2019	December 31, 2019	$	465	$	—	$	(5,847)	$	(975)	$	(6,357)	December 31, 2019	$	465	$	0		$	(5,847)				$	(975)		$	(6,357)
Other comprehensive income or loss before reclassifications	Other comprehensive income or loss before reclassifications	6,119		(201)		—		—		5,918		Other comprehensive income or loss before reclassifications	5,823		37			0					0			5,860
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	—		—		85		78		163		Amounts reclassified from accumulated other comprehensive income	0		0			127					117			244
Net current-period other comprehensive income	Net current-period other comprehensive income	6,119		(201)		85		78		6,081		Net current-period other comprehensive income	5,823		37			127					117			6,104

June 30, 2020		$	6,584	$	(201)	$	(5,762)	$	(897)	$	(276)
September 30, 2020												September 30, 2020	$	6,288	$	37		$	(5,720)				$	(858)		$	(253)

December 31, 2018	December 31, 2018	$	(3,697)	$	—	$	(8,971)	$	(1,142)	$	(13,810)	December 31, 2018	$	(3,697)	$	0		$	(8,971)				$	(1,142)		$	(13,810)
Other comprehensive income or loss before reclassifications	Other comprehensive income or loss before reclassifications	3,824		—		—		—		3,824		Other comprehensive income or loss before reclassifications	4,323		0			0					0			4,323
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	—		—		254		85		339		Amounts reclassified from accumulated other comprehensive income	0		0			381					127			508
Net current-period other comprehensive income	Net current-period other comprehensive income	3,824		—		254		85		4,163		Net current-period other comprehensive income	4,323		0			381					127			4,831

June 30, 2019		$	127	$	—	$	(8,717)	$	(1,057)	$	(9,647)
September 30, 2019												September 30, 2019	$	626	$	0		$	(8,590)				$	(1,015)		$	(8,979)

(1) All amounts are net of tax.

The following table presents the reclassifications out of accumulated other comprehensive income:

~~Reclassifications Out of Accumulated Other Comprehensive Income~~

~~Amounts Reclassified~~

~~Details about Accumulated Other~~

~~from Accumulated Other~~

~~Affected Line Item in the Statement~~

~~Comprehensive Income (Loss) Components~~

~~Comprehensive Income~~

~~Where Net Income Is Presented~~

~~For the Quarter-to-date periods ended:~~

~~June 30, 2020~~

~~Amortization of defined benefit pension items:~~

~~Prior-service costs~~

~~(52)~~

⁽¹⁾

~~Salaries and Employee Benefits~~

~~Actuarial loss~~

~~(78)~~

⁽¹⁾

~~Salaries and Employee Benefits~~

~~(130)~~

~~Total before Tax~~

~~Provision for Income Taxes~~

~~Total reclassifications for the period~~

~~(97)~~

~~Net of Tax~~

~~June 30, 2019~~

~~Amortization of defined benefit pension items:~~

~~Prior-service costs~~

~~(57)~~

⁽¹⁾

~~Salaries and Employee Benefits~~

~~Actuarial loss~~

~~(179)~~

⁽¹⁾

~~Salaries and Employee Benefits~~

~~(236)~~

~~Total before Tax~~

~~Provision for Income Taxes~~

~~Total reclassifications for the period~~

~~(176)~~

~~Net of Tax~~

~~For the Year-to-date periods ended:~~

~~June 30, 2020~~

~~Amortization of defined benefit pension items:~~

~~Prior-service costs~~

~~(106)~~

⁽¹⁾

~~Salaries and Employee Benefits~~

~~Actuarial loss~~

~~(114)~~

⁽¹⁾

~~Salaries and Employee Benefits~~

~~(220)~~

~~Total before Tax~~

~~Provision for Income Taxes~~

~~Total reclassifications for the period~~

~~(163)~~

~~Net of Tax~~

~~June 30, 2019~~

~~Amortization of defined benefit pension items:~~

~~Prior-service costs~~

~~(113)~~

⁽¹⁾

~~Salaries and Employee Benefits~~

~~Actuarial loss~~

~~(342)~~

⁽¹⁾

~~Salaries and Employee Benefits~~

~~(455)~~

~~Total before Tax~~

~~116~~

~~Provision for Income Taxes~~

~~Total reclassifications for the period~~

~~(339)~~

~~Net of Tax~~


Reclassifications Out of Accumulated Other Comprehensive Income

	Amounts Reclassified
Details about Accumulated Other	from Accumulated Other			Affected Line Item in the Statement
Comprehensive Income (Loss) Components	Comprehensive Income			Where Net Income Is Presented

For the Quarter-to-date periods ended:

September 30, 2020





Amortization of defined benefit pension items:
Prior-service costs	$	(53)	(1)	Salaries and Employee Benefits
Actuarial loss	(57)		(1)	Salaries and Employee Benefits
	(110)			Total before Tax
	29			Provision for Income Taxes
Total reclassifications for the period	$	(81)		Net of Tax



September 30, 2019





Amortization of defined benefit pension items:
Prior-service costs	$	(56)	(1)	Salaries and Employee Benefits
Actuarial loss	(172)		(1)	Salaries and Employee Benefits
	(228)			Total before Tax
	59			Provision for Income Taxes
Total reclassifications for the period	$	(169)		Net of Tax



For the Year-to-date periods ended:

September 30, 2020





Amortization of defined benefit pension items:
Prior-service costs	$	(159)	(1)	Salaries and Employee Benefits
Actuarial loss	(171)		(1)	Salaries and Employee Benefits
	(330)			Total before Tax
	86			Provision for Income Taxes
Total reclassifications for the period	$	(244)		Net of Tax



September 30, 2019





Amortization of defined benefit pension items:
Prior-service costs	$	(169)	(1)	Salaries and Employee Benefits
Actuarial loss	(514)		(1)	Salaries and Employee Benefits
	(683)			Total before Tax
	175			Provision for Income Taxes
Total reclassifications for the period	$	(508)		Net of Tax

(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.

~~(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost.~~

Note 6. STOCK-BASED COMPENSATION (Dollars In Thousands, Except Share and Per Share Amounts)

Arrow has established 3 stock-based compensation plans: a Long Term Incentive Plan, an Employee Stock Purchase Plan (ESPP) and an Employee Stock Ownership Plan (ESOP). All share and per share data have been adjusted for the September ~~27, 2019~~25, 2020 3% stock dividend.

Long Term Incentive Plan

The Long Term Incentive Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, performance units and performance shares. The Compensation Committee of the Board of Directors administers the Long Term Incentive Plan.

Stock Options - Options may be granted at a price no less than the greater of the par value or fair market value of such shares on the date on which such option is granted, and generally expire ten years from the date of grant. The options usually vest over a ~~four-year~~four-year period.

The following table summarizes information about stock option activity for the year to date period ended ~~June~~September 30, 2020.


		Shares			Weighted Average Exercise Price			Shares			Weighted Average Exercise Price

Outstanding at January 1, 2020	Outstanding at January 1, 2020	241,242			$	27.58	Outstanding at January 1, 2020	248,495			$	26.78
Granted	Granted	50,800			35.28		Granted	52,324			34.25
Exercised	Exercised	(17,155)			23.74		Exercised	(26,822)			22.23
Forfeited	Forfeited	(2,752)			29.65		Forfeited	(2,834)			28.79
Outstanding at June 30, 2020		272,135			29.24
Outstanding at September 30, 2020							Outstanding at September 30, 2020	271,163			28.65
Vested at Period-End	Vested at Period-End	152,322			26.31		Vested at Period-End	147,759			25.84
Expected to Vest	Expected to Vest	119,813			32.97		Expected to Vest	123,404			32.01

Stock Options Granted	Stock Options Granted						Stock Options Granted
Weighted Average Grant Date Information:	Weighted Average Grant Date Information:						Weighted Average Grant Date Information:
Fair Value of Options Granted	Fair Value of Options Granted	$	4.99				Fair Value of Options Granted	$	4.84
Fair Value Assumptions:	Fair Value Assumptions:						Fair Value Assumptions:
Dividend Yield	Dividend Yield	2.90		%			Dividend Yield	2.90		%
Expected Volatility	Expected Volatility	20.25		%			Expected Volatility	20.25		%
Risk Free Interest Rate	Risk Free Interest Rate	1.53		%			Risk Free Interest Rate	1.53		%
Expected Lives (in years)	Expected Lives (in years)	6.68					Expected Lives (in years)	6.68

The following table presents information on the amounts expensed related to stock options for the three and ~~six~~nine month periods ended ~~June~~September 30, 2020 and 2019:

For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
Amount expensed $ 75 $ 79 $ 151 $ 158


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Amount expensed	$	76	$	79	$	227	$	237

Restricted Stock Units - The Company grants restricted stock units which gives the recipient the right to receive shares of Company stock upon vesting. The fair value of each restricted stock unit is the market value of Company stock on the date of grant. 100% of the restricted stock unit awards vest three years from the grant date. Once vested, the restricted stock units become vested units and are no longer forfeitable. Vested units settle upon retirement of the recipient. Unvested restricted stock unit awards will generally be forfeited if the recipient ceases to be employed by the Company, with limited exceptions.

The following table summarizes information about restricted stock unit activity for the periods ended ~~June~~September 30, 2020 and 2019.


		Restricted Stock Units	Weighted Average Grant Date Fair Value			Restricted Stock Units	Weighted Average Grant Date Fair Value
Non-vested at January 1, 2020	Non-vested at January 1, 2020	7,496	$	31.18	Non-vested at January 1, 2020	7,721	$	30.27
Granted	Granted	3,827	35.28		Granted	3,942	34.25

Non-vested at June 30, 2020		11,323	32.57
Non-vested at September 30, 2020					Non-vested at September 30, 2020	11,663	31.62

Non-vested at January 1, 2019	Non-vested at January 1, 2019	3,478	31.62		Non-vested at January 1, 2019	3,582	30.70
Granted	Granted	4,018	30.79		Granted	4,139	29.89

Non-vested at June 30, 2019		7,496	31.18
Non-vested at September 30, 2019					Non-vested at September 30, 2019	7,721	30.27

The following table presents information on the amounts expensed related to restricted stock units for the periods ended ~~June~~September 30, 2020 and 2019:

For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
Amount expensed $ 31 $ 20 $ 58 $ 36


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Amount expensed	$	30	$	19	$	88	$	55

Employee Stock Purchase Plan

Arrow sponsors an ESPP under which employees may purchase Arrow's common stock at a 5% discount below market price. Under current accounting guidance, a stock purchase plan with a discount of 5% or less is not considered a compensatory plan.

Employee Stock Ownership Plan

Arrow maintains an ESOP, pursuant to which substantially all employees of Arrow and its subsidiaries are eligible to participate upon satisfaction of applicable service requirements. The ESOP borrowed funds from one of Arrow’s subsidiary banks to purchase outstanding shares of Arrow’s common stock. The notes, which were fully repaid as of December 31, 2019, required annual payments of principal and interest through 2019. As the debt was repaid, shares were released from collateral based on the proportion of debt paid to total debt outstanding for the year and allocated to active employees. In addition, the Company makes additional cash contributions to the Plan each year.

Shares pledged as collateral were reported as unallocated ESOP shares in stockholders' equity. As shares were released from collateral, Arrow reported compensation expense equal to the current average market price of the shares, and the shares became outstanding for earnings per share computations.

Note 7. RETIREMENT BENEFIT PLANS (Dollars in Thousands)

Arrow sponsors qualified and non-qualified defined benefit pension plans and other postretirement benefit plans for its employees. Arrow maintains a non-contributory pension plan, which covers substantially all employees. Effective December 1, 2002, all active participants in the qualified defined benefit pension plan were given a one-time irrevocable election to continue participating in the traditional plan design, for which benefits were based on years of service and the participant’s final compensation (as defined), or to begin participating in the new cash balance plan design. All employees who participate in the plan after December 1, 2002 automatically participate in the cash balance plan design. The interest credits under the cash balance plan are based on the 30-year U.S. Treasury rate in effect for November of the prior year with a minimum interest credit of 3%. The service credits under the cash balance plan are equal to 6.0% of eligible salaries for employees who become participants on or after January 1, 2003. For employees in the plan prior to January 1, 2003, the service credits are scaled based on the age of the participant, and range from 6.0% to 12.0%. The funding policy is to contribute up to the maximum amount that can be deducted for federal income tax purposes and to make all payments required under The Employee Retirement Income Security Act (ERISA). Arrow also maintains a supplemental non-qualified unfunded retirement plan to provide eligible employees of Arrow and its subsidiaries with benefits in excess of qualified plan limits imposed by federal tax law.

Arrow has multiple non-pension postretirement benefit plans. The health care, dental and life insurance plans are contributory, with participants’ contributions adjusted annually. Arrow’s policy is to fund the cost of postretirement benefits based on the current cost of the underlying policies. However, the health care plan provision for automatic increases of Company contributions each year is based on the increase in inflation and is limited to a maximum of 5%.

As of December 31, 2019, Arrow updated its mortality assumption to the Pri-2012 mortality tables for employees, healthy annuitants and contingent survivors, adjusted for mortality improvements with the Scale MP-2019 mortality improvement scale on a generational basis to reflect newly published mortality tables. The Pension Plan uses the sex-distinct amount-weighted tables, the Select Executive Retirement Plan uses the sex-distinct white collar amount-weighted tables, and the Postretirement Benefit Plan uses the sex-distinct headcount-weighted tables. The change in mortality tables resulted in a decrease in liabilities for the Employee's Pension Plan, the Select Executive Retirement Plan and the Postretirement Benefit Plan.

The mortality table used in determining the present value of a lump sum payment/annuitizing cash balance accounts was changed to the applicable mortality table for the determination of present values under Internal Revenue Code (IRC) Section 417(e)(3)(B). This table is currently a 50/50 blend of male and female rates from the 2020 sex distinct optional combined mortality tables, as prescribed under IRC Section 430. The change in mortality table was made to reflect the continued improvement in mortality rates and resulted in an increase in liabilities for the Employee's Pension Plan and the Select Executive Retirement Plan.

The interest rates used in determining the present value of a lump sum payment/annuitizing cash balance accounts were changed to the segment rates in effect for the January 1, 2020 plan year (2.04%, 3.09%, 3.68%) as of December 31, 2019. This change resulted in a decrease in liability for the Employees' Pension Plan and the Select Executive Retirement Plan.

The following tables provide the components of net periodic benefit costs for the three and ~~six~~nine month periods ended ~~June~~September 30, 2020 and 2019.


		Employees'		Select Executive		Postretirement			Employees'		Select Executive		Postretirement
		Pension		Retirement		Benefit			Pension		Retirement		Benefit
		Plan		Plan		Plans			Plan		Plan		Plans
Net Periodic Benefit Cost
For the Three Months Ended June 30, 2020
Net Periodic (Benefit) Cost								Net Periodic (Benefit) Cost
For the Three Months Ended September 30, 2020:								For the Three Months Ended September 30, 2020:
Service Cost 1								Service Cost 1	$	416	$	102	$	30
Interest Cost 2								Interest Cost 2	387		48		78
Expected Return on Plan Assets 2								Expected Return on Plan Assets 2	(902)		0		0
Amortization of Prior Service Cost 2								Amortization of Prior Service Cost 2	15		11		27
Amortization of Net Loss 2								Amortization of Net Loss 2	20		37		0
Net Periodic (Benefit) Cost								Net Periodic (Benefit) Cost	$	(64)	$	198	$	135

Plan Contributions During the Period								Plan Contributions During the Period	$	0	$	116	$	54

For the Three Months Ended September 30, 2019:								For the Three Months Ended September 30, 2019:
Service Cost ¹	Service Cost ¹	$	401	$	101	$	29	Service Cost 1	$	382	$	81	$	30
Interest Cost ²	Interest Cost ²	355		42		77		Interest Cost 2	513		54		91
Expected Return on Plan Assets ²	Expected Return on Plan Assets ²	(900)		—		—		Expected Return on Plan Assets 2	(765)		0		0
Amortization of Prior Service Cost ²	Amortization of Prior Service Cost ²	16		10		26		Amortization of Prior Service Cost 2	17		14		25
Amortization of Net Loss (Gain) ²	Amortization of Net Loss (Gain) ²	40		40		(2)		Amortization of Net Loss (Gain) 2	153		29		(10)
Net Periodic Cost	Net Periodic Cost	$	(88)	$	193	$	130	Net Periodic Cost	$	300	$	178	$	136

Plan Contributions During the Period	Plan Contributions During the Period	$	—	$	116	$	59	Plan Contributions During the Period	$	0	$	117	$	51

For the Three Months Ended June 30, 2019:
Service Cost ¹		$	365	$	65	$	31
Interest Cost ²		343		56		93
Expected Return on Plan Assets ²		(761)		—		—
Amortization of Prior Service Cost ²		18		13		26
Amortization of Net Loss (Gain) ²		154		30		(5)
Net Periodic Cost		$	119	$	164	$	145

Plan Contributions During the Period		$	—	$	117	$	54


Net Periodic Benefit Cost	Net Periodic Benefit Cost							Net Periodic Benefit Cost
For the Six Months Ended June 30, 2020:
For the Nine Months Ended September 30, 2020:								For the Nine Months Ended September 30, 2020:
Service Cost ¹	Service Cost ¹	$	831	$	204	$	62	Service Cost 1	$	1,247	$	306	$	92
Interest Cost ²	Interest Cost ²	772		96		155		Interest Cost 2	1,159		144		233
Expected Return on Plan Assets ²	Expected Return on Plan Assets ²	(1,804)		—		—		Expected Return on Plan Assets 2	(2,706)		0		0
Amortization of Prior Service Cost ²	Amortization of Prior Service Cost ²	32		21		53		Amortization of Prior Service Cost 2	47		32		80
Amortization of Net Loss ²	Amortization of Net Loss ²	41		73		—		Amortization of Net Loss 2	61		110		0
Net Periodic (Benefit) Cost	Net Periodic (Benefit) Cost	$	(128)	$	394	$	270	Net Periodic (Benefit) Cost	$	(192)	$	592	$	405

Plan Contributions During the Period	Plan Contributions During the Period	$	—	$	233	$	137	Plan Contributions During the Period	$	0	$	349	$	191

Estimated Future Contributions in the Current Fiscal Year	Estimated Future Contributions in the Current Fiscal Year	$	—	$	—	$	—	Estimated Future Contributions in the Current Fiscal Year	$	0	$	0	$	0

For the Six Months Ended June 30, 2019:
For the Nine Months Ended September 30, 2019:								For the Nine Months Ended September 30, 2019:
Service Cost ¹	Service Cost ¹	$	764	$	162	$	61	Service Cost 1	$	1,146	$	243	$	91
Interest Cost ²	Interest Cost ²	740		108		182		Interest Cost 2	1,253		162		273
Expected Return on Plan Assets ²	Expected Return on Plan Assets ²	(1,531)		—		—		Expected Return on Plan Assets 2	(2,296)		0		0
Amortization of Prior Service Cost ²	Amortization of Prior Service Cost ²	35		27		51		Amortization of Prior Service Cost 2	52		41		76
Amortization of Net Loss (Benefit) ²	Amortization of Net Loss (Benefit) ²	307		57		(22)		Amortization of Net Loss (Benefit) 2	460		86		(32)
Net Periodic Cost	Net Periodic Cost	$	315	$	354	$	272	Net Periodic Cost	$	615	$	532	$	408

Plan Contributions During the Period	Plan Contributions During the Period	$	—	$	233	$	91	Plan Contributions During the Period	$	0	$	350	$	142

Footnotes:

1. Included in Salaries and Employee Benefits on the Consolidated Statements of Income

2. Included in Other Operating Expense on the Consolidated Statements of Income

A contribution to the qualified pension plan in 2020 was not required, and currently, additional contributions in 2020 are not expected. Arrow makes contributions to its other post-retirement benefit plans in an amount equal to benefit payments for the year.

Note 8. EARNINGS PER COMMON SHARE (In Thousands, Except Per Share Amounts)

The following table presents a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per common share (“EPS”) for periods ended ~~June~~September 30, 2020 and 2019. All share and per share amounts have been adjusted for the September ~~27, 2019,~~25, 2020, 3% stock dividend.


Earnings Per Share	Earnings Per Share																		Earnings Per Share
		Three Months Ended						Year-to-Date Period Ended:							Three Months Ended					Year-to-Date Period Ended:
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Earnings Per Share - Basic:	Earnings Per Share - Basic:									Earnings Per Share - Basic:
Net Income	Net Income	$	9,159	$	8,934	$	17,286	$	17,668	Net Income	$	11,046	$	10,067	$	28,332	$	27,735
Weighted Average Shares - Basic	Weighted Average Shares - Basic	14,992		14,922		14,994		14,912		Weighted Average Shares - Basic	15,472		15,404		15,453		15,375
Earnings Per Share - Basic	Earnings Per Share - Basic	$	0.61	$	0.60	$	1.15	1.19		Earnings Per Share - Basic	$	0.71	$	0.65	$	1.83	$	1.80

Earnings Per Share - Diluted:	Earnings Per Share - Diluted:									Earnings Per Share - Diluted:
Net Income	Net Income	$	9,159	$	8,934	$	17,286	$	17,668	Net Income	$	11,046	$	10,067	$	28,332	$	27,735
Weighted Average Shares - Basic	Weighted Average Shares - Basic	14,992		14,922		14,994		14,912		Weighted Average Shares - Basic	15,472		15,404		15,453		15,375
Dilutive Average Shares Attributable to Stock Options	Dilutive Average Shares Attributable to Stock Options	6		41		16		46		Dilutive Average Shares Attributable to Stock Options	9		37		14		42
Weighted Average Shares - Diluted	Weighted Average Shares - Diluted	14,998		14,963		15,010		14,958		Weighted Average Shares - Diluted	15,481		15,441		15,467		15,417
Earnings Per Share - Diluted	Earnings Per Share - Diluted	$	0.61	$	0.60	$	1.15	$	1.18	Earnings Per Share - Diluted	$	0.71	$	0.65	$	1.83	$	1.80

Note 9. FAIR VALUES (Dollars In Thousands)

FASB ASC Subtopic 820-10 defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. There are no nonfinancial assets or liabilities measured at fair value on a recurring basis. The only assets or liabilities that Arrow measured at fair value on a recurring basis at ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019 were securities available-for-sale, equity securities and derivatives. Arrow held no securities or liabilities for trading on such dates.

The table below presents the financial instrument's fair value and the amounts within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement:


Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis	Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis																	Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis
				Fair Value Measurements at Reporting Date Using:													Fair Value Measurements at Reporting Date Using:
		Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Fair Value of Assets and Liabilities Measured on a Recurring Basis:	Fair Value of Assets and Liabilities Measured on a Recurring Basis:																	Fair Value of Assets and Liabilities Measured on a Recurring Basis:
June 30, 2020
September 30, 2020										September 30, 2020
Assets:	Assets:									Assets:
Securities Available-for Sale:	Securities Available-for Sale:									Securities Available-for Sale:
U.S. Government & Agency Obligations	U.S. Government & Agency Obligations	$	5,192	$	—	$	5,192	$	—	U.S. Government & Agency Obligations	$	35,167	$	0	$	35,167	$	0
State and Municipal Obligations	State and Municipal Obligations	593		—		593		—		State and Municipal Obligations	593		0		593		0
Mortgage-Backed Securities	Mortgage-Backed Securities	372,193		—		372,193		—		Mortgage-Backed Securities	338,368		0		338,368		0
Corporate and Other Debt Securities	Corporate and Other Debt Securities	800		—		800		—		Corporate and Other Debt Securities	800		0		800		0
Total Securities Available-for-Sale	Total Securities Available-for-Sale	378,778		—		378,778		—		Total Securities Available-for-Sale	374,928		0		374,928		0
Equity Securities	Equity Securities	1,583		—		1,583		—		Equity Securities	1,511		0		1,511		0
Total Securities Measured on a Recurring Basis	Total Securities Measured on a Recurring Basis	380,361		—		380,361		—		Total Securities Measured on a Recurring Basis	376,439		0		376,439		0
Derivatives, included in other assets	Derivatives, included in other assets	6,390		—		6,390		—		Derivatives, included in other assets	6,366		0		6,366		0
Total Measured on a Recurring Basis	Total Measured on a Recurring Basis	$	386,751	$	—	$	386,751	$	—	Total Measured on a Recurring Basis	$	382,805	$	0	$	382,805	$	0
Liabilities:	Liabilities:									Liabilities:
Derivatives, included in other liabilities	Derivatives, included in other liabilities	6,390		—		6,390		—		Derivatives, included in other liabilities	6,366		0		6,366		0
Total Measured on a Recurring Basis	Total Measured on a Recurring Basis	$	6,390	$	—	$	6,390	$	—	Total Measured on a Recurring Basis	$	6,366	$	0	$	6,366	$	0
December 31, 2019	December 31, 2019									December 31, 2019
Assets:	Assets:									Assets:
Securities Available-for Sale:	Securities Available-for Sale:									Securities Available-for Sale:
U.S. Government & Agency Obligations	U.S. Government & Agency Obligations	$	5,054	$	—	$	5,054	$	—	U.S. Government & Agency Obligations	$	5,054	$	0	$	5,054	$	0
State and Municipal Obligations	State and Municipal Obligations	764		—		764		—		State and Municipal Obligations	764		0		764		0
Mortgage-Backed Securities	Mortgage-Backed Securities	350,716		—		350,716		—		Mortgage-Backed Securities	350,716		0		350,716		0
Corporate and Other Debt Securities	Corporate and Other Debt Securities	800		—		800		—		Corporate and Other Debt Securities	800		0		800		0
Total Securities Available-for-Sale	Total Securities Available-for-Sale	357,334		—		357,334		—		Total Securities Available-for-Sale	357,334		0		357,334		0
Equity Securities	Equity Securities	2,063		—		2,063		—		Equity Securities	2,063		0		2,063		0


Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis	Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis																	Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis
				Fair Value Measurements at Reporting Date Using:													Fair Value Measurements at Reporting Date Using:
		Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Total Securities Measured on a Recurring Basis	Total Securities Measured on a Recurring Basis	359,397		—		359,397		—		Total Securities Measured on a Recurring Basis	359,397		0		359,397		0
Derivatives, included in other liabilities	Derivatives, included in other liabilities	69		—		69		—		Derivatives, included in other liabilities	69		0		69		0
Total Measured on a Recurring Basis	Total Measured on a Recurring Basis	$	359,466	$	—	$	359,466	$	—	Total Measured on a Recurring Basis	$	359,466	$	0	$	359,466	$	0
Liabilities:	Liabilities:									Liabilities:
Derivatives, included in other liabilities	Derivatives, included in other liabilities	$	69	$	—	$	69	$	—	Derivatives, included in other liabilities	$	69	$	0	$	69	$	0
Total Measured on a Recurring Basis	Total Measured on a Recurring Basis	$	69	$	—	$	69	$	—	Total Measured on a Recurring Basis	$	69	$	0	$	69	$	0
June 30, 2019
September 30, 2019										September 30, 2019
Assets:	Assets:									Assets:
Securities Available-for Sale:	Securities Available-for Sale:									Securities Available-for Sale:
U.S. Government & Agency Obligations	U.S. Government & Agency Obligations	$	17,524	$	—	$	17,524	$	—	U.S. Government & Agency Obligations	$	5,056	$	0	$	5,056	$	0
State and Municipal Obligations	State and Municipal Obligations	967		—		967		—		State and Municipal Obligations	965		0		965		0
Mortgage-Backed Securities	Mortgage-Backed Securities	266,587		—		266,587		—		Mortgage-Backed Securities	307,361		0		307,361		0
Corporate and Other Debt Securities	Corporate and Other Debt Securities	800		—		800		—		Corporate and Other Debt Securities	800		0		800		0
Total Securities Available-for-Sale	Total Securities Available-for-Sale	285,878		—		285,878		—		Total Securities Available-for-Sale	314,182		0		314,182		0
Equity Securities	Equity Securities	1,850		—		1,850		—		Equity Securities	1,996		0		1,996		0
Total Securities Measured on a Recurring Basis	Total Securities Measured on a Recurring Basis	$	287,728	$	—	$	287,728	$	—	Total Securities Measured on a Recurring Basis	$	316,178	$	0	$	316,178	$	0
Derivatives, included in other assets										Derivatives, included in other assets	498		$	0	498
Total Measured on a Recurring Basis										Total Measured on a Recurring Basis	$	316,676	$	0	$	316,676	$	0
Liabilities:										Liabilities:
Derivatives, included in other liabilities										Derivatives, included in other liabilities	498		0		498		0
Total Measured on a Recurring Basis										Total Measured on a Recurring Basis	$	498	$	0	$	498	$	0


		Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses Recognized in Earnings		Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses Recognized in Earnings
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:	Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:										Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:
June 30, 2020
September 30, 2020											September 30, 2020
Collateral Dependent Impaired Loans	Collateral Dependent Impaired Loans	$	595	$	—	$	—	$	595		Collateral Dependent Impaired Loans	$	594	$	0	$	0	$	594
Other Real Estate Owned and Repossessed Assets, Net	Other Real Estate Owned and Repossessed Assets, Net	711		—		—		711		—	Other Real Estate Owned and Repossessed Assets, Net	126		0		0		126		0
December 31, 2019	December 31, 2019										December 31, 2019
Collateral Dependent Impaired Loans	Collateral Dependent Impaired Loans	$	285	$	—	$	—	$	285		Collateral Dependent Impaired Loans	$	285	$	0	$	0	$	285
Other Real Estate Owned and Repossessed Assets, Net	Other Real Estate Owned and Repossessed Assets, Net	1,261		—		—		1,261		(186)	Other Real Estate Owned and Repossessed Assets, Net	1,261		0		0		1,261		(186)
June 30, 2019
September 30, 2019											September 30, 2019
Collateral Dependent Impaired Loans	Collateral Dependent Impaired Loans	$	37	$	—	$	—	$	37		Collateral Dependent Impaired Loans	$	324	$	0	$	0	$	324
Other Real Estate Owned and Repossessed Assets, Net	Other Real Estate Owned and Repossessed Assets, Net	1,373		—		—		1,373		(164)	Other Real Estate Owned and Repossessed Assets, Net	1,274		0		0		1,274		(111)

The fair value of financial instruments is determined under the following hierarchy:

•Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

•Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Fair Value Methodology for Assets and Liabilities Measured on a Recurring Basis

The fair value of Level 1 securities available-for-sale are based on unadjusted, quoted market prices from exchanges in active markets. The fair value of Level 2 securities available-for-sale are based on an independent bond and equity pricing service for identical assets or significantly similar securities and an independent equity pricing service for equity securities not actively traded. The pricing services use a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. The fair value of Level 2 derivatives is determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes.

Fair Value Methodology for Assets and Liabilities Measured on a Nonrecurring Basis

The fair value of collateral dependent impaired loans and other real estate owned was based on third-party appraisals less estimated cost to sell. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. Other assets which might have been included in this table include mortgage servicing rights, goodwill and other intangible assets. Arrow evaluates each of these assets for impairment at least annually, with no impairment recognized for these assets at ~~June~~September 30, 2020, December 31, 2019 and ~~June~~September 30, 2019.

Fair Value Methodology for Financial Instruments Not Measured on a Recurring or Nonrecurring Basis

The fair value for securities held-to-maturity is determined utilizing an independent bond pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.

ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" requires that the fair value for loans must be disclosed using the "exit price" notion which is a reasonable estimate of what another party might pay in an orderly transaction. Fair values for loans are calculated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial real estate, residential mortgage, indirect auto and other consumer loans. Each loan category is further segmented into fixed and adjustable interest rate terms and by performing and nonperforming categories. The fair value of performing loans is calculated by determining the estimated future cash flow, which is the contractual cash flow adjusted for estimated prepayments. The discount rate is determined by starting with current market yields, and first adjusting for a liquidity premium. This premium is separately determined for each loan type. Then a credit loss component is determined utilizing the credit loss assumptions used in the allowance for loan and lease loss model. Finally, a discount spread is applied separately for consumer loans vs. commercial loans based on market information and utilization of the swap curve.

The fair value of time deposits is based on the discounted value of contractual cash flows, except that the fair value is limited to the extent that the customer could redeem the certificate after imposition of a premature withdrawal penalty. The discount rates are estimated using the Federal Home Loan Bank of New York ("FHLBNY") yield curve, which is considered representative of Arrow’s time deposit rates. The fair value of all other deposits is equal to the carrying value.

The fair value of FHLBNY advances is calculated by the FHLBNY.

The carrying amount of FHLBNY and FRB stock approximates fair value. If the stock was redeemed, the Company will receive an amount equal to the par value of the stock.

The book value of the outstanding trust preferred securities (Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts) are considered to approximate fair value since the interest rates are variable (indexed to LIBOR) and Arrow is well-capitalized.

Fair Value by Balance Sheet Grouping

The following table presents a summary of the carrying amount, the fair value or an amount approximating fair value and the fair value hierarchy of Arrow’s financial instruments:


Schedule of Fair Values by Balance Sheet Grouping	Schedule of Fair Values by Balance Sheet Grouping																					Schedule of Fair Values by Balance Sheet Grouping
						Fair Value Hierarchy															Fair Value Hierarchy
		Carrying Value		Fair Value		Level 1		Level 2		Level 3			Carrying Value		Fair Value		Level 1		Level 2		Level 3
June 30, 2020
September 30, 2020												September 30, 2020
Cash and Cash Equivalents	Cash and Cash Equivalents	$	253,270	$	253,270	$	253,270	$	—	$	—	Cash and Cash Equivalents	$	450,666	$	450,666	$	450,666	$	0	$	0
Securities Available-for-Sale	Securities Available-for-Sale	378,778		378,778		—		378,778		—		Securities Available-for-Sale	374,928		374,928		0		374,928		0
Securities Held-to-Maturity	Securities Held-to-Maturity	233,517		241,875		—		241,875		—		Securities Held-to-Maturity	224,799		233,501		0		233,501		0
Equity Securities	Equity Securities	1,583		1,583		—		1,583		—		Equity Securities	1,511		1,511		0		1,511		0
Federal Home Loan Bank and Federal Reserve Bank Stock	Federal Home Loan Bank and Federal Reserve Bank Stock	5,574		5,574		—		5,574		—		Federal Home Loan Bank and Federal Reserve Bank Stock	5,574		5,574		0		5,574		0
Net Loans	Net Loans	2,535,615		2,529,544		—		—		2,529,544		Net Loans	2,564,009		2,560,043		0		0		2,560,043
Accrued Interest Receivable	Accrued Interest Receivable	6,421		6,421		—		6,421		—		Accrued Interest Receivable	7,962		7,962		0		7,962		0
Derivatives, included in other assets	Derivatives, included in other assets	6,390		6,390				6,390				Derivatives, included in other assets	6,366		6,366				6,366
Deposits	Deposits	3,068,773		3,069,571		—		3,069,571		—		Deposits	3,264,858		3,265,208		0		3,265,208		0
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	47,599		47,599		—		47,599		—		Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	73,949		73,949		0		73,949		0

Federal Home Loan Bank Term Advances	Federal Home Loan Bank Term Advances	50,000		51,560		—		51,560		—		Federal Home Loan Bank Term Advances	50,000		51,576		0		51,576		0
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—		Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		0		20,000		0
Accrued Interest Payable	Accrued Interest Payable	918		918		—		918		—		Accrued Interest Payable	841		841		0		841		0
Derivatives, included in other liabilities	Derivatives, included in other liabilities	6,390		6,390		—		6,390		—		Derivatives, included in other liabilities	6,366		6,366		0		6,366		0


Schedule of Fair Values by Balance Sheet Grouping	Schedule of Fair Values by Balance Sheet Grouping																					Schedule of Fair Values by Balance Sheet Grouping
						Fair Value Hierarchy															Fair Value Hierarchy
		Carrying Value		Fair Value		Level 1		Level 2		Level 3			Carrying Value		Fair Value		Level 1		Level 2		Level 3

December 31, 2019	December 31, 2019											December 31, 2019
Cash and Cash Equivalents	Cash and Cash Equivalents	$	70,221	$	70,221	$	70,221	$	—	$	—	Cash and Cash Equivalents	$	70,221	$	70,221	$	70,221	$	0	$	0
Securities Available-for-Sale	Securities Available-for-Sale	357,334		357,334		—		357,334		—		Securities Available-for-Sale	357,334		357,334		0		357,334		0
Securities Held-to-Maturity	Securities Held-to-Maturity	245,065		249,618		—		249,618		—		Securities Held-to-Maturity	245,065		249,618		0		249,618		0
Equity Securities	Equity Securities	2,063		2,063		—		2,063				Equity Securities	2,063		2,063		0		2,063
Federal Home Loan Bank and Federal Reserve Bank Stock	Federal Home Loan Bank and Federal Reserve Bank Stock	10,317		10,317		—		10,317		—		Federal Home Loan Bank and Federal Reserve Bank Stock	10,317		10,317		0		10,317		0
Net Loans	Net Loans	2,364,933		2,332,797		—		—		2,332,797		Net Loans	2,364,933		2,332,797		0		0		2,332,797
Accrued Interest Receivable	Accrued Interest Receivable	7,377		7,377		—		7,377		—		Accrued Interest Receivable	7,377		7,377		0		7,377		0
Derivatives, included in other assets	Derivatives, included in other assets	69		69		—		69		—		Derivatives, included in other assets	69		69		0		69		0
Deposits	Deposits	2,616,054		2,614,170		—		2,614,170		—		Deposits	2,616,054		2,614,170		0		2,614,170		0
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	51,099		51,099		—		51,099		—		Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	51,099		51,099		0		51,099		0
Federal Home Loan Bank Overnight Advances	Federal Home Loan Bank Overnight Advances	130,000		130,000		—		130,000		—		Federal Home Loan Bank Overnight Advances	130,000		130,000		0		130,000		0
Federal Home Loan Bank Term Advances	Federal Home Loan Bank Term Advances	30,000		29,993		—		29,993		—		Federal Home Loan Bank Term Advances	30,000		29,993		0		29,993		0
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—		Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		0		20,000		0
Accrued Interest Payable	Accrued Interest Payable	1,436		1,436		—		1,436		—		Accrued Interest Payable	1,436		1,436		0		1,436		0
Derivatives, included in other liabilities	Derivatives, included in other liabilities	69		69		—		69		—		Derivatives, included in other liabilities	69		69		0		69		0

June 30, 2019
September 30, 2019												September 30, 2019
Cash and Cash Equivalents	Cash and Cash Equivalents	$	62,695	$	62,695	$	62,695	$	—	$	—	Cash and Cash Equivalents	$	92,298	$	92,298	$	92,298	$	0	$	0
Securities Available-for-Sale	Securities Available-for-Sale	285,878		285,878		—		285,878		—		Securities Available-for-Sale	314,182		314,182		0		314,182		0
Securities Held-to-Maturity	Securities Held-to-Maturity	262,541		266,068		—		266,068		—		Securities Held-to-Maturity	255,095		259,128		0		259,128		0
Equity Securities	Equity Securities	1,850		1,850		—		1,850				Equity Securities	1,996		1,996		0		1,996
Federal Home Loan Bank and Federal Reserve Bank Stock	Federal Home Loan Bank and Federal Reserve Bank Stock	8,202		8,202		—		8,202		—		Federal Home Loan Bank and Federal Reserve Bank Stock	6,627		6,627		0		6,627		0
Net Loans	Net Loans	2,259,613		2,218,244		—		—		2,218,244		Net Loans	2,314,660		2,274,701		0		0		2,274,701
Accrued Interest Receivable	Accrued Interest Receivable	7,491		7,491		—		7,491		—		Accrued Interest Receivable	8,097		8,097		0		8,097		0
Derivatives, included in other assets												Derivatives, included in other assets	498		498		0		498		0
Deposits	Deposits	2,503,753		2,499,849		—		2,499,849		—		Deposits	2,614,547		2,610,404		0		2,610,404		0
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	51,149		51,149		—		51,149		—		Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	72,869		72,869		0		72,869		0
Federal Home Loan Bank Overnight Advances	Federal Home Loan Bank Overnight Advances	83,000		83,000		—		83,000		—		Federal Home Loan Bank Overnight Advances	48,000		48,000		0		48,000		0
Federal Home Loan Bank Term Advances	Federal Home Loan Bank Term Advances	30,000		29,943		—		29,943		—		Federal Home Loan Bank Term Advances	30,000		29,988		0		29,988		0
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		—		20,000		—		Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		0		20,000		0
Accrued Interest Payable	Accrued Interest Payable	1,187		1,187		—		1,187		—		Accrued Interest Payable	1,500		1,500		0		1,500		0
Derivatives, included in other liabilities												Derivatives, included in other liabilities	498		498		0		498		0

Note 10. LEASES (Dollars In Thousands)

The Company is a lessee in its leases, which are mainly for financial services locations in addition to leases for corporate vehicles. These leases generally require the Company to pay third-party expenses on behalf of the Lessor, which are referred to as variable payments. Under some leases, the Company pays the variable payments to the lessor, and in other leases, the Company pays the variable payments directly to the applicable third party. None of the Company's current leases include any residual value guarantees or any subleases, and there are no significant rights and obligations of the Company for leases that have not commenced as of the reporting date.

Arrow leases 54 of its branch offices, at market rates, from Stewart’s Shops Corp. Mr. Gary C. Dake, President of Stewart’s Shops Corp., serves as a director on the board of directors of each of Arrow and Saratoga National Bank and Trust Company.

The following includes quantitative data related to the Company's leases as of and for the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019:


			Six Months Ended											Nine Months Ended
Finance Lease Amounts:	Finance Lease Amounts:	Classification	June 30, 2020			June 30, 2019			Finance Lease Amounts:	Classification	September 30, 2020			September 30, 2019
Right-of-use Assets		Premises and Equipment, Net	$	5,080		$	5,226
Right-of-Use Assets									Right-of-Use Assets	Premises and Equipment, Net	$	5,036		$	5,199
Lease Liabilities	Lease Liabilities	Finance Leases	5,239			5,270			Lease Liabilities	Finance Leases	5,228			5,263

Operating Lease Amounts:	Operating Lease Amounts:								Operating Lease Amounts:
Right-of-use Assets		Other Assets	$	5,640		$	5,859
Right-of-Use Assets									Right-of-Use Assets	Other Assets	$	5,496		$	5,815
Lease Liabilities	Lease Liabilities	Other Liabilities	5,718			5,918			Lease Liabilities	Other Liabilities	5,577			5,876

Other Information:	Other Information:								Other Information:

Cash Paid For Amounts Included In The Measurement Of Lease Liabilities:	Cash Paid For Amounts Included In The Measurement Of Lease Liabilities:								Cash Paid For Amounts Included In The Measurement Of Lease Liabilities:
Operating Outgoing Cash Flows From Finance Leases	Operating Outgoing Cash Flows From Finance Leases		$	99		$	43		Operating Outgoing Cash Flows From Finance Leases		$	148		$	71
Operating Outgoing Cash Flows From Operating Leases	Operating Outgoing Cash Flows From Operating Leases		355			355			Operating Outgoing Cash Flows From Operating Leases		567			563
Financing Outgoing Cash Flows From Finance Leases	Financing Outgoing Cash Flows From Finance Leases		15			12			Financing Outgoing Cash Flows From Finance Leases		26			19
Right-of-use Assets Obtained In Exchange For New Finance Lease Liabilities			—			5,271
Right-of-use Assets Obtained In Exchange For New Operating Lease Liabilities			269			6,147
Weighted-average Remaining Lease Term—Finance Leases (Yrs.)			29.7			31.3
Weighted-average Remaining Lease Term—Operating Leases (Yrs.)			13.2			14.1
Right-of-Use Assets Obtained In Exchange For New Finance Lease Liabilities									Right-of-Use Assets Obtained In Exchange For New Finance Lease Liabilities		0			5,271
Right-of-Use Assets Obtained In Exchange For New Operating Lease Liabilities									Right-of-Use Assets Obtained In Exchange For New Operating Lease Liabilities		294			6,266
Weighted-average Remaining Lease Term - Finance Leases (Yrs.)									Weighted-average Remaining Lease Term - Finance Leases (Yrs.)		29.4			31.05
Weighted-average Remaining Lease Term - Operating Leases (Yrs.)									Weighted-average Remaining Lease Term - Operating Leases (Yrs.)		13.1			13.75
Weighted-average Discount Rate—Finance Leases	Weighted-average Discount Rate—Finance Leases		3.75		%	3.75		%	Weighted-average Discount Rate—Finance Leases		3.75		%	3.75		%
Weighted-average Discount Rate—Operating Leases	Weighted-average Discount Rate—Operating Leases		3.27		%	3.47		%	Weighted-average Discount Rate—Operating Leases		3.27		%	3.35		%


Lease cost information for the Company's leases is as follows:	Lease cost information for the Company's leases is as follows:													Lease cost information for the Company's leases is as follows:
		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Lease Cost:	Lease Cost:									Lease Cost:
Finance Lease Cost:	Finance Lease Cost:									Finance Lease Cost:
Reduction of Right-of-use assets		$	45	$	27	$	89	$	44
Reduction of Right-of-Use Assets										Reduction of Right-of-Use Assets	$	44	$	28	$	133	$	72
Interest on Lease Liabilities	Interest on Lease Liabilities	49		28		99		43		Interest on Lease Liabilities	49		28		148		71
Operating Lease Cost	Operating Lease Cost	203		193		410		366		Operating Lease Cost	214		211		624		577
Short-term Lease Cost	Short-term Lease Cost	14		23		21		56		Short-term Lease Cost	11		17		32		73
Variable Lease Cost	Variable Lease Cost	33		39		88		95		Variable Lease Cost	77		45		165		140
Total Lease Cost	Total Lease Cost	$	344	$	310	$	707	$	604	Total Lease Cost	$	395	$	329	$	1,102	$	933

Future Lease Payments at June 30, 2020 are as follows:
Operating
Leases
Financing
Leases
Twelve Months Ended:
6/30/2021 $ 807 $ 241
6/30/2022 676 243
6/30/2023 599 95
6/30/2024 600 244
6/30/2025 564 252
Thereafter 3,900 8,084
Total Undiscounted Cash Flows $ 7,146 $ 9,159
Less: Net Present Value Adjustment 1,428 3,920
Lease Liability $ 5,718 $ 5,239


Future Lease Payments at September 30, 2020 are as follows:
	Operating Leases		Financing Leases
Twelve Months Ended:
9/30/2021	$	781	$	243
9/30/2022	665		243
9/30/2023	601		243
9/30/2024	590		247
9/30/2025	551		259
Thereafter	3,773		7,867
Total Undiscounted Cash Flows	$	6,961	$	9,102
Less: Net Present Value Adjustment	1,384		3,874
Lease Liability	$	5,577	$	5,228

Note 11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (In Thousands)

Arrow is exposed to certain risks arising from both its business operations and economic conditions. Arrow principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. ~~The Bank~~Arrow manages economic risks, including interest rate, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative instruments. Specifically, ~~the Bank~~Arrow enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Arrow's derivative financial instruments are used to manage differences in the amount, timing and duration of ~~the Bank’s~~ known or expected cash receipts and its known or expected cash payments principally related to certain fixed rate borrowings. Arrow also has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

Derivatives Not Designated as Hedging Instruments

Arrow enters into interest rate swap agreements with its commercial customers to provide them with a long-term fixed rate, while simultaneously Arrow entered into offsetting interest rate swap agreements with a counterparty to swap the fixed rate to a variable rate to manage interest rate exposure.

These interest rate swap agreements are not designated as a hedge for accounting purposes. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not present any material exposure to the Arrow's consolidated statements of income. ~~The Bank~~Arrow records its interest rate swap agreements at fair value and is presented on a gross basis within other assets and other liabilities on the consolidated balance sheets. Changes in the fair value of assets and liabilities arising from these derivatives are included, net, in other income in the consolidated statement of income.

The following table depicts the fair value adjustment recorded related to the notional amount of derivatives outstanding as well as the notional amount of the interest rate swap agreements.


Derivatives Not Designated as Hedging Instruments - Interest Rate Swap Agreements	Derivatives Not Designated as Hedging Instruments - Interest Rate Swap Agreements													Derivatives Not Designated as Hedging Instruments - Interest Rate Swap Agreements
		June 30, 2020		December 31, 2019		June 30, 2019			September 30, 2020		December 31, 2019		September 30, 2019
Fair value adjustment included in other assets	Fair value adjustment included in other assets	$	6,390	$	69	$	—	Fair value adjustment included in other assets	$	6,366	$	69	$	498
Fair value adjustment included in other liabilities	Fair value adjustment included in other liabilities	6,390		69		—		Fair value adjustment included in other liabilities	6,366		69		498
Notional amount	Notional amount	146,065		44,531		—		Notional amount	166,329		44,531		39,577

Derivatives Designated as Hedging Instruments

Arrow has entered into interest rate swaps to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities. These agreements are designated as cash flow hedges.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in ~~AOCI~~Accumulated Other Comprehensive Income ("AOCI") and subsequently reclassified into interest expense in the same period during which the hedge transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on ~~the~~ Arrow's Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts borrowings.

The following table indicates the effect of cash flow hedge accounting on AOCI and on the unaudited interim consolidated statement of income.

~~Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements~~

~~June 30, 2020~~

~~December 31, 2019~~

~~June 30, 2019~~

~~Amount of loss recognized in AOCI~~

~~(269)~~

—

~~Amount of gain reclassified from AOCI interest expense~~

—


Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
	September 30, 2020		December 31, 2019		September 30, 2019
Amount of gain recognized in AOCI	$	48	$	0	$	0
Amount of gain reclassified from AOCI interest expense	0		0		0

Note 12. COVID-19 PANDEMIC

The outbreak of the novel coronavirus (COVID-19) pandemic has impacted the global economy, including the banking sector and many industries in which our customers operate, in a variety of significant ways. For further discussion of the impact COVID-19 has had and may in the future have on Arrow and its financial results and operations, please refer to the risk factor included in Item 8.01 of Arrow's Current Report on Form 8-K filed April 24, 2020.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Arrow Financial Corporation:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance ~~sheet~~sheets of Arrow Financial Corporation and subsidiaries (the Company) as of ~~June~~September 30, 2020 and 2019, the related consolidated statements of income, comprehensive income, and changes in stockholders’ equity for the three-month and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 2019, the related consolidated statements of cash flows for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 2019, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

Albany, New York

~~August 6,~~November 5, 2020

Item 2.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~June~~September 30, 2020

NOTE ON TERMINOLOGY

In this Quarterly Report on Form 10-Q (this Report), the terms "Arrow," "the registrant," "the Company," "we," "us," and "our" generally refer to Arrow Financial Corporation and its subsidiaries as a group, except where the context indicates otherwise. At certain points in this Form 10-Q, Arrow's performance is compared with that of the Company's "peer group" of financial institutions. Unless otherwise specifically stated, the peer group for the purposes of this Form 10-Q is comprised of the group of 146 domestic bank holding companies with $3 to $10 billion in total consolidated assets as identified in the Federal Reserve Board’s "Bank Holding Company Performance Report" for ~~March 31,~~June 30, 2020 (the most recent such report currently available), and peer group data contained herein has been derived from such report.

THE COMPANY AND ITS SUBSIDIARIES

Arrow is a two-bank holding company headquartered in Glens Falls, New York. The banking subsidiaries are Glens Falls National Bank and Trust Company (Glens Falls National) whose main office is located in Glens Falls, New York, and Saratoga National Bank and Trust Company (Saratoga National) whose main office is located in Saratoga Springs, New York. Active subsidiaries of Glens Falls National include Upstate Agency, LLC (an insurance agency that sells property and casualty insurance and also specializes in selling and servicing group health care policies and life insurance), North Country Investment Advisers, Inc. (a registered investment adviser that provides investment advice to Arrow's proprietary mutual funds) and Arrow Properties, Inc. (a real estate investment trust, or REIT). Arrow also owns directly two subsidiary business trusts, organized in 2003 and 2004, which issued trust preferred securities (TRUPs), which are still outstanding.

FORWARD LOOKING STATEMENTS

This Report on Form 10-Q contains statements that are not historical in nature but rather are based on the Company's beliefs, assumptions, expectations, estimates and projections about the future. These statements are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and involve a degree of uncertainty and attendant risk. Words such as "may," "will," "expect," "believe," "anticipate," "estimate," "continue," and variations of such words and similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements include statements regarding the Company's asset quality, the level of allowance for credit losses, the sufficiency of liquidity sources, interest rate change exposure, changes in accounting standards, and the Company's tax plans and strategies. Some of these statements, such as those included in the interest rate sensitivity analysis in Part I, Item 3, entitled "Quantitative and Qualitative Disclosures About Market Risk," are merely presentations of what future performance or changes in future performance would look like based on hypothetical assumptions and on simulation models. Other forward-looking statements are based on Arrow's general perceptions of market conditions and trends in business activity, both the Company's and in the banking industry generally, as well as current management strategies for future operations and development.

These forward-looking statements may not be exhaustive, are not guarantees of future performance and involve certain risks and uncertainties that are difficult to quantify or, in some cases, to identify. You should not place undue reliance on any such forward-looking statements. In the case of all forward-looking statements, our actual outcomes and results may differ materially from what the statements predict or forecast. Factors that could cause or contribute to such differences include, but are not limited to the following, which are or may be amplified by the novel coronavirus (COVID-19) pandemic:

•the current and rapidly evolving COVID-19 pandemic and its impact on economic, market and social conditions;

•other rapid and dramatic changes in economic and market conditions;

•sharp fluctuations in interest rates, economic activity, or consumer spending patterns;

•sudden changes in the market for products provided, such as real estate loans;

•significant changes in banking or other laws and regulations, including both enactment of new legal or regulatory measures or the modification or elimination of pre-existing measures;

•significant changes in U.S. monetary or fiscal policy, including new or revised monetary programs or targets adopted or announced by the Federal Reserve ("monetary tightening or easing") or significant new federal legislation materially affecting the federal budget ("fiscal tightening or expansion");

•competition from other sources (e.g., non-bank entities);

•similar uncertainties inherent in banking operations or business generally, including technological developments and changes; and

•other risks detailed from time to time within our filings with the Securities and Exchange Commission ("SEC").

The Company is under no duty to update any of the forward-looking statements after the date of this Report to conform such statements to actual results. All forward-looking statements, express or implied, included in this Report and the documents incorporated by reference and that are attributable to the Company are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that the Company or any persons acting on our behalf may issue. This Report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Annual Report) and our other filings with the SEC.

USE OF NON-GAAP FINANCIAL MEASURES

The SEC has adopted Regulation G, which applies to ~~all~~certain public disclosures, including earnings releases, made by registered companies that contain "non-GAAP financial measures." GAAP is generally accepted accounting principles in the United States of America. Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure and a statement of the Company’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of "non-GAAP financial measures" certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required. The following measures used in this Report, which are commonly utilized by financial institutions, have not been specifically exempted by the SEC and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules, although the Company is unable to state with certainty that the SEC would so regard them.

Tax-Equivalent Net Interest Income and Net Interest Margin: Net interest income, as a component of the tabular presentation by financial institutions of Selected Financial Information regarding their recently completed operations, as well as disclosures based on that tabular presentation, is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of another institution or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, and from the fact that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time. The Company follows these practices.

The Efficiency Ratio: Financial institutions often use an "efficiency ratio" as a measure of expense control. The efficiency ratio typically is defined as the ratio of noninterest expense to net interest income and noninterest income. Net interest income as utilized in calculating the efficiency ratio is typically the same as the net interest income presented in Selected Financial Information table discussed in the preceding paragraph, i.e., it is expressed on a tax-equivalent basis. Moreover, many financial institutions, in calculating the efficiency ratio, also adjust both noninterest expense and noninterest income to exclude from these items (as calculated under GAAP) certain recurring component elements of income and expense, such as intangible asset amortization (which is included in noninterest expense under GAAP but may be excluded therefrom for purposes of calculating the efficiency ratio) and securities gains or losses (which are reflected in the calculation of noninterest income under GAAP but may be excluded therefrom for purposes of calculating the efficiency ratio). The Company makes these adjustments.

Tangible Book Value per Share: Tangible equity is total stockholders’ equity less intangible assets. Tangible book value per share is tangible equity divided by total shares issued and outstanding. Tangible book value per share is often regarded as a more meaningful comparative ratio than book value per share as calculated under GAAP, that is, total stockholders’ equity including intangible assets divided by total shares issued and outstanding. Intangible assets ~~includes~~include many items, but in our case, essentially represents goodwill.

Adjustments for Certain Items of Income or Expense: In addition to our regular utilization in our public filings and disclosures of the various non-GAAP measures commonly utilized by financial institutions discussed above, the Company also may elect from time to time, in connection with our presentation of various financial measures prepared in accordance with GAAP, such as net income, earnings per share (i.e. EPS), return on average assets (i.e. ROA), and return on average equity (i.e. ROE), to provide as well certain comparative disclosures that adjust these GAAP financial measures, typically by removing them from the impact of certain transactions or other material items of income or expense that are unusual or unlikely to be repeated. The Company will do so only if it believes that provision of the resulting non-GAAP financial measures may improve the average investor's understanding of our results of operations by separating out items that have a disproportional positive or negative impact on the particular period in question or by otherwise permitting a better comparison from period-to-period in our results of operations with respect to our fundamental lines of business, including the commercial banking business.

The Company believes that the non-GAAP financial measures disclosed from time-to-time are useful in evaluating our performance and that such information should be considered as supplemental in nature, and not as a substitute for or superior to, the related financial information prepared in accordance with GAAP. Non-GAAP financial measures may differ from similar measures presented by other companies.

Arrow Financial Corporation

Selected Quarterly Information

(Dollars In Thousands, Except Per Share Amounts - Unaudited)


Quarter Ended	Quarter Ended	6/30/2020			3/31/2020			12/31/2019			9/30/2019			6/30/2019			Quarter Ended	9/30/2020			6/30/2020			3/31/2020			12/31/2019			9/30/2019
Net Income	Net Income	$	9,159		$	8,127		$	9,740		$	10,067		$	8,934		Net Income	$	11,046		$	9,159		$	8,127		$	9,740		$	10,067
Transactions in Net Income (Net of Tax):	Transactions in Net Income (Net of Tax):																Transactions in Net Income (Net of Tax):

Net Changes in Fair Value of Equity Investments	Net Changes in Fair Value of Equity Investments	(80)			(279)			50			109			—			Net Changes in Fair Value of Equity Investments	(53)			(80)			(279)			50			109

Share and Per Share Data:¹	Share and Per Share Data:¹																Share and Per Share Data:1
Period End Shares Outstanding	Period End Shares Outstanding	15,011			14,982			14,998			14,969			14,949			Period End Shares Outstanding	15,489			15,461			15,432			15,448			15,418
Basic Average Shares Outstanding	Basic Average Shares Outstanding	14,992			14,996			14,978			14,955			14,922			Basic Average Shares Outstanding	15,472			15,441			15,446			15,427			15,404
Diluted Average Shares Outstanding	Diluted Average Shares Outstanding	14,998			15,026			15,026			14,991			14,963			Diluted Average Shares Outstanding	15,481			15,448			15,476			15,476			15,441
Basic Earnings Per Share	Basic Earnings Per Share	$	0.61		$	0.54		$	0.65		$	0.67		$	0.60		Basic Earnings Per Share	$	0.71		$	0.59		$	0.53		$	0.63		$	0.65
Diluted Earnings Per Share	Diluted Earnings Per Share	0.61			0.54			0.65			0.67			0.60			Diluted Earnings Per Share	0.71			0.59			0.53			0.63			0.65
Cash Dividend Per Share	Cash Dividend Per Share	0.260			0.260			0.260			0.252			0.252			Cash Dividend Per Share	0.252			0.252			0.252			0.252			0.245

Selected Quarterly Average Balances:	Selected Quarterly Average Balances:																Selected Quarterly Average Balances:
Interest-Bearing Deposits at Banks	Interest-Bearing Deposits at Banks	$	155,931		$	32,787		$	28,880		$	27,083		$	25,107		Interest-Bearing Deposits at Banks	$	242,928		$	155,931		$	32,787		$	28,880		$	27,083
Investment Securities	Investment Securities	607,094			603,748			582,982			545,073			584,679			Investment Securities	592,457			607,094			603,748			582,982			545,073
Loans	Loans	2,518,198			2,394,346			2,358,110			2,308,879			2,255,299			Loans	2,582,253			2,518,198			2,394,346			2,358,110			2,308,879
Deposits	Deposits	2,952,432			2,670,009			2,607,421			2,472,528			2,436,290			Deposits	3,082,499			2,952,432			2,670,009			2,607,421			2,472,528
Other Borrowed Funds	Other Borrowed Funds	129,383			170,987			177,877			231,291			250,283			Other Borrowed Funds	136,117			129,383			170,987			177,877			231,291
Stockholders’ Equity	Stockholders’ Equity	316,380			306,527			296,124			289,016			280,247			Stockholders’ Equity	324,269			316,380			306,527			296,124			289,016
Total Assets	Total Assets	3,437,155			3,180,857			3,113,114			3,023,043			2,997,458			Total Assets	3,583,322			3,437,155			3,180,857			3,113,114			3,023,043
Return on Average Assets, annualized	Return on Average Assets, annualized	1.07		%	1.03		%	1.24		%	1.32		%	1.20		%	Return on Average Assets, annualized	1.23		%	1.07		%	1.03		%	1.24		%	1.32		%
Return on Average Equity, annualized	Return on Average Equity, annualized	11.64		%	10.66		%	13.05		%	13.82		%	12.79		%	Return on Average Equity, annualized	13.55		%	11.64		%	10.66		%	13.05		%	13.82		%
Return on Average Tangible Equity, annualized ²	Return on Average Tangible Equity, annualized ²	12.58		%	11.55		%	14.18		%	15.05		%	13.96		%	Return on Average Tangible Equity, annualized 2	14.61		%	12.58		%	11.55		%	14.18		%	15.05		%
Average Earning Assets	Average Earning Assets	$	3,281,223		$	3,030,881		$	2,969,972		$	2,881,035		$	2,865,085		Average Earning Assets	$	3,417,638		$	3,281,223		$	3,030,881		$	2,969,972		$	2,881,035
Average Paying Liabilities	Average Paying Liabilities	2,457,690			2,362,515			2,293,804			2,213,642			2,235,462			Average Paying Liabilities	2,545,435			2,457,690			2,362,515			2,293,804			2,213,642
Interest Income	Interest Income	28,002			28,226			28,367			27,952			27,227			Interest Income	27,296			28,002			28,226			28,367			27,952
Tax-Equivalent Adjustment ³	Tax-Equivalent Adjustment ³	281			288			321			344			376			Tax-Equivalent Adjustment 3	284			281			288			321			344
Interest Income, Tax-Equivalent ³	Interest Income, Tax-Equivalent ³	28,283			28,514			28,688			28,296			27,603			Interest Income, Tax-Equivalent 3	27,580			28,283			28,514			28,688			28,296
Interest Expense	Interest Expense	3,160			5,220			5,449			5,649			5,520			Interest Expense	2,396			3,160			5,220			5,449			5,649
Net Interest Income	Net Interest Income	24,842			23,006			22,918			22,303			21,707			Net Interest Income	24,900			24,842			23,006			22,918			22,303
Net Interest Income, Tax-Equivalent ³	Net Interest Income, Tax-Equivalent ³	25,123			23,294			23,239			22,647			22,083			Net Interest Income, Tax-Equivalent 3	25,184			25,123			23,294			23,239			22,647
Net Interest Margin, annualized	Net Interest Margin, annualized	3.05		%	3.05		%	3.06		%	3.07		%	3.04		%	Net Interest Margin, annualized	2.90		%	3.05		%	3.05		%	3.06		%	3.07		%
Net Interest Margin, Tax Equivalent, annualized ³	Net Interest Margin, Tax Equivalent, annualized ³	3.08		%	3.09		%	3.10		%	3.12		%	3.09		%	Net Interest Margin, Tax Equivalent, annualized 3	2.93		%	3.08		%	3.09		%	3.10		%	3.12		%

Efficiency Ratio Calculation: ⁴	Efficiency Ratio Calculation: ⁴																Efficiency Ratio Calculation: 4
Noninterest Expense	Noninterest Expense	$	17,245		$	17,754		$	17,099		$	16,791		$	16,908		Noninterest Expense	$	17,487		$	17,245		$	17,754		$	17,099		$	16,791
Less: Intangible Asset Amortization	Less: Intangible Asset Amortization	57			58			60			61			44			Less: Intangible Asset Amortization	56			57			58			60			61
Net Noninterest Expense	Net Noninterest Expense	$	17,188		$	17,696		$	17,039		$	16,730		$	16,864		Net Noninterest Expense	$	17,431		$	17,188		$	17,696		$	17,039		$	16,730
Net Interest Income, Tax-Equivalent ³	Net Interest Income, Tax-Equivalent ³	$	25,123		$	23,294		$	23,238		$	22,647		$	22,083		Net Interest Income, Tax-Equivalent 3	$	25,184		$	25,123		$	23,294		$	23,238		$	22,647
Noninterest Income	Noninterest Income	7,164			7,694			7,081			7,691			6,896			Noninterest Income	8,697			7,164			7,694			7,081			7,691

Less: Net Changes in Fair Value of Equity Invest.	Less: Net Changes in Fair Value of Equity Invest.	(106)			(374)			67			146			—			Less: Net Changes in Fair Value of Equity Invest.	(72)			(106)			(374)			67			146
Net Gross Income	Net Gross Income	$	32,393		$	31,362		$	30,252		$	30,192		$	28,979		Net Gross Income	$	33,953		$	32,393		$	31,362		$	30,252		$	30,192
Efficiency Ratio ⁴	Efficiency Ratio ⁴	53.06		%	56.42		%	56.32		%	55.41		%	58.19		%	Efficiency Ratio 4	51.34		%	53.06		%	56.42		%	56.32		%	55.41		%

Period-End Capital Information:	Period-End Capital Information:																Period-End Capital Information:
Total Stockholders’ Equity (i.e. Book Value)	Total Stockholders’ Equity (i.e. Book Value)	$	317,687		$	309,398		$	301,728		$	292,228		$	284,649		Total Stockholders’ Equity (i.e. Book Value)	$	325,660		$	317,687		$	309,398		$	301,728		$	292,228
Book Value per Share ¹	Book Value per Share ¹	21.16			20.65			20.12			19.52			19.04			Book Value per Share 1	21.03			20.55			20.05			19.53			18.95
Goodwill and Other Intangible Assets, net	Goodwill and Other Intangible Assets, net	23,535			23,513			23,534			23,586			23,603			Goodwill and Other Intangible Assets, net	23,662			23,535			23,513			23,534			23,586
Tangible Book Value per Share ^1,2	Tangible Book Value per Share ^1,2	19.60			19.08			18.55			17.95			17.46			Tangible Book Value per Share 1,2	19.50			19.03			18.53			18.01			17.42

Capital Ratios:⁵	Capital Ratios:⁵																Capital Ratios:5

Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	9.32		%	9.87		%	9.98		%	10.04		%	9.88		%	Tier 1 Leverage Ratio	9.17		%	9.32		%	9.87		%	9.98		%	10.04		%
Common Equity Tier 1 Capital Ratio	Common Equity Tier 1 Capital Ratio	13.07		%	12.84		%	12.94		%	12.93		%	12.99		%	Common Equity Tier 1 Capital Ratio	13.20		%	13.07		%	12.84		%	12.94		%	12.93		%
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	13.94		%	13.72		%	13.83		%	13.85		%	13.93		%	Tier 1 Risk-Based Capital Ratio	14.06		%	13.94		%	13.72		%	13.83		%	13.85		%
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	15.10		%	14.76		%	14.78		%	14.81		%	14.91		%	Total Risk-Based Capital Ratio	15.28		%	15.10		%	14.76		%	14.78		%	14.81		%

Assets Under Trust Admin. & Investment Mgmt.	Assets Under Trust Admin. & Investment Mgmt.	$	1,502,866		$	1,342,531		$	1,543,653		$	1,485,116		$	1,496,966		Assets Under Trust Admin. & Investment Mgmt.	$	1,537,128		$	1,502,866		$	1,342,531		$	1,543,653		$	1,485,116

Arrow Financial Corporation

Selected Quarterly Information - Continued

(Dollars In Thousands, Except Per Share Amounts - Unaudited)


Footnotes:	Footnotes:																				Footnotes:

1.	1.	Share and Per Share Data have been restated for the September 27, 2019, 3% stock dividend.																														1.	Share and Per Share Data have been restated for the September 25, 2020, 3% stock dividend.

2.	2.	Non-GAAP Financial Measures Reconciliation: Tangible Book Value, Tangible Equity and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which the Company believes provide investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 43.																														2.	Non-GAAP Financial Measures Reconciliation: Tangible Book Value, Tangible Equity and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which the Company believes provide investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 42.
			6/30/2020			3/31/2020			12/31/2019			9/30/2019			6/30/2019					9/30/2020			6/30/2020			3/31/2020			12/31/2019				9/30/2019
		Total Stockholders' Equity (GAAP)	$	317,687		$	309,398		$	301,728		$	292,228		$	284,649			Total Stockholders' Equity (GAAP)	$	325,660		$	317,687		$	309,398		$	301,728			$	292,228
		Less: Goodwill and Other Intangible assets, net	23,535			23,513			23,534			23,586			23,603				Less: Goodwill and Other Intangible assets, net	23,662			23,535			23,513			23,534				23,586
		Tangible Equity (Non-GAAP)	$	294,152		$	285,885		$	278,194		$	268,642		$	261,046			Tangible Equity (Non-GAAP)	$	301,998		$	294,152		$	285,885		$	278,194			$	268,642

		Period End Shares Outstanding	15,011			14,982			14,998			14,969			14,949				Period End Shares Outstanding	15,489			15,461			15,432			15,448				15,418
		Tangible Book Value per Share (Non-GAAP)	$	19.60		$	19.08		$	18.55		$	17.95		$	17.46			Tangible Book Value per Share (Non-GAAP)	$	19.50		$	19.03		$	18.53		$	18.01			$	17.42
		Net Income	9,159			8,127			9,740			10,067			8,934				Net Income	11,046			9,159			8,127			9,740				10,067
		Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized)	12.58		%	11.55		%	14.18		%	15.05		%	13.96		%		Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized)	14.61		%	12.58		%	11.55		%	14.18		%		15.05		%

3.	3.	Non-GAAP Financial Measures Reconciliation: Net Interest Margin, Tax-Equivalent is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which Arrow believes provides investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 43.																														3.	Non-GAAP Financial Measures Reconciliation: Net Interest Margin, Tax-Equivalent is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which Arrow believes provides investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 42.
			6/30/2020			3/31/2020			12/31/2019			9/30/2019			6/30/2019					9/30/2020			6/30/2020			3/31/2020			12/31/2019				9/30/2019
		Interest Income (GAAP)	$	28,002		$	28,226		$	28,367		$	27,952		$	27,227			Interest Income (GAAP)	$	27,296		$	28,002		$	28,226		$	28,367			$	27,952
		Add: Tax-Equivalent adjustment (Non-GAAP)	281			288			321			344			376				Add: Tax-Equivalent adjustment (Non-GAAP)	284			281			288			321				344
		Interest Income - Tax Equivalent (Non-GAAP)	$	28,283		$	28,514		$	28,688		$	28,296		$	27,603			Interest Income - Tax Equivalent (Non-GAAP)	$	27,580		$	28,283		$	28,514		$	28,688			$	28,296
		Net Interest Income (GAAP)	$	24,842		$	23,006		$	22,918		$	22,303		$	21,707			Net Interest Income (GAAP)	$	24,900		$	24,842		$	23,006		$	22,918			$	22,303
		Add: Tax-Equivalent adjustment (Non-GAAP)	281			288			321			344			376				Add: Tax-Equivalent adjustment (Non-GAAP)	284			281			288			321				344
		Net Interest Income - Tax Equivalent (Non-GAAP)	$	25,123		$	23,294		$	23,239		$	22,647		$	22,083			Net Interest Income - Tax Equivalent (Non-GAAP)	$	25,184		$	25,123		$	23,294		$	23,239			$	22,647
		Average Earning Assets	$	3,281,223		$	3,030,881		$	2,969,972		$	2,881,035		$	2,865,085			Average Earning Assets	$	3,417,638		$	3,281,223		$	3,030,881		$	2,969,972			$	2,881,035
		Net Interest Margin (Non-GAAP)*	3.08		%	3.09		%	3.10		%	3.12		%	3.09		%		Net Interest Margin (Non-GAAP)*	2.93		%	3.08		%	3.09		%	3.10		%		3.12		%

4.	4.	Non-GAAP Financial Measures: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. Arrow believes that the efficiency ratio provides investors with information that is useful in understanding our financial performance. Arrow defines efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals tax-equivalent net interest income plus noninterest income, as adjusted). There is no GAAP financial measure that is closely comparable to the efficiency ratio. See "Use of Non-GAAP Financial Measures" on page 43.																														4.	Non-GAAP Financial Measures: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. Arrow believes that the efficiency ratio provides investors with information that is useful in understanding our financial performance. Arrow defines efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals tax-equivalent net interest income plus noninterest income, as adjusted). There is no GAAP financial measure that is closely comparable to the efficiency ratio. See "Use of Non-GAAP Financial Measures" on page 42.

5.	5.	For the current quarter, all of the regulatory capital ratios in the table above, as well as the Total Risk-Weighted Assets and Common Equity Tier 1 Capital amounts listed in the table below, are estimates based on, and calculated in accordance with, bank regulatory capital rules. All prior quarters reflect actual results. The CET1 ratio at June 30, 2020 listed in the tables (i.e., 13.07%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).																														5.	For the current quarter, all of the regulatory capital ratios in the table above, as well as the Total Risk-Weighted Assets and Common Equity Tier 1 Capital amounts listed in the table below, are estimates based on, and calculated in accordance with, bank regulatory capital rules. All prior quarters reflect actual results. The CET1 ratio at September 30, 2020 listed in the tables (i.e., 13.20%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).
			6/30/2020			3/31/2020			12/31/2019			9/30/2019			6/30/2019					9/30/2020			6/30/2020			3/31/2020			12/31/2019				9/30/2019

		Total Risk Weighted Assets	$	2,283,430		$	2,275,902		$	2,237,127		$	2,184,214		$	2,121,541			Total Risk Weighted Assets	$	2,321,637		$	2,283,430		$	2,275,902		$	2,237,127			$	2,184,214
		Common Equity Tier 1 Capital	298,362			292,165			289,409			282,485			275,528				Common Equity Tier 1 Capital	306,356			298,362			292,165			289,409				282,485
		Common Equity Tier 1 Capital Ratio	13.07		%	12.84		%	12.94		%	12.93		%	12.99		%		Common Equity Tier 1 Capital Ratio	13.20		%	13.07		%	12.84		%	12.94		%		12.93		%

* Quarterly ratios have been annualized.																		* Quarterly ratios have been annualized.

* ~~Quarterly ratios have been annualized.~~

Arrow Financial Corporation

Selected Year-to-Date Information

(Dollars In Thousands, Except Per Share Amounts - Unaudited)


Six Months Ended		6/30/2020			6/30/2019
Nine Months Ended								Nine Months Ended	9/30/2020			9/30/2019
Net Income	Net Income	$	17,286		$	17,668		Net Income	$	28,332		$	27,735
Transactions Recorded in Net Income (Net of Tax):	Transactions Recorded in Net Income (Net of Tax):							Transactions Recorded in Net Income (Net of Tax):
Net Changes in Fair Value of Equity Investments	Net Changes in Fair Value of Equity Investments	(359)			57			Net Changes in Fair Value of Equity Investments	(412)			166

Share and Per Share Data:¹	Share and Per Share Data:¹							Share and Per Share Data: 1
Period End Shares Outstanding	Period End Shares Outstanding	15,011			14,949			Period End Shares Outstanding	15,489			15,418
Basic Average Shares Outstanding	Basic Average Shares Outstanding	14,994			14,912			Basic Average Shares Outstanding	15,453			15,375
Diluted Average Shares Outstanding	Diluted Average Shares Outstanding	15,010			14,958			Diluted Average Shares Outstanding	15,467			15,417
Basic Earnings Per Share	Basic Earnings Per Share	$	1.15		$	1.19		Basic Earnings Per Share	$	1.83		$	1.80
Diluted Earnings Per Share	Diluted Earnings Per Share	1.15			1.18			Diluted Earnings Per Share	1.83			1.80
Cash Dividend Per Share	Cash Dividend Per Share	0.52			0.51			Cash Dividend Per Share	0.76			0.74

Selected Year-to-Date Average Balances:	Selected Year-to-Date Average Balances:							Selected Year-to-Date Average Balances:
Interest-Bearing Deposits at Banks	Interest-Bearing Deposits at Banks	$	94,359		$	25,632		Interest-Bearing Deposits at Banks	$	144,244		$	26,121
Investment Securities	Investment Securities	605,421			597,847			Investment Securities	601,069			580,062
Loans	Loans	2,456,272			2,233,094			Loans	2,498,573			2,258,633
Deposits	Deposits	2,811,221			2,392,381			Deposits	2,902,307			2,419,390
Other Borrowed Funds	Other Borrowed Funds	150,185			288,498			Other Borrowed Funds	145,463			271,198
Stockholders’ Equity	Stockholders’ Equity	311,454			276,576			Stockholders’ Equity	315,757			280,769
Total Assets	Total Assets	3,309,007			2,987,313			Total Assets	3,401,114			2,999,354
Return on Average Assets, annualized	Return on Average Assets, annualized	1.05		%	1.19		%	Return on Average Assets, annualized	1.11		%	1.24		%
Return on Average Equity, annualized	Return on Average Equity, annualized	11.16		%	12.88		%	Return on Average Equity, annualized	11.99		%	13.21		%
Return on Average Tangible Equity, annualized ²	Return on Average Tangible Equity, annualized ²	12.07		%	14.09		%	Return on Average Tangible Equity, annualized 2	12.95		%	14.42		%
Average Earning Assets	Average Earning Assets	3,156,052			2,856,573			Average Earning Assets	3,243,886			2,864,816
Average Paying Liabilities	Average Paying Liabilities	2,410,103			2,229,963			Average Paying Liabilities	2,455,544			2,224,463
Interest Income	Interest Income	56,228			53,440			Interest Income	83,524			81,392
Tax-Equivalent Adjustment ³	Tax-Equivalent Adjustment ³	569			748			Tax-Equivalent Adjustment 3	853			1,093
Interest Income, Tax-Equivalent ³	Interest Income, Tax-Equivalent ³	56,797			54,188			Interest Income, Tax-Equivalent 3	84,377			82,485
Interest Expense	Interest Expense	8,380			10,612			Interest Expense	10,776			16,261
Net Interest Income	Net Interest Income	47,848			42,828			Net Interest Income	72,748			65,131
Net Interest Income, Tax-Equivalent ³	Net Interest Income, Tax-Equivalent ³	48,417			43,576			Net Interest Income, Tax-Equivalent 3	73,601			66,224
Net Interest Margin, annualized	Net Interest Margin, annualized	3.05		%	3.02		%	Net Interest Margin, annualized	3.00		%	3.04		%
Net Interest Margin, Tax Equivalent, annualized ³	Net Interest Margin, Tax Equivalent, annualized ³	3.09		%	3.08		%	Net Interest Margin, Tax Equivalent, annualized 3	3.03		%	3.09		%

Efficiency Ratio Calculation: ⁴	Efficiency Ratio Calculation: ⁴							Efficiency Ratio Calculation: 4
Noninterest Expense	Noninterest Expense	$	34,999		$	33,560		Noninterest Expense	$	52,486		$	50,351
Less: Intangible Asset Amortization	Less: Intangible Asset Amortization	115			124			Less: Intangible Asset Amortization	171			184
Net Noninterest Expense	Net Noninterest Expense	34,884			33,436			Net Noninterest Expense	52,315			50,167
Net Interest Income, Tax-Equivalent ³	Net Interest Income, Tax-Equivalent ³	48,417			43,576			Net Interest Income, Tax-Equivalent 3	73,601			66,224
Noninterest Income	Noninterest Income	14,858			13,783			Noninterest Income	23,555			21,474

Less: Net Changes in Fair Value of Equity Securities	Less: Net Changes in Fair Value of Equity Securities	(480)			76			Less: Net Changes in Fair Value of Equity Securities	(552)			222
Net Gross Income	Net Gross Income	63,755			57,283			Net Gross Income	97,708			87,476
Efficiency Ratio ⁴	Efficiency Ratio ⁴	54.72		%	58.37		%	Efficiency Ratio 4	53.54		%	57.35		%

Arrow Financial Corporation

Selected Year-to-Date Information - Continued

(Dollars In Thousands, Except Per Share Amounts - Unaudited)


Footnotes:	Footnotes:										Footnotes:

1.	1.	Share and Per Share Data have been restated for the September 27, 2019, 3% stock dividend.													1.	Share and Per Share Data have been restated for the September 25, 2020, 3% stock dividend.

2.	2.	Tangible Book Value, Tangible Equity and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which the Company believes provide investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 43.													2.	Tangible Book Value, Tangible Equity and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which the Company believes provide investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 42.
			6/30/2020			6/30/2019						9/30/2020				9/30/2019
		Total Stockholders' Equity (GAAP)	$	317,687		$	284,649			Total Stockholders' Equity (GAAP)		$	325,660			$	292,228
		Less: Goodwill and Other Intangible assets, net	23,535			23,603				Less: Goodwill and Other Intangible assets, net		23,662				23,586
		Tangible Equity (Non-GAAP)	$	294,152		$	261,046			Tangible Equity (Non-GAAP)		$	301,998			$	268,642

		Period End Shares Outstanding	15,011			14,949				Period End Shares Outstanding		15,489				15,418
		Tangible Book Value per Share (Non-GAAP)	$	19.60		$	17.46			Tangible Book Value per Share (Non-GAAP)		$	19.50			$	17.42
		Net Income	17,286			17,668				Net Income		28,332				27,735
		Return on Tangible Equity (Net Income/Tangible Equity - Annualized)	12.07		%	14.09		%		Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized)		12.95		%		14.42		%

3.	3.	Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which the Company believes provides investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 43.													3.	Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which the Company believes provides investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 42.
			6/30/2020			6/30/2019						9/30/2020				9/30/2019
		Interest Income (GAAP)	$	56,228		$	53,440			Interest Income (GAAP)		$	83,524			$	81,392
		Add: Tax-Equivalent adjustment (Non-GAAP)	$	569		$	748			Add: Tax-Equivalent adjustment (Non-GAAP)		$	853			$	1,093
		Net Interest Income - Tax Equivalent (Non-GAAP)	$	56,797		$	54,188			Net Interest Income - Tax Equivalent (Non-GAAP)		$	84,377			$	82,485
		Net Interest Income (GAAP)	$	47,848		$	42,828			Net Interest Income (GAAP)		$	72,748			$	65,131
		Add: Tax-Equivalent adjustment (Non-GAAP)	569			748				Add: Tax-Equivalent adjustment (Non-GAAP)		853				1,093
		Net Interest Income - Tax Equivalent (Non-GAAP)	$	48,417		$	43,576			Net Interest Income - Tax Equivalent (Non-GAAP)		$	73,601			$	66,224
		Average Earning Assets	$	3,156,052		$	2,856,573			Average Earning Assets		$	3,243,886			$	2,864,816
		Net Interest Margin (Non-GAAP)*	3.09		%	3.08		%		Net Interest Margin (Non-GAAP)*		3.03		%		3.09		%

4.	4.	Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. The Company believes efficiency ratio provides investors with information that is useful in understanding financial performance. Efficiency ratio is defined as the ratio of our noninterest expense to our net gross income (which equals our tax-equivalent net interest income plus noninterest income, as adjusted). See "Use of Non-GAAP Financial Measures" on page 43.													4.	Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. The Company believes efficiency ratio provides investors with information that is useful in understanding financial performance. Efficiency ratio is defined as the ratio of our noninterest expense to our net gross income (which equals our tax-equivalent net interest income plus noninterest income, as adjusted). See "Use of Non-GAAP Financial Measures" on page 42.

* Year-to-date ratios have been annualized.									* Year-to-date ratios have been annualized.

* Year-to-date ratios have been annualized.


Average Consolidated Balance Sheets and Net Interest Income Analysis	Average Consolidated Balance Sheets and Net Interest Income Analysis																									Average Consolidated Balance Sheets and Net Interest Income Analysis

(Dollars In Thousands)	(Dollars In Thousands)																									(Dollars In Thousands)

Quarter Ended June 30:		2020										2019
Quarter Ended September 30:														Quarter Ended September 30:	2020						2019
				Interest		Rate				Interest		Rate					Interest		Rate				Interest		Rate
		Average		Income/		Earned/		Average		Income/		Earned/			Average		Income/		Earned/		Average		Income/		Earned/
		Balance		Expense		Paid		Balance		Expense		Paid			Balance		Expense		Paid		Balance		Expense		Paid
Interest-Bearing Deposits at Banks	Interest-Bearing Deposits at Banks	$	155,931	$	41	0.11	%	$	25,107	$	195	3.12	%	Interest-Bearing Deposits at Banks	$	242,928	$	64	0.10	%	$	27,083	$	182	2.67		%
Investment Securities:	Investment Securities:													Investment Securities:
Fully Taxable	Fully Taxable	405,265		1,871		1.86		354,383		2,284		2.59		Fully Taxable	395,349		1,557		1.57		328,328		2,018		2.44
Exempt from Federal Taxes	Exempt from Federal Taxes	201,829		1,013		2.02		230,296		1,228		2.14		Exempt from Federal Taxes	197,108		969		1.96		216,745		1,132		2.07
Loans	Loans	2,518,198		25,077		4.01		2,255,299		23,520		4.18		Loans	2,582,253		24,706		3.81		2,308,879		24,620		4.23
Total Earning Assets	Total Earning Assets	3,281,223		28,002		3.43		2,865,085		27,227		3.81		Total Earning Assets	3,417,638		27,296		3.18		2,881,035		27,952		3.85
Allowance for Credit Losses	Allowance for Credit Losses	(23,588)						(20,326)						Allowance for Credit Losses	(26,310)						(20,617)
Cash and Due From Banks	Cash and Due From Banks	31,719						33,158						Cash and Due From Banks	37,905						36,423
Other Assets	Other Assets	147,801						119,541						Other Assets	154,089						126,202
Total Assets	Total Assets	$	3,437,155					$	2,997,458					Total Assets	$	3,583,322					$	3,023,043
Deposits:	Deposits:													Deposits:
Interest-Bearing Checking Accounts	Interest-Bearing Checking Accounts	$	740,284	310		0.17		$	733,327	453		0.25		Interest-Bearing Checking Accounts	$	764,614	264		0.14		$	686,017	500		0.29
Savings Deposits	Savings Deposits	1,215,296		1,173		0.39		879,026		2,008		0.92		Savings Deposits	1,314,241		806		0.24		924,868		2,317		0.99
Time Deposits of $250,000 or More	Time Deposits of $250,000 or More	135,978		438		1.30		97,703		515		2.11		Time Deposits of $250,000 or More	121,027		292		0.96		86,018		451		2.08
Other Time Deposits	Other Time Deposits	236,749		784		1.33		272,104		1,131		1.67		Other Time Deposits	209,436		576		1.09		285,448		1,255		1.74
Total Interest-Bearing Deposits	Total Interest-Bearing Deposits	2,328,307		2,705		0.47		1,982,160		4,107		0.83		Total Interest-Bearing Deposits	2,409,318		1,938		0.32		1,982,351		4,523		0.91
Short-Term Borrowings	Short-Term Borrowings	54,148		16		0.12		199,404		977		1.97		Short-Term Borrowings	60,894		17		0.11		176,028		703		1.58
FHLBNY Term Advances & Other Long-Term Debt	FHLBNY Term Advances & Other Long-Term Debt	70,000		390		2.24		50,879		408		3.22		FHLBNY Term Advances & Other Long-Term Debt	70,000		392		2.23		50,000		395		3.13
Finance Leases	Finance Leases	5,235		49		3.76		3,019		28		3.72		Finance Leases	5,223		49		3.73		5,263		28		2.11
Total Interest-Bearing Liabilities	Total Interest-Bearing Liabilities	2,457,690		3,160		0.52		2,235,462		5,520		0.99		Total Interest-Bearing Liabilities	2,545,435		2,396		0.37		2,213,642		5,649		1.01
Noninterest-bearing deposits	Noninterest-bearing deposits	624,125						454,130						Noninterest-bearing deposits	673,181						490,177
Other Liabilities	Other Liabilities	38,960						27,619						Other Liabilities	40,437						30,208
Total Liabilities	Total Liabilities	3,120,775						2,717,211						Total Liabilities	3,259,053						2,734,027
Stockholders’ Equity	Stockholders’ Equity	316,380						280,247						Stockholders’ Equity	324,269						289,016
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	3,437,155					$	2,997,458					Total Liabilities and Stockholders’ Equity	$	3,583,322					$	3,023,043

Net Interest Income	Net Interest Income			$	24,842					$	21,707			Net Interest Income			$	24,900					$	22,303
Net Interest Spread	Net Interest Spread					2.91	%					2.82	%	Net Interest Spread					2.81	%					2.84		%
Net Interest Margin	Net Interest Margin					3.05	%					3.04	%	Net Interest Margin					2.90	%					3.07		%


Average Consolidated Balance Sheets and Net Interest Income Analysis	Average Consolidated Balance Sheets and Net Interest Income Analysis																									Average Consolidated Balance Sheets and Net Interest Income Analysis

(Dollars In Thousands)	(Dollars In Thousands)																									(Dollars In Thousands)

Six Months Ended June 30:		2020										2019
Nine Months Ended September 30:														Nine Months Ended September 30:	2020						2019
				Interest		Rate				Interest		Rate					Interest		Rate				Interest		Rate
		Average		Income/		Earned/		Average		Income/		Earned/			Average		Income/		Earned/		Average		Income/		Earned/
		Balance		Expense		Paid		Balance		Expense		Paid			Balance		Expense		Paid		Balance		Expense		Paid
Interest-Bearing Deposits at Banks	Interest-Bearing Deposits at Banks	$	94,359	$	165	0.35	%	$	25,632	$	390	3.07	%	Interest-Bearing Deposits at Banks	$	144,244	$	229	0.21	%	$	26,121	$	572	2.93		%
Investment Securities:	Investment Securities:													Investment Securities:
Fully Taxable	Fully Taxable	402,286		4,064		2.03		366,186		4,653		2.56		Fully Taxable	399,958		5,621		1.88		353,428		6,671		2.52
Exempt from Federal Taxes	Exempt from Federal Taxes	203,135		2,048		2.03		231,661		2,474		2.15		Exempt from Federal Taxes	201,111		3,017		2.00		226,634		3,606		2.13
Loans	Loans	2,456,272		49,951		4.09		2,233,094		45,923		4.15		Loans	2,498,573		74,657		3.99		2,258,633		70,543		4.18
Total Earning Assets	Total Earning Assets	3,156,052		56,228		3.58		2,856,573		53,440		3.77		Total Earning Assets	3,243,886		83,524		3.44		2,864,816		81,392		3.80
Allowance for Credit Losses	Allowance for Credit Losses	(22,887)						(20,218)						Allowance for Credit Losses	(24,037)						(20,352)
Cash and Due From Banks	Cash and Due From Banks	32,965						34,136						Cash and Due From Banks	34,624						34,907
Other Assets	Other Assets	142,877						116,822						Other Assets	146,641						119,983
Total Assets	Total Assets	$	3,309,007					$	2,987,313					Total Assets	$	3,401,114					$	2,999,354
Deposits:	Deposits:													Deposits:
Interest-Bearing Checking Accounts	Interest-Bearing Checking Accounts	$	724,016	797		0.22		$	750,744	935		0.25		Interest-Bearing Checking Accounts	$	737,647	1,061		0.19		$	728,931	1,435		0.26
Savings Deposits	Savings Deposits	1,154,138		3,644		0.63		856,554		3,609		0.85		Savings Deposits	1,207,896		4,450		0.49		879,576		5,926		0.90
Time Deposits of $250,000 or More	Time Deposits of $250,000 or More	131,012		971		1.49		88,575		911		2.07		Time Deposits of $250,000 or More	127,659		1,263		1.32		87,714		1,362		2.08
Other Time Deposits	Other Time Deposits	250,752		1,784		1.43		242,608		1,844		1.53		Other Time Deposits	236,879		2,360		1.33		257,044		3,099		1.61
Total Interest-Bearing Deposits	Total Interest-Bearing Deposits	2,259,918		7,196		0.64		1,938,481		7,299		0.76		Total Interest-Bearing Deposits	2,310,081		9,134		0.53		1,953,265		11,822		0.81
Short-Term Borrowings	Short-Term Borrowings	73,297		224		0.61		231,758		2,399		2.09		Short-Term Borrowings	69,132		241		0.47		212,977		3,102		1.95
FHLBNY Term Advances and Other Long-Term Debt	FHLBNY Term Advances and Other Long-Term Debt	71,649		861		2.42		56,740		871		3.10		FHLBNY Term Advances and Other Long-Term Debt	71,095		1,253		2.35		54,469		1,266		3.11
Finance Leases	Finance Leases	5,239		99		3.80		2,984		43		3.72		Finance Leases	5,236		148		3.78		3,752		71		3.72
Total Interest-Bearing Liabilities	Total Interest-Bearing Liabilities	2,410,103		8,380		0.70		2,229,963		10,612		0.96		Total Interest-Bearing Liabilities	2,455,544		10,776		0.59		2,224,463		16,261		0.98
Noninterest-bearing deposits	Noninterest-bearing deposits	551,303						453,900						Noninterest-bearing deposits	592,226						466,125
Other Liabilities	Other Liabilities	36,147						26,875						Other Liabilities	37,587						27,998
Total Liabilities	Total Liabilities	2,997,553						2,710,738						Total Liabilities	3,085,357						2,718,586
Stockholders’ Equity	Stockholders’ Equity	311,454						276,575						Stockholders’ Equity	315,757						280,768
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	3,309,007					$	2,987,313					Total Liabilities and Stockholders’ Equity	$	3,401,114					$	2,999,354

Net Interest Income	Net Interest Income			$	47,848					$	42,828			Net Interest Income			$	72,748					$	65,131
Net Interest Spread	Net Interest Spread					2.88	%					2.81	%	Net Interest Spread					2.85	%					2.82		%
Net Interest Margin	Net Interest Margin					3.05	%					3.02	%	Net Interest Margin					3.00	%					3.04		%

OVERVIEW

The following discussion and analysis focuses on and reviews the results of operations for the ~~three-month~~three month period ended ~~June~~September 30, 2020 and the financial condition as of ~~June~~September 30, 2020 and 2019. The discussion below should be read in conjunction with the selected quarterly and annual information set forth above and the Consolidated Financial Statements and other financial data presented elsewhere in this Report. When necessary, prior-year financial information has been reclassified to conform to the current-year presentation.

COVID-19 Pandemic:

In March 2020, the World Health Organization recognized COVID-19 as a pandemic. In response, the United States federal government and various state and local governments have, among other actions, imposed travel and business restrictions and required or advised communities in which we do business to adopt stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. Like many businesses, we expect the operations and financial results to continue to be adversely impacted by the COVID-19 pandemic. The severity, magnitude and duration of the current pandemic are still uncertain, rapidly changing and hard to predict.

Arrow ~~has been proactive~~continues to manage its COVID-19 response with health and ~~continually assessing~~safety concerns as a top priority. In the ~~potential impact of~~third quarter, the ~~pandemic. It formed a~~ Business Continuity Task Force, ~~in advance of the impending arrival of the pandemic to Upstate New York. The task force,~~ representing leadership from across the organization, ~~has overseen a robust~~focused on maintaining protocols that have allowed Arrow to keep the team healthy and ~~expansive effort~~the branches open. Arrow actively monitors developments, and if future restrictions are imposed, is confident in its ability to ~~protect employees and customers while continuing~~continue to ~~deliver~~provide essential banking services ~~during~~and meet customer needs.

Throughout the ~~pandemic. In the second~~third quarter, Arrow ~~began~~maintained open lobbies for the majority of its bank branches and insurance offices. Safety measures continue to ~~reopen~~be followed, including clear shields for desks and teller lines, hand sanitizing stations, required face coverings, and social distancing markers. Traffic to lobbies is stable, and Arrow continues to ~~customers while still encouraging customers to use~~promote usage of no-contact alternatives such as digital banking, drive-ins and ATMs. ~~However, while certain restrictions and guidelines~~While some positions have ~~been lifted or relaxed, they may be reinstituted in response~~returned to the ~~continuing effects of the pandemic. Additionally, Arrow expanded remote work arrangements for~~office, a significant portion of ~~its employee base, discontinued~~the Arrow workforce remains remote as part of our risk-mitigation strategy. Additionally, employee travel ~~minimized~~remains paused, self-quarantine protocol is in place for personal travel to areas classified as hot spots, in-person meetings ~~and implemented~~are minimized, social distancing ~~for essential employees who remained on-site.~~is strongly enforced, and increased cleaning and sanitizing of Arrow's locations continue. Arrow believes ~~that between remote working arrangements~~these measures have helped to keep the workforce healthy and ~~cross training initiatives, current human capital resources should be able~~has aided in community efforts to ~~continue operations during~~slow the ~~current COVID-19 pandemic, absent unforeseen facts.~~

Demand for the Small Business Administration’s Paycheck Protection Program had been significant in the second quarter. Arrow funded over 1,400 loans totaling $140.0 million. Both of Arrow’s subsidiary banks are proudly participating in the program as a way to deliver relief for small businesses in Upstate New York. In order to process the large volume of Paycheck Protection Program applications, Arrow reinforced its lending team with resources and support from across the Company. Arrow effectively managed its liquidity position while being able to satisfy the significant demand for the Small Business Administration’s Paycheck Protection Program that had occurred in the second quarter.

The COVID-19 pandemic has significantly impacted economic activity and markets around the world, and we expect it will negatively impact Arrow's business in numerous ways. In particular, the rapid rise in unemployment and the temporary mandated closure of non-essential businesses in New York, will most likely reduce loan production as well as impact borrowers' ability to satisfy their obligations. Investments are analyzed to determine if any impairment not considered temporary exists. Municipal investments may be impacted if tax revenue deceases significantly. Management will continue to evaluate investment securities for impairment. Arrow has increased its allowance for loan losses as a resultspread of the ~~uncertainty surrounding the ability of its borrowers to satisfy loan obligations to Arrow.~~COVID-19 virus. Arrow will continue to ~~assess potential~~utilize these measures as appropriate based on public health guidance.

During the third quarter, support continued for customers experiencing financial hardship. Arrow worked closely with individuals and businesses seeking temporary financial assistance. On the small business side, support for Small Business Administration Paycheck Protection Program ("PPP") borrowers shifted from taking new loan ~~losses.~~applications to preparing for loan forgiveness. In total, Arrow ~~does~~has assisted more than 1,400 small businesses in acquiring more than $142.7 million in PPP funding. The Arrow team has engaged in regular communication concerning updates to the PPP and the start of our digital forgiveness application process.

While COVID-19 did not ~~currently anticipate any impairment of its right-of-use lease assets, goodwill or other intangible assets as~~have a ~~result of COVID-19, however,~~material adverse effect on third-quarter 2020 financial results, Arrow ~~will continue to assess impairment throughout the pandemic.~~

~~We continue to monitor closely Arrow’s financial health and liquidity and~~is actively monitoring the impact of the pandemic on ~~our operations~~the business and ~~financial results.~~ results of operations. Currently, all banking locations and a portion of insurance locations are open to the public, and through a mix of onsite and remote work amongst the Arrow team, Arrow continues to meet customer needs and deliver high-quality service daily.

As weArrow cannot predict the duration or scope of the pandemic or its impact on economic and financial markets or its impact on ~~our~~the business, ~~we are not able~~Arrow is unable to reasonably estimate the overall impact on the Company. For further discussion of the impact COVID-19 has had and may in the future have on Arrow and its financial results and operations, please refer to the risk factor included in Item 8.01 of Arrow's Current Report on Form 8-K filed April 24, 2020.

Summary of Q2Q3 2020 Financial Results: Net income for the ~~second~~third quarter of 2020 was ~~$9.2~~$11.0 million, compared to ~~$8.9~~$10.1 million in the ~~second~~third quarter of 2019. ~~Total loans grew in the second quarter by $147.7 million to $2.6 billion, including $140.0 million of the Small Business Administration's Paycheck Protection Program loans.~~ Net interest income increased to ~~$24.8~~$24.9 million in the ~~second~~third quarter of 2020, compared to ~~$21.7~~$22.3 million for the comparable quarter of 2019.

Diluted earnings per share (EPS) for the quarter was ~~$0.61,~~$0.71, an increase of ~~1.7%~~9.2% from the EPS of ~~$0.60~~$0.65 reported for the ~~second~~third quarter of 2019. Return on average equity (ROE) for the ~~second~~third quarter of 2020 decreased to ~~11.64%~~13.55%, as compared to a ROE of ~~12.79%~~13.82% for the quarter ended ~~June~~September 30, 2019. Return on average assets (ROA) for the 2020 ~~second~~third quarter was ~~1.07%~~1.23%, a decrease from an ROA of ~~1.20%~~1.32% for the quarter ended ~~June~~September 30, 2019.

Total loans reached $2.6 billion as of ~~June~~September 30, 2020, which ~~represents~~represented an increase of ~~$281.6~~$256.9 million, or ~~12.3%~~11.0% as compared to ~~June~~September 30, 2019. In the third quarter, loans grew by $30.5 million. The consumer loan portfolio grew by ~~$49.5~~$43.7 million, or ~~6.4%~~5.4%, as compared to ~~June~~September 30, 2019, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased ~~$51.0~~$36.2 million, or ~~5.8%~~4.1%, as compared to ~~June~~September 30, 2019. Total outstanding commercial loans increased ~~$181.1~~$176.9 million, or ~~28.8%~~27.6%, as compared to ~~June~~September 30, 2019. The increase in commercial loans includes ~~$140.0~~$142.7 million of the Small Business Administration's Paycheck Protection Program loans.

At ~~June~~September 30, 2020, deposit balances reached ~~$3.1~~$3.3 billion, up ~~$565.0~~$650.3 million, or ~~22.6%~~24.9%, from the prior-year level. Deposit growth for the third quarter of 2020 was $196.1 million. Noninterest-bearing deposits represented ~~21.8%~~21.1% of total deposits at ~~June~~September 30, 2020, compared to ~~18.7%~~19.8% of total deposits on ~~June~~September 30, 2019. At ~~June~~September 30, 2020, other time deposits were ~~$216.6~~$194.1 million, a decrease of ~~$72.7~~$75.6 million compared to the prior year. Municipal deposits increased ~~$155.6~~$218.8 million, or ~~27.2%~~34.6% from ~~June 30, 2019. Total combined Federal Home Loan Bank Overnight and Term Advances declined $66.6 million from June~~September 30, 2019.

~~Second quarter 2020 net~~Net interest income for the third quarter increased to ~~$24.8~~$24.9 million, up ~~14.4%~~11.6% from ~~$21.7~~$22.3 million in the comparable quarter of 2019. The net interest margin was ~~3.05%~~2.90% for the quarter, compared to ~~3.04%~~3.07% for the ~~second~~third quarter of 2019. The ~~increase~~decrease in net

interest margin from the prior year was due to a variety of factors, ~~including; balance sheet growth,~~including: lower ~~market~~interest rates, ~~and a more favorable funding mix, with higher deposit~~increased cash balances and ~~lower wholesale borrowings.~~the impact of participating in the Small Business Administration Paycheck Protection Program.

Noninterest income for the three months ended ~~June~~September 30, 2020 was ~~$7.2~~$8.7 million, compared to ~~$6.9~~$7.7 million in the comparable 2019 quarter. For the ~~second~~third quarter of 2020, the fair value of equity securities at June 30, 2020 decreased $107 thousand primarily as a result of continued equity market disruption related to the COVID-19 pandemic. In addition, income of $547 thousand related to net gain on the sale of loans was ~~recorded in~~$1.4 million. In addition, income from fiduciary activities for the ~~second~~three months ended September 30, 2020 increased over the comparable quarter of ~~2020.~~2019.

Noninterest expense for the ~~second~~third quarter of 2020 increased ~~2.0%~~4.1% to ~~$17.2~~$17.5 million, from ~~$16.9~~$16.8 million for the ~~second~~third quarter of 2019. Salaries and benefits increased ~~$0.5 million, primarily~~$393 thousand. In the ~~result of increased cost of health insurance benefits.~~third quarter, both the Saratoga National Bank Latham branch and the Capital Region Business Development Office opened, increasing occupancy expenses for the quarter.

Asset quality remained strong at ~~June~~September 30, 2020, with continued low levels of nonperforming loans and net charge-offs. Nonperforming loans at ~~June~~September 30, 2020, were ~~$6.5~~$6.3 million, up ~~$964 thousand~~$1.6 million from the level at ~~June~~September 30, 2019. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.02% for the three month period ended September 30, 2020, a decrease from both 0.06% for the ~~three-month~~three month period ended ~~June 30, 2020, consistent with~~ December 31, 2019 and ~~an increase~~ from ~~0.02%~~0.05% for the ~~three-month~~three month period ended ~~June~~September 30, 2019. The allowance for loan losses was ~~$26.3~~$28.4 million at ~~June~~September 30, 2020, which represented ~~1.03%~~1.10% of loans outstanding, ~~or 1.09% excluding the $140.0 million of Small Business Administration Paycheck Protection Program loans originated in the second quarter. This is~~as compared to ~~0.91%~~0.90% at ~~June~~September 30, 2019. The loss provision expense for the ~~second~~third quarter of 2020 was ~~$3.0~~$2.3 million, up ~~$2.6~~$1.8 million from the provision expense for the comparable 2019 quarter. Although credit quality remains very strong, the increase in loss provision reflects the uncertainty resulting from the COVID-19 pandemic.

The changes in net income, net interest income and net interest margin between the ~~three-month~~three month periods are discussed in detail under the heading "RESULTS OF OPERATIONS," beginning on page ~~66.~~65.

Regulatory Capital and Increase in Stockholders' Equity: At ~~June~~September 30, 2020, Arrow continued to exceed all required minimum capital ratios under the current bank regulatory capital rules as implemented under Dodd-Frank (the "Capital Rules") at both the holding company and bank levels. At that date, both subsidiary banks, as well as the holding company, continued to qualify as "well-capitalized" under the capital classification guidelines as defined by the Capital Rules. Because of continued profitability and strong asset quality, the regulatory capital levels throughout recent years have consistently remained well in excess of the various required regulatory minimums in effect from time to time, as they do at present. Pursuant to the Capital Rules, required minimum regulatory capital levels for insured banks and their parent holding companies increased in 2019.

The federal bank regulators have issued a final rule to implement the “community bank leverage ratio”, introducing an optional simplified measure of capital adequacy for qualifying community banking organizations (the CBLR framework). To qualify for the CBLR framework, a community banking organization must satisfy certain requirements, including having a leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the CBLR framework will be considered to have met the well-capitalized ratio requirements under the “prompt corrective action” regulations and will not be required to report or calculate risk-based capital ratios. Subsequently, Section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act required the federal banking agencies to temporarily lower the threshold for election of the CBLR framework, issuing two interim final rules to set the CLBR at 8% as of the second quarter of 2020 and then gradually re-establish the CBLR at 9%.

Under the ~~interim~~ final ~~rules,~~rule, the CBLR will ~~be set~~remain at 8% ~~beginning in the second quarter of 2020~~ through the end of ~~the year. Thus, community~~2020. Community banks that have a leverage ratio of 8% or greater and meet certain other criteria may elect to use the CBLR framework. Beginning in 2021, the CBLR will increase to 8.5% for the calendar year. Community banks will have until January 1, 2022, before the leverage ratio requirement to use the CBLR framework will return to 9%.

The final rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than one percentage point below the applicable CBLR requirement.

The CBLR final rule became effective as of January 1, 2020, and Arrow and both subsidiary banks have opted out of utilizing the CBLR framework. The Capital Rules promulgated under Dodd-Frank will remain applicable to Arrow.

Stockholders’ equity was ~~$317.7~~$325.7 million at ~~June~~September 30, 2020, an increase of ~~$16.0~~$23.9 million, or ~~5.3%~~7.9%, from the December 31, 2019 level of $301.7 million, and an increase of ~~$33.0~~$33.4 million, or ~~11.6%~~11.4%, from the prior-year level. The increase in stockholders' equity over the first ~~six~~nine months of 2020 principally reflected the following factors: (i) ~~$17.3~~$28.3 million of net income for the period, plus (ii) other comprehensive income of $6.1 million, plus (iii) issuance of ~~$1.9~~$2.8 million of common stock through employee benefit and dividend reinvestment plans; reduced by (iv) cash dividends of ~~$7.8~~$11.7 million; and (v) repurchases of common stock of ~~$1.5~~$1.6 million. The components of the change in stockholders’ equity since year-end 2019 are presented in the Consolidated Statement of Changes in Stockholders’ Equity on page 6, and are discussed in more detail in the next section.

At ~~June~~September 30, 2020, book value per share was ~~$21.16,~~$21.03, up by ~~11.1%~~11.0% over the prior-year level. Tangible book value per share (a non-GAAP measure that deducts intangible assets from stockholders' equity) was ~~$19.60,~~$19.50, an increase of ~~$2.14,~~ $2.08,or ~~12.3%~~11.9%, over the level as of ~~June~~September 30, 2019. See the disclosure on page 4342 related to the use of non-GAAP financial measures including tangible book value.

On ~~June~~September 30, 2020, the Company's closing stock price was $29.73, representing a trading multiple of 1.52 to tangible book value. InAs adjusted for the ~~second~~3% stock dividend distributed on September 25, 2020, in the third quarter of 2020, the Company paid a quarterly cash dividend of ~~$0.26.~~$0.25. Further discussion of dividends is included in the Capital Components; Stock Repurchases; Dividends section located on page 62.

Loan Quality: Net charge-offs for the ~~second~~third quarter of 2020 were ~~$377~~$125 thousand as compared to ~~$133~~$282 thousand for the comparable 2019 quarter. The ratio of net charge-offs to average loans (annualized) was 0.02% for the three month period ended September 30, 2020, a decrease from both 0.06% for the ~~second quarter of 2020, consistent with~~three month period ended December 31, 2019 and ~~an increase~~ from ~~0.02%~~0.05% for the ~~three-month~~three month period ended ~~June~~September 30, 2019. At ~~June~~September 30, 2020, the allowance for credit losses was ~~$26.3~~$28.4 million representing ~~1.03%~~1.10% of total loans, which is an increase from the ~~June~~September 30, 2019 ratio of ~~0.91%~~0.90%. Although credit quality remains very strong, the increase in loan loss provision expense reflects the uncertainty resulting from the COVID-19 pandemic. As permitted by the CARES Act, Arrow has elected to defer the adoption of the Current Expected Credit Losses ("CECL") methodology in determining credit losses.

Nonperforming loans were ~~$6.5~~$6.3 million at ~~June~~September 30, 2020, representing ~~0.25%~~0.24% of period-end loans, an increase from the ~~June~~September 30, 2019 ratio of ~~0.24%~~0.20%. The ratio continues to compare favorably with the weighted average ratio of the peer group of ~~0.53%~~0.59% at ~~March 31,~~June 30, 2020.

Loan Segments: As of ~~June~~September 30, 2020, total loans grew by ~~$175.8~~$206.3 million, or ~~7.4%~~8.6%, as compared to the balance at December 31, 2019. The largest increase was in commercial and commercial real estate loans, which increased by ~~$148.5~~$156.0 million, or ~~22.5%~~23.6%, from December 31, 2019. The majority of the increase in commercial loans resulted from the origination of approximately ~~$140.0~~$142.7 million of Small Business Administration's Paycheck Protection Program loans. In addition, consumer loans expanded ~~$17.3~~$38.3 million, or ~~2.1%~~4.7%. The economic factors resulting from the COVID-19 pandemic, including but not limited to restrictions on non-essential businesses, will most likely adversely impact loan growth for the remainder of the year.

•Commercial and Commercial Real Estate Loans: Combined, these loans comprise ~~31.6%~~31.5% of the total loan portfolio at period-end. Commercial property values in the ~~Company's~~Company’s region have largely remained stable ~~in recent periods leading~~year-to-date, however, there remains uncertainty surrounding market conditions due to the pandemic. Appraisals on nonperforming and watched CRE loan properties are updated as deemed necessary, usually when the loan is downgraded or when there has been significant market deterioration since the last appraisal. The temporary closure of nonessential business in New York has impacted, and may continue to impact, the Bank's customer base. Government intervention, with programs such as the Small Business Administration’s Paycheck Protection Program, may mitigate the economic risk to both Arrow and its customers, however the full impact cannot be determined at this time.

•Consumer Loans: These loans (primarily automobile loans) comprised ~~32.3%~~32.8% of the total loan portfolio at period-end. Consumer automobile loans at ~~June~~September 30, 2020, were ~~$823~~$844 million, or ~~99.3%~~99.4% of this portfolio segment. In the first ~~six~~nine months of 2020, Arrow did not experience any significant increase in the delinquency rate or in the percentage of nonperforming loans in this segment. The vast majority of automobile loans are initiated through the purchase of vehicles by consumers with automobile dealers. The physical sale of vehicles through dealerships had been curtailed for ~~the majority~~a significant part of ~~the second quarter~~2020 as part of the response to the COVID-19 pandemic in New York and Vermont, our primary dealer network. Thus, the volume of originations of consumer loans will be negatively impacted, although the magnitude of the impact cannot be determined.

•Residential Real Estate Loans: These loans, including home equity loans, made up ~~36.1%~~35.7% of the total loan portfolio at period-end. The residential real estate market in the Company's service area has been stable in recent periods. Arrow originated nearly all of the residential real estate loans currently held in the loan portfolio and applies conservative underwriting standards to loan originations. Arrow typically sells a portion of residential real estate mortgage originations into the secondary market. The ratio of the sales of originations to total originations tends to fluctuate from period to period based on market conditions. Due to the COVID-19 pandemic, it is not yet possible to determine the long term economic impact of the mandated closure of non-essential business and its resulting impact on our residential real estate loan portfolio. It should be noted, however, that in the third quarter of 2020, historically low interest rates have led to higher originations compared to the third quarter of the prior year.

Liquidity and Access to Credit Markets: The Company has not experienced any liquidity problems or special concerns in recent years or thus far in 2020. Arrow’s liquidity position provides the necessary flexibility to address any unexpected near-term disruptions that may develop as a result of the COVID-19 pandemic such as: reduced cash-flows from the investment and loan portfolios and aggressive funding of programs associated with response ~~efforts, including the Small Business Administration’s Paycheck Protection Program.~~efforts. Interest-bearing cash balances at ~~June~~September 30, 2020 were ~~$215.0~~$396.4 million compared to ~~$28.0~~$26.4 million at ~~June~~September 30, 2019. ~~Contingent~~Operating collateralized lines of credit are established and available through the FHLBNY and FRB, totaling $1.3 billion. The terms of Arrow's lines of credit have not changed significantly in recent periods (see the general liquidity discussion on page ~~63)~~62). Historically, the Company has principally relied on asset-based liquidity (i.e., funds in overnight investments and cash flow from maturing investments and loans) with liability-based liquidity as a secondary source of funds (the main liability-based sources are an overnight borrowing arrangement with correspondent banks, an arrangement for overnight borrowing and term credit advances from the FHLBNY, and an additional arrangement for short-term advances at the Federal Reserve Bank discount window). Regular liquidity stress tests and tests of the contingent liquidity plan are performed to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity crises including the current COVID-19 pandemic.

Visa Class B Common Stock: Arrow's subsidiary bank, Glens Falls National, like other Visa member banks, bears some indirect contingent liability for Visa's direct liability arising out of certain antitrust claims involving merchant discounts to the extent that Visa's liability might exceed the amount funded in its litigation escrow account. On September 18, 2018, Visa issued a press release announcing that it and other defendants entered into a settlement agreement with class action plaintiffs in the related litigation case. But certain merchants opted out of the class action settlement and filed separate litigation cases. Once the class action and other merchant litigation cases are settled and the balance in the litigation escrow account is sufficient to cover the litigation claims and related expenses, Arrow could potentially realize a gain on the receipt of Visa Class A common stock. On September 27, 2019, Visa deposited $300 million into the litigation escrow account that was established pursuant to Visa’s U.S. retrospective responsibility plan, which reduces the conversion rate of Class B shares to Class A shares. This did not have a significant effect on the number of Class B shares currently convertible to Class A shares by Glens Falls National. At ~~June~~September 30, 2020, Glens Falls National held 27,771 shares of Visa Class B common stock, and utilizing the conversion ratio to Class A common stock at that time, these Class B shares would convert to 45,000 shares of Visa Class A common stock. Since the litigation settlement is not certain, the Company does not recognize any economic value for these shares.

CHANGE IN FINANCIAL CONDITION

Summary of Selected Consolidated Balance Sheet Data

(Dollars in Thousands)

~~June 30, 2020~~

~~At Period-End~~

~~December 31,~~

~~2019~~

~~June 30, 2019~~

$ Change
From December

$ Change
From
June

% Change
From December (not annualized)

% Change
From
June

~~Interest-Bearing Bank Balances~~

~~215,003~~

~~23,186~~

~~28,045~~

~~191,817~~

~~186,958~~

~~827.3~~

~~666.6~~

~~Securities Available-for-Sale~~

~~378,778~~

~~357,334~~

~~285,878~~

~~21,444~~

~~92,900~~

~~6.0~~

~~32.5~~

~~Securities Held-to-Maturity~~

~~233,517~~

~~245,065~~

~~262,541~~

~~(11,548)~~

~~(29,024)~~

~~(4.7)~~

~~(11.1)~~

~~Equity Securities~~

~~1,583~~

~~2,063~~

~~1,850~~

~~(480)~~

~~(267)~~

~~(23.3)~~

~~(14.4)~~

~~Loans~~ ⁽¹⁾

~~2,561,915~~

~~2,386,120~~

~~2,280,308~~

~~175,795~~

~~281,607~~

~~7.4~~

~~12.3~~

~~Allowance for loan losses~~

~~26,300~~

~~21,187~~

~~20,695~~

~~5,113~~

~~5,605~~

~~24.1~~

~~27.1~~

~~Earning Assets~~ ⁽¹⁾

~~3,396,370~~

~~3,024,085~~

~~2,866,824~~

~~372,285~~

~~529,546~~

~~12.3~~

~~18.5~~

~~Total Assets~~

~~3,547,177~~

~~3,184,275~~

~~3,005,750~~

~~362,902~~

~~541,427~~

~~11.4~~

~~18.0~~

~~Noninterest-Bearing Deposits~~

~~667,585~~

~~484,944~~

~~467,179~~

~~182,641~~

~~200,406~~

~~37.7~~

~~42.9~~

Interest-Bearing Checking
Accounts

~~791,521~~

~~689,221~~

~~741,395~~

~~102,300~~

~~50,126~~

~~14.8~~

~~6.8~~

~~Savings Deposits~~

~~1,262,102~~

~~1,046,568~~

~~908,642~~

~~215,534~~

~~353,460~~

~~20.6~~

~~38.9~~

~~Time Deposits over $250,000~~

~~130,935~~

~~123,968~~

~~97,220~~

~~6,967~~

~~33,715~~

~~5.6~~

~~34.7~~

~~Other Time Deposits~~

~~216,630~~

~~271,353~~

~~289,317~~

~~(54,723)~~

~~(72,687)~~

~~(20.2)~~

~~(25.1)~~

~~Total Deposits~~

~~3,068,773~~

~~2,616,054~~

~~2,503,753~~

~~452,719~~

~~565,020~~

~~17.3~~

~~22.6~~

~~Federal Funds Purchased and   Securities Sold Under  Agreements to Repurchase~~

~~47,599~~

~~51,099~~

~~51,149~~

~~(3,500)~~

~~(3,550)~~

~~(6.8)~~

~~(6.9)~~

~~FHLBNY Advances - Overnight~~

—

~~130,000~~

~~83,000~~

~~(130,000)~~

~~(83,000)~~

~~(100.0)~~

~~FHLBNY Advances - Term~~

~~50,000~~

~~30,000~~

~~20,000~~

~~66.7~~

Junior Subordinated Obligations Issued to Unconsolidated
Subsidiary Trusts

~~20,000~~

—

~~Stockholders' Equity~~

~~317,687~~

~~301,728~~

~~284,649~~

~~15,959~~

~~33,038~~

~~5.3~~

~~11.6~~


	September 30, 2020		At Period-End December 31, 2019		September 30, 2019		$ Change From December		$ Change From September		% Change From December (not annualized)		% Change From September
Interest-Bearing Bank Balances	$	396,380	$	23,186	$	26,416	$	373,194	$	369,964	1,609.6	%	1,400.5	%
Securities Available-for-Sale	374,928		357,334		314,182		17,594		60,746		4.9	%	19.3	%
Securities Held-to-Maturity	224,799		245,065		255,095		(20,266)		(30,296)		(8.3)	%	(11.9)	%
Equity Securities	1,511		2,063		1,996		(552)		(485)		(26.8)	%	(24.3)	%
Loans (1)	2,592,455		2,386,120		2,335,591		206,335		256,864		8.6	%	11.0	%
Allowance for loan losses	28,446		21,187		20,931		7,259		7,515		34.3	%	35.9	%
Earning Assets (1)	3,595,647		3,024,085		2,939,907		571,562		655,740		18.9	%	22.3	%
Total Assets	$	3,777,684	$	3,184,275	$	3,112,822	$	593,409	$	664,862	18.6	%	21.4	%
Noninterest-Bearing Deposits	$	690,232	$	484,944	$	516,876	$	205,288	$	173,356	42.3	%	33.5	%
Interest-Bearing Checking Accounts	912,980		689,221		801,446		223,759		111,534		32.5	%	13.9	%
Savings Deposits	1,354,956		1,046,568		929,691		308,388		425,265		29.5	%	45.7	%
Time Deposits over $250,000	112,555		123,968		96,770		(11,413)		15,785		(9.2)	%	16.3	%
Other Time Deposits	194,135		271,353		269,764		(77,218)		(75,629)		(28.5)	%	(28.0)	%
Total Deposits	$	3,264,858	$	2,616,054	$	2,614,547	$	648,804	$	650,311	24.8	%	24.9	%
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	$	73,949	$	51,099	$	72,869	$	22,850	$	1,080	44.7	%	1.5	%
FHLBNY Advances - Overnight	—		130,000		48,000		(130,000)		(48,000)		(100.0)	%	(100.0)	%
FHLBNY Advances - Term	50,000		30,000		30,000		20,000		20,000		66.7	%	66.7	%
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		20,000		—		—		—	%	—	%
Stockholders' Equity	325,660		301,728		292,228		23,932		33,432		7.9	%	11.4	%

(1) Includes Nonaccrual Loans.

Changes in Earning Assets: The loan portfolio at ~~June~~September 30, 2020, was $2.6 billion, an increase of ~~$175.8~~$206.3 million, or ~~7.4%~~8.6%, from the December 31, 2019 level and up by ~~$281.6~~$256.9 million, or ~~12.3%~~11.0%, from the ~~June~~September 30, 2019 level. The following trends were experienced in our largest segments:

•Commercial and commercial real estate loans: This segment of the loan portfolio increased by ~~$148.5~~$156.0 million, or ~~22.5%~~23.6%, during the first ~~six~~nine months of 2020. The majority of the increase resulted from the origination of approximately of ~~$140.0~~$142.7 million of the Small Business Administration's Payroll Protection Program loans.

•Consumer loans (primarily automobile loans through indirect lending): As of ~~June~~September 30, 2020, these loans, primarily auto loans, increased by ~~$17.3~~$38.3 million, or ~~2.1%~~4.7%, from the December 31, 2019 ~~balance, reflecting a slower demand for new and used vehicles throughout our region-wide dealer network as a result of the COVID-19 pandemic.~~balance. The physical sale of vehicles through dealerships, which had been curtailed ~~and not deemed essential~~for a portion of the year as part of the New York State and Vermont ~~responses~~response to the COVID-19 pandemic, ~~for the majority of the second quarter. The physical sales of vehicles through dealerships~~ has ~~resumed in New York State and Vermont as of June 30th.~~resumed. However, while certain restrictions and guidelines have been lifted or relaxed, they may be reinstituted in response to the continuing effects of the pandemic.

•Residential real estate loans: This segment increased during the first ~~six~~nine months of 2020 by ~~$10.0~~$12.1 million, or ~~1.1%~~1.3%. The likely impact of the COVID-19 pandemic on the volume of residential real estate loans is difficult to determine. We expect that ~~high~~elevated unemployment and the ~~mandated~~temporary closure of some non-essential businesses in New York State ~~which occurred for the majority of the second quarter will~~may have an adverse impact on new originations. The rapid decline of interest rates ~~may,~~has, however, ~~increase~~increased near-term demand for refinancing and new purchase loans, both with existing and new customers.

Changes in Sources of Funds: Deposit balances reached ~~$3.1~~$3.3 billion, up ~~$565.0~~$650.3 million, or ~~22.6%~~24.9%, from the prior-year level. Deposit growth for the third quarter of 2020 was $196.1 million. Noninterest-bearing deposits represented ~~21.8%~~21.1% of total deposits at ~~June~~September 30, 2020, compared to ~~18.7%~~19.8% of total deposits on ~~June~~September 30, 2019. At ~~June~~September 30, 2020, other time deposits were ~~$216.6~~$194.1 million, a decrease of ~~$72.7~~$75.6 million compared to the prior year. Municipal deposits increased ~~$155.6~~$218.8 million, or ~~27.2%~~34.6% from ~~June 30, 2019. Total combined Federal Home Loan Bank Overnight and Term Advances declined $66.6 million from June~~September 30, 2019.

Municipal Deposits: Fluctuations in balances of interest-bearing checking accounts are largely the result of timing and behavior of municipal deposits. Municipal deposits on average represent 20% to 25% of total ~~deposits.~~deposits, although slightly higher at September 30, 2020. Municipal deposits are typically placed in interest-bearing checking, savings and various time deposit accounts.

In general, there is a seasonal pattern to municipal deposits which dip to a low point in August each year. Account balances tend to increase throughout the fall and into early winter from tax deposits, flatten out after the beginning of the ensuing calendar year, and increase again at the end of March from the electronic deposit of NYS Aid payments to school districts. In addition to seasonal behavior, the overall level of municipal deposit balances fluctuates from year-to-year as a result of local economic factors as well as competition from other banks and non-bank entities.

FINANCIAL CONDITION

Investment Portfolio Trends

The table below presents the changes in the period-end balances for available-for-sale, held-to-maturity and equity securities from December 31, 2019 to ~~June~~September 30, 2020 (in thousands).


		(Dollars in Thousands)																							(Dollars in Thousands)
		Fair Value at Period-End										Net Unrealized Gains (Losses) For Period Ended											Fair Value at Period-End				Net Unrealized Gains (Losses) For Period Ended
		6/30/2020		12/31/2019		Change		6/30/2020		12/31/2019		Change			9/30/2020		12/31/2019		Change		9/30/2020		12/31/2019		Change
Securities Available-for-Sale:	Securities Available-for-Sale:													Securities Available-for-Sale:

U.S. Agency Securities	U.S. Agency Securities	$	5,192	$	5,054	$	138	$	190	$	52	$	138	U.S. Agency Securities	$	35,167	$	5,054	$	30,113	$	166	$	52	$	114
State and Municipal Obligations	State and Municipal Obligations	593		764		(171)		—		—		—		State and Municipal Obligations	593		764		(171)		—		—		—
Mortgage-Backed Securities	Mortgage-Backed Securities	372,193		350,716		21,477		8,854		772		8,082		Mortgage-Backed Securities	338,368		350,716		(12,348)		8,481		772		7,709
Corporate and Other Debt Securities	Corporate and Other Debt Securities	800		800		—		(200)		(200)		—		Corporate and Other Debt Securities	800		800		—		(200)		(200)		—

Total	Total	$	378,778	$	357,334	$	21,444	$	8,844	$	624	$	8,220	Total	$	374,928	$	357,334	$	17,594	$	8,447	$	624	$	7,823

Securities Held-to-Maturity:	Securities Held-to-Maturity:													Securities Held-to-Maturity:
State and Municipal Obligations	State and Municipal Obligations	$	208,512	$	212,319	$	(3,807)	$	6,920	$	4,076	$	2,844	State and Municipal Obligations	$	203,180	$	212,319	$	(9,139)	$	7,445	$	4,076	$	3,369
Mortgage-Backed Securities	Mortgage-Backed Securities	33,363		37,299		(3,936)		1,438		477		961		Mortgage-Backed Securities	30,321		37,299		(6,978)		1,257		477		780

Total	Total	$	241,875	$	249,618	$	(7,743)	$	8,358	$	4,553	$	3,805	Total	$	233,501	$	249,618	$	(16,117)	$	8,702	$	4,553	$	4,149

Equity Securities	Equity Securities	$	1,583	$	2,063	$	(480)	$	—	$	—	$	—	Equity Securities	$	1,511	$	2,063	$	(552)	$	—	$	—	$	—

At ~~June~~September 30, 2020, the Company held no investment securities in the securities portfolios that consisted of or included, directly or indirectly, obligations of foreign governments or governmental agencies of foreign issuers.

In the periods referenced above, Mortgage-Backed Securities consisted solely of mortgage pass-through securities and Collateralized Mortgage Obligations ("CMOs") issued or guaranteed by U.S. federal agencies. Mortgage pass-through securities provide to the investor monthly portions of principal and interest pursuant to the contractual obligations of the underlying mortgages. CMOs are pools of mortgage-backed securities, the repayments on which have generally been separated into two or more components (tranches), where each tranche has a separate estimated life and yield. The Company's practice has been to purchase pass-through securities and CMOs that are issued or guaranteed by U.S. federal agencies, and the tranches of CMOs purchased are generally those having shorter average lives and/or durations. As a result of payment deferrals on underlying loan collateral that make up mortgage-backed securities, some cashflows may be temporarily impacted.

Other-Than-Temporary Impairment

Each quarter all investment securities with a fair value less than amortized cost are evaluated in the available-for-sale portfolio, the held-to-maturity portfolio and the equity securities portfolio, to determine if there exists other-than-temporary impairment for any such security as defined under generally accepted accounting principles. The evaluation also examined the potential impact of the COVID-19 pandemic on other-than-temporary impairment. There were no other-than-temporary impairment losses in the first ~~six~~nine months of 2020.

Change in Net Unrealized Securities Gains (Losses): Nearly all of the change in net unrealized gains or losses during recent periods has been attributable to changes in the market rates during the periods in question, with no change in the credit-worthiness of the issuers.

Investment Sales, Purchases and Maturities

There were no sales of investment securities within the ~~six-month~~nine month periods ended ~~June~~September 30, 2020 or 2019.

The following table summarizes purchases of investment securities within the available-for-sale and held-to-maturity portfolios for the ~~six-month~~nine month periods ended ~~June~~September 30, 2020 and 2019, as well as proceeds from the maturity and calls of investment securities within each portfolio for the respective periods presented:


(In Thousands)	(In Thousands)	Three Months Ended						Six Months Ended							(In Thousands)	Three Months Ended				Nine Months Ended
Purchases:	Purchases:	6/30/2020		6/30/2019		6/30/2020		6/30/2019		Purchases:	9/30/2020		9/30/2019			9/30/2020		9/30/2019
Available-for-Sale Portfolio	Available-for-Sale Portfolio									Available-for-Sale Portfolio

Mortgage-Backed Securities	Mortgage-Backed Securities	$	23,631	$	15,390	$	56,832	$	15,390	Mortgage-Backed Securities	$	30,000	$	55,028		$	86,832	$	70,418

Maturities & Calls	Maturities & Calls	$	25,196	$	30,425	$	42,640	$	51.686	Maturities & Calls	$	32,809	$	27,391		$	75,449	$	79,077


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
Purchases:	Purchases:	6/30/2020		6/30/2019		6/30/2020		6/30/2019		Purchases:	9/30/2020		9/30/2019		9/30/2020		9/30/2019
Held-to-Maturity Portfolio	Held-to-Maturity Portfolio									Held-to-Maturity Portfolio
State and Municipal Obligations	State and Municipal Obligations	$	4,289	$	638	$	5,006	$	2,095	State and Municipal Obligations	$	1,842	$	1,302	$	6,848	$	3,398

Maturities & Calls	Maturities & Calls	$	9,111	$	17,289	$	16,186	$	22.608	Maturities & Calls	$	10,384	$	8,553	$	26,570	$	31,161

Loan Trends

The following three tables present, for each of the last five quarters, the quarterly average balances by loan type, the percentage of total loans represented by each loan type and the annualized yield of each loan category. Over the last five quarters, the average balances for Commercial, Commercial Real Estate, Consumer and Residential Real Estate have steadily increased, although at different rates. As result of the economic impact of the COVID-19 pandemic, it is uncertain if this consistent growth will continue through the pandemic.

Quarterly Average Loan Balances

(Dollars in Thousands)


		Quarter Ended																			Quarter Ended
		6/30/2020		3/31/2020		12/31/2019		9/30/2019		6/30/2019			9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Commercial	Commercial	$	234,732	$	140,486	$	133,550	$	125,498	$	120,979	Commercial	$	276,296	$	234,732	$	140,486	$	133,550	$	125,498
Commercial Real Estate	Commercial Real Estate	530,808		518,931		505,639		493,819		492,673		Commercial Real Estate	538,914		530,808		518,931		505,639		493,819
Consumer	Consumer	840,734		818,892		817,463		809,641		775,634		Consumer	841,009		840,734		818,892		817,463		809,641
Residential Real Estate	Residential Real Estate	911,924		916,037		901,458		879,921		866,013		Residential Real Estate	926,034		911,924		916,037		901,458		879,921
Total Loans	Total Loans	$	2,518,198	$	2,394,346	$	2,358,110	$	2,308,879	$	2,255,299	Total Loans	$	2,582,253	$	2,518,198	$	2,394,346	$	2,358,110	$	2,308,879

Percentage of Total Quarterly Average Loans


		Quarter Ended																			Quarter Ended
		6/30/2020		3/31/2020		12/31/2019		9/30/2019		6/30/2019			9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Commercial	Commercial	9.3	%	5.9	%	5.7	%	5.4	%	5.4	%	Commercial	9.3	%	9.3	%	5.9	%	5.7	%	5.4	%
Commercial Real Estate	Commercial Real Estate	21.1	%	21.6	%	21.4	%	21.4	%	21.8	%	Commercial Real Estate	21.1	%	21.1	%	21.6	%	21.4	%	21.4	%
Consumer	Consumer	33.4	%	34.2	%	34.7	%	35.1	%	34.4	%	Consumer	33.4	%	33.4	%	34.2	%	34.7	%	35.1	%
Residential Real Estate	Residential Real Estate	36.2	%	38.3	%	38.2	%	38.1	%	38.4	%	Residential Real Estate	36.2	%	36.2	%	38.3	%	38.2	%	38.1	%
Total Loans	Total Loans	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	Total Loans	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Quarterly Yield on Loans


		Quarter Ended																			Quarter Ended
		6/30/2020		3/31/2020		12/31/2019		9/30/2019		6/30/2019			9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Commercial	Commercial	3.84	%	4.52	%	4.54	%	4.60	%	4.64	%	Commercial	3.73	%	3.84	%	4.52	%	4.54	%	4.60	%
Commercial Real Estate	Commercial Real Estate	4.05	%	4.34	%	4.53	%	4.57	%	4.53	%	Commercial Real Estate	3.91	%	4.05	%	4.34	%	4.53	%	4.57	%
Consumer	Consumer	3.90	%	3.97	%	4.01	%	3.95	%	3.85	%	Consumer	3.89	%	3.90	%	3.97	%	4.01	%	3.95	%
Residential Real Estate	Residential Real Estate	4.08	%	4.20	%	4.20	%	4.27	%	4.28	%	Residential Real Estate	3.86	%	4.08	%	4.20	%	4.20	%	4.27	%
Total Loans	Total Loans	4.01	%	4.18	%	4.19	%	4.23	%	4.18	%	Total Loans	3.81	%	4.01	%	4.18	%	4.19	%	4.23	%

The average yield of the overall total loan portfolio ~~increased throughout 2019 and remained steady for the large portion~~decreased during each of the ~~1st quarter of 2020.~~previous four quarters. The COVID-19 pandemic and the rapid decline to historically low market rates, as well as the addition of ~~$140.0~~$142.7 million of Small Business Administration Paycheck Protection Program loans (as described below) will ~~lower~~continue to negatively impact loan yields for the remainder of 2020.

Maintenance of High Quality in the Loan Portfolio: In early 2020, prior to the COVID-19 pandemic, there were no significant fluctuations in the quality of the loan portfolio or any segment thereof. In general, residential real estate loans have historically been underwritten to secondary market standards for prime loans and the Company has not engaged in subprime mortgage lending as a business line. Similarly, high underwriting standards have generally been applied to commercial and commercial real estate lending operations and generally in the indirect lending program as well. The economic events related to the COVID-19 pandemic, specifically ~~high~~elevated unemployment and the temporary mandated closure of nonessential business, may impact the ability of our borrowers to satisfy their obligations.

Commercial Loans and Commercial Real Estate Loans: Substantially all commercial and commercial real estate loans in the loan portfolio were extended to businesses or borrowers located in the Company's regional markets. A portion of the loans in the commercial portfolio have variable rates tied to Prime, LIBOR or FHLBNY rates.

Many of the commercial and commercial real estate loans are in industries that have been heavily impacted by the COVID-19 pandemic. In ~~the second quarter of~~ 2020, Arrow originated over 1,400 ~~Small Business Administration Paycheck Protection Program ("PPP")~~PPP loans totaling approximately ~~$140.0~~$142.7 million. The PPP loans yield 1% and Arrow expects to earn approximately $5.1 million in fees related to the origination of these loans. The original term on the PPP loans is two years, however the borrower will have the option to apply for forgiveness. Subsequent to the funding of the loans, additional guidance was provided that the term of the loan may be extended to five years if both parties agree to the revised terms. Arrow ~~will recognize~~is recognizing the fees earned over the life of the loan and will accelerate recognition of the fees if the loan is forgiven by the Small Business Administration. Additional government intervention, if any, may mitigate the economic risk to both Arrow and its customers, however, the extent of such intervention and its impact cannot be determined at this time.

Consumer Loans: At ~~June~~September 30, 2020, consumer loans (primarily automobile loans originated through dealerships located primarily in upstate New York and Vermont) continue to be a significant component of Arrow's business, comprising more than one third of this total loan portfolio. The physical sale of vehicles through dealerships had been curtailed for ~~the majority~~a portion of the ~~second quarter and not deemed essential~~year as part of the New York State and Vermont response to the COVID-19 pandemic. Accordingly, we believe, the volume of originations of consumer loans ~~will be~~have been impacted. However, the magnitude of the impact cannot ~~yet~~ be determined.

New consumer loan volume for the first ~~six~~nine months of 2020 was ~~$179.0~~$292.8 million, down from the ~~$210.4~~$319.6 million originated in the first ~~six~~nine months of 2019.

For credit quality purposes, Arrow assigns potential automobile loan customers into one of four tiers, ranging from lower to higher quality in terms of anticipated credit risk. Arrow's experienced lending staff not only utilizes credit evaluation software tools but also reviews and evaluates each loan individually prior to the loan being funded. Arrow believes that this disciplined approach to evaluating risk has contributed to maintaining the strong credit quality in this portfolio. The COVID-19 pandemic has created ~~significant~~elevated unemployment, which may impact borrowers' ability to satisfy their obligations to Arrow. Government intervention may mitigate a significant portion of the credit risk, however, the extent of such intervention and its impact cannot be determined at this time.

Residential Real Estate Loans: In recent years, residential real estate loans, including home equity loans, have represented the largest category of the total loan portfolio. Gross originations for residential real estate loans (including refinancings of mortgage loans) for the first ~~six~~nine months of 2020 were ~~$78.8 million.~~$157.0 million, as compared to $102.2 million for the first nine months of 2019. Arrow has also sold portions of these originations in the secondary market. In the first ~~six~~nine months of 2020, the Company sold ~~$22.2~~$50.5 million, or ~~28.2%~~32.2%, of originations. In the first ~~six~~nine months of 2019, ~~$9.6~~$19.0 million, or ~~17.2%~~18.6%, of originations were sold. Arrow expects to continue to sell a portion of mortgage loan originations in upcoming periods if market conditions warrant. It is not currently possible to determine the long term economic impact of the COVID-19 pandemic, which had resulted in the temporary closure of non-essential business and ~~increased~~elevated unemployment.

Deposit Trends

The following tables provide information on trends in the balance and mix of the deposit portfolio by presenting, for each of the last five quarters, the quarterly average balances by deposit type and the percentage of total deposits represented by each deposit type. ~~Savings~~The quarterly average balances of both noninterest-bearing deposits and ~~total~~interest-bearing checking and savings accounts have increased significantly in the last two quarters. Time deposits, over $250,000 as well as other time deposits, ~~both~~have decreased over ~~and under $250,000, have increased each of~~ the last ~~five quarters as a result of the migration to higher yielding deposit accounts due to the previous rise in short-term market rates, which occurred for the majority of 2019.~~two quarters. Market rates, beginning to decline prior to the COVID-19 pandemic, reached historic lows in the first quarter and ~~are expected to remain~~have remained low through the third quarter. We do not currently expect any change in the rate environment for remainder of 2020.

Quarterly Average Deposit Balances

(Dollars in Thousands)


		Quarter Ended																			Quarter Ended
		6/30/2020		3/31/2020		12/31/2019		9/30/2019		6/30/2019			9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Noninterest-bearing deposits		$	624,125	$	478,481	$	491,494	$	490,177	$	454,130
Noninterest-Bearing Deposits												Noninterest-Bearing Deposits	$	673,181	$	624,125	$	478,481	$	491,494	$	490,177
Interest-Bearing Checking Accounts	Interest-Bearing Checking Accounts	740,284		707,747		724,668		686,017		733,327		Interest-Bearing Checking Accounts	764,614		740,284		707,747		724,668		686,017
Savings Deposits	Savings Deposits	1,215,296		1,092,980		1,003,612		924,868		879,026		Savings Deposits	1,314,241		1,215,296		1,092,980		1,003,612		924,868
Time Deposits over $250,000	Time Deposits over $250,000	135,978		126,046		120,321		86,018		97,703		Time Deposits over $250,000	121,027		135,978		126,046		120,321		86,018
Other Time Deposits	Other Time Deposits	236,749		264,755		267,326		285,448		272,104		Other Time Deposits	209,436		236,749		264,755		267,326		285,448
Total Deposits	Total Deposits	$	2,952,432	$	2,670,009	$	2,607,421	$	2,472,528	$	2,436,290	Total Deposits	$	3,082,499	$	2,952,432	$	2,670,009	$	2,607,421	$	2,472,528

Percentage of Total Quarterly Average Deposits


		Quarter Ended																			Quarter Ended
		6/30/2020		3/31/2020		12/31/2019		9/30/2019		6/30/2019			9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Noninterest-bearing deposits		21.1	%	17.9	%	18.8	%	19.8	%	18.6	%
Noninterest-Bearing Deposits												Noninterest-Bearing Deposits	21.8	%	21.1	%	17.9	%	18.8	%	19.8	%
Interest-Bearing Checking Accounts	Interest-Bearing Checking Accounts	25.1		26.5		27.8		27.7		30.1		Interest-Bearing Checking Accounts	24.8		25.1		26.5		27.8		27.7
Savings Deposits	Savings Deposits	41.3		41.0		38.5		37.5		36.0		Savings Deposits	42.7		41.2		41.0		38.5		37.5
Time Deposits over $250,000	Time Deposits over $250,000	4.6		4.7		4.6		3.5		4.0		Time Deposits over $250,000	3.9		4.6		4.7		4.6		3.5
Other Time Deposits	Other Time Deposits	8.0		9.9		10.3		11.5		11.2		Other Time Deposits	6.8		8.0		9.9		10.3		11.5
Total Deposits	Total Deposits	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	Total Deposits	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Quarterly Cost of Deposits


		Quarter Ended																			Quarter Ended
		6/30/2020		3/31/2020		12/31/2019		9/30/2019		6/30/2019			9/30/2020		6/30/2020		3/31/2020		12/31/2019		9/30/2019
Demand Deposits	Demand Deposits	—	%	—	%	—	%	—	%	—	%	Demand Deposits	—	%	—	%	—	%	—	%	—	%
Interest-Bearing Checking Accounts	Interest-Bearing Checking Accounts	0.17	%	0.28	%	0.30	%	0.29	%	0.25	%	Interest-Bearing Checking Accounts	0.14	%	0.17	%	0.28	%	0.30	%	0.29	%
Savings Deposits	Savings Deposits	0.39	%	0.91	%	0.98	%	0.99	%	0.92	%	Savings Deposits	0.24	%	0.39	%	0.91	%	0.98	%	0.99	%
Time Deposits over $250,000	Time Deposits over $250,000	1.30	%	1.70	%	1.88	%	2.08	%	2.11	%	Time Deposits over $250,000	0.96	%	1.30	%	1.70	%	1.88	%	2.08	%
Other Time Deposits	Other Time Deposits	1.33	%	1.52	%	1.67	%	1.74	%	1.67	%	Other Time Deposits	1.09	%	1.33	%	1.52	%	1.67	%	1.74	%
Total Deposits	Total Deposits	0.37	%	0.68	%	0.72	%	0.73	%	0.68	%	Total Deposits	0.25	%	0.37	%	0.68	%	0.72	%	0.73	%

During the quarter ended ~~June~~September 30, 2020, the total cost of deposits continued to decrease. The Federal Reserve set the targeted short-term rates to ~~0.00-0.25~~0.00%-0.25% in response to the economic uncertainty related to the COVID-19 pandemic. ~~The balance sheet of the Company~~Arrow is well positioned for a variety of rate environments, see Part I, Item 3, entitled "Quantitative and Qualitative Disclosures About Market Risk," for further discussion.

Non-Deposit Sources of Funds

The Company's other sources of funds include securities sold under agreements to repurchase, overnight advances and term advances from the FHLBNY. The securities sold under agreements to repurchase are short-term in nature and are collateralized by investment securities. The term advances from the FHLBNY are fixed rate non-callable advances with original maturities of three to five years.

Arrow no longer relies on TRUPs as a source of new funds. As a result of the passage of Dodd-Frank in 2010 and its removal of Tier 1 regulatory capital treatment for TRUPs issued after Dodd-Frank's grandfathering date, the Company, like other banking organizations of Arrow's size or larger, have not issued any TRUPs since that date and are not likely to issue any TRUPs in the future. However, consistent with the grandfathering provision in Dodd-Frank, the $20 million principal amount of Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts listed on the consolidated balance sheet as of ~~June~~September 30, 2020 (i.e., previously issued TRUPs) will, subject to certain limits, continue to qualify as Tier 1 regulatory capital for Arrow until such TRUPs mature or are redeemed. This is further discussed under "Capital Resources" beginning on page 6160 of this Report. These trust preferred securities are subject to early redemption by the Company if the proceeds cease to qualify as Tier 1 capital of Arrow for any reason, or if certain other unanticipated but negative events should occur. An example of such an event would be an adverse change in tax laws that might deny the Company the ability to deduct interest paid on these obligations for federal income tax purposes.

ASSET QUALITY

The following table presents information related to the allowance and provision for loan losses for the past five quarters.

Summary of the Allowance and Provision for Loan Losses

(Dollars in Thousands, Loans Stated Net of Unearned Income)


		6/30/2020			3/31/2020			12/31/2019			9/30/2019			6/30/2019				9/30/2020			6/30/2020			3/31/2020			12/31/2019			9/30/2019
Loan Balances:	Loan Balances:																Loan Balances:
Period-End Loans	Period-End Loans	$	2,561,915		$	2,414,193		$	2,386,120		$	2,335,591		$	2,280,308		Period-End Loans	$	2,592,455		$	2,561,915		$	2,414,193		$	2,386,120		$	2,335,591
Average Loans, Year-to-Date	Average Loans, Year-to-Date	2,456,272			2,394,346			2,283,707			2,258,633			2,233,094			Average Loans, Year-to-Date	2,498,573			2,456,272			2,394,346			2,283,707			2,258,633
Average Loans, Quarter-to-Date	Average Loans, Quarter-to-Date	2,518,198			2,394,346			2,358,110			2,308,879			2,255,299			Average Loans, Quarter-to-Date	2,582,253			2,518,198			2,394,346			2,358,110			2,308,879
Period-End Assets	Period-End Assets	3,547,177			3,291,332			3,184,275			3,112,822			3,005,750			Period-End Assets	3,777,684			3,547,177			3,291,332			3,184,275			3,112,822

Allowance for loan losses, Year-to-Date:	Allowance for loan losses, Year-to-Date:																Allowance for loan losses, Year-to-Date:
Allowance for loan losses, Beginning of Period	Allowance for loan losses, Beginning of Period	$	21,187		$	21,187		$	20,196		$	20,196		20,196			Allowance for loan losses, Beginning of Period	$	21,187		$	21,187		$	21,187		$	20,196		20,196
Provision for Loan Losses, YTD	Provision for Loan Losses, YTD	5,812			2,772			2,079			1,445			927			Provision for Loan Losses, YTD	8,083			5,812			2,772			2,079			1,445
Loans Charged-off, YTD	Loans Charged-off, YTD	(968)			(481)			(1,735)			(1,232)			(830)			Loans Charged-off, YTD	(1,360)			(968)			(481)			(1,735)			(1,232)
Recoveries of Loans Previously Charged-off	Recoveries of Loans Previously Charged-off	269			159			647			522			402			Recoveries of Loans Previously Charged-off	536			269			159			647			522
Net Charge-offs, YTD	Net Charge-offs, YTD	(699)			(322)			(1,088)			(710)			$	(428)		Net Charge-offs, YTD	(824)			(699)			(322)			(1,088)			$	(710)
Allowance for loan losses, End of Period	Allowance for loan losses, End of Period	$	26,300		$	23,637		$	21,187		$	20,931		$	20,695		Allowance for loan losses, End of Period	$	28,446		$	26,300		$	23,637		$	21,187		$	20,931

Allowance for loan losses, Quarter-to-Date:	Allowance for loan losses, Quarter-to-Date:																Allowance for loan losses, Quarter-to-Date:
Allowance for loan losses, Beginning of Period	Allowance for loan losses, Beginning of Period	$	23,637		$	21,187		$	20,931		$	20,695		$	20,373		Allowance for loan losses, Beginning of Period	$	26,300		$	23,637		$	21,187		$	20,931		$	20,695
Provision for Loan Losses, QTD	Provision for Loan Losses, QTD	3,040			2,772			634			518			455			Provision for Loan Losses, QTD	2,271			3,040			2,772			634			518
Loans Charged-off, QTD	Loans Charged-off, QTD	(487)			(481)			(503)			(402)			(368)			Loans Charged-off, QTD	(392)			(487)			(481)			(503)			(402)
Recoveries of Loans Previously Charged-off	Recoveries of Loans Previously Charged-off	110			159			125			120			235			Recoveries of Loans Previously Charged-off	267			110			159			125			120
Net Charge-offs, QTD	Net Charge-offs, QTD	(377)			(322)			(378)			(282)			(133)			Net Charge-offs, QTD	(125)			(377)			(322)			(378)			(282)
Allowance for loan losses, End of Period	Allowance for loan losses, End of Period	$	26,300		$	23,637		$	21,187		$	20,931		$	20,695		Allowance for loan losses, End of Period	$	28,446		$	26,300		$	23,637		$	21,187		$	20,931

Nonperforming Assets, at Period-End:	Nonperforming Assets, at Period-End:																Nonperforming Assets, at Period-End:
Nonaccrual Loans	Nonaccrual Loans	$	5,461		$	4,943		$	4,005		$	3,465		$	4,949		Nonaccrual Loans	$	6,004		$	5,461		$	4,943		$	4,005		$	3,465
Loans Past Due 90 or More Days and Still Accruing Interest	Loans Past Due 90 or More Days and Still Accruing Interest	901			437			253			1,066			457			Loans Past Due 90 or More Days and Still Accruing Interest	121			901			437			253			1,066
Restructured and in Compliance with Modified Terms	Restructured and in Compliance with Modified Terms	150			136			143			150			142			Restructured and in Compliance with Modified Terms	157			150			136			143			150
Total Nonperforming Loans	Total Nonperforming Loans	6,512			5,516			4,401			4,681			5,548			Total Nonperforming Loans	6,282			6,512			5,516			4,401			4,681
Repossessed Assets	Repossessed Assets	116			160			139			76			115			Repossessed Assets	126			116			160			139			76
Other Real Estate Owned	Other Real Estate Owned	595			782			1,122			1,198			1,258			Other Real Estate Owned	—			595			782			1,122			1,198
Total Nonperforming Assets	Total Nonperforming Assets	$	7,223		$	6,458		$	5,662		$	5,955		$	6,921		Total Nonperforming Assets	$	6,408		$	7,223		$	6,458		$	5,662		$	5,955

Asset Quality Ratios:	Asset Quality Ratios:																Asset Quality Ratios:
Allowance to Nonperforming Loans	Allowance to Nonperforming Loans	403.87		%	428.52		%	481.41		%	447.15		%	373.02		%	Allowance to Nonperforming Loans	452.82		%	403.87		%	428.52		%	481.41		%	447.15		%
Allowance to Period-End Loans	Allowance to Period-End Loans	1.03		%	0.98		%	0.89		%	0.90		%	0.91		%	Allowance to Period-End Loans	1.10		%	1.03		%	0.98		%	0.89		%	0.90		%
Provision to Average Loans (Quarter) ⁽¹⁾	Provision to Average Loans (Quarter) ⁽¹⁾	0.49		%	0.47		%	0.11		%	0.09		%	0.08		%	Provision to Average Loans (Quarter) (1)	0.35		%	0.49		%	0.47		%	0.11		%	0.09		%
Provision to Average Loans (YTD) ⁽¹⁾	Provision to Average Loans (YTD) ⁽¹⁾	0.48		%	0.47		%	0.09		%	0.09		%	0.08		%	Provision to Average Loans (YTD) (1)	0.43		%	0.48		%	0.47		%	0.09		%	0.09		%
Net Charge-offs to Average Loans (Quarter) ⁽¹⁾	Net Charge-offs to Average Loans (Quarter) ⁽¹⁾	0.06		%	0.05		%	0.06		%	0.05		%	0.02		%	Net Charge-offs to Average Loans (Quarter) (1)	0.02		%	0.06		%	0.05		%	0.06		%	0.05		%
Net Charge-offs to Average Loans (YTD) ⁽¹⁾	Net Charge-offs to Average Loans (YTD) ⁽¹⁾	0.06		%	0.05		%	0.05		%	0.04		%	0.04		%	Net Charge-offs to Average Loans (YTD) (1)	0.04		%	0.06		%	0.05		%	0.05		%	0.04		%
Nonperforming Loans to Total Loans	Nonperforming Loans to Total Loans	0.25		%	0.23		%	0.18		%	0.20		%	0.24		%	Nonperforming Loans to Total Loans	0.24		%	0.25		%	0.23		%	0.18		%	0.20		%
Nonperforming Assets to Total Assets	Nonperforming Assets to Total Assets	0.20		%	0.20		%	0.18		%	0.19		%	0.23		%	Nonperforming Assets to Total Assets	0.17		%	0.20		%	0.20		%	0.18		%	0.19		%
⁽¹⁾ Annualized	⁽¹⁾ Annualized																(1) Annualized

Provision for Loan Losses

Through the provision for loan losses, an allowance is maintained that reflects the Company's best estimate of probable incurred loan losses related to specifically identified impaired loans as well as the inherent risk of loss related to the remaining portfolio. Loan charge-offs are recorded to this allowance when loans are deemed uncollectible, in whole or in part. As loans become past due, consideration is given to the status of those loans and whether or not to classify them as nonaccrual loans. Any loans listed as "past due 90 or more days and still accruing interest" have been evaluated and determined to be secured and is the process of collection.

As permitted by the CARES Act, Arrow has elected to defer the adoption of the Current Expected Credit Losses ("CECL") methodology in determining credit losses.

In the ~~second~~third quarter of 2020, the Company made a ~~$3.0~~$2.3 million provision for loan losses, compared to a provision of ~~$455~~$518 thousand for the ~~second~~third quarter of 2019 and a provision of ~~$2.8~~$8.1 million for the first ~~quarter~~nine months of 2020. The significant increase in ~~loss~~the provision for loan losses reflects the uncertainty resulting from the COVID-19 pandemic despite the continued strong asset quality of Arrow. See

~~Arrow. See~~ Note 3 to the unaudited interim consolidated financial statements for a discussion on how the Company classifies credit quality indicators as well as the balance in each category.

The ratio of the allowance for credit losses to total loans was ~~1.03%~~1.10% at ~~June~~September 30, 2020, an increase from 0.89% at December 31, 2019 and an increase of 1220 basis points from ~~0.91%~~0.90% at ~~June~~September 30, 2019.

The accounting policy relating to the allowance for credit losses is considered to be a critical accounting policy, given the uncertainty involved in evaluating the level of the allowance required to cover credit losses inherent in the loan portfolio, and the material effect that such judgments may have on the results of operations. The process for determining the provision for loan losses is described in Note 3 to the unaudited interim consolidated financial statements.

Risk Elements

Nonperforming assets at ~~June~~September 30, 2020 amounted to ~~$7.2~~$6.4 million, up from the $5.7 million total at December 31, 2019 and an increase of ~~$0.3~~$0.5 million, from ~~June~~September 30, 2019. For the ~~three-month~~three month periods ended ~~June~~September 30, 2020 and 2019, ratios of nonperforming assets to total assets have remained below the average ratios for the peer group. (See page 4241 for a discussion of the peer group.) At ~~March 31,~~June 30, 2020, the ratio of loans past due 90 or more days plus nonaccrual loans plus other real estate owned to total assets was ~~0.19%~~0.20%, below the 0.48% ratio of the peer group at such date (the latest date for which peer group information is available). At ~~June~~September 30, 2020 the ratio was ~~0.20%~~0.17%, which is below the most recent ratio for the peer group.

The following table presents the balance of other non-current loans at period-end as to which interest income was being accrued (i.e. loans 30 to 89 days past due, as defined in bank regulatory guidelines). These non-current loans are not included in nonperforming assets, but entail heightened risk.


Loans Past Due 30-89 Days and Accruing Interest ($ in 000's)	Loans Past Due 30-89 Days and Accruing Interest ($ in 000's)													Loans Past Due 30-89 Days and Accruing Interest ($ in 000's)
		6/30/2020		12/31/2019		6/30/2019			9/30/2020		12/31/2019		9/30/2019
Commercial Loans	Commercial Loans	$	299	$	192	$	175	Commercial Loans	$	122	$	192	$	148
Commercial Real Estate Loans	Commercial Real Estate Loans	—		266		—		Commercial Real Estate Loans	85		266		30
Residential Real Estate Loans	Residential Real Estate Loans	509		1,960		1,482		Residential Real Estate Loans	1,224		1,960		1,000
Consumer Loans - Primarily Indirect Automobile	Consumer Loans - Primarily Indirect Automobile	7,756		8,305		5,769		Consumer Loans - Primarily Indirect Automobile	6,963		8,305		6,804
Total Loans Past Due 30-89 Days and Accruing Interest	Total Loans Past Due 30-89 Days and Accruing Interest	$	8,564	$	10,723	$	7,426	Total Loans Past Due 30-89 Days and Accruing Interest	$	8,394	$	10,723	$	7,982

At ~~June~~September 30, 2020, the loans in the above-referenced category totaled ~~$8.6~~$8.4 million, a decrease of ~~$2.2~~$2.3 million, or ~~20.1%~~21.7%, from the $10.7 million of such loans at December 31, 2019. The ~~June~~September 30, 2020 total of non-current loans equaled ~~0.33%~~0.32% of loans then outstanding, compared to 0.49% at December 31, 2019 and ~~0.33%~~0.34% at ~~June~~September 30, 2019. The decrease from December 31, 2019 is primarily attributable to a decrease in delinquent automobile loans ~~as well as~~and residential real estate loans.

The number and dollar amount of performing loans that demonstrate characteristics of potential weakness from time-to-time (potential problem loans) typically is a very small percentage of the loan portfolio. See the table of Credit Quality Indicators in Note 3 to the unaudited interim consolidated financial statements. The Company considers all performing commercial and commercial real estate loans classified as substandard or lower (as reported in Note 3) to be potential problem loans. The dollar amount of such loans at ~~June~~September 30, 2020 was ~~$35.9~~$45.0 million, up from the dollar amount of such loans at December 31, 2019, when the amount was $32.4 million. These loans will continue to be closely monitored and the Company expects to collect all payments of contractual principal and interest in full on these classified loans. Total nonperforming assets at period-end increased by ~~$0.3 million, or 4.4%~~$453 thousand from ~~June~~September 30, 2019.

The economic impact of the COVID-19 pandemic, specifically unemployment levels and the temporary mandated closure of nonessential businesses, may impact the borrowers' ability to satisfy their obligations, and may therefore result in increased delinquencies. Government interventions, on both the federal and state level, have been deployed to mitigate a significant portion of the credit risk. Arrow cannot make a determination as to the overall impact on its business of the COVID-19 pandemic at this time.

As of ~~June~~September 30, 2020, the Company held ~~for sale one commercial~~no property in other real estate owned. ~~The~~At this time, the Company does not expect to acquire a significant number of other real estate properties in the near term as a result of payment defaults or the foreclosure process.

Loan Deferrals Related to COVID-19 Pandemic

The COVID-19 pandemic has created economic uncertainty resulting in ~~increased~~elevated unemployment as well as the temporary closure of nonessential businesses. In the table below, ~~the loan portfolio is presented with loan deferrals~~loans deferred by industry sector as the result of the COVID-19 pandemic are presented and compared to total loans by sector as of ~~June~~September 30, 2020. In accordance with the CARES Act, the deferrals listed below are not considered troubled debt ~~restructuring.~~restructurings. In ~~the second quarter of~~ 2020, Arrow originated ~~$140.0~~$142.7 million of ~~Small Business Administration Paycheck Protection Program~~PPP loans. These loans are included in the loan balances by sector as listed below, however, these loans are not considered deferred as of ~~June~~September 30, 2020.


COVID-19 Deferrals by Loan Category at June 30, 2020 ($ in 000's)
COVID-19 Deferrals by Loan Category at September 30, 2020 ($ in 000's)														COVID-19 Deferrals by Loan Category at September 30, 2020 ($ in 000's)

		Balances by Sector									Deferrals										Balances by Sector				Deferrals
			Total		% of Total Loans		Balance		% of Loan Segment			% of Total Loans			Total		% of Total Loans		Balance		% of Loan Segment		% of Total Loans
Commercial and Commercial Real Estate Loans:	Commercial and Commercial Real Estate Loans:													Commercial and Commercial Real Estate Loans:
Lessors of Non-Residential Real Estate														Lessors of Non-Residential Real Estate	$	141,550	5.5	%	$	6,809	0.8	%	0.3	%
Health Care and Social Assistance	Health Care and Social Assistance		$	132,229	5.2	%	$	20,884	2.6	%		0.8	%	Health Care and Social Assistance	126,126		4.9	%	—		—	%	—	%
Lessors of Non-Residential Real Estate			129,244		5.0	%	37,675		4.7	%		1.5	%
Hotels & Motels			108,700		4.2	%	74,775		9.2	%		2.9	%
Lessors of Residential Real Estate	Lessors of Residential Real Estate		100,815		3.9	%	9,593		1.2	%		0.4	%	Lessors of Residential Real Estate	107,377		4.1	%	105		—	%	—	%
Hotels and Motels														Hotels and Motels	105,883		4.1	%	65,304		8.0	%	2.5	%
Arts/Recreation/Restaurants/Vacation Camps	Arts/Recreation/Restaurants/Vacation Camps		52,717		2.1	%	17,902		2.2	%		0.7	%	Arts/Recreation/Restaurants/Vacation Camps	53,268		2.1	%	12,557		1.5	%	0.5	%
Retail	Retail		43,177		1.7	%	7,500		0.9	%		0.3	%	Retail	46,008		1.8	%	121		—	%	—	%
Construction & Related	Construction & Related		35,364		1.4	%	759		0.1	%		—	%	Construction & Related	36,671		1.4	%	—		—	%	—	%
Other	Other		339,686		13.3	%	28,919		3.5	%		1.1	%	Other	200,271		7.7	%	1,180		—	%	—	%
Total Commercial and Commercial Real Estate Loans	Total Commercial and Commercial Real Estate Loans		809,703		31.6	%	198,007		24.5	%		7.7	%	Total Commercial and Commercial Real Estate Loans	817,154		31.5	%	86,076		10.5	%	3.3	%

Consumer Loans	Consumer Loans		828,493		32.3	%	39,138		4.7	%		1.5	%	Consumer Loans	849,526		32.8	%	2,810		0.3	%	0.1	%

Residential Real Estate Loans	Residential Real Estate Loans		923,719		36.1	%	81,867		8.9	%		3.2	%	Residential Real Estate Loans	925,775		35.7	%	11,098		1.2	%	0.4	%

Total Loans	Total Loans		2,561,915				319,012					12.5	%	Total Loans	$	2,592,455			$	99,984			3.9	%

CAPITAL RESOURCES

Regulatory Capital Standards

Capital Adequacy Requirements. An important area of banking regulation is the federal banking system's promulgation and enforcement of minimum capitalization standards for banks and bank holding companies.

As reported in the Regulatory Reform section above, the federal bank regulators have issued a final rule to implement the Community Bank Leverage Ratio ("CBLR"), introducing an optional simplified measure of capital adequacy for qualifying community banks that satisfy certain requirements, including having a leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community bank that opts into the CBLR framework and meets all requirements under the CBLR framework will be considered to have met the well-capitalized ratio requirements under the “prompt corrective action” regulations and will not be required to report or calculate risk-based capital ratios. The CBLR is calculated as the ratio of “tier 1 capital” divided by “average total consolidated assets.” This final rule was effective as of January 1, 2020, and qualifying community banks can utilize the CBLR framework for purposes of filing their call reports or Form FR Y-9C, as applicable, for the first quarter of 2020 (i.e., as of March 31, 2020). Arrow elected to opt out of utilizing the CBLR framework. The Capital Rules promulgated under Dodd-Frank will remain applicable to Arrow.

The following is a summary of certain definitions of capital under the various capital measures in the Dodd-Frank Capital Rules:

Common Equity Tier 1 Capital (CET1): Equals the sum of common stock instruments and related surplus (net of treasury stock), retained earnings, accumulated other comprehensive income (AOCI), and qualifying minority interests, minus applicable regulatory adjustments and deductions. Such deductions will include AOCI, if the organization has exercised its irrevocable option not to include AOCI in capital (the Company made such an election). Mortgage-servicing assets, deferred tax assets, and investments in financial institutions are limited to 15 percent of CET1 in the aggregate and 10 percent of CET1 for each such item individually.

Additional Tier 1 Capital: Equals the sum of noncumulative perpetual preferred stock, tier 1 minority interests, grandfathered TRUPs, and Troubled Asset Relief Program instruments, minus applicable regulatory adjustments and deductions.

Tier 2 Capital: Equals the sum of subordinated debt and preferred stock, total capital minority interests not included in Tier 1, and allowance for loan and lease losses (not exceeding 1.25% of risk-weighted assets) minus applicable regulatory adjustments and deductions.

The following table presents the minimum regulatory capital ratios applicable to the holding company and banks under the current Capital Rules:


Capital Ratio	2020
Minimum CET1 Ratio	4.500	%
Capital Conservation Buffer ("Buffer")	2.500	%
Minimum CET1 Ratio Plus Buffer	7.000	%
Minimum Tier 1 Risk-Based Capital Ratio	6.000	%
Minimum Tier 1 Risk-Based Capital Ratio Plus Buffer	8.500	%
Minimum Total Risk-Based Capital Ratio	8.000	%
Minimum Total Risk-Based Capital Ratio Plus Buffer	10.500	%
Minimum Leverage Ratio	4.000	%

These minimum capital ratios, especially the CET1 ratio (4.5%) and the enhanced Tier 1 risk-based capital ratio (6.0%), represent a heightened and more restrictive capital regime than institutions like Arrow previously had to meet under the prior capital rules.

At ~~June~~September 30, 2020, Arrow's holding company and both of its subsidiary banks exceeded by a substantial amount each of the applicable minimum capital ratios established under the Capital Rules, including the minimum CET1 Ratio, the minimum Tier 1 Risk-Based Capital Ratio, the minimum Total Risk-Based Capital Ratio, and the minimum Leverage Ratio, including in the case of each risk-based ratio, the capital buffer.

Prompt Corrective Action Capital Classifications. Under applicable banking law, federal banking regulators are required to take prompt corrective action with respect to depository institutions that do not meet certain minimum capital requirements. For these purposes, the regulators have established five capital classifications for banking institutions, ranging from the highest category of "well-capitalized" to the lowest category of "critically under-capitalized". Under the current capital classifications, a banking institution is considered "well-capitalized" if it meets the following capitalization standards on the date of measurement: a CET1 risk-based capital ratio of 6.50% or greater, a Tier 1 risk-based capital ratio of 8.00% or greater, a total risk-based capital ratio of 10.00% or greater, and a Tier 1 leverage ratio of 5.00% or greater, provided the institution is not subject to any regulatory order or written directive regarding capital maintenance. Federal banking law also ties the ability of banking organizations to engage in certain types of activities and to utilize certain procedures to such organizations' continuing to qualify for inclusion in one of the two highest rankings of these capitalization categories, i.e., as "well-capitalized" or "adequately capitalized."

Current Capital Ratios: The table below sets forth the regulatory capital ratios of Arrow's holding company and two subsidiary banks, Glens Falls National and Saratoga National, under the current Capital Rules, as of ~~June~~September 30, 2020:


		Common		Tier 1		Total					Common		Tier 1		Total
		Equity		Risk-Based		Risk-Based		Tier 1			Equity		Risk-Based		Risk-Based			Tier 1
		Tier 1 Capital		Capital		Capital		Leverage			Tier 1 Capital		Capital		Capital			Leverage
		Ratio		Ratio		Ratio		Ratio			Ratio		Ratio		Ratio			Ratio
Arrow Financial Corporation	Arrow Financial Corporation	13.07	%	13.94	%	15.10	%	9.32	%	Arrow Financial Corporation	13.20	%	14.06	%	15.28		%	9.17	%
Glens Falls National Bank & Trust Co.	Glens Falls National Bank & Trust Co.	13.88	%	13.89	%	15.05	%	8.89	%	Glens Falls National Bank & Trust Co.	13.98	%	13.98	%	15.21		%	8.82	%
Saratoga National Bank & Trust Co.	Saratoga National Bank & Trust Co.	12.02	%	12.02	%	13.13	%	8.79	%	Saratoga National Bank & Trust Co.	12.29	%	12.29	%	13.51		%	8.63	%

FDICIA's Prompt Corrective Action - "Well-Capitalized" Standard (2019)	FDICIA's Prompt Corrective Action - "Well-Capitalized" Standard (2019)	6.50	%	8.00	%	10.00	%	5.00	%	FDICIA's Prompt Corrective Action - "Well-Capitalized" Standard (2019)	6.50	%	8.00	%	10.00		%	5.00	%
Regulatory Minimum effective 1/1/2019	Regulatory Minimum effective 1/1/2019	7.000%⁽¹⁾		8.500%⁽¹⁾		10.500%⁽¹⁾		4.00	%	Regulatory Minimum effective 1/1/2019	7.000%(1)		8.500%(1)		10.500%(1)			4.00	%
⁽¹⁾ Including the fully phased-in 2.50% capital conservation buffer	⁽¹⁾ Including the fully phased-in 2.50% capital conservation buffer															(1) Including the fully phased-in 2.50% capital conservation buffer

At ~~June~~September 30, 2020, Arrow and its subsidiary banks exceeded the minimum regulatory capital ratios established under the current Capital Rules and each also qualified as "well-capitalized", the highest category in the new capital classification scheme established by federal bank regulatory agencies under the "prompt corrective action" standards, as described above.

Capital Components; Stock Repurchases; Dividends

Stockholders' Equity: Stockholders’ equity was ~~$317.7~~$325.7 million at ~~June~~September 30, 2020, an increase of ~~$16.0~~$23.9 million, or ~~5.3%~~7.9%, from the December 31, 2019 level of $301.7 million, and an increase of ~~$33.0~~$33.4 million, or ~~11.6%~~11.4%, from the prior-year level. The increase in stockholders' equity over the first ~~six~~nine months of 2020 principally reflected the following factors: (i) ~~$17.3~~$28.3 million of net income for the

period, plus (ii) other comprehensive income of $6.1 million, plus (iii) issuance of ~~$1.9~~$2.8 million of common stock through employee benefit and dividend reinvestment plans; reduced by (iv) cash dividends of ~~$7.8~~$11.7 million; and (v) repurchases of common stock of ~~$1.5~~$1.6 million under the Board-approved stock repurchase program described below.

Trust Preferred Securities: In each of 2003 and 2004, the Company issued $10 million of trust preferred securities (TRUPs) in a private placement. Under the Federal Reserve Board's regulatory capital rules then in effect, TRUPs proceeds typically qualified as Tier 1 capital for bank holding companies such as Arrow, but only in amounts up to 25% of Tier 1 capital, net of goodwill less any associated deferred tax liability. Under the Dodd-Frank Act, any trust preferred securities that Arrow might issue on or after the grandfathering date set forth in Dodd-Frank (May 19, 2010) would not qualify as Tier 1 capital under bank regulatory capital guidelines. For Arrow, TRUPs outstanding prior to the grandfathering cutoff date set forth in Dodd-Frank (May 19, 2010) would continue to qualify as Tier 1 capital until maturity or redemption, subject to limitations. Thus, Arrow's outstanding TRUPs continue to qualify as Tier 1 regulatory capital, subject to such limitations.

In the first quarter of 2020, Arrow entered into an interest rate swap agreement to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities. The effective fixed rate is 3.43% until maturity. These agreements are designated as cash flow hedges.

Stock Repurchase Program: In October 2019, the Board of Directors approved a $5.0 million stock repurchase program, effective January 1, 2020 (the 2020 Repurchase Program), under which management is authorized, in its discretion, to permit the Company to repurchase up to $5 million of shares of Arrow's common stock during 2020, in the open market or in privately negotiated transactions, to the extent management believes the Company's stock is reasonably priced and such repurchases appear to be an attractive use of available capital and in the best interests of shareholders. This 2020 Repurchase Program replaced a similar repurchase program which was in effect during 2019 (the 2019 program), which also authorized the repurchase of up to $5.0 million of shares of Arrow's common stock. As of ~~June~~September 30, 2020 approximately $1.5 million had been used under the 2020 Repurchase Program to repurchase Arrow shares. No stock repurchases have occurred in the ~~second~~third quarter. This total does not include repurchases of Arrow's Common Stock other than through its 2020 Repurchase Program, i.e., repurchases of Arrow shares on the market utilizing funds accumulated under Arrow's Dividend Reinvestment Plan and the surrender or deemed surrender of Arrow stock to the Company in connection with employees' stock-for-stock exercises of compensatory stock options to buy Arrow stock.

Dividends: The Company's common stock is traded on NasdaqGS^® under the symbol AROW. The high and low stock prices for the past ~~six~~seven quarters listed below represent actual sales transactions, as reported by NASDAQ. On ~~July 29,~~October 28, 2020, the Board of Directors declared a 2020 ~~third~~fourth quarter cash dividend of $0.26 payable on ~~September~~December 15, 2020. Per share amounts and share counts in the following tables have been restated for the September ~~27, 2019~~25, 2020 3% stock dividend.


						Cash							Cash
		Market Price								Dividends	Market Price				Dividends
		Low		High		Declared			Low		High		Declared
2019	2019							2019
First Quarter	First Quarter	$	29.57	$	35.19	$	0.252	First Quarter	$	28.71	$	34.17	$	0.245
Second Quarter	Second Quarter	30.96		33.93		0.252		Second Quarter	30.05		32.94		0.245
Third Quarter	Third Quarter	30.26		35.31		0.252		Third Quarter	29.38		34.28		0.245
Fourth Quarter	Fourth Quarter	32.03		38.31		0.260		Fourth Quarter	31.09		37.19		0.252
2020	2020							2020
First Quarter	First Quarter	$	20.79	$	38.04	$	0.260	First Quarter	$	20.18	$	36.93	$	0.252
Second Quarter	Second Quarter	23.56		31.68		0.260		Second Quarter	22.87		30.76		0.252
Third Quarter	Third Quarter	TBD		TBD		0.260		Third Quarter	24.58		29.13		0.252

Fourth Quarter (dividend payable December 15, 2020)								Fourth Quarter (dividend payable December 15, 2020)	TBD		TBD


		Quarter Ended June 30										Quarter Ended September 30
		2020			2019				2020			2019
Cash Dividends Per Share	Cash Dividends Per Share	$	0.260		$	0.252		Cash Dividends Per Share	$	0.252		$	0.245
Diluted Earnings Per Share	Diluted Earnings Per Share	0.61			0.60			Diluted Earnings Per Share	0.71			0.65
Dividend Payout Ratio	Dividend Payout Ratio	42.62		%	42.00		%	Dividend Payout Ratio	35.49		%	37.69		%
Total Equity (in thousands)	Total Equity (in thousands)	317,687			$	284,649		Total Equity (in thousands)	325,660			$	292,228
Shares Issued and Outstanding (in thousands)	Shares Issued and Outstanding (in thousands)	15,011			14,949			Shares Issued and Outstanding (in thousands)	15,489			15,418
Book Value Per Share	Book Value Per Share	$	21.16		$	19.04		Book Value Per Share	$	21.03		$	18.95
Intangible Assets (in thousands)	Intangible Assets (in thousands)	23,535			23,603			Intangible Assets (in thousands)	23,662			23,586
Tangible Book Value Per Share	Tangible Book Value Per Share	$	19.60		$	17.46		Tangible Book Value Per Share	$	19.50		$	17.42

LIQUIDITY

The objective of effective liquidity management is to ensure that the Company has the ability to raise cash when needed at a reasonable cost. This includes the capability of meeting expected and unexpected obligations to the Company's customers at any time. Given the uncertain nature of customer demands and the need to maximize earnings, the Company must have available reasonably priced sources of funds, both on- and off-balance sheet, that can be accessed quickly in time of need. With the COVID-19 pandemic, liquidity management is critical for Arrow. Arrow’s liquidity position provides the necessary flexibility to address any unexpected ~~near-term~~near-

term disruptions that may develop as a result of the COVID-19 pandemic such as: reduced cash-flows from the investment and loan

portfolios and aggressive funding of programs associated with response ~~efforts, including the Small Business Administration’s Paycheck Protection Program.~~efforts.

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, and cash flow from investment securities and loans. Certain investment securities are selected at purchase as available-for-sale based on their marketability and collateral value, as well as their yield and maturity. The securities available-for-sale portfolio was ~~$378.8~~$374.9 million at ~~June~~September 30, 2020, an increase of ~~$21.4~~$17.6 million, from the year-end 2019 level. Due to the potential for volatility in market values, Arrow may not always be able to sell securities on short notice at their carrying value, even to provide needed liquidity. Arrow also held interest-bearing cash balances at ~~June~~September 30, 2020 of ~~$215.0~~$396.4 million compared to ~~$28.0~~$23.2 million at ~~June 30,~~December 31, 2019.

In addition to liquidity from cash, short-term investments, investment securities and loans, the Company has supplemented available operating liquidity with additional off-balance sheet sources such as a federal funds lines of credit with correspondent banks and credit lines with the FHLBNY. The federal funds lines of credit are with two correspondent banks totaling $52 million which were not drawn on during the three months ended ~~June~~September 30, 2020.

To support the borrowing relationship with the FHLBNY, the Company has pledged collateral, including residential mortgage, home equity and commercial real estate loans. At ~~June~~September 30, 2020, the Company had outstanding collateral obligations with the FHLBNY of ~~$95~~$120 million; as of that date, the unused borrowing capacity at the FHLBNY was approximately ~~$740~~$720 million. Brokered deposits have also been identified as an available source of funding accessible in a relatively short time period. At ~~June~~September 30, 2020, the balance of outstanding brokered deposits totaled ~~$88.1~~$74.5 million. Also, Arrow's two bank subsidiaries have each established a borrowing facility with the Federal Reserve Bank of New York, pledging certain consumer loans as collateral for potential "discount window" advances, which are maintained for contingency liquidity purposes. At ~~June~~September 30, 2020, the amount available under these facilities was approximately ~~$567~~$604 million in the aggregate, and there were no advances then outstanding.

Arrow performs regular liquidity stress tests and tests of the contingent liquidity plan to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity crises including the current COVID-19 pandemic.

Arrow measures and monitors basic liquidity as a ratio of liquid assets to total short-term liabilities, both with and without the availability of borrowing arrangements. Based on the level of overnight funds investments, available liquidity from the investment securities portfolio, cash flows from the loan portfolio, the stable core deposit base and the significant borrowing capacity, the Company believes that the available liquidity is sufficient to meet all funding needs that may arise in connection with the COVID-19 pandemic or any other reasonably likely events or occurrences, although there can be no assurance that it will be sufficient. At ~~June~~September 30, 2020, the basic liquidity ratio, including the FHLBNY collateralized borrowing capacity, was ~~31.5%~~29.3% of total assets, or ~~$975~~$956 million in excess of the internally-set minimum target ratio of 4%.

Arrow did not experience any significant liquidity constraints in the ~~six-month~~nine month period ended ~~June~~September 30, 2020 and did not experience any such constraints in recent prior years. Arrow has not at any time during such period been forced to pay above-market rates to obtain retail deposits or other funds from any source.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses" ("CECL") 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 CECL, the amount of the credit loss is carried as a valuation allowance and can be reversed. The standard also requires expanded credit quality disclosures. In April 2019, the FASB issued ASU 2019-04 "Codification Improvements to Topic 326, Financial Instruments-Credit Losses; Topic 815, Derivatives and Hedging; and Topic 825, Financial Instruments," which clarifies that the estimate of expected credit losses should include expected recoveries of financial assets, and that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. The Company's loan terms for contractual extensions and renewal options are unconditionally cancellable by the Company (that is, the Company has no obligation to extend or renew existing loans), and therefore are not considered in measuring expected credit losses. In May 2019, the FASB issued ASU 2019-05 "Targeted Transition Relief," which allows entities to irrevocably elect the fair value option for certain financial assets measured at amortized cost, not including held-to-maturity investment securities which will continue to be measured at amortized cost. This will apply to those institutions that elect the fair value option on newly originated or purchased financial assets, to avoid the possibility of dual measurement methodologies for identical or similar financial assets.

As permitted by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, Arrow has elected to defer the adoption of the Current Expected Credit Losses ("CECL") methodology in determining credit losses. The initial adjustment will not be reported in earnings, but as the cumulative effect of a change in accounting principle and the adoption will require additional disclosures in future periods. The Company has held CECL working group meetings that included individuals from various functional areas relevant to the implementation of CECL. The Company's CECL working group has developed accounting policies for credit losses including, among other things, management’s decisions regarding portfolio segmentation, life of loan considerations, and a reasonable and supportable forecasting methodology. The CECL pronouncement describes several acceptable methodologies for calculating expected losses on a loan or a pool of loans. The Company has 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. As a result of analyses performed, including the availability of future economic data, the Company will utilize an 18-month reasonable and supportable forecast period, and revert to an historic loss rate using the straight-line method over a two year reversion period. The Company has identified the economic data that it believes best correlate with expected loan losses through the use of various regression analyses of historical economic information and loan losses. The adoption of this standard will change the way qualitative factors are determined as compared to the current incurred loss allowance for loan losses model.

The Company has performed parallel CECL reserve calculations as of December 31, 2019, March 31, 2020, June 30, 2020, and ~~June~~September 30, 2020. The Company has also developed a control framework and continues to monitor updates to financial reporting requirements and regulatory guidance, and evaluates the impact on the consolidated financial statements, disclosures, processes and internal controls.

Based on the December 31, 2019 parallel run, review of the portfolio, including the composition, characteristics and quality of the underlying loans, and the prevailing economic conditions and forecasts as of the adoption date, the Company believes the adjustment to retained earnings related to the initial adoption of CECL will result in an immaterial impact. Assuming the CECL reserve for credit losses was recorded, Arrow would still remain a well-capitalized financial institution. Regulators have developed two deferral options related to the adoption of CECL and the resulting computation of regulatory capital ratios. The initial deferral method, the 2019 CECL Rule, allows a financial institution to elect a ~~three-year~~three year deferral of the initial CECL adoption amount for the computation of regulatory capital. An additional deferral method, the Interim Final Rule, allows a financial institution that implements CECL before the end of 2020, the option to delay for two years an estimate of CECL's effect on regulatory capital, followed by a ~~three-year~~three year transition period. Arrow is in the process of evaluating these deferral methods.

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 December 2019, the FASB issued ASU 2019-12 "Simplifying the Accounting for Income Taxes" (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. Arrow will adopt this standard effective on January 1, 2021. The Company does not expect that the adoption of this standard will have a material impact on its financial position or the results of operations in periods subsequent to its adoption.

RESULTS OF OPERATIONS

Three Months Ended ~~June~~September 30, 2020 Compared With

Three Months Ended ~~June~~September 30, 2019

Summary of Earnings Performance

(Dollars in Thousands, Except Per Share Amounts)


		Three Months Ended															Three Months Ended
		June 30, 2020			June 30, 2019			Change			% Change			September 30, 2020			September 30, 2019			Change			% Change
Net Income	Net Income	$	9,159		$	8,934		$	225		2.5	%	Net Income	$	11,046		$	10,067		$	979		9.7	%
Diluted Earnings Per Share	Diluted Earnings Per Share	0.61			0.60			0.01			1.7	%	Diluted Earnings Per Share	0.71			0.65			0.06			9.2	%
Return on Average Assets	Return on Average Assets	1.07		%	1.20		%	(0.13)		%	(10.8)	%	Return on Average Assets	1.23		%	1.32		%	(0.09)		%	(6.8)	%
Return on Average Equity	Return on Average Equity	11.64		%	12.79		%	(1.15)		%	(9.0)	%	Return on Average Equity	13.55		%	13.82		%	(0.27)		%	(2.0)	%

Net income was ~~$9.2~~$11.0 million and diluted earnings per share (EPS) of ~~$.61~~$.71 for the ~~second~~third quarter of 2020, compared to net income of ~~$8.9~~$10.1 million and diluted EPS of ~~$.60~~$.65 for the ~~second~~third quarter of 2019. Return on average assets (ROA) for the ~~second~~third quarter of 2020 was ~~1.07%~~1.23%, updown from ~~1.20%~~1.32% in the ~~second~~third quarter of 2019. In addition, return on average equity (ROE) decreased to ~~11.64%~~13.55% for the ~~second~~third quarter of 2020, down from ~~12.79%~~13.82% in the ~~second~~third quarter of 2019.

The following narrative discusses the quarter-to-quarter changes in net interest income, noninterest income, noninterest expense and income taxes.

Net Interest Income

Summary of Net Interest Income

(Dollars in Thousands)


		Three Months Ended														Three Months Ended
		June 30, 2020			June 30, 2019			Change		% Change			September 30, 2020			September 30, 2019			Change		% Change
Interest and Dividend Income	Interest and Dividend Income	$	28,002		$	27,227		$	775	2.8	%	Interest and Dividend Income	$	27,296		$	27,952		$	(656)	(2.3)	%

Interest Expense	Interest Expense	3,160			5,520			(2,360)		(42.8)	%	Interest Expense	2,396			5,649			(3,253)		(57.6)	%
Net Interest Income	Net Interest Income	24,842			21,707			3,135		14.4	%	Net Interest Income	24,900			22,303			2,597		11.6	%

Average Earning Assets⁽¹⁾	Average Earning Assets⁽¹⁾	3,281,223			2,865,085			416,138		14.5	%	Average Earning Assets(1)	3,417,638			2,881,035			536,603		18.6	%
Average Interest-Bearing Liabilities	Average Interest-Bearing Liabilities	2,457,690			2,235,462			222,228		9.9	%	Average Interest-Bearing Liabilities	2,545,435			2,213,642			331,793		15.0	%

Yield on Earning Assets⁽¹⁾	Yield on Earning Assets⁽¹⁾	3.43		%	3.81		%	(0.38)		(10.0)	%	Yield on Earning Assets(1)	3.18		%	3.85		%	(0.67)		(17.4)	%

Cost of Interest-Bearing Liabilities	Cost of Interest-Bearing Liabilities	0.52			0.99			(0.47)		(47.5)		Cost of Interest-Bearing Liabilities	0.37			1.01			(0.64)		(63.4)

Net Interest Spread	Net Interest Spread	2.91			2.82			0.09		3.2		Net Interest Spread	2.81			2.84			(0.03)		(1.1)

Net Interest Margin	Net Interest Margin	3.05			3.04			0.01		0.3		Net Interest Margin	2.90			3.07			(0.17)		(5.5)

⁽¹⁾ Includes Nonaccrual Loans.

Net interest income for the recently completed quarter increased by ~~$3.1~~$2.6 million, or ~~14.4%~~11.6%, from the ~~second~~third quarter of 2019, due to a variety of factors including; balance sheet growth, lower market rates, and a more favorable funding mix, with higher deposit balances and lower wholesale borrowings. Total loans increased ~~$147.7~~$30.5 million in the ~~second~~third quarter of ~~2020, mostly the result of $140.0 million of Small Business Administration's Paycheck Protection Program loans.~~2020. At ~~June~~September 30, 2020, deposit balances reached ~~$3.1~~$3.3 billion, up ~~$565.0~~$650.3 million, or ~~22.6%~~24.9%, from the prior-year level. Deposit growth for the third quarter of 2020 was $196.1 million. Noninterest-bearing deposits represented ~~21.8%~~21.1% of total deposits at ~~June~~September 30, 2020, compared to ~~18.7%~~19.8% of total deposits on ~~June~~September 30, 2019. Net interest margin ~~increased 1~~decreased 17 basis points in the ~~second~~third quarter of 2020 to ~~3.05%~~2.90%, from ~~3.04%~~3.07% during the ~~second~~third quarter of 2019. Average earning asset yields were 3867 basis points lower as compared to the ~~second~~third quarter of 2019 due primarily to the ~~decrease~~increased cash balances and the impact of participating in ~~market rates as well as~~ the ~~addition of the~~Small Business Administration Paycheck Protection Program loans. The cost of interest-bearing liabilities decreased 4764 basis points from the quarter ended ~~June~~September 30, 2019. The Company defines net interest margin as net interest income divided by average earning assets, annualized. Further detailed information is presented above under the section entitled "Average Consolidated Balance Sheets and Net Interest Income Analysis." The impact of recent interest rate changes on Arrow's deposit and loan portfolios are discussed above in this Report under the sections entitled "Deposit Trends" and "Loan Trends."

As discussed previously under the heading "Asset Quality" beginning on page ~~59,~~58, the provision for loan losses for the ~~second~~third quarter of 2020 was ~~$3.04~~$2.3 million, compared to a provision of ~~$455~~$518 thousand for the ~~second~~third quarter of 2019.

Noninterest Income

Summary of Noninterest Income

(Dollars in Thousands)


		Three Months Ended											Three Months Ended
		June 30, 2020		June 30, 2019		Change		% Change			September 30, 2020		September 30, 2019		Change		% Change
Income From Fiduciary Activities	Income From Fiduciary Activities	$	2,135	$	2,252	$	(117)	(5.2)	%	Income From Fiduciary Activities	$	2,265	$	2,212	$	53	2.4	%
Fees for Other Services to Customers	Fees for Other Services to Customers	2,278		2,545		(267)		(10.5)	%	Fees for Other Services to Customers	2,619		2,623		(4)		(0.2)	%
Insurance Commissions	Insurance Commissions	1,732		1,935		(203)		(10.5)	%	Insurance Commissions	1,713		1,936		(223)		(11.5)	%

Net (Loss) Gain on Securities Transactions	Net (Loss) Gain on Securities Transactions	(106)		—		(106)		100.0	%	Net (Loss) Gain on Securities Transactions	(72)		146		(218)		(149.3)	%
Net Gain on the Sale of Loans	Net Gain on the Sale of Loans	547		140		407		290.7	%	Net Gain on the Sale of Loans	1,433		257		1,176		457.6	%
Other Operating Income	Other Operating Income	578		24		554		2,308.3	%	Other Operating Income	739		517		222		42.9	%
Total Noninterest Income	Total Noninterest Income	$	7,164	$	6,896	$	268	3.9	%	Total Noninterest Income	$	8,697	$	7,691	$	1,006	13.1	%

Total noninterest income in the current quarter was ~~$7.2~~$8.7 million, an increase of ~~$268 thousand~~$1.0 million from the comparable quarter of 2019. Income from fiduciary activities for the ~~second~~third quarter of 2020 ~~decreased~~increased by ~~$117 thousand, or 5.2%~~2.4% from the ~~second~~third quarter of 2019. ~~The decrease was the result of increased competition as well as market value fluctuation of assets under management.~~ Fees for other services to customers were ~~$2.3~~$2.6 million for the ~~second~~third quarter of 2020. Insurance commissions decreased to $1.7 million for the ~~second~~third quarter of 2020 compared to $1.9 million for the ~~second~~third quarter of 2019, due primarily to a decline in the employee benefits sector of the business. Net loss on security transactions of ~~$106~~$72 thousand for the first quarter of 2020 was the result in the decrease in the fair value of equity securities. Net gain on the sale of loans in the ~~second~~third quarter of 2020 increased by ~~$407 thousand~~$1.2 million from the ~~second~~third quarter of 2019. The change was a result of favorable market conditions leading to an increase in loan sale volume. See page 5251 for the discussion of loan sales. Other operating income increased ~~$0.6 million~~$222 thousand from the comparable quarter in 2019, primarily the result of ~~fees received as part~~the disposal of ~~interest rate swap agreements.~~fixed asset charges which occurred in the third quarter of 2019.

~~Noninterest Expense~~RESULTS OF OPERATIONS

Three Months Ended September 30, 2020 Compared With

Three Months Ended September 30, 2019

Summary of ~~Noninterest Expense~~Earnings Performance

(Dollars in Thousands, Except Per Share Amounts)


	Three Months Ended
	September 30, 2020			September 30, 2019			Change			% Change
Net Income	$	11,046		$	10,067		$	979		9.7	%
Diluted Earnings Per Share	0.71			0.65			0.06			9.2	%
Return on Average Assets	1.23		%	1.32		%	(0.09)		%	(6.8)	%
Return on Average Equity	13.55		%	13.82		%	(0.27)		%	(2.0)	%

Net income was $11.0 million and diluted earnings per share (EPS) of $.71 for the third quarter of 2020, compared to net income of $10.1 million and diluted EPS of $.65 for the third quarter of 2019. Return on average assets (ROA) for the third quarter of 2020 was 1.23%, down from 1.32% in the third quarter of 2019. In addition, return on average equity (ROE) decreased to 13.55% for the third quarter of 2020, down from 13.82% in the third quarter of 2019.

The following narrative discusses the quarter-to-quarter changes in net interest income, noninterest income, noninterest expense and income taxes.

Net Interest Income

Summary of Net Interest Income

(Dollars in Thousands)

Three Months Ended
June 30, 2020 June 30, 2019 Change % Change
Salaries and Employee Benefits $ 10,212 9,727 $ 485 5.0 %
Occupancy Expense of Premises, Net 1,345 1,279 66 5.2 %
Technology and Equipment Expense 3,227 3,243 (16) (0.5) %
FDIC and FICO Assessments 242 212 30 14.2 %
Amortization 57 44 13 29.5 %
Other Operating Expense 2,162 2,403 (241) (10.0) %
Total Noninterest Expense $ 17,245 $ 16,908 $ 337 2.0 %
Efficiency Ratio 53.06 % 58.19 % (5.13) (8.8) %


	Three Months Ended
	September 30, 2020			September 30, 2019			Change		% Change
Interest and Dividend Income	$	27,296		$	27,952		$	(656)	(2.3)	%



Interest Expense	2,396			5,649			(3,253)		(57.6)	%
Net Interest Income	24,900			22,303			2,597		11.6	%

Average Earning Assets(1)	3,417,638			2,881,035			536,603		18.6	%
Average Interest-Bearing Liabilities	2,545,435			2,213,642			331,793		15.0	%

Yield on Earning Assets(1)	3.18		%	3.85		%	(0.67)		(17.4)	%

Cost of Interest-Bearing Liabilities	0.37			1.01			(0.64)		(63.4)

Net Interest Spread	2.81			2.84			(0.03)		(1.1)


Net Interest Margin	2.90			3.07			(0.17)		(5.5)

(1) Includes Nonaccrual Loans.

~~Noninterest expense~~

Net interest income for the ~~second~~recently completed quarter increased by $2.6 million, or 11.6%, from the third quarter of 2019, due to a variety of factors including; balance sheet growth, lower market rates, and a more favorable funding mix, with higher deposit balances and lower wholesale borrowings. Total loans increased $30.5 million in the third quarter of 2020. At September 30, 2020, deposit balances reached $3.3 billion, up $650.3 million, or 24.9%, from the prior-year level. Deposit growth for the third quarter of 2020 was ~~$17.2 million, an increase~~$196.1 million. Noninterest-bearing deposits represented 21.1% of ~~$0.3 million, or 2.0%~~total deposits at September 30, 2020, compared to 19.8% of total deposits on September 30, 2019. Net interest margin decreased 17 basis points in the third quarter of 2020 to 2.90%, from 3.07% during the ~~second~~third quarter of 2019. ~~Salaries~~Average earning asset yields were 67 basis points lower as compared to the third quarter of 2019 due primarily to the increased cash balances and ~~benefit expenses increased $0.5 million, or 5.0%,~~the impact of participating in the Small Business Administration Paycheck Protection Program loans. The cost of interest-bearing liabilities decreased 64 basis points from the ~~comparable~~ quarter inended September 30, 2019. The ~~increase in salaries and benefits was primarily due to the increase in the cost of health insurance benefits.~~

The efficiency ratio continues to be solid at 53.06% for the second quarter of 2020 and 58.19% for the comparable 2019 quarter. The efficiency ratio (a ratio where lower is better), is a commonly used non-GAAP financial measure in the banking industry that purports to reflect an institution's operating efficiency. The Company ~~calculates the efficiency ratio~~defines net interest margin as ~~the ratio of noninterest expense (excluding, under the Company's definition, intangible asset amortization) to (i)~~ net interest income ~~(on a tax-equivalent basis) plus (ii) noninterest income (excluding net securities gains or losses). See~~divided by average earning assets, annualized. Further detailed information is presented above under the ~~discussion~~section entitled "Average Consolidated Balance Sheets and Net Interest Income Analysis." The impact of recent interest rate changes on ~~this non-GAAP measure on page 43 of~~Arrow's deposit and loan portfolios are discussed above in this Report under the sections entitled "Deposit Trends" and "Loan Trends."

As discussed previously under the heading ~~"Use~~"Asset Quality" beginning on page 58, the provision for loan losses for the third quarter of Non-GAAP Financial Measures" and the related tabular information and notes on pages 44 through 47 of this Report. The efficiency ratio included by the Federal Reserve Board in its "Bank Holding Company Performance Reports" excludes net securities gains or losses from the denominator (as does the Company's calculation), but unlike the Company's ratio does not exclude intangible asset amortization from the numerator. The Company's efficiency ratios in recent periods have generally compared favorably to the ratios of the peer group as disclosed in the Federal Reserve Performance Reports (see page 42 for a discussion of the peer group). For the three-month period ended March 31, 2020 ~~(the most recent reporting period for which peer group information is available), the peer group's efficiency ratio~~ was ~~63.68%~~$2.3 million, compared to ~~the Company's ratio~~a provision of ~~57.13% (not adjusted~~$518 thousand for the ~~definitional difference).~~third quarter of 2019.

6665

Noninterest Income ~~Taxes~~

Summary of Noninterest Income ~~Taxes~~

(Dollars in Thousands)

Three Months Ended
June 30, 2020 June 30, 2019 Change % Change
Provision for Income Taxes $ 2,562 $ 2,306 $ 256 11.1 %
Effective Tax Rate 21.9 % 20.5 % 1.4 6.8 %


	Three Months Ended
	September 30, 2020		September 30, 2019		Change		% Change
Income From Fiduciary Activities	$	2,265	$	2,212	$	53	2.4	%
Fees for Other Services to Customers	2,619		2,623		(4)		(0.2)	%
Insurance Commissions	1,713		1,936		(223)		(11.5)	%

Net (Loss) Gain on Securities Transactions	(72)		146		(218)		(149.3)	%
Net Gain on the Sale of Loans	1,433		257		1,176		457.6	%
Other Operating Income	739		517		222		42.9	%
Total Noninterest Income	$	8,697	$	7,691	$	1,006	13.1	%

Total noninterest income in the current quarter was $8.7 million, an increase of $1.0 million from the comparable quarter of 2019. Income from fiduciary activities for the third quarter of 2020 increased by 2.4% from the third quarter of 2019. Fees for other services to customers were $2.6 million for the third quarter of 2020. Insurance commissions decreased to $1.7 million for the third quarter of 2020 compared to $1.9 million for the third quarter of 2019, due primarily to a decline in the employee benefits sector of the business. Net loss on security transactions of $72 thousand for the first quarter of 2020 was the result in the decrease in the fair value of equity securities. Net gain on the sale of loans in the third quarter of 2020 increased by $1.2 million from the third quarter of 2019. The change was a result of favorable market conditions leading to an increase in loan sale volume. See page 51 for the discussion of loan sales. Other operating income increased $222 thousand from the comparable quarter in 2019, primarily the result of the disposal of fixed asset charges which occurred in the third quarter of 2019.

The increase in the effective tax rate in the three months ended June 30, 2020 over the three months ended June 30, 2019 was primarily due to the reduction of tax exempt investments held and the related investment income combined with the reduced tax benefit related to stock based compensation.

RESULTS OF OPERATIONS

~~Six~~Three Months Ended ~~June~~September 30, 2020 Compared With

~~Six~~Three Months Ended ~~June~~September 30, 2019

Summary of Earnings Performance

(Dollars in Thousands, Except Per Share Amounts)


		Six Months Ended															Three Months Ended
		June 30, 2020			June 30, 2019			Change			% Change			September 30, 2020			September 30, 2019			Change			% Change
Net Income	Net Income	$	17,286		$	17,668		$	(382)		(2.2)	%	Net Income	$	11,046		$	10,067		$	979		9.7	%
Diluted Earnings Per Share	Diluted Earnings Per Share	1.15			1.18			(0.03)			(2.5)		Diluted Earnings Per Share	0.71			0.65			0.06			9.2	%
Return on Average Assets	Return on Average Assets	1.05		%	1.19		%	(0.14)		%	(11.8)		Return on Average Assets	1.23		%	1.32		%	(0.09)		%	(6.8)	%
Return on Average Equity	Return on Average Equity	11.16		%	12.88		%	(1.72)		%	(13.4)		Return on Average Equity	13.55		%	13.82		%	(0.27)		%	(2.0)	%

Net income was ~~$17.3~~$11.0 million and diluted earnings per share (EPS) of ~~$1.15~~$.71 for the ~~first six months~~third quarter of 2020, compared to net income of ~~$17.7~~$10.1 million and diluted EPS of ~~$1.18~~$.65 for the ~~first six months~~third quarter of 2019. Return on average assets (ROA) for the ~~first six months~~third quarter of 2020 was ~~1.05%~~1.23%, ~~a decrease~~down from ~~1.19% for~~1.32% in the ~~first six months~~third quarter of 2019. In addition, return on average equity (ROE) decreased to ~~11.16%~~13.55% for the ~~first six months~~third quarter of 2020, down from ~~12.88% for~~13.82% in the ~~first six months~~third quarter of 2019.

The following narrative discusses the ~~period-to-period~~quarter-to-quarter changes in net interest income, noninterest income, noninterest expense and income taxes.

Net Interest Income

Summary of Net Interest Income

(Dollars in Thousands)


		Six Months Ended															Three Months Ended
		June 30, 2020			June 30, 2019			Change			% Change			September 30, 2020			September 30, 2019			Change		% Change
Interest and Dividend Income	Interest and Dividend Income	$	56,228		$	53,440		$	2,788		5.2	%	Interest and Dividend Income	$	27,296		$	27,952		$	(656)	(2.3)	%

Interest Expense	Interest Expense	8,380			10,612			(2,232)			(21.0)	%	Interest Expense	2,396			5,649			(3,253)		(57.6)	%
Net Interest Income	Net Interest Income	47,848			42,828			5,020			11.7	%	Net Interest Income	24,900			22,303			2,597		11.6	%

Average Earning Assets ⁽¹⁾	Average Earning Assets ⁽¹⁾	3,156,052			2,856,573			299,479			10.5	%	Average Earning Assets(1)	3,417,638			2,881,035			536,603		18.6	%
Average Interest-Bearing Liabilities	Average Interest-Bearing Liabilities	2,410,103			2,229,963			180,140			8.1	%	Average Interest-Bearing Liabilities	2,545,435			2,213,642			331,793		15.0	%

Yield on Earning Assets ⁽¹⁾	Yield on Earning Assets ⁽¹⁾	3.58		%	3.77		%	(0.19)		%	(5.0)	%	Yield on Earning Assets(1)	3.18		%	3.85		%	(0.67)		(17.4)	%

Cost of Interest-Bearing Liabilities	Cost of Interest-Bearing Liabilities	0.70			0.96			(0.26)		%	(27.1)	%	Cost of Interest-Bearing Liabilities	0.37			1.01			(0.64)		(63.4)

Net Interest Spread	Net Interest Spread	2.88			2.81			0.07		%	2.5	%	Net Interest Spread	2.81			2.84			(0.03)		(1.1)

Net Interest Margin	Net Interest Margin	3.05			3.02			0.03		%	1.0	%	Net Interest Margin	2.90			3.07			(0.17)		(5.5)

⁽¹⁾ Includes Nonaccrual ~~Loans~~Loans.

Net interest income for the ~~six-month period ended June~~recently completed quarter increased by $2.6 million, or 11.6%, from the third quarter of 2019, due to a variety of factors including; balance sheet growth, lower market rates, and a more favorable funding mix, with higher deposit balances and lower wholesale borrowings. Total loans increased $30.5 million in the third quarter of 2020. At September 30, 2020, ~~increased by $5.0~~deposit balances reached $3.3 billion, up $650.3 million, or ~~11.7%~~24.9%, ~~over~~from the ~~six-month period ended June~~prior-year level. Deposit growth for the third quarter of 2020 was $196.1 million. Noninterest-bearing deposits represented 21.1% of total deposits at September 30, 2020, compared to 19.8% of total deposits on September 30, 2019. ~~For~~Net interest margin decreased 17 basis points in the ~~first six months~~third quarter of 2020 ~~net interest margin~~to 2.90%, from 3.07% during the third quarter of 2019. Average earning asset yields were 67 basis points lower as compared to the third quarter of 2019 due primarily to the increased ~~to 3.05% from 3.02% for~~cash balances and the ~~comparable period~~impact of ~~2019.~~participating in the Small Business Administration Paycheck Protection Program loans. The cost of interest-bearing liabilities ~~have~~ decreased ~~to 0.70%~~64 basis points from ~~0.96% for~~ the ~~comparable prior period due largely to the decrease in market rates in the current year. Arrow~~quarter ended September 30, 2019. The Company defines net interest margin as net interest income divided by average earning assets, annualized. Further detailed information is presented above under the section entitled "Average Consolidated Balance Sheets and Net Interest Income Analysis." The impact of recent interest rate changes on Arrow's deposit and loan portfolios are discussed above in this Report under the sections entitled "Deposit Trends" and "Loan Trends."

As discussed previously under the heading "Asset Quality" beginning on page ~~59,~~58, the provision for loan losses for the ~~first six months~~third quarter of 2020 was ~~$5.81~~$2.3 million, compared to a provision of ~~$0.93 million~~$518 thousand for the ~~2019 period.~~third quarter of 2019.

Noninterest Income

Summary of Noninterest Income

(Dollars in Thousands)

Six Months Ended
June 30, 2020 June 30, 2019 Change % Change
Income From Fiduciary Activities 4,348 4,359 $ (11) (0.3) %
Fees for Other Services to Customers 4,729 4,947 (218) (4.4)
Insurance Commissions 3,364 3,654 (290) (7.9)
Net (Loss) Gain on Securities (480) 76 (556) (731.6)
Net Gain on the Sale of Loans 760 244 516 211.5
Other Operating Income 2,137 503 1,634 324.9
Total Noninterest Income $ 14,858 $ 13,783 $ 1,075 7.8 %


	Three Months Ended
	September 30, 2020		September 30, 2019		Change		% Change
Income From Fiduciary Activities	$	2,265	$	2,212	$	53	2.4	%
Fees for Other Services to Customers	2,619		2,623		(4)		(0.2)	%
Insurance Commissions	1,713		1,936		(223)		(11.5)	%

Net (Loss) Gain on Securities Transactions	(72)		146		(218)		(149.3)	%
Net Gain on the Sale of Loans	1,433		257		1,176		457.6	%
Other Operating Income	739		517		222		42.9	%
Total Noninterest Income	$	8,697	$	7,691	$	1,006	13.1	%

Total noninterest income in the ~~first six months of 2020~~current quarter was ~~$14.9~~$8.7 million, an increase of ~~$1.1~~$1.0 million ~~or 7.8%,~~ from ~~total noninterest income~~the comparable quarter of ~~$13.8 million~~2019. Income from fiduciary activities for the ~~first six months~~third quarter of 2020 increased by 2.4% from the third quarter of 2019. Fees for other services to customers ~~the largest segment of noninterest income,~~ were ~~$4.7 million. Income from fiduciary activities for the first six months of 2020 was consistent with 2019. Insurance commissions declined 7.9% to $3.4~~$2.6 million for the ~~first six months~~third quarter of 2020. Insurance commissions decreased to $1.7 million for the third quarter of 2020 compared to ~~$3.7~~$1.9 million infor the ~~first six months~~third quarter of 2019, due primarily to ~~the increased competition~~a decline in the employee benefits ~~sectors~~sector of the business. Net loss on ~~securities were $480 thousand in the first six months~~security transactions of ~~2020 compared to a net gain of $76~~$72 thousand for the first ~~six months~~quarter of ~~2019. This~~2020 was the result ~~of a~~in the decrease in the fair value of equity securities. Net gain on the sale of loans in the ~~first six months~~third quarter of 2020 increased by ~~$516 thousand, or 211.5%~~$1.2 million from the ~~first six months~~third quarter of 2019. The change was a result of favorable market conditions leading to an increase in loan sale volume. See page 5251 for the discussion of loan sales. Other operating income ~~was $2.1 million, an increase of 324.9%~~increased $222 thousand from the ~~comparative six month period of 2019. The increase is~~comparable quarter in 2019, primarily the result of ~~$1.1 million of fees received as part of interest rate swap agreements in 2020 and a loss on~~ the disposal of fixed ~~assets that~~asset charges which occurred in the third quarter of 2019.

Noninterest Expense

Summary of Noninterest Expense

(Dollars in Thousands)


		Six Months Ended														Three Months Ended
		June 30, 2020			June 30, 2019			Change		% Change			September 30, 2020			September 30, 2019			Change		% Change
Salaries and Employee Benefits	Salaries and Employee Benefits	$	20,595		$	19,046		$	1,549	8.1	%	Salaries and Employee Benefits	$	10,408		10,015			$	393	3.9	%
Occupancy Expense of Premises, Net	Occupancy Expense of Premises, Net	2,794			2,699			95		3.5		Occupancy Expense of Premises, Net	1,427			1,324			103		7.8	%
Technology and Equipment Expense	Technology and Equipment Expense	6,579			6,384			195		3.1		Technology and Equipment Expense	3,228			3,305			(77)		(2.3)	%
FDIC and FICO Assessments	FDIC and FICO Assessments	461			424			37		8.7		FDIC and FICO Assessments	309			(480)			789		(164.4)	%
Amortization	Amortization	115			124			(9)		(7.3)		Amortization	56			61			(5)		(8.2)	%
Other Operating Expense	Other Operating Expense	4,455			4,883			(428)		(8.8)		Other Operating Expense	2,059			2,566			(507)		(19.8)	%
Total Noninterest Expense	Total Noninterest Expense	$	34,999		$	33,560		$	1,439	4.3		Total Noninterest Expense	$	17,487		$	16,791		$	696	4.1	%
Efficiency Ratio	Efficiency Ratio	54.72		%	58.37		%	(3.65)		(6.3)		Efficiency Ratio	51.34		%	55.41		%	(4.07)		(7.3)	%

Noninterest expense for the third quarter of 2020 was $17.5 million, an increase of $0.7 million, or 4.1%, from the third quarter of 2019. Salaries and benefit expenses increased $0.4 million, or 3.9%, from the comparable quarter in 2019. In the third quarter, both the Saratoga National Bank Latham branch and the Capital Region Business Development office opened which increased occupancy expenses for the quarter. FDIC Small Bank Assessment Credits were recorded in the third quarter of 2019.

The efficiency ratio continues to be solid at 51.34% for the third quarter of 2020 and 55.41% for the comparable 2019 quarter. The efficiency ratio (a ratio where lower is better), is a commonly used non-GAAP financial measure in the banking industry that purports to reflect an institution's operating efficiency. The Company calculates the efficiency ratio as the ratio of noninterest expense (excluding, under the Company's definition, intangible asset amortization) to (i) net interest income (on a tax-equivalent basis) plus (ii) noninterest income (excluding net securities gains or losses). See the discussion on this non-GAAP measure on page 42 of this Report under the heading "Use of Non-GAAP Financial Measures" and the related tabular information and notes on pages 43 through 46 of this Report. The efficiency ratio included by the Federal Reserve Board in its "Bank Holding Company Performance Reports" excludes net securities gains or losses from the denominator (as does the Company's calculation), but unlike the Company's ratio does not exclude intangible asset amortization from the numerator. The Company's efficiency ratios in recent periods have generally compared favorably to the ratios of the peer group as disclosed in the Federal Reserve Performance Reports (see page 41 for a discussion of the peer group). For the three month period ended June 30, 2020 (the most recent reporting period for which peer group information is available), the peer group's efficiency ratio was 60.15% compared to the Company's ratio of 53.06% (not adjusted for the definitional difference).

Income Taxes

Summary of Income Taxes

(Dollars in Thousands)


	Three Months Ended
	September 30, 2020			September 30, 2019			Change		% Change
Provision for Income Taxes	$	2,793		$	2,618		$	175	6.7	%
Effective Tax Rate	20.2		%	20.6		%	(0.4)		(1.9)	%

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2020 Compared With

Nine Months Ended September 30, 2019

Summary of Earnings Performance

(Dollars in Thousands, Except Per Share Amounts)


	Nine Months Ended
	September 30, 2020			September 30, 2019			Change			% Change
Net Income	$	28,332		$	27,735		$	597		2.2	%
Diluted Earnings Per Share	1.83			1.80			0.03			1.7
Return on Average Assets	1.11		%	1.24		%	(0.13)		%	(10.5)
Return on Average Equity	11.99		%	13.21		%	(1.22)		%	(9.2)

Net income was $28.3 million and diluted earnings per share (EPS) of $1.83 for the first nine months of 2020, compared to net income of $27.7 million and diluted EPS of $1.80 for the first nine months of 2019. Return on average assets (ROA) for the first nine months of 2020 was 1.11%, a decrease from 1.24% for the first nine months of 2019. In addition, return on average equity (ROE) decreased to 11.99% for the first nine months of 2020 from 13.21% for the first nine months of 2019.

The following narrative discusses the period-to-period changes in net interest income, noninterest income, noninterest expense and income taxes.

Net Interest Income

Summary of Net Interest Income

(Dollars in Thousands)


	Nine Months Ended
	September 30, 2020			September 30, 2019			Change			% Change
Interest and Dividend Income	$	83,524		$	81,392		$	2,132		2.6	%



Interest Expense	10,776			16,261			(5,485)			(33.7)	%
Net Interest Income	72,748			65,131			7,617			11.7	%

Average Earning Assets (1)	3,243,886			2,864,816			379,070			13.2	%
Average Interest-Bearing Liabilities	2,455,544			2,224,463			231,081			10.4	%

Yield on Earning Assets (1)	3.44		%	3.80		%	(0.36)		%	(9.5)	%

Cost of Interest-Bearing Liabilities	0.59			0.98			(0.39)		%	(39.8)	%

Net Interest Spread	2.85			2.82			0.03		%	1.1	%


Net Interest Margin	3.00			3.04			(0.04)		%	(1.3)	%

(1) Includes Nonaccrual Loans

Net interest income, for the nine month period ended September 30, 2020 increased by $7.6 million or 11.7%, over the nine month period ended September 30, 2019. For the first nine months of 2020, net interest margin decreased to 3.00% from 3.04% for the comparable period of 2019. The yield on earning assets decreased to 3.44% from 3.80% for the comparable prior period. The cost of interest-bearing liabilities decreased to 0.59% from 0.98% for the comparable prior period due largely to the balance sheet growth, lower market rates, and a more favorable funding mix, with higher deposit balances and lower wholesale borrowings in the current year. Arrow defines net interest margin as net interest income divided by average earning assets, annualized. Further detailed information is presented above under the section entitled "Average Consolidated Balance Sheets and Net Interest Income Analysis." The impact of recent interest rate changes on Arrow's deposit and loan portfolios are discussed above in this Report under the sections entitled "Deposit Trends" and "Loan Trends."

As discussed previously under the heading "Asset Quality" beginning on page 58, the provision for loan losses for the first nine months of 2020 was $8.1 million, compared to a provision of $1.4 million for the 2019 period.

Noninterest Income

Summary of Noninterest Income

(Dollars in Thousands)


	Nine Months Ended
	September 30, 2020		September 30, 2019		Change		% Change
Income From Fiduciary Activities	6,613		6,571		$	42	0.6	%
Fees for Other Services to Customers	7,348		7,570		(222)		(2.9)
Insurance Commissions	5,077		5,590		(513)		(9.2)

Net (Loss) Gain on Securities	(552)		222		(774)		(348.6)
Net Gain on the Sale of Loans	2,193		501		1,692		337.7
Other Operating Income	2,876		1,020		1,856		182.0
Total Noninterest Income	$	23,555	$	21,474	$	2,081	9.7	%

Total noninterest income in the first nine months of 2020 was $23.6 million, an increase of $2.1 million, or 9.7%, from total noninterest income of $21.5 million for the first nine months of 2019. Fees for other services to customers, the largest segment of noninterest income, were $7.3 million. Income from fiduciary activities for the first nine months of 2020 was consistent with 2019. Insurance commissions declined 9.2% to $5.1 million for the first nine months of 2020, compared to $5.6 million in the first nine months of 2019, due primarily to the increased competition in the employee benefits sectors of the business. Net loss on securities were $552 thousand in the first nine months of 2020 compared to a net gain of $222 thousand for the first nine months of 2019. This was the result of a decrease in the fair value of equity securities. Net gain on the sale of loans in the first nine months of 2020 increased by $1.7 million, or 337.7% from the first nine months of 2019. The change was a result of favorable market conditions leading to an increase in loan sale volume. See page 51 for the discussion of loan sales. Other operating income was $2.9 million, an increase of 182.0% from the comparative nine month period of 2019. The increase is primarily the result of the following: $857 thousand increase of fees received as part of interest rate swap agreements in 2020, loss on the disposal of fixed assets that occurred in 2019, gain on the sale of other real estate owned in 2020 and loss on the sale of other real estate owned in 2019.

Noninterest Expense

Summary of Noninterest Expense

(Dollars in Thousands)


	Nine Months Ended
	September 30, 2020			September 30, 2019			Change		% Change
Salaries and Employee Benefits	$	31,003		$	29,061		$	1,942	6.7	%
Occupancy Expense of Premises, Net	4,221			4,023			198		4.9
Technology and Equipment Expense	9,807			9,689			118		1.2
FDIC and FICO Assessments	770			(56)			826		(1,475.0)
Amortization	171			184			(13)		(7.1)
Other Operating Expense	6,514			7,450			(936)		(12.6)
Total Noninterest Expense	$	52,486		$	50,351		$	2,135	4.2
Efficiency Ratio	53.54		%	57.35		%	(3.81)		(6.6)

Noninterest expense for the first ~~six~~nine months of 2020 was ~~$35.0~~$52.5 million, an increase of ~~$1.4~~$2.1 million, or ~~4.3%~~4.2%, from the expense for the first ~~six~~nine months of 2019. Salaries and employee benefits expense increased ~~8.1%~~6.7% in the first ~~six~~nine months of 2020 over the 2019 ~~period, primarily driven by~~period. In the third quarter, both the Saratoga National Bank Latham branch and the Capital Region Business Development office opened which increased ~~benefit costs. Pursuant to ASU 2017-07 Compensation-Retirement Benefits, Arrow has reclassified~~occupancy expenses on the non-service cost components of retirement plans from salaries and benefits to other operating expenses. Occupancy expense of premises have increased $95.0 thousand, or 3.5%, for the first six months of 2020 in comparison to the first six months of 2019.year. Technology and Equipment Expense ~~increased by $0.2 million, or 3.1%,~~were flat as compared to the 2019 period. FDIC Small Bank Assessment Credits were recorded in the third quarter of 2019.

The Company's efficiency ratio was ~~54.71%~~53.54% for the first ~~six~~nine months of 2020 and ~~58.37%~~57.35% for the comparable 2019 period. This ratio (a ratio where lower is better), is a commonly used non-GAAP financial measure in the banking industry that purports to reflect operating efficiency. The Company calculates the efficiency ratio as the ratio of noninterest expense (excluding, under the Company's definition, intangible asset amortization) to (i) net interest income (on a tax-equivalent basis) plus (ii) noninterest income (excluding net securities gains or losses). See the discussion on this non-GAAP measure on page 4342 of this Report under the heading "Use of Non-GAAP Financial Measures" and the related tabular information and notes on pages 4443 through 4746 of this ~~Report~~Report.

Income Taxes

Summary of Income Taxes

(Dollars in Thousands)


		Six Months Ended														Nine Months Ended
		June 30, 2020			June 30, 2019			Change		% Change			September 30, 2020			September 30, 2019			Change		% Change
Provision for Income Taxes	Provision for Income Taxes	$	4,609		$	4,456		$	153	3.4	%	Provision for Income Taxes	$	7,402		$	7,074		$	328	4.6	%
Effective Tax Rate	Effective Tax Rate	21.1		%	20.1		%	1.0		5.0		Effective Tax Rate	20.7		%	20.3		%	0.4		2.0

The increase in the effective tax rate in the first ~~six~~nine months of 2020 over the first nine months of 2019 was ~~primary~~primarily due to the reduction of tax exempt investments held and the related investment income combined with the reduced tax benefit related to stock based compensation.

6970

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to credit risk in the loan portfolio and liquidity risk, discussed earlier, the Company's business activities also generate market risk. Market risk is the possibility that changes in future market rates (interest rates) or prices (market value of financial instruments) will make the Company's position (i.e., assets and operations) less valuable. The Company's primary market risk is interest rate volatility. The ongoing monitoring and management of interest rate risk is an important component of the asset/liability management process, which is governed by policies that are reviewed and approved annually by the Board of Directors. The Board of Directors delegates responsibility for carrying out asset/liability oversight and control to management's Asset/Liability Committee ("ALCO"). In this capacity ALCO develops guidelines and strategies impacting the asset/liability profile based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends.

Changes in market interest rates, whether increases or decreases, can trigger repricing and changes in the pace of payments for both assets and liabilities (prepayment risk). This may individually or in combination affect net interest income, net interest margin, and ultimately net income, either positively or negatively. ALCO utilizes the results of a detailed and dynamic simulation model to quantify this interest rate risk by projecting net interest income in various interest rate scenarios.

The Company's standard simulation model applies a parallel shift in interest rates, ramped over a 12-month period, to capture the impact of changing interest rates on net interest income. The results are compared to ALCO policy limits which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth and a 200 basis point upward and a 100 basis point downward shift in interest rates. Additional tools to monitor potential longer-term interest rate risk, including periodic stress testing involving hypothetical sudden and significant interest rate spikes, are also evaluated.

The following table summarizes the percentage change in net interest income as compared to the base scenario, which assumes no change in market interest rates as generated from the standard simulation model. The results are presented for each of the first two years of the simulation period for the 200 basis point increase in interest rate scenario and the 100 basis point decrease in interest rate scenario.

As of ~~June~~September 30, 2020:


		Change in Interest Rate				Change in Interest Rate
		+ 200 basis points	- 100 basis points		+ 200 basis points	- 100 basis points
Calculated change in Net Interest Income - Year 1	Calculated change in Net Interest Income - Year 1	(1.39)%	(0.24)%	Calculated change in Net Interest Income - Year 1	(0.46)%	(0.87)%
Calculated change in Net Interest Income - Year 2	Calculated change in Net Interest Income - Year 2	(0.28)%	(9.24)%	Calculated change in Net Interest Income - Year 2	0.57%	(12.07)%

Historically, there has existed an inverse relationship between changes in prevailing rates and the Company's net interest income, suggesting that liabilities and sources of funds generally reprice more quickly than earning assets (near-term liability sensitivity). However, when net interest income is simulated over a longer time frame, this exposure is limited, and actually reverses, as asset yields continue to reprice while the cost of funding reaches assumed ceilings or floors (long-term asset sensitivity).

The hypothetical estimates underlying the sensitivity analysis are based upon numerous assumptions, including: the nature and timing of changes in interest rates including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurance as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate changes on caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, unanticipated shifts in the yield curve and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates. The COVID-19 pandemic may impact markets, rates, behavior and other estimates used in the above scenarios.

Item 4.

CONTROLS AND PROCEDURES

Senior management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of Arrow's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of ~~June~~September 30, 2020. Based upon that evaluation, senior management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were effective. Further, there were no changes made in the Company's internal control over financial reporting, including but not limited to changes resulting from the COVID-19 pandemic, that occurred during the most recent fiscal quarter that had materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

7071

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

The Company, including its subsidiary banks, is not currently the subject of any material pending legal proceedings, other than ordinary routine litigation occurring in the normal course of their business. On an ongoing basis, the Company, including its subsidiary banks, is often the subject of, or a party to, various legal claims by other parties against the Company, by the Company against other parties, or involving the Company, which arise in the normal course of business. The various pending legal claims against the Company will not, in the opinion of management based upon consultation with counsel, result in any material liability.

Item 1.A.

Risk Factors

The Risk Factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by the risk factor included in Item 8.01 of the Company's Current Report on Form 8-K filed April 24, 2020, continue to represent the most significant risks to the Company's future results of operations and financial conditions, without further modification or amendment.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

The following table presents information about purchases by Arrow during the three months ended ~~June~~September 30, 2020 of common stock (our only class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934):

Second Quarter
2020
Calendar Month
(A)
Total Number of
Shares Purchased ¹
(B)
Average Price
Paid Per Share ¹
(C)
Total Number of
Shares Purchased as
Part of Publicly
Announced
Plans or Programs ²
(D)
Maximum
Approximate Dollar
Value of Shares that
May Yet be
Purchased Under the
Plans or Programs ²
April 2,850 $ 26.88 — $ 3,493,345
May 901 26.74 — 3,493,345
June 17,888 28.27 — 3,493,345
Total 21,639 28.02 —


Third Quarter 2020 Calendar Month	(A) Total Number of Shares Purchased 1	(B) Average Price Paid Per Share 1		(C) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 2	(D) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs 2
July	971	$	27.48	—	$	3,493,345
August	1,597	28.00		—	3,493,345
September	19,811	26.94		—	3,493,345
Total	22,379	27.04		—

¹ The total number of shares purchased by the Company and the average price paid per share listed in columns (A) and (B) consist of (i) any shares purchased in such periods in open market or private transactions under the Arrow Financial Corporation Automatic Dividend Reinvestment Plan (the "DRIP") by the administrator of the DRIP, (ii) shares surrendered or deemed surrendered to Arrow in such periods by holders of options to acquire Arrow common stock received by them under Arrow's long-term incentive plans in connection with their stock-for-stock exercise of such options and (iii) shares purchased under the publicly-announced 2020 Repurchase Program. In the months indicated, the listed number of shares purchased included the following number of shares purchased by Arrow through such methods: ~~April~~July - DRIP purchases ~~(2,850~~(971 shares); ~~May~~August - DRIP purchases ~~(901~~(1,597 shares); and ~~June~~September - DRIP purchases ~~(17,888 shares.)~~(17,508 shares), stock-for-stock option exercises (2,303 shares).

² Includes only those shares acquired by Arrow pursuant to its publicly-announced stock repurchase programs. Our only publicly-announced stock repurchase program in effect for the ~~second~~third quarter of 2020 was the 2020 Repurchase Program approved by the Board of Directors and announced in October 2019, under which the Board authorized management, in its discretion, to repurchase from time to time during calendar year 2020, in the open market or in privately negotiated transactions, up to $5 million of Arrow common stock subject to certain exceptions.

Item 3.

Defaults Upon Senior Securities - None

Item 4.

Mine Safety Disclosures - None

7172

Item 5.

Other Information - None

Item 6.

Exhibits


Exhibit Number			Exhibit
3.(i)			Certificate of Incorporation of the Registrant as Amended through June 3, 2019, incorporated by reference from the Registrant's Current Report on Form 8-K filed June 5, 2019, Exhibit 3.1
3.(ii)			By-laws of the Registrant, as amended, incorporated herein by reference from the Registrant’s Current Report on Form 8-K filed on November 24, 2009, Exhibit 3.(ii)
15			Awareness Letter
31.1			Certification of Chief Executive Officer under SEC Rule 13a-14(a)/15d-14(a)
31.2			Certification of Chief Financial Officer under SEC Rule 13a-14(a)/15d-14(a)
32			Certification of Chief Executive Officer under 18 U.S.C. Section 1350 and Certification of Chief Financial Officer under 18 U.S.C. Section 1350
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Labels Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

7273

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

ARROW FINANCIAL CORPORATION

Registrant



~~August 6,~~November 5, 2020			/s/Thomas J. Murphy
Date			Thomas J. Murphy
			President and Chief Executive Officer

~~August 6,~~November 5, 2020			/s/Edward J. Campanella
Date			Edward J. Campanella
			Senior Vice President, Treasurer and
			Chief Financial Officer
			(Principal Financial Officer and
			Principal Accounting Officer)

7374


			Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements			3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			7071
Item 4. Controls and Procedures			7071


PART II - OTHER INFORMATION
Item 1. Legal Proceedings			7172
Item 1.A. Risk Factors			7172
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			7172
Item 3. Defaults Upon Senior Securities			7172
Item 4. Mine Safety Disclosures			7172
Item 5. Other Information			7273
Item 6. Exhibits			7273

SIGNATURES			7374


	Six-Month Period Ended June 30, 2019
	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	—		—		17,668		—		—		—		17,668
Other Comprehensive Loss	—		—		—		—		4,163		—		4,163



Cash Dividends Paid, $.505 per Share ¹	—		—		(7,528)		—		—		—		(7,528)
Stock Options Exercised, Net (62,712 Shares)	—		638		—		—		—		687		1,325
Shares Issued Under the Directors’ Stock Plan (3,997 Shares)	—		86		—		—		—		44		130
Shares Issued Under the Employee Stock Purchase Plan (7,948 Shares)	—		163		—		—		—		87		250
Shares Issued for Dividend Reinvestment Plans (26,698 Shares)	—		615		—		—		—		289		904
Stock-Based Compensation Expense	—		194		—		—		—		—		194

Purchase of Treasury Stock (60,560 Shares)	—		—		—		—		—		(2,041)		(2,041)


Balance at June 30, 2019	$	19,035	$	316,229	$	39,397	$	(100)	$	(9,647)	$	(80,265)	$	284,649


	Three-Month Period Ended June 30, 2019
	Common Stock		Additional Paid-In Capital		Retained Earnings		Unallo-cated ESOP Shares		Accumu-lated Other Com- prehensive Loss		Treasury Stock		Total
Balance at March 31, 2019	$	19,035	$	315,262	$	34,231	$	(100)	$	(11,567)	$	(80,252)	$	276,609
Net Income	—		—		8,934		—		—		—		8,934
Other Comprehensive Loss	—		—		—		—		1,920		—		1,920



Cash Dividends Paid, $.252 per Share ¹	—		—		(3,768)		—		—		—		(3,768)
Stock Options Exercised, Net (36,577 Shares)	—		389		—		—		—		401		790
Shares Issued Under the Directors’ Stock Plan (3,997 Shares)	—		86		—		—		—		44		130
Shares Issued Under the Employee Stock Purchase Plan (4,239 Shares)	—		87		—		—		—		46		133
Shares Issued for Dividend Reinvestment Plans (13,566 Shares)	—		306		—		—		—		145		451
Stock-Based Compensation Expense	—		99		—		—		—		—		99

Purchase of Treasury Stock (19,708 Shares)	—		—		—		—		—		(649)		(649)


Balance at June 30, 2019	$	19,035	$	316,229	$	39,397	$	(100)	$	(9,647)	$	(80,265)	$	284,649


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020		2019		2020		2019
Amount expensed	$	75	$	79	$	151	$	158


Second Quarter 2020 Calendar Month	(A) Total Number of Shares Purchased ¹	(B) Average Price Paid Per Share ¹		(C) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ²	(D) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs ²
April	2,850	$	26.88	—	$	3,493,345
May	901	26.74		—	3,493,345
June	17,888	28.27		—	3,493,345
Total	21,639	28.02		—