Arrow Financial (NASDAQ: AROW) outlines Adirondack Bancorp merger and risk profile
Filing Impact
Filing Sentiment
Form Type
10-K
Rhea-AI Filing Summary
Arrow Financial Corporation outlines its community banking business, risk profile and governance in an Annual Report for the year ended December 31, 2025. Through Arrow Bank National Association, it reports diversified lending, wealth management and insurance operations across upstate New York and nearby states.
The report highlights Arrow Bank’s scale, including 578 full-time equivalent employees and 38 branches, and confirms it exceeds all regulatory capital minimums and qualifies as well-capitalized. Arrow also discusses extensive regulatory oversight, cybersecurity and fraud controls, human capital initiatives and community investments exceeding $4 million since 2019.
A key strategic development is a planned merger with Adirondack Bancorp, Inc., under which each Adirondack share will convert into 1.8610 Arrow shares plus $18.72 in cash, for an implied value of approximately $89.1 million, subject to regulatory and shareholder approvals and customary conditions.
Positive
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Insights
Arrow pairs strong capital and scale with a sizable Adirondack merger and detailed risk disclosures.
Arrow describes a $4.4 billion–scale community banking platform centered on Arrow Bank National Association, with commercial, mortgage, consumer and indirect auto lending, plus wealth management and insurance. It states that both Arrow and Arrow Bank exceed all minimum regulatory capital ratios and that Arrow Bank is classified as well-capitalized.
The filing details a stock-and-cash merger with Adirondack Bancorp, valuing the target at about
Arrow also devotes substantial space to risk factors: inflation and interest-rate shifts, competitive pressure from banks and non-banks, technology and AI-related risks, cybersecurity, fraud, commercial and indirect consumer credit exposure, liquidity, and an intensive regulatory environment. Execution of the Adirondack integration, including regulatory, shareholder and appraisal-rights conditions, is identified as a specific risk, so actual benefits will depend on successful closing and integration.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31 , 2025
of The Securities Exchange Act of 1934
Commission File Number: 0-12507
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
| Registrant’s telephone number, including area code: | ||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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 | ☐ | ☒ | |||||||||
| 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 standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||||||||
| Indicate by a check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7562(b)) by the registered public accounting firm that prepared or issued its audit report. | |||||||||||
| If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. | |||||||||||
| Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). | ☐ | ||||||||||
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | |||||||||||
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $426,347,636
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Class | Outstanding as of February 27, 2026 | |||||||
| Common Stock, par value $1.00 per share | ||||||||
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for Annual Meeting of Shareholders to be held June 3, 2026 are incorporated by reference into Part III of this Form 10-K.
Auditor Name: Crowe LLP Auditor Location: Indianapolis, Indiana Auditor Firm ID: 173
ARROW FINANCIAL CORPORATION
FORM 10-K
TABLE OF CONTENTS
| Page | |||||
| Note on Terminology | 3 | ||||
| The Company and Its Subsidiaries | 3 | ||||
| Forward-Looking Statements | 3 | ||||
| Use of Non-GAAP Financial Measures | 4 | ||||
| PART I | |||||
Item 1. Business | 7 | ||||
Item 1A. Risk Factors | 14 | ||||
Item 1B. Unresolved Staff Comments | 19 | ||||
Item 1C.Cybersecurity | 19 | ||||
Item 2. Properties | 20 | ||||
Item 3. Legal Proceedings | 20 | ||||
Item 4. Mine Safety Disclosures | 20 | ||||
| PART II | |||||
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 21 | ||||
Item 6. Reserved | 23 | ||||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | 24 | ||||
Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 43 | ||||
Item 8. Financial Statements and Supplementary Data | 44 | ||||
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 106 | ||||
Item 9A. Controls and Procedures | 106 | ||||
Item 9B. Other Information | 106 | ||||
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 106 | ||||
| PART III | |||||
Item 10. Directors, Executive Officers and Corporate Governance | 107 | ||||
Item 11. Executive Compensation | 107 | ||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 107 | ||||
Item 13. Certain Relationships and Related Transactions, and Director Independence | 107 | ||||
Item 14. Principal Accounting Fees and Services | 107 | ||||
| PART IV | |||||
Item 15. Exhibits, Financial Statement Schedules | 107 | ||||
Item 16. Form 10-K Summary | 107 | ||||
Exhibit Index | 108 | ||||
Signatures | 110 | ||||
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NOTE ON TERMINOLOGY
In this Annual Report on Form 10-K, the terms “Arrow,” “the registrant,” “the Company,” “we,” “us,” and “our,” generally refer to Arrow Financial Corporation and subsidiaries as a group, except where the context indicates otherwise. At certain points in this Report, our performance is compared with that of our “peer group” of financial institutions. Unless otherwise specifically stated, this peer group is comprised of the group of 198 domestic (U.S.-based) bank holding companies with $3 to $10 billion in total consolidated assets as identified in the Federal Reserve Board’s most recent “Bank Holding Company Performance Report” (which is the Performance Report for the most recently available period ending September 30, 2025), and peer group data has been derived from such Report. This peer group is not, however, identical to either of the peer groups comprising the two bank indices included in the stock performance graph on pages 21 and 22 of this Report.
FORWARD-LOOKING STATEMENTS
The information contained in this Annual Report on Form 10-K contains statements that are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Words such as “expects,” “believes,” “anticipates,” “estimates” and variations of such words and similar expressions often identify such forward-looking statements. Some of these statements 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 our general perceptions of market conditions and trends in activity, both locally and nationally, 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, 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:
•Arrow remains subject to inflationary risk which could adversely impact our business and our customers.
•Market conditions could present significant challenges to the U.S. commercial banking industry and its core business of making and servicing loans. Any substantial downturn in the regional markets in which Arrow operates or in the U.S. economy generally could adversely affect Arrow's ability to maintain and/or grow earnings.
•Any future economic or financial downturn, including any significant correction in the equity markets, could adversely affect Arrow's volume of income attributable to, and demand for, fee-based services of Arrow Bank, including the Company's fiduciary business, which could negatively impact Arrow's financial condition and results of operations.
•Arrow operates in a highly competitive industry and market areas that could negatively affect growth and profitability.
•The financial services industry is faced with technological advances and changes on a continuing basis, and failure to adapt to these advances and changes could have a material adverse impact on Arrow's business.
•Problems encountered by other financial institutions could adversely affect Arrow.
•Geopolitical and other external events, such as severe weather, natural disasters, public health emergencies and pandemics, acts of war or terrorism, and other external events could impact Arrow Bank’s ability to conduct business.
•The market price of Arrow’s common stock may decline as a result of the Merger.
•Combining Arrow and Adirondack may be more difficult, costly or time-consuming than expected, and Arrow may fail to realize the anticipated benefits of the Merger.
•The Agreement may be terminated in accordance with its terms and the Merger may not be completed.
•Arrow faces continuing and growing security risks to its information base including the information maintained relating to customers, and any breaches in the security systems implemented to protect this information could have a material negative effect on Arrow's business operations and financial condition.
•Arrow Bank is subject to risks and losses resulting from fraudulent activities that could adversely impact its financial performance and results of operations.
•Business could suffer if Arrow loses key personnel unexpectedly.
•Arrow is subject to interest rate risk, which could adversely affect profitability.
•Arrow Bank's allowance for possible credit losses may be insufficient, and an increase in the allowance would reduce earnings.
•The increasing complexity of Arrow's operations presents varied risks that could affect earnings and financial condition.
•Arrow’s financial condition and the results of its operations could be negatively impacted by changes in its liquidity position.
•Arrow could recognize losses on securities held in its securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.
•Arrow Bank’s commercial and commercial real estate loans increase its exposure to credit risks.
•Arrow Bank’s indirect and consumer lending involves risk elements in addition to normal credit risk.
•Arrow may not pay or may reduce the dividends paid on shares of its common stock, and its ability to pay dividends is subject to certain restrictions.
•Arrow operates in a highly regulated industry and face risks associated with noncompliance. Federal banking statutes and regulations could change in the future, which may adversely affect Arrow.
•Capital and liquidity standards require banks and bank holding companies to maintain more and higher quality capital and greater liquidity than has historically been the case.
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•Non-compliance with the Patriot Act, Bank Secrecy Act, or other anti-money laundering laws and regulations could result in fines or sanctions and restrictions on conducting acquisitions or establishing new branches.
•Arrow, through Arrow Bank, is subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.
The Company is under no duty to update any of the forward-looking statements after the date of this Annual Report on Form 10-K 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.
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THE COMPANY AND ITS SUBSIDIARIES
Arrow was incorporated on March 21, 1983 and is registered as a bank holding company within the meaning of the Bank Holding Company Act of 1956. Through Arrow Bank, Arrow indirectly owns various non-bank subsidiaries, including an insurance agency, a registered investment adviser and a REIT.
Arrow’s business consists primarily of the ownership, supervision and control of Arrow Bank, including the bank's subsidiaries. Arrow provides various advisory and administrative services and coordinates the general policies and operation of Arrow Bank. Arrow Bank engages in a wide range of lending activities, including commercial and industrial lending primarily to small and mid-sized companies; mortgage lending for residential and commercial properties; and consumer installment and home equity financing. Arrow Bank also provides retirement planning, trust and estate administration services for individuals, and pension, profit-sharing and employee benefit plan administration for corporations and, through its insurance subsidiary, sells property and casualty insurance and sells and services group health care policies and life insurance.
Effective December 31, 2024, the Company unified its former subsidiary banks, Glens Falls National Bank and Trust Company ("GFNB") and Saratoga National Bank and Trust Company ("SNB"), and became a single bank holding company headquartered in Glens Falls, New York. The post-unification banking subsidiary is Arrow Bank National Association® ("Arrow Bank™") whose main office is located in Glens Falls, New York. Active subsidiaries of Arrow Bank 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 fund) and Arrow Properties, Inc. (a real estate investment trust, or REIT). Arrow also owns directly two subsidiary business trusts, organized in 2003 and 2004 to issue trust preferred securities (TRUPs), which are still outstanding.
Adirondack Bancorp, Inc. Merger: On February 25, 2026, Arrow and Adirondack Bancorp, Inc. (“Adirondack”), the parent company of Adirondack Bank, jointly announced that both companies’ boards of directors have unanimously approved an agreement and plan of merger (the “Agreement”) pursuant to which Adirondack will merge with and into Arrow Merger Sub, Inc. ("Merger Sub"), a Maryland Corporation and wholly owned subsidiary of Arrow (the "Merger").
Adirondack Bank is a state-chartered financial institution headquartered in Utica, New York. Adirondack Bank operates 19 branch locations spanning Oneida, Herkimer, Franklin, Essex and Clinton counties, and a loan production office in Onondaga County. In Adirondack's December 31, 2025 unaudited Consolidated Statement of Financial Condition, Adirondack reported total assets of $942 million, total deposits of $848 million, and total loans of $624 million.
Upon the terms and subject to the conditions of the Agreement, Adirondack shareholders will receive a combination of stock and cash upon closing of the Merger with Arrow. Each outstanding share of Adirondack common stock will be converted into 1.8610 shares of Arrow common stock plus $18.72 in cash. Based on the closing stock price of AROW common stock of $34.43 as of February 25, 2026, the aggregate implied transaction value was approximately $89.1 million.
Closing of the transaction is expected late in the second quarter or early in the third quarter of 2026 following receipt of approvals from regulatory authorities, the approval of Adirondack shareholders, and the satisfaction of other customary closing conditions.
USE OF NON-GAAP FINANCIAL MEASURES
The Securities and Exchange Commission ("SEC") has adopted Regulation G, which applies to all public disclosures, including earnings releases, made by registered companies that contain “non-GAAP financial measures.” "GAAP" refers to 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. A reconciliation of non-GAAP financial measures to the closest comparable GAAP financial measures is included on page 25 of this Annual Report on Form 10-K.
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. 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.
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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, 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 not be included therein 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 ignored 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.
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, we 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 additionally provide certain comparative disclosures that adjust these GAAP financial measures, typically by removing therefrom the impact of certain transactions or other material items of income or expense that are unusual or unlikely to be repeated. The Company does so only if it believes that inclusion of the resulting non-GAAP financial measures may improve the average investor's understanding of Arrow's 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 the results of operations with respect to the Company's 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 Arrow's 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. Arrow's non-GAAP financial measures may differ from similar measures presented by other companies.
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PART I
Item 1. Business
A. GENERAL
Arrow was incorporated on March 21, 1983 and is registered as a bank holding company within the meaning of the Bank Holding Company Act of 1956. As of December 31, 2025 the Company had one wholly-owned banking subsidiary, Arrow Bank National Association. Through Arrow Bank, Arrow indirectly owns various non-bank subsidiaries, including an insurance agency, a registered investment adviser and a REIT. See "The Company and Its Subsidiaries," above.
Arrow Bank (dollars in thousands and data is as of December 31, 2025) | |||||
| Total Assets at Year-End | $ | 4,421,212 | |||
| Employees (full-time equivalent) | 578 | ||||
| Bank Branches | 38 | ||||
| Insurance Offices | 9 | ||||
| Main Office | 250 Glen Street Glens Falls, NY | ||||
Arrow’s business consists primarily of the ownership, supervision and control of Arrow Bank, including the bank's subsidiaries. Arrow provides various advisory and administrative services and coordinates the general policies and operation of Arrow Bank. There were 578 full-time equivalent employees, including 40 employees within Arrow's insurance agency subsidiary, at December 31, 2025. See the discussion of our human capital resources in Section G ("HUMAN CAPITAL") of this Item 1.
Arrow offers a broad range of commercial and consumer banking and financial products. The deposit base consists of deposits derived principally from the communities served. The Company targets lending activities to consumers and small- and mid-sized companies in Arrow's regional geographic area. In addition, through an indirect lending program Arrow sources consumer loans from an extensive network of automobile dealers that operate throughout New York and Vermont. Through its trust operations, Arrow Bank provides retirement planning, trust and estate administration services for individuals, and pension, profit-sharing and employee benefit plan administration for corporations.
B. LENDING ACTIVITIES
Arrow Bank engages in a wide range of lending activities, including commercial and industrial lending primarily to small and mid-sized companies; mortgage lending for residential and commercial properties; and consumer installment and home equity financing. An active indirect lending program is maintained through Arrow Bank's sponsorship of automobile dealer programs under which consumer auto loans, primarily from dealers that meet pre-established specifications are sourced. From time to time, a portion of Arrow Bank's residential real estate loan originations are sold into the secondary market, primarily to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and other governmental agencies. Normally, the Company retains the servicing rights on mortgage loans originated and sold into the secondary markets, subject to periodic determinations on the continuing profitability of such activity. Arrow Bank does not engage in subprime mortgage lending as a business line and does not extend or purchase so-called "Alt A," "negative amortization," "option ARMs" or "negative equity" mortgage loans.
Arrow Bank lends primarily to borrowers within the normal retail service area in upstate New York, with the exception of the indirect consumer lending line of business, where Arrow Bank makes loans through an extensive network of automobile dealers that operate in a larger area of New York and Vermont. The loan portfolio does not include any foreign loans or any other significant risk concentrations. From time to time, Arrow Bank buys and offers participations in individual commercial loans, primarily in upstate New York. The total dollar amount of such participations has fluctuated, but generally represents less than 20% of commercial loans outstanding. The majority of the portfolio is collateralized, and most commercial loans are further supported by personal guarantees.
Generally, Arrow continues to implement lending strategies and policies that are intended to protect the quality of the loan portfolio, including strong underwriting and collateral control procedures and credit review systems. Loans are placed on nonaccrual status either due to the delinquency status of principal and/or interest or a judgment by management that the full repayment of principal and interest is unlikely. Home equity lines of credit, secured by real property, are systematically placed on nonaccrual status when 120 days past due, and residential real estate loans are placed on nonaccrual status when 150 days past due. Commercial and commercial real estate loans are evaluated on a loan-by-loan basis and are placed on nonaccrual status when 90 days past due if the full collection of principal and interest is uncertain (See Part II, Item 7.C.II.c. "Risk Elements"). Subsequent cash payments on loans classified as nonaccrual may be applied entirely to principal, although income in some cases may be recognized on a cash basis.
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C. SUPERVISION AND REGULATION
The following generally describes the laws and regulations to which Arrow is subject. Bank holding companies, banks and their affiliates are extensively regulated under both federal and state law. To the extent that the following information summarizes statutes or regulations, it is qualified in its entirety by reference to the particular provisions of the various statutes and regulations. Any change in applicable law or regulation may have a material effect on business operations, customers, prospects and investors.
Bank Regulatory Authorities with Jurisdiction over Arrow and Arrow Bank
Arrow is a registered bank holding company within the meaning of the Bank Holding Company Act of 1956 ("BHC Act") and as such is subject to regulation by the Board of Governors of the Federal Reserve System ("FRB"). As a "bank holding company" under New York State law, Arrow is also subject to regulation by the New York State Department of Financial Services. Arrow Bank is a national bank and is subject to supervision and examination by the Office of the Comptroller of the Currency ("OCC"). Arrow Bank is a member of the Federal Reserve System and the deposits of Arrow Bank are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"). The BHC Act generally prohibits Arrow from engaging, directly or indirectly, in activities other than banking, activities closely related to banking, and certain other financial activities. Under the BHC Act, a bank holding company generally must obtain FRB approval before acquiring, directly or indirectly, voting shares of another bank or bank holding company, if after the acquisition the acquirer would own 5 percent or more of a class of the voting shares of that other bank or bank holding company. Bank holding companies are able to acquire banks or other bank holding companies located in all 50 states, subject to certain limitations. Bank holdings companies that meet certain qualifications may choose to apply to the FRB for designation as “financial holding companies.” Upon receipt of such designation, a financial holding company may engage in a broader array of activities, such as insurance underwriting, securities underwriting and merchant banking. Arrow has not attempted to become, and has not been designated as, a financial holding company.
The FRB and the OCC have broad regulatory, examination and enforcement authority. The FRB and the OCC conduct regular examinations of the entities they regulate. In addition, banking organizations are subject to requirements for periodic reporting to the regulatory authorities. The FRB and OCC have the authority to implement various remedies if they determine that the financial condition, capital, asset quality, management, earnings, liquidity or other aspects of a bank holding company or bank's operations are unsatisfactory or if they determine the banking organization is violating or has violated any law or regulation, respectively. The authority of the federal bank regulators over banking organizations includes, but is not limited to, prohibiting unsafe or unsound practices; requiring affirmative action to correct a violation or unsafe or unsound practice; issuing cease-and-desist orders; requiring the organization to increase capital; requiring the organization to sell subsidiaries or other assets; restricting dividends, distributions and repurchases of the organization's stock; restricting the growth of the organization; assessing civil money penalties; removing officers and directors; and terminating deposit insurance. The FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices for certain other reasons.
Regulatory Supervision of Other Arrow Subsidiaries
The insurance agency subsidiary of Arrow Bank is subject to the licensing and other provisions of New York State Insurance Law and is regulated by the New York State Department of Financial Services. Arrow's investment adviser subsidiary is subject to the licensing and other provisions of the federal Investment Advisers Act of 1940 and is regulated by the SEC.
Regulation of Transactions between Banks and their Affiliates
Transactions between banks and their "affiliates" are regulated by Sections 23A and 23B of the Federal Reserve Act (FRA), and its implementing regulation, Regulation W. The term “affiliate” generally includes any company that controls or is under common control with a bank. Therefore, under Section 23A and Regulation W, Arrow and its investment adviser subsidiary are affiliates of Arrow Bank.
Section 23A of the Federal Reserve Act and Regulation W limit the aggregate outstanding amount of any bank’s loans and other “covered transactions” with any particular affiliate to no more than 10% of the institution’s capital stock and surplus, and limits the aggregate outstanding amount of any bank’s covered transactions with all of its affiliates to no more than 20% of its capital stock and surplus. “Covered transactions” are defined by law and regulation to include a loan or extension of credit to an affiliate, as well as a purchase of securities issued by an affiliate, a purchase of assets from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. Section 23A of the Federal Reserve Act and Regulation W also generally requires that bank’s loans to its affiliates be, at a minimum, 100% secured. Section 23B of the Federal Reserve Act and Regulation W generally require that a bank’s transactions with its affiliates, including but not limited to “covered transactions,” be on terms and under circumstances that are substantially the same or at least as favorable to the Bank, as those prevailing for comparable transactions with or involving non-affiliates.
Regulatory Capital Standards
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.
The capital requirements applicable to Arrow Bank consist of two basic types of capital measures, a leverage ratio and a set of risk-based capital measures.
Leverage Ratio. The applicable capital requirements require a leverage ratio of 4.0%. The leverage ratio is defined as the ratio of the institution's "Tier 1" capital to total tangible assets.
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Risk-Based Capital Measures. Current risk-based capital measures assign various risk weightings to all of the institution's assets, by asset type, and to certain off balance sheet items, and then establish minimum levels of capital to the aggregate dollar amount of such risk-weighted assets. Under the risk-based capital requirements, there are eight major risk-weighted categories of assets (although there are several additional super-weighted categories for high-risk assets that are generally not held by community banking organizations like Arrow Bank). The capital requirements include a measure called the "common equity tier 1 capital ratio" (CET1). For this ratio, only common equity (i.e., common stock plus surplus plus retained earnings) qualifies as capital (i.e., CET1). Preferred stock and trust preferred securities, which qualify as Tier 1 capital, are not included in CET1 capital. Under these rules, CET1 capital also includes most elements of accumulated other comprehensive income (AOCI), including unrealized securities gains and losses, as part of both total regulatory capital (numerator) and total assets (denominator). However, smaller banking organizations like Arrow Bank were given the opportunity to make a one-time irrevocable election to include or not to include certain elements of AOCI, most notably unrealized securities gains or losses. Arrow Bank made such an election, and therefore does not include unrealized securities gains and losses in calculating the CET1 ratio under the capital requirements. The minimum CET1 ratio under these requirements is 4.50%.
The capital requirements require a minimum ratio for Tier 1 risk-based capital to be 6.0%, and the minimum level for total risk-based capital under the capital requirements is 8.0%.
The capital requirements also incorporated a so-called "capital conservation buffer" (set at 2.5%), which must be added to each of the minimum required risk-based capital ratios (i.e., the minimum CET1 ratio, the minimum Tier 1 risk-based capital ratio and the minimum total risk-based capital ratio). When, during economic downturns, an institution's capital begins to erode, the first deductions from a regulatory perspective would be taken against the capital conservation buffer. To the extent that such deductions should erode the buffer below the required level, the institution will not necessarily be required to replace the buffer deficit immediately, but will face restrictions on paying dividends and other negative consequences until the buffer is fully replenished.
Also under the applicable capital requirements, including those imposed through Dodd-Frank, TRUPs issued by small- to medium-sized banking organizations (such as Arrow Bank) that were outstanding on the Dodd-Frank grandfathering date for TRUPS (May 19, 2010) will continue to qualify as tier 1 capital, up to a limit of 25% of tier 1 capital, until the TRUPs mature or are redeemed, subject to certain limitations. See the discussion of grandfathered TRUPs in Section E ("CAPITAL RESOURCES AND DIVIDENDS") of Item 7.
The following is a summary of the definitions of capital under the various risk-based measures in the applicable capital requirements:
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 not include AOCI unless the organization has exercised its irrevocable option to exclude AOCI in capital. Arrow Bank has exercised its irrevocable option to exclude AOCI from its equity capital. Mortgage-servicing assets, deferred tax assets, and investments in financial institutions are limited to 15% of CET1 in the aggregate and 10% 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 Capital Rules applicable to Arrow and Arrow Bank:
| Year, as of January 1 | 2025 | ||||
| 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 | % | |||
At December 31, 2025, Arrow and Arrow Bank exceeded, by a substantial amount, each of the applicable minimum capital ratios established under the applicable capital requirements, 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, and including in the case of each risk-based ratio, the capital buffer. See Note 20. Regulatory Matters to the Consolidated Financial Statements for a presentation of Arrow Bank's period-end ratios for 2025 and 2024.
Regulatory 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 minimum capital requirements. The regulators have established five capital classifications for banking institutions, ranging from the highest category of "well-capitalized" to the lowest
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category of "critically under-capitalized". Under the applicable law and regulation, 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 8.0% or greater, and a total risk-based capital ratio of 10.0% or greater, and a leverage ratio of 5.0% or greater, provided the institution is not subject to any written agreement, order, capital directive, or prompt corrective action directive regarding capital maintenance.
As of December 31, 2025, Arrow Bank qualified as "well-capitalized" under applicable prompt corrective action provisions.
Dividend Restrictions; Other Regulatory Sanctions
A holding company's ability to pay dividends or repurchase its outstanding stock, as well as its ability to expand its business, including for example, through acquisitions of additional banking organizations or permitted non-bank companies, may be restricted if its capital falls below minimum regulatory capital ratios or fails to meet other informal capital guidelines that the regulators may apply from time to time to specific banking organizations. In addition to these potential regulatory limitations on payment of dividends, Arrow's ability to pay dividends to shareholders, and Arrow Bank's ability to pay dividends to Arrow are also subject to various restrictions under applicable corporate laws, including banking laws (which affect Arrow Bank) and the New York Business Corporation Law (which affects Arrow). The ability of Arrow and Arrow Bank to pay dividends or repurchase shares in the future is, and is expected to continue to be, influenced by regulatory policies, the capital requirements and other applicable law.
In cases where banking regulators have significant concerns regarding the financial condition, assets or operations of a bank holding company and/or one of its banks, the regulators may take enforcement action or impose enforcement orders, formal or informal, against the holding company or the particular bank. If the ratio of tangible equity to total assets of a bank falls to 2% or below, a bank can be closed and placed in receivership, with the FDIC as receiver.
Privacy and Confidentiality Laws
Arrow and its subsidiaries are subject to a variety of laws that regulate customer privacy and confidentiality. The Gramm-Leach-Bliley Act requires financial institutions to adopt privacy policies, to restrict the sharing of nonpublic customer information with nonaffiliated parties upon the request of the customer, and to implement data security measures to protect customer information. Certain state laws may impose additional privacy and confidentiality restrictions. The Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003, regulates use of credit reports, providing of information to credit reporting agencies and sharing of customer information with affiliates, and sets identity theft prevention standards.
The Bank Secrecy Act and the USA PATRIOT ACT
The Bank Secrecy Act (“BSA”) and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”), as well as the implementing regulations of the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) and the OCC, require Arrow Bank to implement a compliance program to detect and prevent money laundering, terrorist financing, and illicit financial activities by domestic and international customers. Together, the BSA and USA PATRIOT Act require the Bank to implement internal controls, identify and verify customers, conduct customer due diligence and enhanced due diligence for certain account relationships, identify and verify the identity of beneficial owners of customers that are legal entities, maintain records, and file reports regarding suspicious transactions, among other things. The OCC routinely examines Arrow Bank for compliance with these obligations.
The USA PATRIOT Act also required the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve applications, including applications to engage in a merger or other acquisition. Accordingly, if the Bank engages in certain transactions, including a merger or other acquisition, its controls designed to combat money laundering would be considered as part of the application process.
Arrow Bank has established procedures for compliance with these requirements. Compliance with the provisions of the BSA, the USA PATRIOT Act, and other anti-money laundering laws and regulations results in substantial costs on all financial institutions.
Sanctions
The U.S. Department of the Treasury's Office of Foreign Assets Control (“OFAC”) is responsible for helping to insure that United States persons, including banks, do not engage in transactions with certain sanctioned individuals, entities, organizations, and jurisdictions, as defined by various regulations, Executive Orders and Acts of Congress. OFAC publishes lists of persons, entities, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts or engaging in other sanctioned or prohibited activities, including, but not limited to, the List of Specially Designated Nationals and Blocked Persons. If Arrow Bank finds the name or involvement of any sanctioned person, entity, organization, or jurisdiction on or related to any transaction, account or wire transfer, Arrow Bank must freeze or block such account or transaction, file reports with OFAC, notify the appropriate authorities and maintain appropriate records, among other requirements.
Community Reinvestment Act
Arrow Bank is subject to the Community Reinvestment Act ("CRA") and implementing regulations. CRA regulations establish the framework and criteria by which the bank regulatory agencies assess an institution's record of helping to meet the credit needs of its community, including low and moderate-income individuals. CRA ratings are taken into account by regulators in reviewing certain applications made by Arrow and Arrow Bank. The Bank’s most current CRA rating was “Satisfactory.”
The Dodd-Frank Act
Dodd-Frank significantly changed the regulatory structure for financial institutions and their holding companies, for example, through imposing additional capital requirements. Among other provisions, Dodd-Frank implemented corporate governance revisions that apply to all public companies, not just financial institutions, permanently increased the FDIC’s standard maximum
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deposit insurance amount to $250,000, changed the FDIC insurance assessment base to assets rather than deposits and increased the reserve ratio for the deposit insurance fund to ensure the future strength of the fund. The federal prohibition on the payment of interest on certain demand deposits was repealed, thereby permitting depository institutions to pay interest on business transaction accounts. Dodd-Frank established a new federal agency, the Consumer Financial Protection Bureau (the “CFPB”), centralizing significant aspects of consumer financial protection under this agency. Limits were imposed for debit card interchange fees for issuers that have assets greater than $10 billion, which also could affect the amount of interchange fees collected by financial institutions with less than $10 billion in assets. Dodd-Frank also imposed new requirements related to mortgage lending, including prohibitions against payment of steering incentives and provisions relating to underwriting standards, disclosures, appraisals and escrows. The Volcker Rule prohibited banks and their affiliates from engaging in proprietary trading and investing in certain unregistered investment companies.
Federal banking regulators and other agencies including, among others, the FRB, the OCC and the CFPB, have been engaged in extensive rule-making efforts under Dodd-Frank, as explained above.
Incentive Compensation
The federal banking agencies have released comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon three core principles; (i) balanced risk-taking incentives; (ii) effective internal controls and risk management compatibility, and (iii) strong corporate governance. Management believes the current and past compensation practices of Arrow and Arrow Bank do not encourage excessive risk taking or undermine the safety and soundness of the organization. The federal bank regulators issued proposed rules to address incentive-based compensation arrangements in 2016. In May 2024, several federal banking agencies sought to re-propose the incentive compensation regulation, but some of the agencies did not adopt the proposal; in 2025, the FDIC withdrew its authorization for the proposal.
The FRB will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as Arrow, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Deposit Insurance Laws and Regulations
The Dodd-Frank Act established the minimum required Deposit Insurance Fund Reserve Ratio of 1.35% by September 30, 2028. In response to updated analysis and projections for the fund balance and the Deposit Insurance Fund Reserve Ratio, the FDIC adopted a final rule in October 2022 increasing the initial base deposit insurance assessment rate schedules by two percent effective January 1, 2023 and beginning on the first quarterly assessment period of 2023. The increase is intended to ensure that the reserve ratio meets the minimum ratio of 1.35% by the September 30, 2028 statutory deadline. Arrow is unable to predict whether or to what extent the FDIC may elect to impose additional special assessments on insured institutions in upcoming years, especially in light of high-profile regional bank failures such as those that occurred in 2023.
Reserve Requirements
Pursuant to regulations of the FRB, all banking organizations are required to maintain average daily reserves at mandated ratios against their transaction accounts and certain other types of deposit accounts. These reserves must be maintained in the form of vault cash or in an account at a Federal Reserve Bank. In March 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent to free up liquidity in the banking industry to support lending to households and businesses.
D. LEGISLATIVE DEVELOPMENTS
From time to time, various legislative and regulatory initiatives are introduced in Congress, state legislatures, and by regulatory authorities. These initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to change the financial institution regulatory environment. Such proposals could change banking laws and regulations and the operating environment of Arrow and Arrow Bank in substantial, but unpredictable ways. Arrow cannot predict whether any such legislation or regulations will be enacted, and, if enacted, the effect that they would have on Arrow or Arrow Bank's financial condition or results of operations.
E. STATISTICAL DISCLOSURE – (Regulation S-K, Subpart 1400)
Set forth below is an index identifying the location in this Report of various items of statistical information required to be included in this Report by the SEC’s industry guide for Bank Holding Companies.
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| Required Information | Location in Report | ||||
| Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential | Part II, Item 7.B.I. | ||||
| Investment Portfolio | Part II, Item 7.C.I. | ||||
| Loan Portfolio | Part II, Item 7.C.II. | ||||
| Summary of Credit Loss Experience | Part II, Item 7.C.III. | ||||
| Deposits | Part II, Item 7.C.IV. | ||||
| Return on Equity and Assets | Part II, Item 6. | ||||
| Short-Term Borrowings | Part II, Item 7.C.V. | ||||
F. COMPETITION
Arrow faces intense competition in all markets served. Competitors include traditional local commercial banks, savings banks and credit unions, non-traditional internet-based lending alternatives, as well as local offices of major regional and money center banks. Like all banks, Arrow Bank encounters strong competition in the mortgage lending space from a wide variety of other mortgage originators, all of whom are principally affected in this business by the rate and terms set, and the lending practices established from time-to-time by the very large government sponsored enterprises ("GSEs") engaged in residential mortgage lending, most importantly, “Fannie Mae” and “Freddie Mac.” For many years, these GSEs have purchased and/or guaranteed a very substantial percentage of all newly-originated mortgage loans in the U.S. Additionally, non-banking financial organizations, such as consumer finance companies, insurance companies, securities firms, money market funds, mutual funds, credit card companies and wealth management enterprises offer substantive equivalents of the various other types of loan and financial products and services and transactional accounts that are offered, even though these non-banking organizations are not subject to the same regulatory restrictions and capital requirements that apply to Arrow. Under federal banking laws, such non-banking financial organizations not only may offer products and services comparable to those offered by commercial banks, but also may establish or acquire their own commercial banks.
G. HUMAN CAPITAL
Arrow has prioritized investment in the well-being, performance, engagement and development of its employees. This includes, but is not limited to, providing access to well-being resources and assistance, offering competitive compensation and benefits to attract and retain top-level talent, empowering team members to take an active role in the formation and execution of the business strategy, and fostering a diverse and inclusive work environment that reflects the many values of the communities that Arrow serves. One example is through Arrow University, through which we are investing in our people by bringing employee learning and development to the forefront. At December 31, 2025, Arrow had 578 full-time equivalent employees.
H. SOCIAL RESPONSIBILITY AND GOVERNANCE
Arrow Financial Corporation remains committed to responsible business practices that create long-term value for our shareholders, customers, employees and communities. Arrow believes these practices are critical to attracting and retaining the best talent, meeting the evolving needs of its customers and being good stewards of its communities.
Arrow integrates corporate responsibility into our operations by fostering a strong governance framework, supporting community engagement and maintaining sound risk management practices.
Community Commitment
Arrow remains dedicated to strengthening the financial well-being of the communities we serve. One of the strongest ways we care for our communities is through our charitable contributions, partnerships and volunteerism. Since 2019, Arrow and our team members have donated more than $4 million to non-profit organizations in our service area. We also engage in community development efforts through measurable and impactful employee volunteerism, financial literacy initiatives and strategic partnerships with local organizations to meet the financial needs of the low- to moderate-income population. To further assist our communities, we have a lending program to facilitate first-time home ownership.
Environmental Considerations
We seek to operate efficiently and responsibly, incorporating sustainability measures and complying with environmental regulations. This includes investments in energy-efficient infrastructure throughout our footprint and providing and encouraging the use of digital banking solutions that reduce environmental impact.
Governance and Risk Management
Arrow maintains a strong corporate governance framework with independent board oversight, sound risk management and a commitment to data security and privacy. We adhere to rigorous compliance standards and proudly maintain a culture of accountability and ethical business practices.
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I. EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the executive officers of Arrow and positions held by each are presented in the following table:
| Name | Age | Positions Held and Years from Which Held | ||||||
| David S. DeMarco | 64 | President and Chief Executive Officer of Arrow and Arrow Bank since May 13, 2023. Mr. DeMarco joined the Company in 1987 as a commercial lender and since that time has served in positions of increasing responsibility within the organization. In 2012, he was named President and CEO of SNB. In May 2023, he was named President and CEO of the Company and SNB's sister bank, GFNB. He holds a bachelor’s degree in finance from the University of Texas at Austin. Mr. DeMarco is a graduate of the Adirondack Regional Chamber of Commerce’s Leadership Program and the Stonier Graduate School of Banking. He serves as a Director of the Company and Arrow Bank and sits on the boards of various non-profits dedicated to healthcare and economic development. | ||||||
| Penko Ivanov | 57 | Chief Financial Officer, Treasurer and Chief Accounting Officer of Arrow and Arrow Bank effective February 21, 2023 and Senior Executive Vice President since February 1, 2024. Mr. Ivanov joined the Company in 2023 with more than 30 years of experience in Financial Planning & Analysis, Controllership, Sarbanes-Oxley Act compliance, Financial Reporting and Treasury. Mr. Ivanov previously served as CFO for Bankwell Financial Group, helping it almost double in size over six-plus years to $3.3 billion. He has held CFO positions at Darien Rowayton Bank and for Doral Bank’s U.S. Operations. He began his career with Ernst & Young and held accounting and finance positions at PepsiCo, GE Capital and Bridgewater Associates. Mr. Ivanov holds an MBA and bachelor’s degree in accounting and finance from the University of South Florida. He is also Six Sigma Black Belt certified. | ||||||
| Michael Jacobs | 55 | Chief Information Officer of Arrow and Arrow Bank since February 1, 2024. Mr. Jacobs joined GFNB in 2003 as Information Systems Manager. He was later promoted to Senior Vice President and then Executive Vice President. As Chief Information Officer, Mr. Jacobs guides the Company’s strategic technology plans. He has more than 30 years of experience in the community banking industry, having previously served as Operations Manager at Cohoes Savings Bank and Item Processing Manager at Hudson River Bank and Trust. Mr. Jacobs earned a bachelor’s degree in finance from Siena College and an associate degree in business administration from Hudson Valley Community College. | ||||||
| Brooke Pancoe | 40 | Chief Human Resources Officer of Arrow and Arrow Bank since February 1, 2024. Ms. Pancoe joined the Company in 2018 as Director of Human Resources. In her current role as Chief Human Resources Officer, she has executive oversight of the Company’s human resource strategies, which includes organizational design and succession planning, talent acquisition and retention, performance management, professional development and compensation and benefits. Prior to joining the Company, Ms. Pancoe held various human resource management roles within the power generation and engineering services industry. Ms. Pancoe holds a bachelor’s degree in psychology from Clark University in Worcester, MA, and an MBA from the University at Albany. In addition, she maintains a certified professional human resources designation. | ||||||
| Andrew J. Wise | 59 | Senior Executive Vice President and Chief Risk Officer of Arrow and Arrow Bank since February 1, 2024. Mr. Wise joined the Company in 2016 as Senior Vice President of Administration for GFNB. He has since been promoted to Senior Executive Vice President and Chief Risk Officer of the Company. He has more than 30 years of experience building and leading both community banks and bank-owned insurance agencies. Mr. Wise previously served as Vice President and CISO for The Adirondack Trust Company and acted as Executive Vice President, COO for Wise Insurance Brokers, Inc. He has extensive experience in designing, implementing and managing workflows and delivering operational efficiency. He holds a bachelor’s degree from Boston University’s School of Management. | ||||||
| Marc J. Yrsha | 47 | Chief Banking Officer of Arrow and Arrow Bank since February 1, 2024. Mr. Yrsha joined the Company in 2015. As Chief Banking Officer, Mr. Yrsha oversees the strategic direction of the Retail Banking unit, which includes retail deposits and lending, business development, consumer payments, business services, municipal banking, as well as small business and retail lending. In addition, Mr. Yrsha oversees the Wealth Management division and Marketing. Prior to joining our Company, Mr. Yrsha spent time in retail leadership, retail and commercial lending at large regional and community banks within the Arrow footprint. Mr. Yrsha is active in the community serving in leadership roles on a variety of boards. He is a graduate of Castleton University in Vermont and the Adirondack Regional Chamber of Commerce’s Leadership Adirondack Program. | ||||||
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J. AVAILABLE INFORMATION
Arrow's Internet address is www.arrowfinancial.com. Information available on our website is not part of, and is not incorporated into, this Annual Report on Form 10-K. The Company makes available, free of charge, on or through Arrow's website, the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports as soon as practicable after they are filed or furnished with the SEC pursuant to the Exchange Act. We intend to use our website to disclose material non-public information and various other documents related to corporate operations, the charters of principal board committees, and codes of ethics and to comply with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website, in addition to following and reviewing our news releases, filings with the SEC and other presentations. The Company has adopted a financial code of ethics that applies to Arrow’s chief executive officer, chief financial officer and principal accounting officer and a business code of ethics that applies to all directors, officers and employees of Arrow and its subsidiaries. Both of these can be found at: https://www.arrowfinancial.com/Corporate/Governance.
Item 1A. Risk Factors
Arrow's financial results and the market price of its stock are subject to risks arising from many factors, including the risks listed below, as well as other risks and uncertainties. Any of these risks could materially and adversely affect Arrow's business, financial condition or results of operations. Please note that the discussion below regarding the potential impact on Arrow of certain of these factors that may develop in the future is not meant to provide predictions by Arrow's management that such factors will develop, but to acknowledge the possible negative consequences to the Company and business if certain conditions materialize.
MACROECONOMIC AND INDUSTRY RISKS
Arrow remains subject to inflationary risk which could adversely impact our business and our customers. Beginning in the first half of 2022, the FRB steadily increased in benchmark interest rates in response to signs of growing inflation. Although the FRB cut certain benchmark interest rates twice in the second half of 2024 and again in 2025, the inflationary outlook remains uncertain. Should interest rates rise, the value of our investment securities, particularly those with longer maturities, would likely decrease (although this effect may be mitigated for floating rate instruments). Further, continued inflation increases the cost of operational expenses which increases our noninterest expenses. Additionally, our customers may be affected by inflation, which could have a negative impact on their ability to repay loans. Finally, a higher inflationary environment may discourage our customers from pursuing new loans.
Market conditions could present significant challenges to the U.S. commercial banking industry and its core business of making and servicing loans. Any substantial downturn in the regional markets in which Arrow operates or in the U.S. economy generally could adversely affect Arrow's ability to maintain and/or grow earnings. Arrow's business is highly dependent on the business environment in the markets in which the Company operates as well as the United States as a whole. Arrow's business is dependent upon the financial stability of the Company's borrowers, including their ability to pay interest on and repay the principal amount of outstanding loans, the value of the collateral securing those loans, and the overall demand for loans and other products and services, all of which impact Arrow's stability and future growth. If unpredictable or unfavorable economic conditions unique to the market area should occur in upcoming periods, these conditions will likely have an adverse effect on the quality of the loan portfolio and financial performance. Arrow is less able than larger regional competitors to spread the risk of unfavorable local economic conditions over a larger market area. Further, if the overall U.S. economy deteriorates, then Arrow's business, results of operations, financial condition and prospects could be adversely affected. In particular, financial performance may be adversely affected by short-term and long-term interest rates, the prevailing yield curve, inflation, monetary supply, fluctuations in the debt and equity capital markets, and the strength of the domestic economy and the local economies in the markets in which Arrow operates, all of which are beyond Arrow's control.
Any future economic or financial downturn, including any significant correction in the equity markets, could adversely affect Arrow's volume of income attributable to, and demand for, fee-based services of Arrow Bank, including the Company's fiduciary business, which could negatively impact Arrow's financial condition and results of operations. Revenues from trust and wealth management business are dependent on the level of assets under management. Any significant downturn in the equity markets may lead Arrow's trust and wealth management customers to liquidate their investments, or may diminish account values for those customers who elect to leave their portfolios with Arrow, in either case reducing assets under management and thereby decreasing revenues from this important sector of the business. Other fee-based businesses are also susceptible to a sudden economic or financial downturn.
Moreover, weak or worsening economic conditions often lead to difficulties in other areas of its business, including growth of its business generally, thereby compounding the negative effects on earnings.
Arrow operates in a highly competitive industry and market areas that could negatively affect growth and profitability. Competition for commercial banking and other financial services is fierce in Arrow's market areas. In one or more aspects of business, Arrow Bank competes with other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Additionally, due to their size and other factors, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services, as well as better pricing for those products and services, than Arrow and its subsidiaries can. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. In addition, many of Arrow's competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. Failure by Arrow to offer competitive services in Arrow's market areas could significantly weaken Arrow's market position, adversely affecting growth, which, in turn, could have a material adverse effect on Arrow's financial condition and results of operations.
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The financial services industry is faced with technological advances and changes on a continuing basis, and failure to adapt to these advances and changes could have a material adverse impact on Arrow's business. Technological advances and changes in the financial services industry are pervasive and constant. The retail financial services sector, like many other retail goods and services sectors, is constantly evolving, involving new delivery and communications systems and technologies that are extraordinarily far-reaching and impactful. For Arrow to remain competitive, Arrow must adapt to these systems and technologies. Proper implementation of new technologies can increase efficiency, decrease costs and help to meet customer demand. However, many competitors have greater resources to invest in technological advances and changes. Arrow may not always be successful in utilizing the latest technological advances in offering its products and services or in otherwise conducting its business. Failure to identify, consider, adapt to and implement technological advances and changes could have a material adverse effect on business.
In particular the use or implementation of artificial intelligence (AI) applications and generative AI technologies are a recent example of an emerging technology providing significant value to operations and service that also present additional risks for consideration. AI models may rely on complex algorithms and vast datasets. Errors, biases, or generating false information in these models, or unexpected system failures, could lead to flawed decisions, financial losses, compliance failures, or degraded customer experiences, impacting profitability and client retention. AI systems also may process sensitive customer data, and security breaches or unauthorized access to these systems could result in data theft, loss of intellectual property, and significant penalties and damages to customer trust. In addition to risks associated with direct adoption of AI applications by us, we face the risk of associates utilizing unauthorized publicly sourced AI tools to complete business functions. Unauthorized use of AI tools could lead to the unintended exposure of confidential data, use of inaccurate results, and a number of other risks. Additionally, third-party service providers are quickly embedding AI capabilities in their technology to provide more robust and efficient services. Some embedded AI capabilities could risk the exposure of confidential company data if being used in a multi-tenant environment or being used to train AI systems. Arrow is still evaluating the potential threats and uses of this technology.
Problems encountered by other financial institutions could adversely affect Arrow. Arrow Bank's ability to engage in routine funding transactions could be adversely affected by financial or commercial problems confronting other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. Arrow has exposure to many different counterparties in the normal course of business, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, other commercial banks, investment banks, mutual and hedge funds, and other financial institutions. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by Arrow Bank or by other financial institutions on whom Arrow Bank relies or with whom Arrow Bank interacts. Some of these transactions expose Arrow Bank to credit and other potential risks in the event of default of Arrow Bank's counterparty or client. In addition, credit risk may be exacerbated when the collateral held by Arrow Bank cannot be liquidated or only may be liquidated at prices not sufficient to recover the full amount due Arrow under the underlying financial instrument held by Arrow. There is no assurance that any such losses would not materially and adversely affect the results of operations of Arrow.
Geopolitical and other external events, such as severe weather, natural disasters, public health emergencies and pandemics, acts of war or terrorism, and other external events could impact Arrow Bank’s ability to conduct business. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. Arrow Bank may also be affected by severe weather events or public health emergencies. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition. Additionally, financial markets may be adversely affected by the actual or anticipated impact of military conflict, terrorism or other geopolitical events, including trade disputes.
RISKS RELATED TO MERGER WITH ADIRONDACK
The market price of Arrow’s common stock may decline as a result of the Merger. The market price of Arrow’s common stock may decline as a result of the Merger if Arrow does not achieve the perceived benefits of the Merger or the effect of the Merger on Arrow’s financial results is not consistent with the expectations of financial or industry analysts.
In addition, the consummation of the Merger will result in the combination of two companies that currently operate as independent companies. While Arrow expects to benefit from certain synergies following the Merger, Arrow may also encounter new risks and liabilities associated with these differences. Following the Merger, shareholders of Arrow and Adirondack will own interests in a combined company operating an expanded business and may not wish to continue to invest in Arrow, or for other reasons may wish to dispose of some or all of Arrow’s common stock. If, following the effective time of the Merger, large amounts of Arrow’s common stock are sold, the price of Arrow’s common stock could decline.
Combining Arrow and Adirondack may be more difficult, costly or time-consuming than expected, and Arrow may fail to realize the anticipated benefits of the Merger. The benefits and synergies expected to result from the proposed Merger will depend in part on whether the operations of Adirondack can be integrated in a timely and efficient manner with those of Arrow. Arrow will face challenges and costs in consolidating its functions with those of Adirondack, and integrating the organizations, procedures and operations of the two businesses. The integration of Arrow and Adirondack will be complex and time-consuming, and the management of both companies will have to dedicate substantial time and resources to it. Failure to successfully integrate the operations of Arrow and Adirondack could result in the failure to achieve some of the anticipated benefits from the transaction, including cost savings and other operating efficiencies.
The Agreement may be terminated in accordance with its terms and the Merger may not be completed. The Agreement is subject to a number of conditions which must be fulfilled in order to complete the Merger. Those conditions include,
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among other things: (i) approval of the Agreement by the requisite vote of the shareholders of Adirondack (ii) authorization for listing on Nasdaq of the shares of Arrow’s common stock to be issued in the Merger, (iii) receipt of required regulatory approvals, including the approval of the Federal Reserve Board, the OCC and the New York State Department of Financial Services, without the imposition of any condition or restriction that would be reasonably expected to have a material adverse effect on the continuing corporation and its subsidiaries, taken as a whole, after giving effect to the Merger and the Bank Merger, (iv) effectiveness of the registration statement on Form S-4 for Arrow’s common stock to be issued in the Merger, and (v) the absence of any order, injunction, decree or other legal restraint preventing the completion of the Merger, the Bank Merger or any of the other transactions contemplated by the Merger agreement or making the completion of the Merger, the Bank Merger or any of the other transactions contemplated by the Merger agreement illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (a) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (b) performance in all material respects by the other party of its obligations under the Merger agreement, and (c) receipt by such party of an opinion from its counsel to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. In addition, Arrow’s obligation to complete the Merger is also subject to holders of fewer than 5% of the outstanding shares of Adirondack’s common stock perfecting their appraisal rights under appliable New York law.
These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the Merger may not be completed. In addition, the parties can mutually decide to terminate the Merger agreement at any time, before or after the requisite vote of the shareholders of Adirondack or Arrow, Arrow Merger Sub, Inc., or Adirondack Inc. may elect to terminate the Merger agreement in certain other circumstances.
Additionally, Arrow has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger agreement, as well as the costs and expenses of preparing, filing, printing and mailing of a joint proxy statement/prospectus in connection with the Merger, and all filing and other fees paid in connection with the Merger. If the Merger is not completed, Arrow would have to pay these expenses without realizing the expected benefits of the Merger.
OPERATIONAL RISKS
Arrow faces continuing and growing security risks to its information base including the information maintained relating to customers, and any breaches in the security systems implemented to protect this information could have a material negative effect on Arrow's business operations and financial condition. In the ordinary course of business, Arrow relies on electronic communications and information systems to conduct its operations and to store sensitive data. Arrow employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. Arrow employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Arrow has implemented and regularly reviews and updates extensive systems of internal controls and procedures as well as corporate governance policies and procedures intended to protect its business operations, including the security and privacy of all confidential customer information. In addition, Arrow relies on the services of a variety of vendors to meet data processing and communication needs. No matter how well designed or implemented its controls are, Arrow cannot provide an absolute guarantee to protect its business operations from every type of cybersecurity or other security problem in every situation, whether as a result of systems failures, human error or negligence, cyberattacks, security breaches, fraud or misappropriation. Any failure or circumvention of these controls could have a material adverse effect on Arrow's business operations and financial condition. Notwithstanding the strength of defensive measures, the threat from cyberattacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.
While to date, Arrow has not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks or other security problems, Arrow's systems and those of its customers and third-party service providers are under constant threat. Risks and exposures related to cybersecurity attacks or other security problems are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats and issues, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by Arrow and customers.
The computer systems and network infrastructure that Arrow uses are always vulnerable to unforeseen disruptions, including theft of confidential customer information (“identity theft”) and interruption of service as a result of fire, natural disasters, explosion, general infrastructure failure, cyberattacks or other security problems. These disruptions may arise in Arrow's internally developed systems, or the systems of our third-party service providers or may originate from the actions of our consumer and business customers who access our systems from their own networks or digital devices to process transactions. Information security and cybersecurity risks have increased significantly in recent years because of consumer demand to use the Internet and other electronic delivery channels to conduct financial transactions. Cybersecurity risk and other security problems are a major concern to financial services regulators and all financial service providers, including Arrow. These risks are further exacerbated due to the increased sophistication and activities of organized crime, hackers, terrorists and other disreputable parties. Arrow regularly assesses and tests security systems and disaster preparedness, including back-up systems, but the risks are substantially escalating. As a result, cybersecurity and the continued enhancement of Arrow's controls and processes to protect its systems, data and networks from attacks or unauthorized access remain a priority. Accordingly, Arrow may be required to expend additional resources to enhance its protective measures or to investigate and remediate any information security vulnerabilities or exposures. Any breach of Arrow's system security could result in disruption of its operations, unauthorized access to confidential customer information, significant regulatory costs, litigation exposure and other possible damages, loss or liability. Such costs or losses could exceed the amount of available insurance coverage, if any, and would adversely affect Arrow's earnings. Also, any failure to prevent a security breach or to quickly and effectively deal with such a breach could negatively impact customer confidence, damaging Arrow's reputation and undermining its ability to attract and keep customers. In addition, if Arrow fails to observe any of the cybersecurity requirements in federal or state laws, regulations or regulatory
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guidance, Arrow could be subject to various sanctions, including financial penalties. For additional information on Arrow’s cybersecurity protocols and the management and oversight thereof, please see Item 1C. Cybersecurity, below.
Arrow Bank is subject to risks and losses resulting from fraudulent activities that could adversely impact its financial performance and results of operations. As a bank, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. Arrow Bank is most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, wire transactions, ATM transactions, checking transactions, and debit cards that we have issued to customers and through online banking portals.
Business could suffer if Arrow loses key personnel unexpectedly. Arrow's success depends, in large part, on Arrow's ability to retain key personnel for the duration of their expected terms of service. On an ongoing basis, Arrow prepares and reviews back-up plans, in the event key personnel are unexpectedly rendered incapable of performing or depart or resign from their positions. However, any sudden unexpected change at the senior management level may adversely affect business.
FINANCIAL RISKS
Arrow is subject to interest rate risk, which could adversely affect profitability. Profitability depends to a large extent on Arrow's net interest income, which is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Changes in monetary policy, including changes in interest rates, could influence not only the interest received on loans and securities and the amount of interest paid on deposits and borrowings, but also (i) Arrow's ability to originate loans and obtain deposits, (ii) the fair value of financial assets and liabilities, and (iii) the average duration of mortgage-backed securities portfolio. If the interest rates Arrow pays on deposits and other borrowings increase at a faster rate than the interest rates received on loans, securities and other interest-earning investments, net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Changes in interest rates, whether they are increases or decreases, can also trigger repricing and changes in the pace of payments for both assets and liabilities.
Arrow Bank's allowance for expected credit losses may be insufficient, and an increase in the allowance would reduce earnings. Arrow Bank's loan quality is affected by the condition of the economy. Like other financial institutions, Arrow Bank maintains an allowance for credit losses to provide for expected credit losses at the balance sheet date. While Arrow Bank has continued to enjoy a very high level of quality in its loan portfolio generally and very low levels of loan charge-offs and non-performing loans, if the economy in Arrow Bank's geographic market area should deteriorate to the point that recessionary conditions return, or if the regional or national economy experiences a protracted period of stagnation, the quality of our loan portfolio may weaken so significantly that its allowance for loan losses may not be adequate to cover actual or expected loan losses. In such events, Arrow Bank may be required to increase its provisions for credit losses and this could materially and adversely affect financial results. The allowance for credit losses is established through a provision for credit losses based on management’s evaluation of the risks inherent in the loan portfolio and the general economy. The allowance for credit losses is based upon a number of factors, including the size of the loan portfolio, asset classifications, economic trends, industry experience and trends, industry and geographic concentrations, estimated collateral values, management’s assessment of the credit risk inherent in the portfolio, historical loss experience and loan underwriting policies. In addition, Arrow Bank evaluates all loans identified as problem loans and augments the allowance based upon an estimation of the potential loss associated with those problem loans. Additions to the allowance for credit losses decrease net income through provisions for credit losses. Arrow Bank's regulators, in reviewing the loan portfolio as part of a regulatory examination, may from time to time require Arrow Bank to increase the allowance for credit losses, thereby negatively affecting earnings, financial condition and capital ratios at that time. Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans and leases, identification of additional problem loans and other factors, both within and outside of Arrow's control. Additions to the allowance could have a negative impact on Arrow Bank's results of operations, which would impact the Company's results of operations.
The increasing complexity of Arrow's operations presents varied risks that could affect earnings and financial condition. Arrow processes a large volume of transactions on a daily basis and is exposed to numerous types of risks related to internal processes, people and systems. These risks include, but are not limited to, the risk of fraud by persons inside or outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, breaches of data security, human error or negligence, and Arrow's internal control system and compliance with a complex array of consumer protection and safety and soundness regulations. Arrow could also experience additional loss as a result of potential legal actions that could arise as a result of operational deficiencies or as a result of noncompliance with applicable laws and regulations.
Arrow’s financial condition and the results of its operations could be negatively impacted by changes in its liquidity position. Arrow’s liquidity can be significantly and negatively impacted by factors outside the Company’s control, including general disruptions in the financial markets, governmental fiscal and monetary policies, regulatory changes, negative investor perceptions of Arrow’s creditworthiness, unexpected increases in cash or collateral requirements and the consequent inability to monetize available liquidity resources.
As a holding company, Arrow relies on interest, dividends, distributions and other payments from Arrow Bank to fund dividends as well as to satisfy its debt and other obligations. Limitations on the payments that Arrow receives from Arrow Bank could also impact Arrow’s liquidity. A bank holding company is required by law to act as a source of financial and managerial strength for Arrow Bank. As a result, Arrow may be required to commit resources to Arrow Bank, even if doing so is not otherwise
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in the interests of the Company, its shareholders or its creditors, which could reduce the amount of funds available to meet its obligations.
In addition, Arrow Bank must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funds for use in lending and investment activities. Arrow Bank also receives funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize generating transaction accounts, we cannot guarantee if and when this will occur. Further, the considerable competition for deposits in our market area also has made, and may continue to make, it difficult for us to obtain reasonably priced deposits.
Arrow could recognize losses on securities held in its securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate. Factors beyond Arrow's control can significantly influence and cause potential adverse changes to the fair value of securities in its portfolio. These types of factors include, but are not limited to, rating agency downgrades of the securities, its own analysis of the value of the securities, defaults by the issuers or individual mortgagors with respect to the underlying securities and instability in the credit markets. Any of the foregoing factors, as well as changing economic and market conditions, generally, could cause other-than-temporary impairments, realized or unrealized losses in future periods and declines in other comprehensive income, any of which could have a material adverse effect on the business, financial condition, results of operations and growth prospects.
LOAN PORTFOLIO RISKS
Arrow Bank’s commercial and commercial real estate loans increase its exposure to credit risks. At December 31, 2025, Arrow’s commercial and commercial real estate loans totaled $984 million, or 29% of total loans. We plan to continue to emphasize the origination of these types of loans, which generally expose us to a greater risk of nonpayment and loss than residential real estate or consumer loans because repayment of such loans often depends on the successful business operations and income stream of the borrowers and are generally more sensitive to economic conditions. Additionally, such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to consumer loans or residential real estate loans, and the collateral securing such loans often cannot be liquidated as easily as residential real estate. A sudden downturn in the economy, or a prolonged downturn for specific industries, could result in borrowers being unable to repay their loans, thus exposing Arrow to increased credit risk.
Arrow Bank’s indirect and consumer lending involves risk elements in addition to normal credit risk. At December 31, 2025, Arrow Bank’s consumer loans totaled $1,076 million, or 33% of total loans. A portion of such lending involves the purchase of consumer automobile installment sales contracts from automobile dealers located throughout New York and Vermont. These loans are for the purchase of new or used automobiles. Arrow Bank serves customers that cover a range of creditworthiness, and the required terms and rates are reflective of those risk profiles. While these loans have higher yields than many of our other loans, such loans involve risk elements in addition to normal credit risk. Additional risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through non-bank channels, namely automobile dealers. While indirect automobile loans are secured, such loans are secured by depreciating assets and characterized by loan-to-value ratios that could result in us not recovering the full value of an outstanding loan upon default by the borrower. State and federal laws may further limit our ability to recover outstanding principal balances on such loans. If the losses from our indirect loan portfolio are higher than anticipated, it could have a material adverse effect on Arrow Bank’s financial condition and results of operations.
RISKS RELATED TO OWNING OUR COMMON STOCK
Arrow may not pay or may reduce the dividends paid on shares of its common stock, and its ability to pay dividends is subject to certain restrictions. Holders of Arrow common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. In addition, Arrow is a bank holding company, and its ability to declare and pay dividends is dependent on federal regulatory considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. Any change in the level of our dividends or the suspension of the payment thereof could have an adverse effect on the market price of our common stock.
LEGAL, TAX, REGULATORY AND COMPLIANCE RISKS
Arrow operates in a highly regulated industry and face risks associated with noncompliance. Federal banking statutes and regulations could change in the future, which may adversely affect Arrow. Arrow and Arrow Bank are subject to extensive federal and state banking regulations and supervision. Banking laws and regulations are intended primarily to protect bank depositors’ funds (and indirectly the Federal Deposit Insurance Fund) as well as bank retail customers, who may lack the sophistication to understand or appreciate bank products and services. These laws and regulations generally are not, however, aimed at protecting or enhancing the returns on investment enjoyed by bank shareholders.
Applicable laws and regulations restrict our lending practices, require us to expend substantial additional resources to ensure compliance, and subject Arrow Bank to minimum capital requirements which, in the long run, may serve as a drag on its earnings, growth and ultimately on our dividends and stock price. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the adequacy of the level of our allowance for loan losses. If, as a result of an examination, a federal banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth or merger activity, to
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assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance or to place Arrow Bank into receivership or conservatorship.
Future statutory and regulatory changes, including additional guidance and interpretations of existing rules and requirements, are difficult to predict and could add to the existing regulatory burden imposed on banking organizations like Arrow Bank, resulting in a potential material adverse effect on Arrow's financial condition and results of operations.
Capital and liquidity standards require banks and bank holding companies to maintain more and higher quality capital and greater liquidity than has historically been the case. Capital standards, particularly those adopted as a result of Dodd-Frank, continue to have a significant effect on banks and bank holding companies, including Arrow. The need to maintain more and higher quality capital, as well as greater liquidity, and generally increased regulatory scrutiny with respect to liquidity and capital levels, may at some point limit business activities, including lending, and our ability to expand. It could also result in Arrow being required to take steps to increase regulatory capital and may dilute shareholder value or limit the ability to pay dividends or otherwise return capital to investors through stock repurchases.
Non-compliance with the Patriot Act, Bank Secrecy Act, or other anti-money laundering laws and regulations could result in fines or sanctions and restrictions on conducting acquisitions or establishing new branches. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the Patriot Act) and the Bank Secrecy Act require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are suspected, financial institutions are obligated to file suspicious activity reports with FinCEN. Federal anti-money laundering rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, and restrictions on conducting acquisitions or establishing new branches. The policies and procedures Arrow has adopted that are designed to assist in ensuring compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations.
Arrow, through Arrow Bank, is subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties. CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on Arrow's business, financial condition and results of operations.
Item 1B. Unresolved Staff Comments - None
Item 1C. Cybersecurity
Regulatory Supervision
Arrow and its subsidiaries are subject to the provisions in the Gramm-Leach-Bliley Act relating to data security, as well as many federal and state laws, regulations and regulatory interpretations which impose standards and requirements related to cybersecurity.
Cybersecurity Risk Management & Strategy
Arrow has implemented processes designed to oversee and identify risk from cybersecurity breaches. Arrow’s cybersecurity risk management and data security program is an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. Arrow employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent cybersecurity threats. Our security framework involves processes for detection, identification, protection and response to a cybersecurity incident. Additionally, we are well prepared for recovery in the case of a cybersecurity incident with proper vendor support as well as backups both online and offline. Arrow also regularly assesses and tests its security systems and disaster preparedness, including the adequacy and functionality of its backup systems.
Arrow also regularly reviews and updates its existing internal controls and procedures and corporate governance policies and procedures intended to protect its business operations, which includes the security and privacy of the confidential information of its customers. In addition, Arrow engages a variety of vendors to meet data processing and communication needs, including evaluating our cybersecurity readiness and resilience through ongoing vulnerability assessments and audits. Arrow communicates and works directly with all of our critical information technology ("IT") vendors to resolve issues and install releases. We perform business continuity plan testing on a periodic basis. Additionally, as part of our third-party risk management program, we require specific security standards for third-party providers.
Cybersecurity and the continued enhancement of Arrow's controls and processes to protect its systems, data and networks from cybersecurity incidents remain a priority to Arrow.
Governance
Arrow’s senior management regularly considers the impact of cybersecurity risks when developing its business strategy and financial planning. Arrow has various policies and procedures in place to mitigate cybersecurity risks and maintains a layered, defensive program to manage and maintain cybersecurity controls.
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The ERM Committee is chaired by the Chief Risk Officer and includes the Chief Information Officer, Director of Information Technology, and Director of Internal Audit. The members of our ERM committee collectively have expertise and insight into cybercrime prevention, social engineering, identity theft, and fraud prevention.
Item 2. Properties
Arrow's main office is at 250 Glen Street, Glens Falls, New York. The building is owned by Arrow Bank National Association and serves as the main office for Arrow and Arrow Bank. Arrow Bank owns 26 branch banking offices, leases 12 branch banking offices, leases two residential loan origination offices and a business development office, all at market rates. Two of the 12 leased locations reflect the long term lease of property upon which Arrow owns buildings. Arrow's insurance agency is co-located in seven bank-owned branches, as well as two leased insurance offices. Arrow also leases a maintenance building and parking lots near the main office in Glens Falls as well as land and additional office space within our footprint to support our business.
In the opinion of management, the physical properties of Arrow and its subsidiaries are suitable and adequate. For more information on Arrow's properties, see Note 2. Summary of Significant Accounting Policies, Note 6. Premises and Equipment, and Note 18. Leases to the Consolidated Financial Statements contained in Part II, Item 8 of this Report.
Item 3. Legal Proceedings
Arrow, including its subsidiaries, 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, Arrow is often the subject of, or a party to, various legal claims by other parties against Arrow, by Arrow against other parties, or involving Arrow, which arise in the normal course of business. The various pending legal claims against Arrow will not, in the opinion of management based upon consultation with counsel, result in any material liability. Legal expenses incurred in connection with loss contingencies are expensed as incurred.
As announced in the November 5, 2025 Current Report on Form 8-K filed with the SEC, Arrow received preliminary approval of a settlement of the Shareholder Derivative Complaint filed by Stephen Bull as described in various SEC filings over the last 18 months. The Court granted final approval of the settlement on January 22, 2026 and the matter is now closed. There was no material financial impact to results of operations or financial position of Arrow as a result of the settlement.
Item 4. Mine Safety Disclosures - None
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PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Arrow's common stock is traded on the Nasdaq Global Select Market under the symbol AROW.
Based on information received from Arrow's transfer agent and various brokers, custodians and agents, Arrow estimates there were approximately 2,000 registered shareholders of Arrow’s common stock at February 27, 2026. Arrow has no other class of stock outstanding.
Equity Compensation Plan Information
The following table sets forth certain information regarding Arrow's equity compensation plans as of December 31, 2025. These equity compensation plans were (i) the 2022 Long-Term Incentive Plan ("LTIP") and its predecessors; (ii) the Amended and Restated 2011 Employee Stock Purchase Plan ("ESPP") and its predecessors; and (iii) the 2023 Directors' Stock Plan ("DSP") and its predecessors. The LTIP, the DSP and the ESPP have been approved by Arrow's shareholders.
| Plan Category | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | (b) Weighted-Average Exercise Price of Outstanding Options | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||||||||
Equity Compensation Plans Approved by Security Holders (1)(2)(3) | 282,719 | $ | 29.83 | 667,105 | |||||||||||||
Equity Compensation Plans Not Approved by Security Holders | — | — | |||||||||||||||
| Total | 282,719 | 667,105 | |||||||||||||||
(1)The total of 282,719 shares listed in column (a) includes shares which are issuable pursuant to outstanding stock options granted under the LTIP or its predecessor plans.
(2)The total of 667,105 shares listed in column (c) includes (i) 349,081 shares of common stock available for future award grants under the LTIP, (ii) 274,948 shares of common stock available for future issuance under the ESPP and (iii) 43,076 shares of common stock available for future issuance under the DSP.
(3)The Weighted-Average Exercise Price listed in column (b) reflects the weighted-average exercise price of the 229,155 outstanding stock options, the only outstanding equity compensation with an exercise price, included in the column (a) total of 282,719.
STOCK PERFORMANCE GRAPH
The following graph provides a comparison of the total cumulative return (assuming reinvestment of dividends) for the common stock of Arrow as compared to the Russell 2000 Index, the KBW Bank Index, the KBW Regional Bank Index and the NASDAQ Composite Index for the five-year period from December 31, 2020 to December 31, 2025.
The historical information in the graph may not be indicative of future performance of Arrow stock on the various stock indices.
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Effective with this Annual Report on Form 10-K for the year ended December 31, 2025, Arrow has ceased use of the ABA NASDAQ Community Bank TR index and the Zacks $1B - $5B Bank Assets Index for the purposes of the above illustration and replaced them with the KBW Bank Index, the KBW Regional Bank Index, and the NASDAQ Composite Index which are more commonly used for financial institutions of Arrow's size.
The preceding stock performance graph shall not be deemed incorporated by reference, by virtue of any general statement contained herein or in any other filing incorporated by reference herein, into any other SEC filing by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates this information by reference into such filing, and shall not otherwise be deemed filed as part of any such other filing.
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
The following table presents information about repurchases by Arrow during the three months ended December 31, 2025 of Arrow's common stock (the only class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934). On July 23, 2025, the Board increased the available amount for share repurchase by $5 million, authorizing management, in its discretion, to repurchase from time to time, in the open market or in privately negotiated transactions, shares of Arrow common stock.
No shares were purchased during the quarter ended December 31, 2025 under the most recent authorization for the repurchase of shares and as of December 31, 2025 $5,066,228 remained available.
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Fourth Quarter 2025 Calendar Month | (a) Total Number of Shares Purchased1 | (b) Average Price Paid Per Share1 | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs2 | (d) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs2 | |||||||||||||||||||
October 1-31 | — | $ | — | — | $ | 5,066,228 | |||||||||||||||||
November 1-30 | — | — | — | 5,066,228 | |||||||||||||||||||
December 1-31 | — | — | — | 5,066,228 | |||||||||||||||||||
| Total | — | — | — | ||||||||||||||||||||
1 No shares were purchased in the open market under the ESOP on behalf of the participants under the ESOP by
the administrator of the ESOP or by Arrow pursuant to the Company's most recent authorization for the repurchase
of shares.
the administrator of the ESOP or by Arrow pursuant to the Company's most recent authorization for the repurchase
of shares.
2 No shares were acquired under the most recent authorization for the repurchase of shares in October, November
or December 2025.
or December 2025.
Item 6. Reserved
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
| Quarter Ended | 12/31/2025 | 9/30/2025 | 6/30/2025 | 3/31/2025 | 12/31/2024 | ||||||||||||||||||||||||
Selected Financial Information
Dollars in thousands, except per share amounts
| 2025 | 2024 | 2023 | |||||||||||||||
| Net Income | $ | 43,953 | $ | 29,709 | $ | 30,075 | |||||||||||
Year-End Shares Outstanding | 16,445 | 16,743 | 16,942 | ||||||||||||||
Basic Average Shares Outstanding | 16,503 | 16,739 | 17,037 | ||||||||||||||
Diluted Average Shares Outstanding | 16,505 | 16,745 | 17,037 | ||||||||||||||
Basic Earnings Per Share | $ | 2.65 | $ | 1.77 | $ | 1.77 | |||||||||||
Diluted Earnings Per Share | 2.65 | 1.77 | 1.77 | ||||||||||||||
Cash Dividends Per Share | 1.14 | 1.09 | 1.06 | ||||||||||||||
| Average Assets | 4,389,573 | 4,266,721 | 4,084,519 | ||||||||||||||
| Average Equity | 412,315 | 384,858 | 362,781 | ||||||||||||||
| Return on Average Assets | 1.00 | % | 0.70 | % | 0.74 | % | |||||||||||
| Return on Average Equity | 10.66 | % | 7.72 | % | 8.29 | % | |||||||||||
| Average Earning Assets | $ | 4,197,528 | $ | 4,102,954 | $ | 3,948,708 | |||||||||||
| Average Interest-Bearing Liabilities | 3,212,900 | 3,126,495 | 2,903,925 | ||||||||||||||
| Interest Income | 210,147 | 194,993 | 162,564 | ||||||||||||||
Interest Income, Tax-Equivalent 1 * | 210,683 | 195,638 | 163,328 | ||||||||||||||
| Interest Expense | 76,983 | 83,261 | 57,732 | ||||||||||||||
| Net Interest Income | 133,164 | 111,732 | 104,832 | ||||||||||||||
Net Interest Income, Tax-Equivalent 1 * | 133,700 | 112,377 | 105,596 | ||||||||||||||
| Net Interest Margin | 3.17 | % | 2.72 | % | 2.65 | % | |||||||||||
Net Interest Margin, Tax-Equivalent1 * | 3.19 | % | 2.74 | % | 2.67 | % | |||||||||||
Efficiency Ratio Calculation* | |||||||||||||||||
| Noninterest Expense | $ | 102,934 | $ | 97,268 | $ | 93,048 | |||||||||||
| Less: Intangible Asset Amortization | 311 | 248 | 176 | ||||||||||||||
| Net Noninterest Expense | 102,623 | 97,020 | 92,872 | ||||||||||||||
| Net Interest Income, Tax-Equivalent | 133,700 | 112,377 | 105,596 | ||||||||||||||
| Noninterest Income | 32,432 | 28,074 | 29,117 | ||||||||||||||
| Less: Net (Loss) Gain on Securities | 542 | (2,907) | (92) | ||||||||||||||
| Net Gross Income, Adjusted | $ | 165,590 | $ | 143,358 | $ | 134,805 | |||||||||||
| Efficiency Ratio* | 61.97 | % | 67.68 | % | 68.89 | % | |||||||||||
Year-End Capital Information: | |||||||||||||||||
| Tier 1 Leverage Ratio | 9.68 | % | 9.60 | % | 9.84 | % | |||||||||||
| Total Stockholders’ Equity (i.e. Book Value) | $ | 431,852 | $ | 400,901 | $ | 379,772 | |||||||||||
| Book Value per Share | 26.26 | 23.94 | 22.42 | ||||||||||||||
| Intangible Assets | 25,530 | 25,847 | 22,983 | ||||||||||||||
Tangible Book Value per Share * | 24.71 | 22.40 | 21.06 | ||||||||||||||
| Asset Quality Information: | |||||||||||||||||
| Net Loans Charged-off as a Percentage of Average Loans | 0.19 | % | 0.09 | % | 0.07 | % | |||||||||||
| Provision for Credit Losses as a Percentage of Average Loans | 0.21 | % | 0.16 | % | 0.11 | % | |||||||||||
Allowance for Credit Losses as a Percentage of Year-End Loans | 0.99 | % | 0.99 | % | 0.97 | % | |||||||||||
| Allowance for Credit Losses as a Percentage of Nonperforming Loans | 405.94 | % | 159.69 | % | 147.82 | % | |||||||||||
Nonperforming Loans as a Percentage of Year-End Loans | 0.24 | % | 0.62 | % | 0.66 | % | |||||||||||
| Nonperforming Assets as a Percentage of Total Assets | 0.20 | % | 0.50 | % | 0.51 | % | |||||||||||
*See "Use of Non-GAAP Financial Measures" on page 5.
24
Arrow Financial Corporation
Reconciliation of Non-GAAP Financial Information
(Dollars In Thousands, Except Per Share Amounts)
| Footnotes: | |||||||||||||||||||||||
1. | Non-GAAP Financial Measure Reconciliation: Net Interest Margin is the ratio of 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 its financial performance. | ||||||||||||||||||||||
| 12/31/2025 | 12/31/2024 | 12/31/2023 | |||||||||||||||||||||
| Interest Income (GAAP) | $ | 210,147 | $ | 194,993 | $ | 162,564 | |||||||||||||||||
| Add: Tax Equivalent Adjustment (Non-GAAP) | 536 | 645 | 764 | ||||||||||||||||||||
| Interest Income - Tax Equivalent (Non-GAAP) | 210,683 | 195,638 | 163,328 | ||||||||||||||||||||
| Net Interest Income (GAAP) | 133,164 | 111,732 | 104,832 | ||||||||||||||||||||
| Add: Tax-Equivalent adjustment (Non-GAAP) | 536 | 645 | 764 | ||||||||||||||||||||
| Net Interest Income - Tax Equivalent (Non-GAAP) | 133,700 | 112,377 | 105,596 | ||||||||||||||||||||
| Average Earning Assets | $ | 4,197,528 | 4,102,954 | 3,948,708 | |||||||||||||||||||
| Net Interest Margin (Non-GAAP) | 3.19 | % | 2.74 | % | 2.67 | % | |||||||||||||||||
2. | Non-GAAP Financial Measure 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 Arrow believes provides investors with information that is useful in understanding its financial performance. | ||||||||||||||||||||||
| 12/31/2025 | 12/31/2024 | 12/31/2023 | |||||||||||||||||||||
| Total Stockholders' Equity (GAAP) | $ | 431,852 | $ | 400,901 | $ | 379,772 | |||||||||||||||||
| Less: Goodwill and Other Intangible assets, net | 25,530 | 25,847 | 22,983 | ||||||||||||||||||||
| Tangible Equity (Non-GAAP) | $ | 406,322 | $ | 375,054 | $ | 356,789 | |||||||||||||||||
| Period End Shares Outstanding | 16,445 | 16,743 | 16,942 | ||||||||||||||||||||
| Tangible Book Value per Share (Non-GAAP) | $ | 24.71 | $ | 22.40 | $ | 21.06 | |||||||||||||||||
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CRITICAL ACCOUNTING ESTIMATES
The significant accounting policies, as described in Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements are essential in understanding the Management Discussion and Analysis. Many of the significant accounting policies require complex judgments to estimate the values of assets and liabilities. Arrow has procedures and processes in place to facilitate making these judgments. The more judgmental estimates are summarized in the following discussion. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, Arrow has used the factors that are believed to represent the most reasonable value in developing the inputs. Actual performance that differs from estimates of the key variables could impact the results of operations.
Allowance for credit losses: The allowance for credit losses consists of the allowance for credit losses on loans and unfunded loan commitments. The Current Expected Credit Loss ("CECL") approach requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. Arrow then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, Arrow considers forecasts about future economic conditions that are reasonable and supportable.
Arrow uses the discounted cash flow ("DCF") method to estimate expected credit losses for the commercial, commercial real estate, and residential segments. For each of these loan segments, Arrow generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default ("PD"), and segment-specific loss given default ("LGD") risk factors. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions. An allowance for credit loss is established for the difference between the instrument’s net present value of expected cash flows and amortized cost basis.
Arrow utilized regression analyses of peer data where observed credit losses and selected economic factors were utilized to determine suitable loss drivers for modeling lifetime PD rates. For the loan segments utilizing the DCF method, management utilizes externally developed economic forecasts for the selected loss drivers.
Arrow uses the vintage analysis method to estimate expected credit losses for the consumer loan segment. Under the vintage analysis method, an average loss rate is calculated based on the quarterly net charge-offs to the outstanding loan balance for each vintage year and applied to the outstanding loan balances based on the loan's vintage year.
Arrow considers the need to qualitatively adjust expected credit loss estimates for information not already captured in the loss estimation process. These qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Adjustments are not made for information that has already been considered and included in the loss estimation process.
The allowance for losses on unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by Arrow. The allowance for losses on unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws.
Arrow considers the accounting policy relating to the allowance for credit losses to be a critical accounting estimate given the uncertainty in evaluating the level of the allowance required to cover Arrow's estimate of all expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. While management’s current evaluation of the allowance for credit losses indicates that the allowance is appropriate at this time, the allowance may need to be adjusted in the future due to changes in conditions or assumptions. The impact of utilizing the CECL approach to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.
One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. The quantitative model utilizes a six-quarter economic forecast sourced from reputable third-parties that projects an increase of approximately 0.17% in the forecasted national unemployment rate and projects forecasted GDP to improve by approximately 0.05% from the previous year economic forecast.
To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast assumptions, the Company increased the projected rate of unemployment and reduced projected GDP growth by an additional 25, 50 and 100 bps causing a 3%, 6% and 13% increase in the overall estimated allowance for credit losses, respectively.
Arrow's policy on the allowance for credit losses is disclosed in Note 2. Summary of Significant Accounting Policies to the consolidated financial statements of this Form 10-K.
A. OVERVIEW
The following discussion and analysis focuses on and reviews Arrow's results of operations for each of the years in the three-year period ended December 31, 2025 and the financial condition as of December 31, 2025 and 2024. The discussion below should be read in conjunction with the selected annual financial information set forth above and the Consolidated Financial
26
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.
Summary of 2025 Financial Results: Net income for 2025 was $44.0 million, up from $29.7 million for 2024.
Diluted earnings per share (EPS) was $2.65 for 2025, up from $1.77 for 2024. ROE and ROA for 2025 were 10.66% and 1.00%, respectively, as compared to 7.72% and 0.70%, respectively, for 2024.
Net interest income for the year ended December 31, 2025 was $133.2 million, an increase of $21.4 million, or 19.2%, from the prior year. Compared to the prior year, the increase was primarily due to the combination of increased interest income and decreased interest expense. Interest and fees on loans were $184.1 million for the year ended December 31, 2025, an increase of 7.4% from $171.3 million for the year ended December 31, 2024. The increase was primarily driven by loan growth and higher average loan rates. Interest expense for the year ended December 31, 2025 was $77.0 million. This represents a decrease of $6.3 million, or 7.5%, from the $83.3 million in interest expense for the prior year. The decrease in interest expense was driven primarily by lower average deposit rates and changes in deposit composition to lower-cost core deposits.
Net interest margin was 3.17% (3.19% FTE) for the year ended December 31, 2025, as compared to 2.72% (2.74% FTE) for the year ended December 31, 2024. The increase in net interest margin compared to the prior year was primarily the result of continued yield expansion on earning assets combined with the reduced cost of interest-bearing liabilities.
For the year ended December 31, 2025, the provision for credit losses related to the loan portfolio was $7.3 million, compared to $5.2 million in the prior year. The key drivers for the increase in provision for credit losses for 2025 were primarily the second quarter charge-off of the specific reserve of $3.75 million related to the CRE Participation and overall loan growth. The aforementioned CRE Participation was reclassified to Other Assets after the participating banks assumed control of the collateral properties and appointed a property manager to manage the day-to-day activities while exploring further options. The properties are being held in an unconsolidated limited liability company (LLC) in which Arrow has an ownership interest equivalent to its rights under the former CRE Participation. As previously disclosed, the properties are generating positive net operating income and the majority is tenant occupied.
Non-interest income was $32.4 million for the year ended December 31, 2025, an increase of 15.5%, as compared to $28.1 million for the year ended December 31, 2024. The increase in non-interest income from the previous year was primarily driven by a 2024 net loss on securities from the repositioning of the investment portfolio which reduced the 2024 non-interest income as well as increases in 2025 revenue related to wealth management, insurance and interchange fees.
Non-interest expense for the year ended December 31, 2025 increased by $5.7 million, or 5.8%, to $102.9 million, as compared to $97.3 million in 2024. The largest component of non-interest expense is salaries and benefits paid to our employees, which totaled $56.3 million in 2025 and increased $3.6 million, or 6.8%, from the prior year. Salaries and benefits were impacted by inflation-driven wage increases and rising benefit costs.
The provision for income taxes for 2025 was $11.4 million, compared to $7.6 million for 2024. The effective income tax rates for 2025 and 2024 were 20.6% and 20.5%, respectively.
Total assets were $4.4 billion at December 31, 2025, an increase of $139.5 million, or 3.2%, compared to December 31, 2024. The increase over the prior year end was primarily driven by loan growth and an overall increase in interest-earning deposits at banks.
Total investments were $572.8 million at December 31, 2025, an increase of $2.0 million, or 0.4%, compared to December 31, 2024. The increase reflected the reinvestment of the cash generated from paydowns and maturities of investments into higher yielding investments, and net unrealized gains of $19.5 million. There were no credit quality issues related to the investment portfolio.
At December 31, 2025, total loan balances reached $3.5 billion. Loan growth for the year was $59 million or 1.7%. The allowance for credit losses was $34.3 million at December 31, 2025, an increase of $0.7 million from December 31, 2024. The allowance for credit losses at December 31, 2025 represented 0.99% of loans outstanding, unchanged from 0.99% at year end 2024. Asset quality remained strong at December 31, 2025. Net loan charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.19% for the year ended December 31, 2025, as compared to 0.09% for the prior year. The increase was the result of a charge-off of a previously reserved commercial loan participation in the second quarter of 2025. Nonperforming assets of $8.7 million at December 31, 2025, represented 0.20% of year end assets, compared to $21.5 million or 0.50% at December 31, 2024.
At December 31, 2025, total deposit balances were $3.9 billion, an increase of $111.5 million, or 2.9%, from the prior-year end level. Non-municipal deposits, excluding brokered CDs, increased by $131.6 million and municipal deposits decreased by $20.1 million, each as compared to December 31, 2024. Non-interest bearing deposits increased by $19.4 million, or 2.8%, during 2025. At December 31, 2025, total time deposits, excluding brokered CDs, increased $3.2 million from the prior-year end level.
Total borrowings were $4.3 million at December 31, 2025, a decrease of $4.3 million, or 50.4%, compared to December 31, 2024.
Total shareholders’ equity was $431.9 million at December 31, 2025, an increase of $31.0 million, or 7.7%, from December 31, 2024. Arrow's regulatory capital ratios remained strong in 2025. At December 31, 2025, Arrow's Common Equity Tier 1 Capital Ratio was 13.01% and the Total Risk-Based Capital Ratio was 14.76%. The capital ratios of Arrow and Arrow Bank continued to significantly exceed the “well capitalized” regulatory standards.
The changes in net income, net interest income and net interest margin between the current and prior year are discussed in detail under the heading "Results of Operations," beginning on page 29.
Regulatory Capital and Stockholders' Equity: As of December 31, 2025, 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
27
both the holding company and bank levels. At that date Arrow Bank, 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.
Total stockholders' equity was $431.9 million at December 31, 2025, an increase of $31.0 million, or 7.7%, from December 31, 2024. The components of the change in stockholders' equity since year-end 2024 are presented in the Consolidated Statement of Changes in Stockholders' Equity on page 49. Total book value per share increased by 17.1% over the prior year-end level. The net increase in total stockholders' equity during 2025 principally reflected the following factors: (i) $44.0 million of net income for the year, (ii) other comprehensive income of $14.4 million and (iii) $1.7 million of equity related to various stock-based compensation plans, reduced by (iv) cash dividends of $18.9 million and (v) repurchases of common stock of 10.0 million. The Board of Directors declared and Arrow paid a cash dividend of $0.28 per share for the first and second quarters of 2025, $0.29 per share for the third and fourth quarters of 2025 and $0.30 per share for the first quarter of 2026.
Loan quality: Nonperforming loans were $8.5 million at December 31, 2025, a decrease of $12.6 million, or 59.8%, from year-end 2024. The ratio of nonperforming loans to year-end loans at December 31, 2025 was 0.24%, a decrease from 0.62% at December 31, 2024. Nonperforming loans are in various stages of work-out activities including, but not limited to, ongoing negotiations with the borrowers, borrowers looking to refinance with other lenders, potential foreclosures, as well as periodic updates to appraisals and cash flow analyses generated by the underlying collateral. Any future developments related to such activities may have a potential impact on financial results, however, the impact cannot be determined at this time.
Loans charged-off (net of recoveries) against the allowance for credit losses was $6.6 million for 2025, an increase of $3.7 million from 2024. The ratio of net charge-offs to average loans was 0.19% for 2025 and 0.09% for 2024. At December 31, 2025, the allowance for credit losses was $34.3 million, representing 0.99% of total loans, was unchanged from the December 31, 2024 ratio.
Loans: As of December 31, 2025, total loans grew $58.6 million, or 1.7%, as compared to the balance at December 31, 2024.
◦ Commercial and Commercial Real Estate Loans: Combined, these loans comprised 28.5% of the total loan portfolio at year-end. Commercial loans are extended to businesses primarily located in Arrow's regional market area. There are no commercial real estate loans in major metropolitan areas. In addition, only approximately 1% of the total loan portfolio is comprised of office related property. Retail loans were approximately 2% of the total loan portfolio and hotels and motels were approximately 5% of the total loan portfolio. Overall, Arrow has minimal exposure to highly sensitive areas where large commercial and retail vacancies exist. Commercial property values in Arrow's region have largely remained stable. 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.
◦ Consumer Loans: These loans (primarily automobile loans) comprised approximately 31.2% of the total loan portfolio at period-end. Consumer automobile loans at December 31, 2025, were $1.1 billion, or 99.6% of this portfolio segment. The vast majority of automobile loans are initiated through the purchase of vehicles by consumers with automobile dealers. Competition and other macro economic factors may limit the potential growth in this category.
◦ Residential Real Estate Loans: These loans, including home equity loans, made up 40.3% of the total loan portfolio at year-end. Demand for residential real estate has continued to remain strong. Arrow originated nearly all of the residential real estate loans currently held in the loan portfolio and applies conservative underwriting standards. Arrow has historically sold a portion of the 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 and other factors. The rate at which mortgage loan originations are sold in future periods will depend on various circumstances, including prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions.
Liquidity and access to credit markets: Arrow has not experienced any liquidity concerns in recent years or in 2025. Arrow’s liquidity position provides the Company with the necessary flexibility to address any unexpected near-term disruptions. Interest-earning cash balances at December 31, 2025 were $185.1 million which represents a significant increase as compared to $127.1 million at December 31, 2024. Deposit balances of Arrow Bank are Arrow's primary funding source. Additionally, contingent lines of credit are also available. Arrow has collateralized lines of credit established and available through the FHLBNY and FRB, totaling $1.4 billion. The terms of Arrow's lines of credit have not changed significantly in recent periods (see the general liquidity discussion on page 40). Arrow 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 primary liability-based sources are overnight borrowing arrangements 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.
Subsidiary Bank Unification: On December 31, 2024, Arrow merged its two subsidiary banks, GFNB and SNB, into one bank, with GFNB as the survivor, and renamed the unified institution Arrow Bank. The unification has created operational efficiencies, unified branding and enhanced Arrow's ability to pursue its strategic growth objectives.
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B. RESULTS OF OPERATIONS
The following analysis of net interest income, the provision for credit losses, noninterest income, noninterest expense and income taxes, highlights the factors that had the greatest impact on the results of operations for December 31, 2025 and the prior two years. For a comparison of the years ended December 31, 2023 and 2024, see Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2024.
I. NET INTEREST INCOME
Net interest income represents the difference between interest, dividends and fees earned on loans, securities and other earning assets and interest paid on deposits and other sources of funds. Changes in net interest income result from changes in the level and mix of earning assets and sources of funds (volume) and changes in the yields earned and interest rates paid (rate). Net interest margin is the ratio of net interest income to average earning assets. Net interest income may also be described as the product of average earning assets and the net interest margin.
CHANGE IN NET INTEREST INCOME
(Dollars In Thousands) (GAAP Basis)
| Years Ended December 31, | Change From Prior Year | ||||||||||||||||||||||||||||||||||||||||
2024 to 2025 | 2023 to 2024 | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||||
| Interest and Dividend Income | $ | 210,147 | $ | 194,993 | $ | 162,564 | $ | 15,154 | 7.8 | % | $ | 32,429 | 19.9 | % | |||||||||||||||||||||||||||
| Interest Expense | 76,983 | 83,261 | 57,732 | (6,278) | (7.5) | % | 25,529 | 44.2 | % | ||||||||||||||||||||||||||||||||
| Net Interest Income | $ | 133,164 | $ | 111,732 | $ | 104,832 | $ | 21,432 | 19.2 | % | $ | 6,900 | 6.6 | % | |||||||||||||||||||||||||||
Net interest income was $133.2 million in 2025, an increase of $21.4 million, or 19.2%, from $111.7 million in 2024. This is in comparison with an increase of $6.9 million, or 6.6%, from 2023 to 2024. Factors contributing to year-to-year changes in net interest income over the three-year period are discussed in the following portions of this Section B.I.
The following tables reflect the components of net interest income for the years ended December 31, 2025, 2024 and 2023: (i) average balances of assets, liabilities and stockholders' equity, (ii) interest and dividend income earned on earning assets and interest expense incurred on interest-bearing liabilities, (iii) average yields on earning assets and average rates paid on interest-bearing liabilities, (iv) the net interest spread (average yield less average cost) and (v) the net interest margin (yield) on earning assets. The yield on securities available-for-sale is based on the amortized cost of the securities. Nonaccrual loans are included in average loans.
Average Consolidated Balance Sheets and Net Interest Income Analysis
(GAAP basis)
(Dollars in Thousands)
| Years Ended December 31: | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest | Rate | Interest | Rate | Interest | Rate | ||||||||||||||||||||||||||||||||||||||||||||||||
| Average | Income/ | Earned/ | Average | Income/ | Earned/ | Average | Income/ | Earned/ | |||||||||||||||||||||||||||||||||||||||||||||
| Balance | Expense | Paid | Balance | Expense | Paid | Balance | Expense | Paid | |||||||||||||||||||||||||||||||||||||||||||||
Interest-Earning Deposits at Banks | $ | 188,486 | $ | 8,086 | 4.29 | % | $ | 181,618 | 9,615 | 5.29 | % | 109,906 | 5,831 | 5.31 | % | ||||||||||||||||||||||||||||||||||||||
| Investment Securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fully Taxable | 510,900 | 15,964 | 3.12 | % | 515,794 | 11,579 | 2.24 | % | 622,575 | 11,764 | 1.89 | % | |||||||||||||||||||||||||||||||||||||||||
| Exempt from Federal Taxes | 75,405 | 2,028 | 2.69 | % | 105,196 | 2,457 | 2.34 | % | 141,966 | 2,953 | 2.08 | % | |||||||||||||||||||||||||||||||||||||||||
| Loans | 3,422,737 | 184,069 | 5.38 | % | 3,300,346 | 171,342 | 5.19 | % | 3,074,261 | 142,016 | 4.62 | % | |||||||||||||||||||||||||||||||||||||||||
| Total Earning Assets | 4,197,528 | 210,147 | 5.01 | % | 4,102,954 | 194,993 | 4.75 | % | 3,948,708 | 162,564 | 4.12 | % | |||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses | (34,341) | (31,387) | (30,799) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and Due From Banks | 30,143 | 30,577 | 30,640 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Assets | 196,243 | 164,577 | 135,970 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | $ | 4,389,573 | $ | 4,266,721 | $ | 4,084,519 | |||||||||||||||||||||||||||||||||||||||||||||||
29
| Years Ended December 31: | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest | Rate | Interest | Rate | Interest | Rate | ||||||||||||||||||||||||||||||||||||||||||||||||
| Average | Income/ | Earned/ | Average | Income/ | Earned/ | Average | Income/ | Earned/ | |||||||||||||||||||||||||||||||||||||||||||||
| Balance | Expense | Paid | Balance | Expense | Paid | Balance | Expense | Paid | |||||||||||||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Checking Accounts | $ | 846,243 | 8,021 | 0.95 | % | $ | 812,634 | 7,442 | 0.92 | % | 855,931 | 3,663 | 0.43 | % | |||||||||||||||||||||||||||||||||||||||
| Savings Deposits | 1,522,092 | 38,106 | 2.50 | % | 1,507,227 | 42,850 | 2.84 | % | 1,498,749 | 34,343 | 2.29 | % | |||||||||||||||||||||||||||||||||||||||||
| Time Deposits of $250,000 Or More | 179,453 | 6,794 | 3.79 | % | 176,844 | 7,460 | 4.22 | % | 137,974 | 4,966 | 3.60 | % | |||||||||||||||||||||||||||||||||||||||||
| Other Time Deposits | 629,754 | 23,027 | 3.66 | % | 520,658 | 20,997 | 4.03 | % | 241,218 | 7,127 | 2.95 | % | |||||||||||||||||||||||||||||||||||||||||
| Total Interest-Bearing Deposits | 3,177,542 | 75,948 | 2.39 | % | 3,017,363 | 78,749 | 2.61 | % | 2,733,872 | 50,099 | 1.83 | % | |||||||||||||||||||||||||||||||||||||||||
| Short-Term Borrowings | 10,391 | 167 | 1.61 | % | 84,106 | 3,637 | 4.32 | % | 144,971 | 6,756 | 4.66 | % | |||||||||||||||||||||||||||||||||||||||||
| FHLBNY Term Advances and Other Long-Term Debt | 20,000 | 686 | 3.43 | % | 20,000 | 686 | 3.43 | % | 20,000 | 686 | 3.43 | % | |||||||||||||||||||||||||||||||||||||||||
| Finance Leases | 4,967 | 182 | 3.66 | % | 5,026 | 189 | 3.76 | % | 5,082 | 191 | 3.76 | % | |||||||||||||||||||||||||||||||||||||||||
| Total Interest- Bearing Liabilities | 3,212,900 | 76,983 | 2.40 | % | 3,126,495 | 83,261 | 2.66 | % | 2,903,925 | 57,732 | 1.99 | % | |||||||||||||||||||||||||||||||||||||||||
| Demand Deposits | 720,528 | 705,863 | 772,889 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Liabilities | 43,830 | 49,505 | 44,924 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities | 3,977,258 | 3,881,863 | 3,721,738 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ Equity | 412,315 | 384,858 | 362,781 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 4,389,573 | $ | 4,266,721 | $ | 4,084,519 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest Income | $ | 133,164 | $ | 111,732 | $ | 104,832 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest Spread | 2.61 | % | 2.09 | % | 2.13 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest Margin | 3.17 | % | 2.72 | % | 2.65 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Changes between periods are attributed to movement in either the average daily balances or average rates for both earning assets and interest-bearing liabilities. Changes attributable to both volume and rate have been allocated proportionately between the categories.
Net Interest Income Rate and Volume Analysis
(Dollars in Thousands) (GAAP basis)
2025 Compared to 2024 Change in Net Interest Income Due to: | 2024 Compared to 2023 Change in Net Interest Income Due to: | ||||||||||||||||||||||||||||||||||
| Interest and Dividend Income: | Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||||||||||||
| Interest-Bearing Bank Balances | $ | 364 | $ | (1,893) | $ | (1,529) | $ | 3,805 | $ | (21) | $ | 3,784 | |||||||||||||||||||||||
| Investment Securities: | |||||||||||||||||||||||||||||||||||
| Fully Taxable | (111) | 4,496 | 4,385 | (1,990) | 1,805 | (185) | |||||||||||||||||||||||||||||
| Exempt from Federal Taxes | (693) | 264 | (429) | (770) | 274 | (496) | |||||||||||||||||||||||||||||
| Loans | 6,224 | 6,503 | 12,727 | 10,514 | 18,812 | 29,326 | |||||||||||||||||||||||||||||
| Total Interest and Dividend Income | 5,784 | 9,370 | 15,154 | 11,559 | 20,870 | 32,429 | |||||||||||||||||||||||||||||
| Interest Expense: | |||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||
| Interest-Bearing Checking Accounts | 325 | 254 | 579 | (203) | 3,982 | 3,779 | |||||||||||||||||||||||||||||
| Savings Deposits | 431 | (5,175) | (4,744) | 217 | 8,290 | 8,507 | |||||||||||||||||||||||||||||
| Time Deposits of $250,000 or More | 106 | (772) | (666) | 1,398 | 1,096 | 2,494 | |||||||||||||||||||||||||||||
| Other Time Deposits | 4,360 | (2,330) | 2,030 | 8,247 | 5,623 | 13,870 | |||||||||||||||||||||||||||||
| Total Deposits | 5,222 | (8,023) | (2,801) | 9,659 | 18,991 | 28,650 | |||||||||||||||||||||||||||||
| Borrowings and Finance Leases | (3,195) | (282) | (3,477) | (2,835) | (286) | (3,121) | |||||||||||||||||||||||||||||
| Total Interest Expense | 2,027 | (8,305) | (6,278) | 6,824 | 18,705 | 25,529 | |||||||||||||||||||||||||||||
| Net Interest Income | $ | 3,757 | $ | 17,675 | $ | 21,432 | $ | 4,735 | $ | 2,165 | $ | 6,900 | |||||||||||||||||||||||
30
Arrow's earnings are derived predominantly from net interest income, which is interest income, net of interest expense. Changes in balance sheet composition, including interest-earning assets, deposits, and borrowings, combined with changes in market interest rates, impact net interest income. Net interest margin is net interest income divided by average interest-earning assets. Interest-earning assets and funding sources are managed, including non-interest and interest-bearing liabilities, in order to maximize this margin.
II. PROVISION FOR CREDIT LOSSES AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses for 2025 was $7.3 million, compared to the $5.2 million provision for 2024. The key drivers for the increase in provision for credit losses for 2025 were primarily net charge-offs of $6.6 million, which includes the $3.75 million charge-off of the previously disclosed commercial loan participation in the second quarter of 2025, and overall loan growth. Arrow's allowance for credit losses was $34.3 million at December 31, 2025, which represented 0.99% of loans outstanding, unchanged from 0.99% at year-end 2024.
III. NON-INTEREST INCOME
The majority of the non-interest income constitutes fee income from services, principally fees and commissions from fiduciary services, deposit account service charges, insurance commissions, net gains (losses) on securities transactions, net gains on sales of loans and other recurring fee income.
ANALYSIS OF NON-INTEREST INCOME
(Dollars In Thousands)
| Years Ended December 31, | Change From Prior Year | ||||||||||||||||||||||||||||||||||||||||
2024 to 2025 | 2023 to 2024 | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||||
| Income from Fiduciary Activities | $ | 10,304 | $ | 9,952 | $ | 9,444 | $ | 352 | 3.5 | % | $ | 508 | 5.4 | % | |||||||||||||||||||||||||||
| Fees for Other Services to Customers | 11,098 | 10,892 | 10,798 | 206 | 1.9 | % | 94 | 0.9 | % | ||||||||||||||||||||||||||||||||
| Insurance Commissions | 7,666 | 7,147 | 6,498 | 519 | 7.3 | % | 649 | 10.0 | % | ||||||||||||||||||||||||||||||||
Net Gain (Loss) on Securities | 542 | (2,907) | (92) | 3,449 | 118.6 | % | (2,815) | 3,059.8 | % | ||||||||||||||||||||||||||||||||
| Net Gain on Sales of Loans | 819 | 209 | 32 | 610 | 291.9 | % | 177 | 553.1 | % | ||||||||||||||||||||||||||||||||
| Other Operating Income | 2,003 | 2,781 | 2,437 | (778) | (28.0) | % | 344 | 14.1 | % | ||||||||||||||||||||||||||||||||
| Total Non-interest Income | $ | 32,432 | $ | 28,074 | $ | 29,117 | $ | 4,358 | 15.5 | % | $ | (1,043) | (3.6) | % | |||||||||||||||||||||||||||
2025 Compared to 2024: Total non-interest income in 2025 was $32.4 million, an increase of $4.4 million, or 15.5%, from total non-interest income of $28.1 million for 2024. Income from fiduciary activities increased $352 thousand from 2024 to 2025 primarily driven by market performance. Fees for other services to customers were $11.1 million for 2025, an increase of $206 thousand as compared to 2024. Insurance commissions increased $519 thousand compared to the previous year. Net gain on securities in 2025, was $542 thousand as compared to a loss of $2.9 million in 2024. The loss in 2024 was the result of the minor repositioning of the investment portfolio.
Net gains on the sales of loans in 2025 were $819 thousand. The rate at which mortgage loan originations may be sold in future periods will depend on various circumstances, including prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions. Therefore, Arrow is unable to predict what the retention rate of such loans in future periods may be. Servicing rights are generally retained for loans originated and sold, which also generates additional non-interest income in subsequent periods (fees for other services to customers).
Other operating income decreased by $778 thousand, or 28.0% between the two years primarily due to gains on non-marketable securities recognized in 2024.
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IV. NON-INTEREST EXPENSE
Non-interest expense is the measure of the delivery cost of services, products and business activities of a company. The key components of non-interest expense are presented in the following table.
ANALYSIS OF NON-INTEREST EXPENSE
(Dollars In Thousands)
| Years Ended December 31, | Change From Prior Year | ||||||||||||||||||||||||||||||||||||||||
2024 to 2025 | 2023 to 2024 | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||||
| Salaries and Employee Benefits | $ | 56,289 | $ | 52,707 | $ | 47,667 | $ | 3,582 | 6.8 | % | $ | 5,040 | 10.6 | % | |||||||||||||||||||||||||||
| Occupancy Expenses, Net | 7,762 | 7,169 | 6,554 | 593 | 8.3 | % | 615 | 9.4 | % | ||||||||||||||||||||||||||||||||
| Technology and Equipment Expense | 20,791 | 19,365 | 17,608 | 1,426 | 7.4 | % | 1,757 | 10.0 | % | ||||||||||||||||||||||||||||||||
| FDIC Regular Assessment | 2,516 | 2,775 | 2,050 | (259) | (9.3) | % | 725 | 35.4 | % | ||||||||||||||||||||||||||||||||
| Amortization of Intangible Assets | 311 | 248 | 176 | 63 | 25.4 | % | 72 | 40.9 | % | ||||||||||||||||||||||||||||||||
| Other Operating Expense | 15,265 | 15,004 | 18,993 | 261 | 1.7 | % | (3,989) | (21.0) | % | ||||||||||||||||||||||||||||||||
| Total Non-interest Expense | $ | 102,934 | $ | 97,268 | $ | 93,048 | $ | 5,666 | 5.8 | % | $ | 4,220 | 4.5 | % | |||||||||||||||||||||||||||
| Efficiency Ratio | 61.97 | % | 67.68 | % | 68.89 | % | (5.71) | % | (8.4) | % | (1.21) | % | (1.8) | % | |||||||||||||||||||||||||||
2025 compared to 2024: Non-interest expense for 2025 was $102.9 million, an increase of $5.7 million, or 5.8%, from 2024. For 2025, the efficiency ratio was 61.97% compared to 67.68% for 2024. This ratio, which is a commonly used non-GAAP financial measure in the banking industry, is a comparative measure of a financial institution's operating efficiency. The efficiency ratio is the ratio of operating non-interest expense (excluding intangible asset amortization) to net interest income (on a tax-equivalent basis) plus operating non-interest income (excluding net securities gains or losses). See the discussion of the efficiency ratio in this Report under the heading “Use of Non-GAAP Financial Measures.”
Salaries and employee benefits expense increased $3.6 million or 6.8%, from 2024, primarily due to inflation-driven wage increases and rising benefit costs.
Technology expenses increased $1.4 million, or 7.4%, from 2024 due to continued investment in innovation and infrastructure. The expense reflects our strategic focus on a strong technology foundation and our enhancements of customer-facing technology intended to create more efficient and improved internal operations.
Other operating expense decreased $0.3 million, or 1.7%, from 2024.
2025 included unification expenses of approximately $2.3 million. Unification expenses were primarily comprised of project management and information technology costs related to the July 2025 system conversion.
V. INCOME TAXES
The following table sets forth the provision for income taxes and effective tax rates for the years presented.
INCOME TAXES AND EFFECTIVE RATES
(Dollars In Thousands)
| Years Ended December 31, | Change From Prior Year | ||||||||||||||||||||||||||||||||||||||||
2024 to 2025 | 2023 to 2024 | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||||
| Provision for Income Taxes | $ | 11,435 | $ | 7,649 | $ | 7,445 | $ | 3,786 | 49.5 | % | $ | 204 | 2.7 | % | |||||||||||||||||||||||||||
| Effective Tax Rate | 20.6 | % | 20.5 | % | 19.8 | % | 0.1 | % | 0.5 | % | 0.7 | % | 3.5 | % | |||||||||||||||||||||||||||
The provisions for federal and state income taxes amounted to $11.4 million for 2025, $7.6 million for 2024, and $7.4 million for 2023. The effective income tax rates for 2025, 2024 and 2023 were 20.6%, 20.5% and 19.8%, respectively. The increase in the 2025 effective tax rate compared to 2024 was primarily attributable to higher pre-tax income, which diluted the proportional impact of tax-exempt income. This was partially offset by tax credits recognized from energy production tax credit investments made in 2025. See Note 15. Income Taxes to the Consolidated Financial Statements for more information about the 2025 purchase of energy production tax credits as well as items that impacted the effective tax rate for each year.
C. FINANCIAL CONDITION
I. INVESTMENT PORTFOLIO
The available-for-sale securities portfolio, held-to-maturity securities portfolio and the equity securities portfolio are further detailed below. During 2025 and 2024, Arrow held no trading securities.
The table below presents the changes in the period-end balances for available-for-sale, held-to-maturity and equity securities from December 31, 2024 to December 31, 2025 (in thousands):
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| (Dollars in Thousands) | |||||||||||||||||||||||||||||||||||
| Fair Value at Period-End | Net Unrealized (Losses) Gains For Period Ended | ||||||||||||||||||||||||||||||||||
| 12/31/2025 | 12/31/2024 | Change | 12/31/2025 | 12/31/2024 | Change | ||||||||||||||||||||||||||||||
| Securities Available-for-Sale: | |||||||||||||||||||||||||||||||||||
| U.S. Treasury Securities | $ | 80,563 | $ | 98,070 | $ | (17,507) | $ | 2,127 | $ | 85 | $ | 2,042 | |||||||||||||||||||||||
| U.S. Agency Securities | 24,816 | 69,214 | (44,398) | (184) | (786) | $ | 602 | ||||||||||||||||||||||||||||
| State and Municipal Obligations | 200 | 240 | (40) | — | — | — | |||||||||||||||||||||||||||||
Mortgage-Backed Securities | 366,681 | 294,608 | 72,073 | (19,085) | (35,840) | 16,755 | |||||||||||||||||||||||||||||
| Corporate and Other Debt Securities | 23,608 | 979 | 22,629 | 108 | (21) | 129 | |||||||||||||||||||||||||||||
| Total | $ | 495,868 | $ | 463,111 | $ | 32,757 | $ | (17,034) | $ | (36,562) | $ | 19,528 | |||||||||||||||||||||||
| Securities Held-to-Maturity: | |||||||||||||||||||||||||||||||||||
| State and Municipal Obligations | $ | 62,546 | $ | 90,373 | $ | (27,827) | $ | (324) | $ | (1,456) | $ | 1,132 | |||||||||||||||||||||||
| Mortgage-Backed Securities | 4,023 | 6,213 | (2,190) | (82) | (219) | 137 | |||||||||||||||||||||||||||||
| Total | $ | 66,569 | $ | 96,586 | $ | (30,017) | $ | (406) | $ | (1,675) | $ | 1,269 | |||||||||||||||||||||||
| Equity Securities | $ | 5,597 | $ | 5,055 | $ | 542 | $ | — | $ | — | $ | — | |||||||||||||||||||||||
The 2025 increase in the fair value of the investment portfolio and the related improvement of net unrealized losses on securities available-for-sale is primarily due to the reinvestment of the cash generated from paydowns and maturities into higher yielding investments and lower interest rate environment.
The table below presents the weighted average yield for available-for-sale and held-to-maturity securities as of December 31, 2025 (in thousands). The weighted-average yields are calculated by breaking down each investment segment by maturity date and calculating based on book value (amortized cost) against each corresponding rate. Yields on tax-exempt obligations are not presented on a tax-equivalent basis.
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Within One Year | After One But Within Five Years | After Five But Within Ten Years | After Ten Years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities Available-for-Sale: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury Securities | $ | — | — | % | $ | 48,895 | 4.4 | % | $ | 29,541 | 4.4 | % | $ | — | $ | — | $ | 78,436 | 4.4 | % | |||||||||||||||||||||||||||||||||||||||
| U.S. Agency Securities | — | — | % | 25,000 | 2.9 | % | — | — | % | — | — | % | 25,000 | 2.9 | % | ||||||||||||||||||||||||||||||||||||||||||||
| State and Municipal Obligations | — | — | % | 200 | 6.8 | % | — | — | % | — | % | 200 | 6.8 | % | |||||||||||||||||||||||||||||||||||||||||||||
Mortgage-Backed Securities | 81 | 1.8 | % | 32,135 | 4.0 | % | 77,573 | 1.5 | % | 275,977 | 3.2 | % | 385,766 | 2.9 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate and Other Debt Securities | — | — | % | 1,000 | 7.0 | % | 19,500 | 6.9 | % | 3,000 | 6.6 | % | 23,500 | 6.9 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 81 | 1.8 | % | $ | 107,230 | 4.0 | % | $ | 126,614 | 3.0 | % | $ | 278,977 | 3.2 | % | $ | 512,902 | 3.4 | % | |||||||||||||||||||||||||||||||||||||||
| Securities Held-to-Maturity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| State and Municipal Obligations | $ | 46,318 | 3.6 | % | $ | 15,192 | 3.5 | % | $ | 1,360 | 4.5 | % | $ | — | — | % | $ | 62,870 | 3.6 | % | |||||||||||||||||||||||||||||||||||||||
| Mortgage-Backed Securities | — | — | % | 2,592 | 2.4 | % | — | — | % | 1,513 | 2.6 | % | 4,105 | 2.5 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 46,318 | 3.6 | % | $ | 17,784 | 3.3 | % | $ | 1,360 | 4.5 | % | $ | 1,513 | 2.6 | % | $ | 66,975 | 3.5 | % | |||||||||||||||||||||||||||||||||||||||
For the years above, Arrow held no investment securities in the securities portfolio that consisted of or included, directly or indirectly, obligations of foreign governments or government agencies of foreign issuers.
In the years 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 or by government-sponsored enterprises (GSEs). 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. Arrow's practice has been to purchase pass-through securities and CMOs that are issued or guaranteed by U.S. federal agencies or GSEs, and the tranches of CMOs purchased are generally those having shorter average lives and/or durations. Lower market interest rates and/or payment deferrals on underlying loans that make up mortgage-backed security collateral may impact cashflows.
33
In the years referenced above, U.S. Government & Agency Obligations consisted solely of agency bonds issued by GSEs. These securities generally pay fixed semi-annual coupons with principle payments at maturity. For some, callable options are included that may impact the timing of these principal payments. Arrow's practice has been to purchase agency securities that are issued or guaranteed by GSEs with limited embedded optionality (call features). Final maturities are generally less than 5 years.
The yields on obligations of states and municipalities exempt from federal taxation were computed on a tax-equivalent basis. The yields on other debt securities shown in the table above are calculated by dividing annual interest, including accretion of discounts and amortization of premiums, by the amortized cost of the securities at December 31, 2025.
Arrow evaluates available-for-sale debt securities in unrealized loss positions at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized within the allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. Arrow determined that at December 31, 2025, gross unrealized losses, $17.0 million, were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. In 2024, both the investment portfolio restructuring as well as interest rates plateauing resulted in a decrease in unrealized losses versus the comparable prior year. Arrow does not intend to sell, nor is it more likely than not that Arrow will be required to sell, any securities before recovery of its amortized cost basis, which may be at maturity. Arrow carried no allowance for credit loss at December 31, 2025 and there was no credit loss expense recognized by Arrow with respect to the securities portfolio during the year ended December 31, 2025.
At December 31, 2025 and 2024, the weighted average maturity was 10.5 and 4.2 years, respectively, for debt securities in the available-for-sale portfolio.
For further information regarding the portfolio of securities available-for-sale, see Note 4. Investment Securities to the Consolidated Financial Statements.
Securities Held-to-Maturity:
The following table sets forth the carrying value of the portfolio of securities held-to-maturity at December 31 of each of the last two years.
SECURITIES HELD-TO-MATURITY
(Dollars In Thousands)
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| State and Municipal Obligations | $ | 62,870 | $ | 91,829 | |||||||
| Mortgage Backed Securities - Residential | 4,105 | 6,432 | |||||||||
| Total | $ | 66,975 | $ | 98,261 | |||||||
Arrow's held-to-maturity debt securities are comprised of GSEs and state and municipal obligations. GSE securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Arrow performs an analysis of the credit worthiness of municipal obligations to determine if a security is of investment grade. The analysis may include, but may not solely rely upon credit analysis conducted by external credit rating agencies. Arrow determined that the expected credit loss on its held to maturity debt portfolio was immaterial and, therefore, no allowance for credit loss was recorded as of December 31, 2025.
At December 31, 2025 and 2024, the weighted average maturity was 1.5 and 1.1 years, respectively, for the debt securities in the held-to-maturity portfolio.
For additional information regarding the fair value of the portfolio of securities held-to-maturity at December 31, 2025, see Note 4. Investment Securities to the Consolidated Financial Statements.
EQUITY SECURITIES
(Dollars In Thousands)
The following table is the schedule of Equity Securities at December 31 of each of the last two years. Equity Securities primarily consist of common stock of companies within the financial sector.
| Equity Securities | ||||||||||||||
| December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Equity Securities, at Fair Value | $ | 5,597 | $ | 5,055 | ||||||||||
34
II. LOAN PORTFOLIO
The amounts and respective percentages of loans outstanding represented by each principal category on the dates indicated were as follows:
a. Types of Loans
(Dollars In Thousands)
| December 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Amount | % | Amount | % | ||||||||||||||||||||
| Commercial | $ | 165,729 | 5 | % | $ | 158,991 | 5 | % | |||||||||||||||
| Commercial Real Estate | 818,259 | 24 | % | 796,365 | 23 | % | |||||||||||||||||
| Consumer | 1,076,007 | 31 | % | 1,118,981 | 33 | % | |||||||||||||||||
| Residential Real Estate | 1,393,098 | 40 | % | 1,320,204 | 39 | % | |||||||||||||||||
| Total Loans | 3,453,093 | 100 | % | 3,394,541 | 100 | % | |||||||||||||||||
| Allowance for Credit Losses | (34,322) | (33,598) | |||||||||||||||||||||
| Total Loans, Net | $ | 3,418,771 | $ | 3,360,943 | |||||||||||||||||||
Commercial and Commercial Real Estate Loans: Commercial and commercial real estate loans in the loan portfolio were extended to businesses or borrowers primarily located in Arrow's regional markets. There are no commercial real estate loans in major metropolitan areas. Approximately 1% of the loan portfolio are comprised of office related property. Retail loans were approximately 2% of the loan portfolio and hotels and motels were approximately 5% of the portfolio. Overall, Arrow has minimal exposure to highly sensitive areas that currently have elevated office and retail vacancy rates. A portion of the loans in the commercial portfolio have variable rates tied to market indices, such as Prime, SOFR or FHLBNY.
Consumer Loans: At December 31, 2025, consumer loans (primarily automobile loans originated through dealerships located in New York and Vermont) continue to be a significant component of Arrow's business, comprising approximately one third of the total loan portfolio.
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 credit risk has contributed to maintaining the strong credit quality in this portfolio.
Residential Real Estate Loans: Demand for residential real estate has continued to remain strong even with elevated interest rates. Arrow has historically sold portions of these originations in the secondary market. The rate at which mortgage loan originations may be sold in future periods will depend on a variety of factors, including demand for residential mortgages in our operating markets, market conditions for mortgage sales and strategic balance sheet and interest-rate risk management decisions.
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b. Maturities and Sensitivities of Loans to Changes in Interest Rates (Dollars in Thousands)
The table below shows the maturity of loans outstanding as of December 31, 2025. Also provided are the amounts due after one year, classified according to fixed interest rates and variable interest rates (in thousands):
| December 31, 2025 | |||||||||||||||||||||||||||||
| Within One Year | After One But Within Five Years | After Five But Within 15 Years | After 15 Years | Total | |||||||||||||||||||||||||
| Commercial | $ | 41,804 | $ | 83,465 | $ | 40,374 | $ | 86 | $ | 165,729 | |||||||||||||||||||
| Commercial Real Estate | 240,611 | 372,688 | 198,621 | 6,339 | 818,259 | ||||||||||||||||||||||||
| Consumer | 10,795 | 597,377 | 467,405 | 430 | 1,076,007 | ||||||||||||||||||||||||
| Residential Real Estate | 154,682 | 197,953 | 341,586 | 698,877 | 1,393,098 | ||||||||||||||||||||||||
| Total | $ | 447,892 | $ | 1,251,483 | $ | 1,047,986 | $ | 705,732 | $ | 3,453,093 | |||||||||||||||||||
| After One But Within Five Years | After Five But Within 15 Years | After 15 Years | Total | ||||||||||||||||||||||||||
| Loans maturing with: | |||||||||||||||||||||||||||||
| Fixed Interest Rates | $ | 756,556 | $ | 771,285 | $ | 701,923 | $ | 2,229,764 | |||||||||||||||||||||
| Variable Interest Rates | 494,927 | 276,701 | 3,809 | 775,437 | |||||||||||||||||||||||||
| Total | $ | 1,251,483 | $ | 1,047,986 | $ | 705,732 | $ | 3,005,201 | |||||||||||||||||||||
COMMITMENTS AND LINES OF CREDIT
Stand-by letters of credit represent extensions of credit granted in the normal course of business, which are not reflected in the financial statements at a given date because the commitments are not funded at that time. As of December 31, 2025, the total contingent liability for standby letters of credit amounted to $3.6 million. In addition to these instruments, there are lines of credit to customers, including home equity lines of credit, commitments for residential and commercial construction loans and other personal and commercial lines of credit, which also may be unfunded or only partially funded from time-to-time. Commercial lines, generally issued for a period of one year, are usually extended to provide for the working capital requirements of the borrower. At December 31, 2025, outstanding unfunded loan commitments in the aggregate amount were approximately $462.9 million compared to $449.5 million at December 31, 2024.
c. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans
The amounts of nonaccrual, past due and restructured loans at year-end for each of the past two years are presented in the table on page 38 under the heading "Summary of the Allowance and Provision for Credit Losses."
Loans are placed on nonaccrual status either due to the delinquency status of principal and/or interest or a judgment by Management that the full repayment of principal and interest is unlikely. Unless already placed on nonaccrual status, loans secured by home equity lines of credit are put on nonaccrual status when 120 days past due and residential real estate loans are put on nonaccrual status when 150 days past due. Commercial and commercial real estate loans are evaluated on a loan-by-loan basis and are placed on nonaccrual status when 90 days past due if the full collection of principal and interest is uncertain. Under the Uniform Retail Credit Classification and Account Management Policy established by banking regulators, fixed-maturity consumer loans not secured by real estate must generally be charged-off no later than when 120 days past due. Loans secured with non-real estate collateral in the process of collection are charged-down to the value of the collateral, less cost to sell. Arrow had no material commitments to lend additional funds on outstanding nonaccrual loans at December 31, 2025. Loans past due 90 days or more and still accruing interest are those loans which were contractually past due 90 days or more but because of expected repayments, were still accruing interest.
The balance of loans 30-89 days past due and still accruing interest totaled $28.9 million at December 31, 2025 and represented 0.84% of loans outstanding at that date, as compared to approximately $20.5 million, or 0.60% of loans outstanding at December 31, 2024. These non-current loans at December 31, 2025 were composed of approximately $21.0 million of consumer loans (principally indirect automobile loans), $4.2 million of residential real estate loans and $3.7 million of commercial and commercial real estate loans.
The method for measuring all other loans is described in detail in Note 2. Summary of Significant Accounting Policies, and Note 5. Loans, to the Consolidated Financial Statements. Note 5. Loans, to the Consolidated Financial Statements also contains detailed information on modified loans and impaired loans.
2. Potential Problem Loans
On at least a quarterly basis, the internal credit quality rating is re-evaluated for commercial loans that are either past due or fully performing but exhibit certain characteristics that could reflect potential weaknesses. Loans are placed on nonaccrual
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status when the likely amount of future principal and interest payments are expected to be less than the contractual amounts, even if such loans are not past due.
Periodically, Arrow reviews the loan portfolio for evidence of potential problem loans. Potential problem loans are loans that are currently performing in accordance with contractual terms, but where known information about possible credit problems of the borrower may jeopardize loan repayment and result in a non-performing loan. In the credit monitoring program, Arrow treats loans that are classified as substandard but continue to accrue interest as potential problem loans. At December 31, 2025, Arrow identified 33 commercial loans totaling $25.5 million as potential problem loans. At December 31, 2024, Arrow identified 33 commercial loans totaling $21.0 million as potential problem loans. For these loans, although positive factors such as payment history, value of supporting collateral, and/or personal or government guarantees led Arrow to conclude that accounting for them as non-performing at year-end was not warranted, other factors, specifically, certain risk factors related to the loan or the borrower justified concerns that they may become nonperforming at some point in the future.
3. Foreign Loans
None
4. Loan Concentrations
The loan portfolio is well diversified. There are no concentrations of credit that exceed 10% of the portfolio, other than the general categories reported in the preceding Section C.II.a. of this Item 7, beginning on page 35. For further discussion, see Note 1. Risks and Uncertainties, to the Consolidated Financial Statements.
5. Other Real Estate Owned and Repossessed Assets
Other real estate owned ("OREO") primarily consists of real property acquired in foreclosure. When held, OREO is carried at fair value less estimated cost to sell. Arrow establishes allowances for OREO losses, which are determined and monitored on a property-by-property basis and reflect the ongoing estimate of the property's estimated fair value less costs to sell. All Repossessed Assets for each of the years in the table below consist of motor vehicles.
| Distribution of OREO and Repossessed Assets (Dollars In Thousands) | December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Other Real Estate Owned | — | 76 | — | ||||||||||||||
| Repossessed Assets | 280 | 382 | 312 | ||||||||||||||
| Total OREO and Repossessed Assets | $ | 280 | $ | 458 | $ | 312 | |||||||||||
The following table summarizes changes in the net carrying amount of OREO and the number of properties for each of the years presented.
| Schedule of Changes in OREO (Dollars In Thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at Beginning of Year | $ | 76 | $ | — | $ | — | |||||||||||
| Properties Acquired Through Foreclosure | — | 76 | 182 | ||||||||||||||
| Gain on Sale/Adjustment to Fair Value of OREO properties | — | — | 5 | ||||||||||||||
| Sales | (76) | — | (187) | ||||||||||||||
| Balance at End of Year | $ | — | $ | 76 | $ | — | |||||||||||
| Number of Properties, Beginning of Year | 2 | — | — | ||||||||||||||
| Properties Acquired During the Year | — | 2 | 1 | ||||||||||||||
| Properties Sold During the Year | (2) | — | (1) | ||||||||||||||
| Number of Properties, End of Year | — | 2 | — | ||||||||||||||
III. SUMMARY OF CREDIT LOSS EXPERIENCE
The CECL approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to reflect the net, lifetime amount expected to be collected on the loans. Loan losses are charged off against the allowance when Arrow believes a loan balance is confirmed to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.
Management estimates the allowance using relevant available information from internal and external sources related to past events, current conditions, and a reasonable and supportable economic forecast. Historical credit loss experience provides the basis for the estimation of expected credit losses. Arrow's historical loss experience was supplemented with peer information when there was insufficient loss data for Arrow. Peer selection was based on a review of institutions with comparable loss experience as well as loan yield, bank size, portfolio concentration and geography. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in credit concentrations, delinquency level, collateral values and underwriting standards as well as changes in economic conditions or other relevant factors. Management judgment is required at each point in the measurement process.
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The analysis of the method employed for determining the amount of the credit loss provision is explained in detail in Notes 2, Summary of Significant Accounting Policies, and 5, Loans, to the Consolidated Financial Statements.
Arrow's allowance for credit losses was $34.3 million at December 31, 2025, which represented 0.99% of loans outstanding, unchanged from 0.99% at year-end 2024.
SUMMARY OF THE ALLOWANCE AND PROVISION FOR CREDIT LOSSES
(Dollars In Thousands) (Loans, Net of Unearned Income)
| Years-Ended December 31, | 2025 | 2024 | |||||||||
Year-End Loans | $3,453,093 | $3,394,541 | |||||||||
| Average Loans | 3,422,737 | 3,300,346 | |||||||||
Year-End Assets | 4,445,862 | 4,306,348 | |||||||||
| Nonperforming Assets, at Period-End: | |||||||||||
| Nonaccrual Loans: | |||||||||||
| Commercial Loans | 168 | 102 | |||||||||
| Commercial Real Estate | — | 14,902 | |||||||||
| Consumer Loans | 1,879 | 2,241 | |||||||||
| Residential Real Estate Loans | 4,368 | 3,376 | |||||||||
| Total Nonaccrual Loans | 6,415 | 20,621 | |||||||||
| Loans Past Due 90 or More Days and | |||||||||||
| Still Accruing Interest | 2,040 | 398 | |||||||||
| Total Nonperforming Loans | 8,455 | 21,019 | |||||||||
| Repossessed Assets | 280 | 382 | |||||||||
| Other Real Estate Owned | — | 76 | |||||||||
| Total Nonperforming Assets | 8,735 | 21,477 | |||||||||
| Allowance for Credit Losses: | |||||||||||
| Balance at Beginning of Period | $ | 33,598 | $ | 31,265 | |||||||
| Loans Charged-off: | |||||||||||
| Commercial Loans | — | (9) | |||||||||
| Commercial Real Estate | (3,818) | — | |||||||||
| Consumer Loans | (5,685) | (5,837) | |||||||||
| Residential Real Estate Loans | (51) | (49) | |||||||||
| Total Loans Charged-off | (9,554) | (5,895) | |||||||||
| Recoveries of Loans Previously Charged-off: | |||||||||||
| Commercial Loans | — | — | |||||||||
| Commercial Real Estate | 76 | — | |||||||||
| Consumer Loans | 2,928 | 3,048 | |||||||||
| Residential Real Estate Loans | — | — | |||||||||
| Total Recoveries of Loans Previously Charged-off | 3,004 | 3,048 | |||||||||
| Net Loans Charged-off | (6,550) | (2,847) | |||||||||
| Provision for Credit Losses | |||||||||||
| Charged to Expense | 7,274 | 5,180 | |||||||||
Balance at End of Year | $ | 34,322 | $ | 33,598 | |||||||
| Asset Quality Ratios: | |||||||||||
Net Charge-offs to Average Loans: | |||||||||||
| Commercial Loans | — | % | — | % | |||||||
| Commercial Real Estate | 0.11 | % | — | % | |||||||
| Consumer Loans | 0.08 | % | 0.08 | % | |||||||
| Residential Real Estate Loans | — | % | — | % | |||||||
Total | 0.19 | % | 0.09 | % | |||||||
| Provision for Credit Losses to Average Loans | 0.21 | % | 0.16 | % | |||||||
Allowance for Credit Losses to Year-end Loans | 0.99 | % | 0.99 | % | |||||||
| Allowance for Credit Losses to Nonperforming Loans | 405.94 | % | 159.69 | % | |||||||
Nonperforming Loans to Year-end Loans | 0.24 | % | 0.62 | % | |||||||
Nonperforming Assets to Year-end Assets | 0.20 | % | 0.50 | % | |||||||
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ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
(Dollars in Thousands)
| 2025 | 2024 | ||||||||||
| Commercial Loans | $ | 2,954 | $ | 1,925 | |||||||
| Commercial Real Estate | 15,260 | 14,507 | |||||||||
| Consumer Loans | 4,090 | 3,882 | |||||||||
| Residential Real Estate Loans | 12,018 | 13,284 | |||||||||
| Total | $ | 34,322 | $ | 33,598 | |||||||
Arrow's allowance for credit losses was $34.3 million at December 31, 2025, which represented 0.99% of loans outstanding, unchanged from 0.99% at year-end 2024.
The overall change in the allowance from December 31, 2024 was primarily driven by net charge-offs of $6.6 million and net loan growth by $1.2 million, offset by model calculation, including mix and aging, which decreased the allowance by $537 thousand. The 2025 provision for credit losses was $7.3 million. Management's evaluation considers the allowance for credit losses for loans to be adequate as of December 31, 2025.
The percentage of loans in each loan category is presented in the table of loan types in the preceding section on page 35 of this Report.
IV. DEPOSITS
The following table sets forth the average balances of and average rates paid on deposits for the periods indicated.
AVERAGE DEPOSIT BALANCES
(Dollars In Thousands)
| Years Ended | |||||||||||||||||||||||
| 12/31/2025 | 12/31/2024 | ||||||||||||||||||||||
| Average Balance | Rate | Average Balance | Rate | ||||||||||||||||||||
| Demand Deposits | $ | 720,528 | — | % | $ | 705,863 | — | % | |||||||||||||||
| Interest-Bearing Checking Accounts | 846,243 | 0.95 | % | 812,634 | 0.92 | % | |||||||||||||||||
| Savings Deposits | 1,522,092 | 2.50 | % | 1,507,227 | 2.84 | % | |||||||||||||||||
| Time Deposits of $250,000 or More | 179,453 | 3.79 | % | 176,844 | 4.22 | % | |||||||||||||||||
| Other Time Deposits | 629,754 | 3.66 | % | 520,658 | 4.03 | % | |||||||||||||||||
| Total Deposits | $ | 3,898,070 | 1.95 | % | $ | 3,723,226 | 2.12 | % | |||||||||||||||
Average total deposit balances increased by $174.8 million, or 4.7% in 2025. The change in composition of deposits was primarily the result of an additional brokered CDs and the migration from low to higher costing products.
Arrow used reciprocal deposits for a select group of municipalities to reduce the amount of investment securities required to be pledged as collateral for municipal deposits where municipal deposits in excess of the FDIC insurance coverage limits were transferred to other participating banks, divided into portions so as to qualify such transferred deposits for FDIC insurance coverage at each transferee bank. In return, reciprocal amounts are transferred to Arrow in equal amounts of deposits from the participant banks. Reciprocal deposits were $614.9 million and $648.5 million at December 31, 2025 and 2024, respectively. Municipal deposits were $787.1 million and $684.8 million at December 31, 2025 and 2024, respectively. Brokered CDs were $300 million and $270 million at December 31, 2025 and 2024, respectively.
Uninsured deposits represents the portion of deposit accounts that exceed FDIC insurance limits. Arrow calculates its uninsured deposit balances based on the same methodologies and assumptions used for regulatory reporting requirements. Estimated uninsured deposits as reported in the Call Report were $917.6 million at December 31, 2025, which includes intercompany account balances of $57.5 million, and collateralized deposits of $276.1 million. Estimated uninsured deposits as recorded in the Call Report were $861.4 million at December 31, 2024, which includes intercompany account balances of $67.9 million, and collateralized deposits of $280.6 million.
The cost of deposits decreased throughout 2025. While the Federal Funds rate was cut thrice in 2025, the timing and magnitude of future rate adjustments are unknown. Arrow believes it is well positioned for a variety of rate environments.
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The maturities of time deposits of $250,000 or more at December 31, 2025 are presented below. (Dollars In Thousands)
| Maturing in: | |||||
| Under Three Months | $ | 56,644 | |||
Three to Six Months | 69,305 | ||||
Six to Twelve Months | 25,092 | ||||
Over 12 Months | 4,761 | ||||
| Total | $ | 155,802 | |||
V. SHORT-TERM BORROWINGS (Dollars in Thousands)
| 12/31/2025 | 12/31/2024 | ||||||||||
| Overnight Advances from the FHLBNY, Federal Funds Purchased and Securities Sold Under Agreements to Repurchase: | |||||||||||
| Balance at December 31 | $ | — | $ | — | |||||||
| Maximum Month-End Balance | — | — | |||||||||
| Average Balance During the Year | — | — | |||||||||
| Average Rate During the Year | n/a | n/a | |||||||||
| Rate at December 31 | n/a | n/a | |||||||||
D. LIQUIDITY
The objective of effective liquidity management is to ensure that Arrow has the ability to raise cash when needed at a reasonable cost. This includes the capability of meeting expected and unexpected obligations to Arrow's customers at any time. Given the uncertain nature of customer demands and the need to maximize earnings, Arrow must have available reasonably priced sources of funds, both on- and off-balance sheet, that can be accessed quickly in times of need. Arrow’s liquidity position should provide the Company with the necessary flexibility to address any unexpected near-term disruptions such as reduced cash flows from the investment and loan portfolio, unexpected deposit runoff, or increased loan originations.
Arrow's primary sources of available liquidity are overnight investments in federal funds sold, interest earning bank balances at the Federal Reserve Bank of New York, and cash flow from investment securities and loans. Certain investment securities are categorized as available-for-sale at time of purchase based on their marketability and collateral value, as well as their yield and maturity. The securities available-for-sale portfolio was $495.9 million at year-end 2025, an increase of $32.8 million from the year-end 2024 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 earning cash balances at December 31, 2025 of $185.1 million compared to $127.1 million at December 31, 2024.
In addition to liquidity from cash, short-term investments, investment securities and loans, Arrow 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 $23 million which were not drawn on in 2025.
To support the borrowing relationship with the FHLBNY, Arrow has pledged collateral, including residential mortgage, home equity and commercial real estate loans. At December 31, 2025, Arrow had outstanding collateralized obligations with the FHLBNY of $4 million; as of that date, the unused borrowing capacity at the FHLBNY was approximately $723 million. Brokered deposits have also been identified as an available source of funding accessible in a relatively short time period. At December 31, 2025, there were $300 million in brokered CD deposits. In addition, Arrow Bank has 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 December 31, 2025, the amount available under this facility was approximately $708 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 events. Additionally, Arrow continually monitors levels and composition of uninsured deposits. Uninsured deposit balances in excess of the FDIC insurance limit at December 31, 2025 and 2024, were less than 30% of the total deposit base.
Arrow measures and monitors liquidity both with and without the availability of borrowing arrangements. Based on the level of overnight investments, available liquidity from the investment securities portfolio, cash flows from the loan portfolio, the stable core deposit base and the significant borrowing capacity, Arrow believes that the available liquidity is sufficient to meet all reasonably likely events or occurrences. At December 31, 2025, Arrow's primary liquidity ratio was 10.7% of total assets, well in excess of the internal policy limit of 5%. Total primary liquidity was $477.8 million, comprised of unencumbered cash and securities.
Arrow did not experience any liquidity constraints in 2025 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.
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E. CAPITAL RESOURCES AND DIVIDENDS
Important Regulatory Capital Standards: Dodd-Frank, enacted in 2010, directed U.S. bank regulators to promulgate revised bank organization capital standards. These Capital Rules are summarized in an earlier section of this Report, "Regulatory Capital Standards," beginning on page 8.
The table below sets forth the various capital ratios achieved by Arrow and Arrow Bank as of December 31, 2025, as determined under the bank regulatory capital standards in effect on that date, as well as the minimum levels for such capital ratios that bank holding companies and banks are required to maintain under the Capital Rules (not including the "capital conservation buffer"). As demonstrated in the table, all of Arrow's and the banks' capital ratios at year-end were well in excess of the minimum required levels for such ratios, as established by the regulators. (See Item 1, Section C, under "Regulatory Capital Standards" and Item 8, Note 19. Derivative Instruments and Hedging Activities to the Consolidated Financial Statements, for information regarding the "capital conservation buffer.") In addition, on December 31, 2025, Arrow Bank qualified as "well-capitalized", the highest capital classification category under the revised capital classification scheme recently established by the federal bank regulators, that was in effect on that date.
Capital Ratios: | Arrow | Arrow Bank | Minimum Required Ratio | ||||||||||||||
| Tier 1 Leverage Ratio | 9.7% | 9.3% | 4.0% | ||||||||||||||
| Common Equity Tier 1 Capital Ratio | 13.0% | 13.1% | 4.5% | ||||||||||||||
| Tier 1 Risk-Based Capital Ratio | 13.6% | 13.1% | 6.0% | ||||||||||||||
| Total Risk-Based Capital Ratio | 14.8% | 14.3% | 8.0% | ||||||||||||||
Stockholders' Equity at Year-end 2025: Total stockholders' equity was $431.9 million at December 31, 2025, an increase of $31.0 million, or 7.7%, from December 31, 2024. The net increase in total stockholders' equity during 2025 principally reflected the following factors: (i) $44.0 million of net income for the year, (ii) other comprehensive income of $14.4 million and (iii) $1.7 million of equity related to various stock-based compensation plans, reduced by (iv) cash dividends of $18.9 million and (v) repurchases of common stock of $10.2 million.
Trust Preferred Securities: In each of 2003 and 2004, Arrow 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 2020, Arrow entered into interest rate swap agreements to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities. The effective fixed rate is approximately 3.43% until maturity. These agreements are designated as cash flow hedges.
Dividends: The source of funds for the payment of Arrow's cash dividends to shareholders consists primarily of dividends declared and paid to it by Arrow Bank, NA. In addition to legal and regulatory limitations on payments of dividends by Arrow (i.e., the need to maintain adequate regulatory capital), there are also legal and regulatory limitations applicable to the payment of dividends by a bank subsidiary to its parent bank holding company. As of December 31, 2025, under the statutory limitations in national banking law, the maximum amount that could have been paid by Arrow Bank, NA to Arrow, without special regulatory approval, was approximately $27.7 million. The ability of Arrow and Arrow Bank to pay dividends in the future is and will continue to be influenced by regulatory policies, capital guidelines and applicable laws.
See Part II, Item 5, "Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for a recent history of its cash dividend payments.
Stock Repurchase Program: On April 24, 2024, the Board authorized management, in its discretion, to repurchase from time to time, in the open market or in privately negotiated transactions, up to $5 million of Arrow common stock. In addition, on April 30, 2025, the Board authorized management, in its discretion, to repurchase from time to time, in the open market or in privately negotiated transactions, an additional $5 million of Arrow common stock.
In 2025, Arrow repurchased approximately $9.9 million (approximately 377 thousand shares of its common stock) under this authorization.
On July 23, 2025, the Board increased management's share repurchase authority by another $5 million.
From time to time, Arrow may establish a written trading plan in accordance with Rule 10b5-1 of the Exchange Act, pursuant to which it may repurchase shares of its common stock. Repurchases may be made by Arrow, at times and in amounts as it deems appropriate, and may be made through open market transactions in compliance with Rule 10b-18 of the Exchange Act, subject to market conditions, applicable legal requirements, and other factors.
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In addition, a de minimis portion of Arrow's common stock was purchased during 2025 other than through its repurchase program, i.e., through purchases in the open market under the ESOP and the surrender or deemed surrender of Arrow common stock to Arrow in connection with employees' stock-for-stock exercises of compensatory stock options granted as equity incentives.
F. OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of operations, Arrow may engage in a variety of financial transactions or arrangements, including derivative transactions or arrangements, that in accordance with GAAP are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. These transactions or arrangements involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions or arrangements may be used by Arrow or Arrow's customers for general corporate purposes, such as managing credit, interest rate, or liquidity risk or to optimize capital, or may be used by Arrow or Arrow's customers to manage funding needs. See Note 19. Derivative Instruments and Hedging Activities to the Consolidated Financial Statements for a detailed discussion derivative transactions.
The Company makes contractual commitments to extend credit, which include unused lines of credit, which are subject to the Company’s credit approval and monitoring procedures. At December 31, 2025 and 2024, commitments to extend credit in the form of loans, including unused lines of credit, amounted to $462.9 million and $449.5 million, respectively. In the opinion of management, there are no material commitments to extend credit, including unused lines of credit that represent unusual risks. All commitments to extend credit in the form of loans, including unused lines of credit, expire within one year.
G. RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements for a detailed discussion of new accounting pronouncements.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
General: Arrow's largest component of market risk remains interest rate risk. Arrow is not subject to foreign currency exchange or commodity price risk.
Asset/Liability Management: Market risk is the possibility that changes in future market rates (interest rates) or prices (market value of financial instruments) will make Arrow's position (i.e., assets and operations) less valuable. Arrow'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.
Interest Rate Risk Exposure Analysis: Economic Value of Equity ("EVE") Analysis. Arrow simulates the impact of interest rate volatility upon EVE using several interest rate scenarios. EVE is the difference between the present value of the expected future cash flows of Arrow's assets and liabilities and the value of any off-balance sheet items, such as derivatives, if applicable.
Traditionally, the fair value of fixed-rate instruments fluctuates inversely with changes in interest rates. Increases in interest rates thus result in decreases in the fair value of interest-earning assets, which could adversely affect Arrow's consolidated results of operations in the event they were to be sold, or, in the case of interest-earning assets classified as available-for-sale, reduce Arrow's consolidated stockholders’ equity, if retained. The changes in the value of assets and liabilities due to fluctuations in interest rates measure the interest rate sensitivity of those assets and liabilities.
In order to measure Arrow's sensitivity to changes in interest rates, EVE is calculated under market interest rates prevailing at a given quarter-end ("Pre-Shock Scenario"), and under various other interest rate scenarios ("Rate Shock Scenarios") representing immediate, permanent, parallel shifts in the term structure of interest rates from the actual term structure observed in the Pre-Shock Scenario, with this shift occurring equally across all points on the yield curve. An increase in the EVE is considered favorable, while a decline is considered unfavorable. The changes in EVE between the Pre-Shock Scenario and various Rate Shock Scenarios due to fluctuations in interest rates reflect the interest rate sensitivity of Arrow's assets, liabilities, and off-balance sheet items that are included in the EVE. Management reports the EVE results to the Board of Directors on a quarterly basis. The report compares Arrow's estimated Pre-Shock Scenario EVE to the estimated EVE calculated under the various Rate Shock Scenarios.
Arrow's valuation model makes various estimates regarding cash flows from principal repayments on loans and deposit decay rates at each level of interest rate change. Arrow's estimates for loan repayment levels are influenced by the recent history of prepayment activity in its loan portfolio, as well as the interest rate composition of the existing portfolio, especially in relation to the existing interest rate environment. Regarding deposit decay rates, Arrow tracks and analyzes the decay rate of its deposits over time, with the assistance of a reputable third-party, and over various interest rate scenarios. Such results are utilized in determining estimates of deposit decay rates in the valuation model. Arrow also generates a series of spot discount rates that are integral to the valuation of the projected monthly cash flows of its assets and liabilities. The valuation model employs discount rates that it considers representative of prevailing market rates of interest with appropriate adjustments it believes are suited to the heterogeneous characteristics of the Company’s various asset and liability portfolios. No matter the care and precision with which the estimates are derived, actual cash flows could differ significantly from Arrow's estimates resulting in significantly different EVE calculations.
The analysis that follows presents, as of December 31, 2025 and 2024, the estimated EVE at both the Pre-Shock Scenario and the -200 Basis Point Rate, -100 Basis Point Rate, +100 Basis Point Rate and +200 Basis Point Rate Shock Scenarios.
| December 31, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| (Dollars in thousands) | EVE | Dollar Change | Percentage Change | EVE | Dollar Change | Percentage Change | ||||||||||||||||||||
| Rate Shock Scenarios | ||||||||||||||||||||||||||
| +200 Basis Points | $ | 690,737 | $ | 5,772 | 0.8 | % | $ | 534,511 | $ | (58,344) | (9.8) | % | ||||||||||||||
| +100 Basis Points | 693,641 | 8,676 | 1.3 | 566,833 | (26,022) | (4.4) | ||||||||||||||||||||
| Pre-Shock Scenarios | 684,965 | — | — | 592,855 | — | — | ||||||||||||||||||||
| -100 Basis Points | 661,166 | (23,799) | (3.5) | 606,554 | 13,699 | 2.3 | ||||||||||||||||||||
| -200 Basis Points | 620,217 | (64,748) | (9.5) | 606,257 | 13,402 | 2.3 | ||||||||||||||||||||
43
Arrow's Pre-Shock Scenario EVE increased from $592.9 million at December 31, 2024, to $685.0 million at December 31, 2025. The primary factors contributing to the increase in EVE were core deposit growth that occurred during the year, coupled with an increase in the value of the Bank’s loan and investment portfolios.
Arrow's EVE in the +100 Basis Point Rate and +200 Basis Point Rate Shock Scenarios increased from $566.8 million and $534.5 million, respectively, at December 31, 2024, to $693.6 million and $690.7 million, respectively, at December 31, 2025. In the -100 Basis Point Rate and -200 Basis Point Rate Shock Scenarios Arrow;s EVE increased from $606.6 million and $606.3 million, respectively, at December 31, 2024, to $661.2 million and $620.2 million, respectively, at December 31, 2025.
Income Simulation Analysis: Arrow'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 100 and 200 basis point downward and a 200 basis point upward 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 100 and 200 basis point decreases in interest rate scenario and the 200 basis point increase in interest rate scenario. These results are well within the ALCO policy limits.
As of December 31, 2025:
| Change in Interest Rate | Calculated change in Net Interest Income - Year 1 | Calculated change in Net Interest Income - Year 2 | ||||||||||||
| - 200 basis points | 3.2% | 5.2% | ||||||||||||
| - 100 basis points | 1.8% | 5.9% | ||||||||||||
| +200 basis points | (4.7)% | 0.1% | ||||||||||||
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, Arrow 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.
Item 8. Financial Statements and Supplementary Data
The following audited Consolidated Financial Statements and unaudited supplementary data are submitted herewith:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2025 and 2024
Consolidated Statements of Income for the Years Ended December 31, 2025, 2024 and 2023
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2025, 2024 and 2023
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2025, 2024 and 2023
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023
Notes to Consolidated Financial Statements
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of Arrow Financial Corporation
Glens Falls, New York
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Arrow Financial Corporation (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
45
communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses on Collectively Evaluated Loans
As discussed in Notes 2 and 5 to the consolidated financial statements, the Company’s allowance for credit losses totaled $34.3 million as of December 31, 2025, all of which was related to loans evaluated on a collective basis. The estimate of expected credit losses on collectively evaluated loans is based on relevant information about current conditions, past events, and reasonable and supportable forward-looking forecasts regarding collectability of the reported amounts. Management employs a process and methodology to estimate the allowance for credit losses (“ACL”) on collectively evaluated loans that evaluates both quantitative and qualitative components. The methodology for evaluating quantitative component involves pooling loans into portfolio segments for loans that share similar risk characteristics. Pooled loan portfolio segments include commercial, commercial real estate, consumer, and residential loans.
For the commercial, commercial real estate and residential segments, the Company utilizes a discounted cash flow (“DCF”) methodology to estimate credit losses over the expected life of the loan. The DCF methodology combines the probability of default (“PD”), the loss given default (“LGD”), remaining contractual life of the loan adjusted for prepayment speeds, curtailment rate and time to recovery assumptions to estimate a reserve for each loan. The Company uses regression models to develop the PD, which are derived primarily from segment-specific selected peers. The loss rates are adjusted by economic forecast over the reasonable and supportable forecast period after which time they revert back to the historical mean. For the consumer loan segment, the Company primarily uses a vintage analysis model where the quantitative allowance is measured by applying historical loss rates which are derived from quarterly net charge-offs relative to outstanding loan balances for each vintage year over the lookback period. The Company incorporates forward-looking economic forecasts to the historically derived loss rates from the vintage analysis model to adjust for expected changes in future conditions over the reasonable and supportable forecast period.
For all loan segments, the quantitative loss rates are supplemented by qualitative factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates. Qualitative factors are applied to each portfolio segment to reflect management’s estimate of expected changes in current conditions at the balance sheet date relative to historical performance.
We identified auditing the ACL on collectively evaluated loans as a critical audit matter because the methodology to determine the estimate of credit losses requires significant judgments by management and is subject to material variability. This resulted in significant auditor judgment and effort in evaluating the appropriateness of the significant assumptions and data used in the DCF methodology and vintage analysis model, as well as the reasonableness of qualitative factors applied in the ACL calculation.
The primary procedures we performed to address this critical audit matter included:
Testing the design and operating effectiveness of controls over the evaluation of the ACL on pooled loans, including controls addressing:
•Relevance and reliability of the data used in the DCF methodology and vintage analysis model.
•Reasonableness of the significant assumptions used in the DCF methodology with the development of PD and LGD assumptions and the vintage analysis model.
•Appropriateness of qualitative framework, as well as the reasonableness of significant assumptions and the relevance and reliability of data used in the development of qualitative factors.
•Application of the data and significant assumptions in the DCF methodology, vintage analysis model, and qualitative factors.
Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the ACL on loans collectively evaluated, which included:
•Testing the relevance and reliability of the data used in the DCF methodology and vintage analysis model
•Evaluating the reasonableness of the significant assumptions and judgments applied in the DCF methodology and vintage analysis model.
•Testing the appropriateness of qualitative framework, as well as the reasonableness of significant assumptions and the relevance and reliability of data used in the development of qualitative factors.
•Testing the application of the data and significant assumptions in the DCF methodology, vintage analysis model, and qualitative factors.
•With the assistance of internal valuation specialists, evaluating the appropriateness of the regression models and relevance and reliability peer data used to develop the PD and LGD inputs within the DCF methodology.
/s/ Crowe LLP
We have served as the Company's auditor since 2024.
Indianapolis, Indiana
March 6, 2026
46
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Arrow Financial Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows of Arrow Financial Corporation and subsidiaries (the Company) for the year ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 1990 to 2023.
Albany, New York
March 11, 2024
47
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Share and Per Share Amounts)
| December 31, 2025 | December 31, 2024 | ||||||||||
| ASSETS | |||||||||||
| Cash and Due From Banks | $ | $ | |||||||||
| Interest-Bearing Deposits at Banks | |||||||||||
| Investment Securities: | |||||||||||
| Available-for-Sale | |||||||||||
Held-to-Maturity (Approximate Fair Value of $ December 31, 2025, and $ | |||||||||||
| Equity Securities | |||||||||||
| Other Investments | |||||||||||
| Loans | |||||||||||
| Allowance for Credit Losses | ( | ( | |||||||||
| Net Loans | |||||||||||
| Premises and Equipment, Net | |||||||||||
| Goodwill | |||||||||||
| Other Intangible Assets, Net | |||||||||||
| Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES | |||||||||||
| Noninterest-Bearing Deposits | $ | $ | |||||||||
| Interest-Bearing Checking Accounts | |||||||||||
| Savings Deposits | |||||||||||
| Time Deposits over $250,000 | |||||||||||
| Other Time Deposits | |||||||||||
| Total Deposits | |||||||||||
| Borrowings | |||||||||||
| Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | |||||||||||
| Finance Leases | |||||||||||
| Other Liabilities | |||||||||||
| Total Liabilities | |||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||
Preferred Stock, $ | |||||||||||
Common Stock, $ | |||||||||||
| Additional Paid-in Capital | |||||||||||
| Retained Earnings | |||||||||||
| Accumulated Other Comprehensive Loss | ( | ( | |||||||||
Treasury Stock, at Cost ( | ( | ( | |||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
See Notes to Consolidated Financial Statements.
48
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands, Except Per Share Amounts)
| Years Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| INTEREST AND DIVIDEND INCOME | ||||||||||||||||||||
| Interest and Fees on Loans | $ | $ | $ | |||||||||||||||||
| Interest on Deposits at Banks | ||||||||||||||||||||
| Interest and Dividends on Investment Securities: | ||||||||||||||||||||
| Fully Taxable | ||||||||||||||||||||
| Exempt from Federal Taxes | ||||||||||||||||||||
| Total Interest and Dividend Income | ||||||||||||||||||||
| INTEREST EXPENSE | ||||||||||||||||||||
| Interest-Bearing Checking Accounts | ||||||||||||||||||||
| Savings Deposits | ||||||||||||||||||||
| Time Deposits over $250,000 | ||||||||||||||||||||
| Other Time Deposits | ||||||||||||||||||||
| Borrowings | ||||||||||||||||||||
| Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | ||||||||||||||||||||
| Interest on Financing Leases | ||||||||||||||||||||
| Total Interest Expense | ||||||||||||||||||||
| NET INTEREST INCOME | ||||||||||||||||||||
| Provision for Credit Losses | ||||||||||||||||||||
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | ||||||||||||||||||||
| NONINTEREST INCOME | ||||||||||||||||||||
| Income From Fiduciary Activities | ||||||||||||||||||||
| Fees for Other Services to Customers | ||||||||||||||||||||
| Insurance Commissions | ||||||||||||||||||||
| Net Gain (Loss) on Securities | ( | ( | ||||||||||||||||||
| Net Gain on Sales of Loans | ||||||||||||||||||||
| Other Operating Income | ||||||||||||||||||||
| Total Noninterest Income | ||||||||||||||||||||
| NONINTEREST EXPENSE | ||||||||||||||||||||
| Salaries and Employee Benefits | ||||||||||||||||||||
| Occupancy Expenses, Net | ||||||||||||||||||||
| Technology and Equipment Expense | ||||||||||||||||||||
| FDIC Assessments | ||||||||||||||||||||
| Other Operating Expense | ||||||||||||||||||||
| Total Noninterest Expense | ||||||||||||||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | ||||||||||||||||||||
| Provision for Income Taxes | ||||||||||||||||||||
| NET INCOME | $ | $ | $ | |||||||||||||||||
| Average Shares Outstanding: | ||||||||||||||||||||
| Basic | ||||||||||||||||||||
| Diluted | ||||||||||||||||||||
| Per Common Share: | ||||||||||||||||||||
| Basic Earnings | $ | $ | $ | |||||||||||||||||
| Diluted Earnings | ||||||||||||||||||||
See Notes to Consolidated Financial Statements.
49
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars In Thousands)
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net Income | $ | $ | $ | ||||||||||||||
| Other Comprehensive Income (Loss), Net of Tax: | |||||||||||||||||
| Unrealized Net Securities Holding Gains Arising During the Year | |||||||||||||||||
Reclassification Adjustment for Net Securities Losses Realized During the Year | |||||||||||||||||
| Net Unrealized (Loss) Gain on Cash Flow Hedge Agreements | ( | ( | |||||||||||||||
| Reclassification of Net Unrealized (Gain) Loss on Cash Flow Hedge Agreements | ( | ( | |||||||||||||||
| Net Retirement Plan Gain | |||||||||||||||||
| Net Retirement Plan Prior Service Cost | ( | ( | |||||||||||||||
| Amortization of Net Retirement Plan Actuarial Gain | ( | ( | ( | ||||||||||||||
| Amortization of Net Retirement Plan Prior Service Cost | |||||||||||||||||
| Other Comprehensive Income | |||||||||||||||||
| Comprehensive Income | $ | $ | $ | ||||||||||||||
See Notes to Consolidated Financial Statements.
50
| ARROW FINANCIAL CORPORATION AND SUBSIDIARIES | |||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||
| (Dollars In Thousands, Except Share and Per Share Amounts) | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumu- lated Other Compre- hensive (Loss) Income | Treasury Stock | Total | ||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Net Income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other Comprehensive Income | — | — | — | — | |||||||||||||||||||||||||||||||
Cash Dividends Paid, $ | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
Shares Issued for Stock Option Exercises, net ( | — | — | — | ||||||||||||||||||||||||||||||||
Shares Issued Under the Directors' Stock Plan ( | — | — | — | ||||||||||||||||||||||||||||||||
Shares Issued Under the Employee Stock Purchase Plan ( | — | — | — | ||||||||||||||||||||||||||||||||
Shares Issued Related to Restricted Stock Units ( | — | ( | — | — | |||||||||||||||||||||||||||||||
Shares Issued Related to Restricted Share Awards ( | — | ( | — | — | |||||||||||||||||||||||||||||||
| Compensation expense related to Employee Stock Purchase Plan | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-Based Compensation Expense | — | — | — | — | |||||||||||||||||||||||||||||||
Purchase of Treasury Stock ( | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Purchase of Treasury Stock ( | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Net Income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other Comprehensive Income | — | — | — | — | |||||||||||||||||||||||||||||||
Cash Dividends Paid, $ | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
Shares Issued for Stock Option Exercises, net ( | — | — | — | ||||||||||||||||||||||||||||||||
Shares Issued Under the Directors' Stock Plan ( | — | — | — | ||||||||||||||||||||||||||||||||
Shares Issued Under the Employee Stock Purchase Plan ( | — | — | — | ||||||||||||||||||||||||||||||||
Shares Issued Related to Restricted Stock Units ( | — | ( | — | — | |||||||||||||||||||||||||||||||
Shares Issued Related to Restricted Share Awards ( | — | ( | — | — | |||||||||||||||||||||||||||||||
| Compensation expense related to Employee Stock Purchase Plan | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-Based Compensation Expense | — | — | — | — | |||||||||||||||||||||||||||||||
Purchase of Treasury Stock ( | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Purchase of Treasury Stock ( | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
51
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
| December 31, | |||||||||||||||||
| Cash Flows from Operating Activities: | 2025 | 2024 | 2023 | ||||||||||||||
| Net Income | $ | $ | $ | ||||||||||||||
| Provision for Credit Losses | |||||||||||||||||
| Depreciation and Amortization | |||||||||||||||||
Loss on the Sale of Securities Available-for-Sale | |||||||||||||||||
| Net Gain on Equity Securities | ( | ( | ( | ||||||||||||||
| Loans Originated and Held-for-Sale | ( | ( | |||||||||||||||
| Proceeds from the Sale of Loans Held-for-Sale | |||||||||||||||||
| Net Gains on the Sale of Loans | ( | ( | ( | ||||||||||||||
| Net Loss on the Sale or Write-down of Premises and Equipment, Other Real Estate Owned and Repossessed Assets | |||||||||||||||||
| Contributions to Pension & Postretirement Plans | ( | ( | ( | ||||||||||||||
| Deferred Income Tax Expense (Benefit) | ( | ||||||||||||||||
| Purchase of Energy Production Tax Credits | ( | ||||||||||||||||
| Shares Issued Under the Directors’ Stock Plan | |||||||||||||||||
| Stock-Based Compensation Expense | |||||||||||||||||
| Tax Benefit from Exercise of Stock Options | |||||||||||||||||
| Effect of Swap Agreements | ( | ||||||||||||||||
| Net Increase in Other Assets | ( | ( | ( | ||||||||||||||
| Net Increase in Other Liabilities | |||||||||||||||||
| Net Cash Provided By Operating Activities | |||||||||||||||||
| Cash Flows from Investing Activities: | |||||||||||||||||
| Proceeds from the Sale of Equity Securities | |||||||||||||||||
| Proceeds from the Sale of Securities Available-for-Sale | |||||||||||||||||
| Proceeds from the Maturities and Calls of Securities Available-for-Sale | |||||||||||||||||
| Purchases of Securities Available-for-Sale | ( | ( | ( | ||||||||||||||
Purchases of Equity Securities | ( | ||||||||||||||||
| Proceeds from the Maturities and Calls of Securities Held-to-Maturity | |||||||||||||||||
| Purchases of Securities Held-to-Maturity | ( | ( | ( | ||||||||||||||
| Net Increase in Loans | ( | ( | ( | ||||||||||||||
| Termination of Fair Value Hedge | ( | ||||||||||||||||
| Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets | |||||||||||||||||
| Purchase of Premises and Equipment | ( | ( | ( | ||||||||||||||
| Net (Increase) Decrease in Federal Home Loan Bank Stock | ( | ||||||||||||||||
| Purchase of Bank Owned Life Insurance | ( | ||||||||||||||||
| Acquisition of Whitehall Branch | |||||||||||||||||
| Net Cash Used In Investing Activities | ( | ( | ( | ||||||||||||||
| Cash Flows from Financing Activities: | |||||||||||||||||
| Net Increase in Deposits | |||||||||||||||||
| Other Borrowings - Advances | |||||||||||||||||
| Other Borrowings - Paydowns | ( | ( | ( | ||||||||||||||
| Net Cash Collateral Received from Derivative Counterparties | |||||||||||||||||
| Termination of Cash Flow Hedge | ( | ||||||||||||||||
| Finance Lease Payments | ( | ( | ( | ||||||||||||||
| Purchase of Treasury Stock | ( | ( | ( | ||||||||||||||
| Shares Issued for Stock Option Exercises, net | |||||||||||||||||
| Shares Issued Under the Employee Stock Purchase Plan | |||||||||||||||||
| Shares Issued for Dividend Reinvestment Plans | |||||||||||||||||
| Cash Dividends Paid | ( | ( | ( | ||||||||||||||
| Net Cash Provided By Financing Activities | |||||||||||||||||
| Net Increase in Cash and Cash Equivalents | |||||||||||||||||
| Cash and Cash Equivalents at Beginning of Year | |||||||||||||||||
| Cash and Cash Equivalents at End of Year | $ | $ | $ | ||||||||||||||
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| Supplemental Disclosures to Statements of Cash Flow Information: | |||||||||||||||||
| Interest on Deposits and Borrowings | $ | $ | $ | ||||||||||||||
Income Taxes | |||||||||||||||||
| Non-cash Investing and Financing Activity: | |||||||||||||||||
| Transfer of Loans to Other Real Estate Owned and Repossessed Assets | |||||||||||||||||
| Total fair value of commercial loan participation transferred to Other Assets | |||||||||||||||||
Total fair value of assets acquired in acquisition of Whitehall Branch, net of cash | |||||||||||||||||
Total fair value of liabilities assumed in acquisition of Whitehall Branch, net of cash | |||||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.RISKS AND UNCERTAINTIES
Nature of Operations - Arrow Financial Corporation, a New York corporation, was incorporated on March 21, 1983 and is registered as a bank holding company within the meaning of the Bank Holding Company Act of 1956. Arrow's banking subsidiary is Arrow Bank National Association® ("Arrow Bank™") whose main office is located in Glens Falls, New York. Arrow Bank provides a full range of services to individuals and small to mid-size businesses in New York State from Albany to the Canadian border. In addition, through an indirect lending program, Arrow sources consumer loans from an extensive network of automobile dealers that operate throughout New York and Vermont. An active subsidiary of Arrow Bank is Upstate Agency LLC, offering insurance services including property, and casualty insurance, group health insurance and individual life insurance products. Arrow Bank has a wealth management department which provides investment management and trust services. North Country Investment Advisers, Inc., a registered investment adviser that provided investment advice to Arrow's proprietary mutual fund until the fund was transferred to a new investment advisor in the first half of 2025, and Arrow Properties, Inc., a real estate investment trust, or REIT, are subsidiaries of Arrow Bank. Arrow also owns directly two subsidiary business trusts, organized in 2003 and 2004 to issue trust preferred securities (TRUPs), which are still outstanding.
Concentrations of Credit - With the exception of some indirect auto lending, Arrow's loans are primarily with borrowers in upstate New York. Although the loan portfolios of Arrow Bank is well diversified, tourism has a substantial impact on the northeastern New York economy. The commitments to extend credit are fairly consistent with the distribution of loans presented in Note 5. Loans to the consolidated financial statements, generally have the same credit risk and are subject to normal credit policies. Generally, the loans are secured by assets and are expected to be repaid from cash flow or the sale of selected assets of the borrowers. Arrow evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Arrow upon extension of credit, is based upon Management's credit evaluation of the counterparty. The nature of the collateral varies with the type of loan and may include: residential real estate, cash and securities, inventory, accounts receivable, property, plant and equipment, income producing commercial properties and automobiles.
Liquidity - The objective of effective liquidity management is to ensure that Arrow has the ability to raise cash when needed at a reasonable cost. This includes the capability of meeting expected and unexpected obligations to Arrow's customers at any time. Given the uncertain nature of customer demands and the need to maximize earnings, Arrow must have available reasonably priced sources of funds, both on- and off-balance sheet, that can be accessed quickly in times of need. Arrow’s liquidity position should provide the Company with the necessary flexibility to address any unexpected near-term disruptions such as reduced cash flows from the investment and loan portfolio, unexpected deposit runoff, or increased loan originations.
Arrow's primary sources of available liquidity are overnight investments in federal funds sold, interest bearing bank balances at the Federal Reserve Bank of New York, and cash flow from investment securities and loans.
In addition to liquidity from cash, short-term investments, investment securities and borrowings, Arrow 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.
Note 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The financial statements of Arrow and its wholly owned subsidiaries are consolidated and all material inter-company transactions have been eliminated. In the “Parent Company Only” financial statements in Note 21, the investment in wholly owned subsidiaries is carried under the equity method of accounting. When necessary, prior years’ Consolidated Financial Statements have been reclassified to conform to the current-year financial statement presentation.
Arrow determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (VIE) under GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. Arrow consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, VIE are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when Arrow has both the power and ability to direct the activities of the VIE that most significantly impact the VIE's economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Arrow's wholly owned subsidiaries Arrow Capital Statutory Trust II and Arrow Capital Statutory Trust III are VIEs for which Arrow is not the primary beneficiary. Accordingly, the accounts of these entities are not included in Arrow's Consolidated Financial Statements.
Segment Reporting - The majority of Arrow's revenue is from the business of community banking. Accordingly, all of its operations are considered by management to be aggregated in one reportable operating segment. See Note 22. Segment Reporting to the Consolidated Financial Statements for further discussion.
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Securities - Management determines the appropriate classification of securities at the time of purchase. Securities reported as held-to-maturity are those debt securities which Arrow has both the positive intent and ability to hold to maturity and are stated at amortized cost. Securities available-for-sale are reported at fair value, with unrealized gains and losses reported in accumulated other comprehensive income or loss, net of taxes. Equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income. Arrow performs a qualitative assessment to determine whether investments are impaired.
Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the interest method. Dividend and interest income are recognized when earned. Realized gains and losses on securities sold are derived using the specific identification method for determining the cost of securities sold.
Allowance for Credit Losses – Held to Maturity (HTM) Debt Securities - Arrow's HTM debt securities are also required to utilize the CECL approach to estimate expected credit losses. Management measures expected credit losses on HTM debt securities on a collective basis by major security types that share similar risk characteristics, such as financial asset type and collateral type adjusted for current conditions and reasonable and supportable forecasts. Management classifies the HTM portfolio into the following major security types: U.S. government agency or U.S. government sponsored mortgage-backed and collateralized mortgage obligations securities, and state and municipal debt securities.
Arrow's HTM debt securities are comprised of U.S. government-sponsored enterprises (GSEs) or state and municipal obligations. GSE securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Therefore, Arrow did not record a credit loss for these securities.
State and municipal bonds carry a rating from an accredited ratings agency, primarily with an investment grade rating. In addition, Arrow has a limited amount of New York state local municipal bonds that are not rated. The estimate of expected credit losses on the HTM portfolio is based on the expected cash flows of each individual CUSIP over its contractual life and utilized a municipal loss forecast model for determining PD and LGD rates. Management may exercise discretion to make adjustments based on environmental factors. A calculated expected credit loss for individual securities was determined using the PD and LGD rates. Arrow determined that the expected credit loss on its municipal bond portfolio was de minimis, and therefore, an allowance for credit losses was not recorded.
Allowance for Credit Losses – Available for Sale (AFS) Debt Securities - Arrow's AFS debt securities are comprised of U.S. Treasuries, U.S. Government & Agency Obligations, State and Municipal Obligations, Mortgage-Backed Securities and Corporate and Other Debt Securities. The impairment model for AFS debt securities differs from the CECL approach utilized by HTM debt securities since AFS debt securities are measured at fair value rather than amortized cost. For AFS debt securities in an unrealized loss position, Arrow first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, in making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, adverse conditions specifically related to the security, failure of the issuer of the debt security to make scheduled interest or principal payments, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. The cash flows are estimated using information relevant to the collectability of the security, including information about past events, current conditions and reasonable and supportable forecasts. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Investments in Federal Reserve Bank ("FRB") and Federal Home Loan Bank ("FHLB") stock are required for membership in those organizations and are carried at cost since there is no market value available. The FHLB New York ("FHLBNY") continues to pay dividends and repurchase stock. As such, the Company has not recognized any impairment on its holdings of FRB and FHLB stock.
Loans - Loans are reported at their principal outstanding balance, net of deferred fees and costs, and unearned income. Arrow has the intent and ability to hold to maturity. Interest income on loans is accrued and credited to income based upon the principal amount outstanding. Loan fees and costs directly associated with loan originations are deferred and amortized/accreted as an adjustment to yield over the lives of the loans originated.
From time-to-time, Arrow Bank has sold (most with servicing retained) residential real estate loans at or shortly after origination. Any gain or loss on the sale of loans, along with the value of the servicing right, is recognized at the time of sale as the difference between the recorded basis in the loan and net proceeds from the sale. Loans held for sale are recorded at the lower of cost or fair value on an aggregate basis.
Loans are placed on nonaccrual status either due to delinquency of principal and/or interest or a judgment by management that the full repayment of principal and interest is unlikely. Unless already placed on nonaccrual status, loans secured by home equity lines of credit are put on nonaccrual status when 120 days past due; residential real estate loans when 150 days past due; commercial and commercial real estate loans are evaluated on a loan-by-loan basis and are placed on nonaccrual status when 90 days past due if the full collection of principal and interest is uncertain; all other loans are to be moved to nonaccrual status upon the earliest occurrence of repossession, bankruptcy, delinquency of 90 days or more unless the loan is secured and in the process of collection with no loss anticipated or when full collection of principal and interest is in doubt.
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The balance of any accrued interest deemed uncollectible at the date the loan is placed on nonaccrual status is reversed, generally against interest income. A loan is returned to accrual status at the later of the date when the past due status of the loan falls below the threshold for nonaccrual status or management deems that it is likely that the borrower will repay all interest and principal. For payments received while the loan is on nonaccrual status, Arrow Bank may recognize interest income on a cash basis if the repayment of the remaining principal and accrued interest is deemed likely.
Allowance for Credit Losses – Loans - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to present the net lifetime amount expected to be collected on the loans. Credit losses are charged off against the allowance when management believes a loan balance to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.
Management estimates the allowance using relevant available information from internal and external sources related to past events, current conditions, and a reasonable and supportable single economic forecast. Historical credit loss experience provides the basis for the estimation of expected credit losses. Arrow's historical loss experience is supplemented with peer information when there is insufficient loss data for Arrow. Peer selection is based on a review of institutions with comparable loss experience as well as loan yield, bank size, portfolio concentration and geography. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in credit concentrations, delinquency level, collateral values and underwriting standards as well as changes in economic conditions or other relevant factors. Management judgment is required at each point in the measurement process.
Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Management developed portfolio segments for estimating loss based on type of borrower and collateral as follows:
Commercial Loans
Commercial Real Estate Loans
Consumer Loans
Residential Loans
Further details related to loan portfolio segments is included in Note 5. Loans to the consolidated financial statements of this Form 10-K.
Arrow utilized regression analyses of peer data where observed credit losses and selected economic factors were utilized to determine suitable loss drivers for modeling lifetime probability of default (PD) rates. Arrow uses the discounted cash flow (DCF) method to estimate expected credit losses for the commercial, commercial real estate, and residential segments. For each of these loan segments, Arrow generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, PD, and segment-specific loss given default (LGD) risk factors. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions.
For the loan segments utilizing the DCF method, (commercial, commercial real estate, and residential) management utilizes externally developed economic forecast of the following economic factors as loss drivers: national unemployment, gross domestic product and Case-Shiller U.S. National Home Price Index (HPI). The economic forecast is applied over a reasonable and supportable forecast period. Arrow utilizes a six quarter reasonable and supportable forecast period with an eight quarter reversion to the historic mean on a straight-line basis.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (NPV). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.
Arrow uses the vintage analysis method to estimate expected credit losses for the consumer loan segment. The vintage method was selected since the loans within the consumer loan segment are homogeneous, not just by risk characteristic, but by loan structure. Under the vintage analysis method, a loss rate is calculated based on the quarterly net charge-offs to the outstanding loan balance for each vintage year over the lookback period. Once this periodic loss rate is calculated for each quarter in the lookback period, the periodic rates are averaged into the loss rate. The loss rate is then applied to the outstanding loan balances based on the loan's vintage year. Arrow maintains, over the life of the loan, the loss curve by vintage year. If estimated losses computed by the vintage method need to be adjusted based on current conditions and the reasonable and supportable economic forecast, these adjustments would be incorporated over a six quarter reasonable and supportable forecast period, reverting to historical losses using a straight-line method over an eight quarter period.
Arrow considers the need to qualitatively adjust expected credit loss estimates for information not already captured in the loss estimation process. These qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Adjustments are not made for information that has already been considered and included in the loss estimation process.
Arrow considers the qualitative factors that are relevant to Arrow as of the reporting date, which may include, but are not limited to the following factors:
•The nature and volume of Arrow's financial assets;
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•The existence, growth, and effect of any concentrations of credit;
•The volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
•The value of the underlying collateral for loans that are not collateral-dependent;
•Arrow's lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries;
•The quality of Arrow's loan review function;
•The experience, ability, and depth of Arrow's lending, investment, collection, and other relevant management/staff;
•The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters;
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the institution operates that affect the collectability of financial assets; and
•Other qualitative factors not reflected in quantitative loss rate calculations.
All loans that exceed $250,000 which are on nonaccrual, are evaluated on an individual basis. For collateral dependent financial assets where Arrow has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and Arrow expects repayment of the financial asset to be provided substantially through the sale of the collateral, Arrow has elected to measure the allowance for credit loss as the difference between the fair value of the collateral less cost to sell, and the amortized cost basis of the asset as of the measurement date. In the event the repayment of a collateral dependent financial asset is expected to be provided substantially through the operation of the collateral, Arrow will use fair value of the collateral at the reporting date when recording the net carrying amount of the asset and determining the allowance for credit losses. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
Arrow evaluates whether a modification represents a new loan or a continuation of an existing loan, consistent with the current GAAP treatment for other loan modifications. In addition, Arrow evaluates and if necessary, discloses if loan modifications made to borrowers experiencing financial difficulty contain a financial concession.
Estimated Credit Losses on Off-Balance Sheet Credit Exposures Recognized as Other Liabilities - Arrow estimates expected credit losses over the contractual period in which Arrow has exposure to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Arrow. The allowance for credit losses on off-balance sheet credit exposures recognized in other liabilities, is adjusted as an expense in other non-interest expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. Estimating credit losses on unfunded commitments requires Arrow to consider the following categories of off-balance sheet credit exposure: unfunded commitments to extend credit, unfunded lines of credit, and standby letters of credit. Each of these unfunded commitments is then analyzed for a probability of funding to calculate a probable funding amount. The life of loan loss factor by related portfolio segment from the loan allowance for credit loss calculation is then applied to the probable funding amount to calculate the estimated credit losses on off-balance sheet credit exposures recognized as other liabilities.
Accrued Interest Receivable - Arrow made the following elections regarding accrued interest receivable: (1) presented accrued interest receivable balances separately within the other assets balance sheet line item; (2) excluded interest receivable that is included in amortized cost of financing receivables from related disclosures requirements and (3) continued Arrow's policy to write off accrued interest receivable by reversing interest income. Historically, Arrow has not experienced uncollectible accrued interest receivable on investment securities.
Comprehensive Income (Loss) - For Arrow, comprehensive income (loss) represents net income plus unrealized net securities holding gains or losses arising during the year (net of taxes), the reclassification adjustment for net securities gains and losses arising during the year (net of taxes), net unrealized gains or losses on cash flow hedge agreements, reclassification of net unrealized gain or loss on cash flow hedge agreements to interest expense (net of taxes), net retirement plan gain or loss (net of taxes), net retirement plan prior service cost (net of taxes), amortization of net retirement plan actuarial gain or loss (net of taxes) and amortization of net retirement plan prior service credit or cost (net of taxes) and is presented in the Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Changes in Shareholders’ Equity. Accumulated other comprehensive income (loss) includes the aforementioned items as well as amortization of net retirement plan prior service credit or cost (net of taxes) in the Company’s defined-benefit retirement and pension plan, supplemental employee retirement plan, and post-retirement life and healthcare benefit plan.
Revenue Recognition - The following is a description of principal activities from which Arrow generates its revenue from noninterest income sources.
Income from Fiduciary Activities: represents revenue derived mainly through the management of client investments which is based on the market value of the covered assets and the fee schedule contained in the applicable account management agreement. Since the revenue is mainly based on the market value of assets, this amount can be volatile as financial markets increase and decrease based on various economic factors. The terms of the account management agreements generally specify
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that the performance obligations are completed each quarter. Accordingly, the Company mainly recognizes revenue from fiduciary activities on a quarterly basis.
Fees for Other Services to Customers: represents general service fees for monthly deposit account maintenance and account activity plus fees from other deposit-based services. Revenue is recognized when the performance obligation is completed, which is generally on a monthly basis for account maintenance services, or upon the completion of a deposit-related transaction. Payment for these performance obligations is generally received at the time the performance obligations are satisfied.
Insurance Commissions: represents commissions and fees paid by insurance carriers for both property and casualty insurance policies, and for services performed for employment benefits clients. Revenue from the property and casualty insurance business is recognized when the performance obligation is satisfied, which is generally the effective date of the bound coverage since there are no significant performance obligations remaining. Revenue from the employment benefit brokerage business is recognized when the benefit servicing performance obligations are satisfied, generally on a monthly basis.
Other Real Estate Owned and Repossessed Assets - Real estate acquired by foreclosure and assets acquired by repossession are recorded at the fair value of the property less estimated costs to sell at the time of repossession. Subsequent declines in fair value, after transfer to other real estate owned and repossessed assets are recognized through a valuation allowance. Such declines in fair value along with related operating expenses to administer such properties or assets are charged directly to operating expense.
Premises and Equipment - Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization included in operating expenses are computed largely on the straight-line method. Depreciation is based on the estimated useful lives of the assets (in most instances the useful lives are approximately: buildings and improvements 20 -40 years; furniture and equipment 7 -10 years; data processing equipment 5 -7 years) and, in the case of leasehold improvements, amortization is computed over the terms of the respective leases or their estimated useful lives, whichever is shorter. Gains or losses on disposition are reflected in earnings.
Equity Method Investments - Arrow has investments in limited partnerships that acquire, develop and operate low and moderate-income housing. Arrow receives low income housing tax credits and tax deductions for losses incurred by the underlying properties. Arrow has an ownership interest in a limited liability company (LLC) that was formed to hold and manage real estate collateral obtained through resolution of a former loan participation.
Investments in Historical Tax Credits - Arrow accounts for historic rehabilitation tax credits using the deferral method of accounting under which the tax benefit generated from an investment tax credit is recorded as a reduction to the GAAP asset basis. Accordingly, Arrow recognized a current tax receivable and a deferred tax asset and corresponding reduction in the basis of Arrow's historic tax credit investment.
Bank-Owned Life Insurance - Arrow has purchased life insurance policies on certain employees, key executives and directors. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Derivative Instruments and Hedging Activities - Arrow enters into the following types of derivative and hedging transactions:
•Back to back interest rate swap agreements that are not designated as hedges for accounting purposes. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not present any material exposure to Arrow's consolidated statements of income. 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.
•Pay-fixed portfolio layer method fair value swaps, designated as hedging instruments. Arrow is designating the fair value swaps under the portfolio layer method ("PLM"). Under PLM, the hedged items are designated as hedged layers of a closed portfolio of financial loans that are anticipated to remain outstanding for the designated hedged period. Adjustments will be made to record the swaps at fair value on the Consolidated Balance Sheets, with changes in fair value recognized in interest income. The carrying value of the fair value swaps on the Consolidated Balance Sheets will also be adjusted through interest income, based on changes in fair value attributable to changes in the hedged risk.
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•Interest rate swaps to add stability to interest expense and to manage its exposure to the variability of the future cash flows attributable to the contractually specified interest rates of CDs or borrowings and to synthetically fix the variable rate interest payments 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 Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same period during which the hedge transaction affects earnings.
Income Taxes - Arrow accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. Arrow’s policy is that deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Arrow acquires transferable federal energy tax credits from unrelated third parties to offset federal income tax liabilities. Purchased tax credits are accounted for under ASC 740. The credits are recognized when the Company obtains the legal right to the credit and it is available to offset federal income taxes payable. The credit is recorded as a reduction of income taxes payable. Credits are generally purchased at a discount. The difference between the face amount of the credit and the purchase price is recognized as a reduction of income tax expense in the period the credit is recognized. The Company evaluates the realizability of purchased credits and any related uncertainties in accordance with ASC 740.
See Note 15. Income Taxes to the Consolidated Financial Statements for more information and disclosures related to purchased federal transferable tax credits.
Goodwill and Other Intangible Assets - Identifiable intangible assets acquired in a business combination are capitalized and amortized. Any remaining unidentifiable intangible asset is classified as goodwill, for which amortization is not required but which must be evaluated for impairment. Arrow tests for impairment of goodwill on an annual basis, or when events and circumstances indicate potential impairment. In evaluating goodwill for impairment, Arrow first assesses certain qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and no quantitative analysis is necessary.
The carrying amounts of other recognized intangible assets that meet recognition criteria and for which separate accounting records have been maintained (mortgage servicing rights and customer intangibles), have been included in the consolidated balance sheet as “Other Intangible Assets, Net.”
Pension and Postretirement Benefits - Arrow maintains a non-contributory, defined benefit pension plan covering substantially all employees, a supplemental pension plan covering certain executive officers selected by the Board of Directors, and certain post-retirement medical, dental and life insurance benefits for certain employees and retirees which are more fully described in Note 13. Retirement Benefit Plans to the Consolidated Financial Statements. The costs of these plans, based on actuarial computations of current and future benefits for employees, are charged to current operating expenses. The cost of post-retirement benefits other than pensions is recognized on an accrual basis as employees perform services to earn the benefits. Arrow recognizes the overfunded or underfunded status of our single employer defined benefit pension plan as an asset or liability on its consolidated balance sheet and recognizes changes in the funded status in comprehensive income in the year in which the change occurred.
Prior service costs or credits are amortized on a straight-line basis over the average remaining service period of active participants. Gains and losses in excess of 10% of the greater of the benefit obligation or the fair value of assets are amortized over the average remaining service period of active participants.
Stock-Based Compensation Plans - Arrow has three stock-based compensation plans, which are described more fully in Note 12. Stock Based Compensation to the Consolidated Financial Statements. The Company expenses the grant date fair value of stock options, restricted stock units and restricted stock granted. For stock options and restricted stock units, the expense is recognized over the vesting period of the grant, typically four years for stock options, three years for restricted stock
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units, and or four years for restricted stock, on a straight-line basis. Shares are generally issued from treasury for the exercise of stock options.
In October 2023, the Board of Directors approved the adoption of the new qualified 2023 ESPP, which became effective as of January 1, 2024 and was approved by our shareholders at the 2024 annual meeting of shareholders. The Plan is intended to satisfy the requirements of Section 423 of the Internal Revenue Code. Under the new qualified 2023 ESPP, the amount of the discount is 10 %. Arrow's previously sponsored ESPP allowed employees to 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.
Arrow maintains an employee stock ownership plan (“ESOP”). Substantially all employees of Arrow and its subsidiaries are eligible to participate upon satisfaction of applicable service requirements. The ESOP has the ability to borrow funds from Arrow Bank to purchase outstanding shares of Arrow’s common stock. At December 31, 2025 and 2024, there were no no
Securities Sold Under Agreements to Repurchase - In securities repurchase agreements, Arrow receives cash from a counterparty in exchange for the transfer of securities to a third party custodian’s account that explicitly recognizes Arrow’s interest in the securities. These agreements are accounted for by Arrow as secured financing transactions, since it maintains effective control over the transferred securities, and meets other criteria for such accounting. Accordingly, the cash proceeds are recorded as borrowed funds, and the underlying securities continue to be carried in Arrow’s securities available-for-sale portfolio.
Earnings Per Share (“EPS”) - Basic EPS excludes dilution and is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period, exclusive of shares represented by the unvested portion of restricted stock awards. Diluted EPS is calculated by dividing net income available to common shareholders by the weighted average number of shares outstanding for the period plus the dilutive effect of restricted stock awards and stock issuable upon conversion of common stock equivalents (Arrow stock options). The Company uses authoritative accounting guidance under ASC topic 260, Earnings Per Share, which stipulates that unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and shall be included in the calculation of earnings per share pursuant tot he the two-class method. The Company has granted restricted stocks awards that contain such rights and thus considered participating securities.
Financial Instruments - 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. These 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 policy is to record such instruments when funded. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant portion of Arrow's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, Arrow has a wealth management department that contributes net fee income annually. The value of the wealth management department customer relationships is not considered a financial instrument of the Company, and therefore this value has not been incorporated into the fair value estimates. Other significant assets and liabilities that are not considered financial assets or liabilities include deferred taxes, premises and equipment, the value of low-cost, long-term core deposits and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
The fair value for loans is 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 adjusting for a discount spread. The discount spread is applied separately for each loan type based on market information. A liquidity premium is determined for each loan type based on market inefficiencies associated with the sale of a financial instrument.
The carrying amount of short-term assets and liabilities is a reasonable estimate of fair value: cash and due from banks, federal funds sold and purchased, securities sold under agreements to repurchase, demand deposits, savings, N.O.W. and money market deposits, brokered money market deposits, other short-term borrowings, accrued interest receivable and accrued interest payable. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rates are estimated using the FHLBNY yield curve, which is considered representative of Arrow’s time deposit rates. The fair value
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estimates of other on- and off-balance sheet financial instruments, as well as the method of arriving at fair value estimates, are included in the related footnotes and summarized in Note 17. Fair Values to the Consolidated Financial Statements.
Fair Value Measures - Arrow determines the fair value of financial instruments 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).
Management’s Use of Estimates -The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expenses during the reporting period. Our most significant estimates are the allowance for credit losses, the evaluation of impairment of investment securities, goodwill impairment, pension and other postretirement liabilities and an analysis of a need for a valuation allowance for deferred tax assets. Actual results could differ from those estimates.
Newly Adopted accounting Standards in 2025
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires additional disclosures related to rate reconciliation, income taxes paid, and other disclosures. Under ASU 2023-09, for each annual periods presented, public entities are required to (1) disclose specific categories in the tabular rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires all reporting entities to disclose on an annual basis the amount of income taxes paid disaggregated by federal, state, and foreign taxes as well as the amount of income taxes paid by individual jurisdiction. ASU 2023-09 is effective for public companies for annual periods beginning after December 15, 2024, and can be applied on a prospective basis with an option to apply the standard retrospectively. Arrow adopted ASU 2023-09 in its 2025 fiscal year Form 10-K. Adoption impacted disclosures only and had no impact on the consolidated financial statements. See Note 15. Income Taxes to the Consolidated Financial Statements for required disclosures.
In November 2025, the FASB issued ASU 2025-08, which amends the guidance in ASC 326 on the accounting for certain purchased loans. Under the ASU, entities must account for acquired loans (excluding credit cards) that meet certain criteria at acquisition (“purchased seasoned loans”) by recognizing them at their purchase price plus an allowance for expected credit losses (i.e., the so-called gross-up approach). The ASU’s amendments align the accounting for purchased seasoned loans with the treatment of financial assets purchased with more-than-insignificant credit deterioration since origination (“PCD assets”). During the year ended December 31, 2025, the Company early adopted ASU 2025-08, 'Financial Instruments—Credit Losses (Topic 326): Purchased Loans'. This adoption was applied prospectively and there was no impact on our consolidated balance sheets, statements of income, or statements of cash flows for any period presented. The Company elected to apply the gross-up approach for eligible purchased seasoned loans (PSLs), recognizing an allowance for expected credit losses (ACL) at acquisition as part of the amortized cost basis, rather than recognizing an immediate credit loss expense. This aligns accounting for PSLs with PCD assets.
Accounting Standards Pending Adoption
ASU No. 2024-03, "Income Statement - Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses", requires new financial statement disclosures, disaggregating information for certain expense captions presented on the face of the income statements, including employee compensation, depreciation, and intangible asset amortization. Arrow is required to adopt this ASU prospectively for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. Arrow is currently evaluating the potential impact of ASU 2024-03 on our consolidated financial statements.
Note 3.CASH AND CASH EQUIVALENTS (Dollars In Thousands)
| 2025 | 2024 | ||||||||||
| Balances at December 31: | |||||||||||
| Cash and Due From Banks | $ | $ | |||||||||
| Interest-Bearing Deposits at Banks | |||||||||||
| Total Cash and Cash Equivalents | $ | $ | |||||||||
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Note 4. INVESTMENT SECURITIES (Dollars In Thousands)
The following table is the schedule of Available-For-Sale Securities at December 31, 2025 and 2024:
| Available-For-Sale Securities | ||||||||||||||||||||||||||||||||||||||
| U.S. Treasuries | U.S. Government & Agency Obligations | State and Municipal Obligations | Mortgage- Backed Securities | Corporate and Other Debt Securities | Total Available- For-Sale Securities | |||||||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||||||||
| Available-For-Sale Securities, at Amortized Cost | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Gross Unrealized Gains | ||||||||||||||||||||||||||||||||||||||
| Gross Unrealized Losses | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||
| Available-For-Sale Securities, at Fair Value | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Available-For-Sale Securities, Pledged as Collateral, at Fair Value | ||||||||||||||||||||||||||||||||||||||
| Maturities of Debt Securities, at Amortized Cost: | ||||||||||||||||||||||||||||||||||||||
| Within One Year | ||||||||||||||||||||||||||||||||||||||
| From 1 - 5 Years | ||||||||||||||||||||||||||||||||||||||
| From 5 - 10 Years | ||||||||||||||||||||||||||||||||||||||
| Over 10 Years | ||||||||||||||||||||||||||||||||||||||
| Maturities of Debt Securities, at Fair Value: | ||||||||||||||||||||||||||||||||||||||
| Within One Year | ||||||||||||||||||||||||||||||||||||||
| From 1 - 5 Years | ||||||||||||||||||||||||||||||||||||||
| From 5 - 10 Years | ||||||||||||||||||||||||||||||||||||||
| Over 10 Years | ||||||||||||||||||||||||||||||||||||||
| Securities in a Continuous Loss Position, at Fair Value: | ||||||||||||||||||||||||||||||||||||||
| Less than 12 Months | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| 12 Months or Longer | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Number of Securities in a Continuous Loss Position | ||||||||||||||||||||||||||||||||||||||
| Unrealized Losses on Securities in a Continuous Loss Position: | ||||||||||||||||||||||||||||||||||||||
| Less than 12 Months | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| 12 Months or Longer | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Available-For-Sale Securities | ||||||||||||||||||||||||||||||||||||||
| U.S. Treasuries | U.S. Government & Agency Obligations | State and Municipal Obligations | Mortgage- Backed Securities | Corporate and Other Debt Securities | Total Available- For-Sale Securities | |||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Available-For-Sale Securities, at Amortized Cost | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Gross Unrealized Gains | ||||||||||||||||||||||||||||||||||||||
| Gross Unrealized Losses | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||
| Available-For-Sale Securities, at Fair Value | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
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| Available-For-Sale Securities, Pledged as Collateral, at Fair Value | ||||||||||||||||||||||||||||||||||||||
| Securities in a Continuous Loss Position, at Fair Value: | ||||||||||||||||||||||||||||||||||||||
| Less than 12 Months | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| 12 Months or Longer | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Number of Securities in a Continuous Loss Position | ||||||||||||||||||||||||||||||||||||||
| Unrealized Losses on Securities in a Continuous Loss Position: | ||||||||||||||||||||||||||||||||||||||
| Less than 12 Months | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| 12 Months or Longer | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
At December 31, 2025 and 2024, there was no
The following is a summary of realized losses recognized in net income on available-for-sale securities sold during the years ended December 31, 2025 and 2024:
| December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Proceeds Received on Sale of AFS Securities | $ | $ | ||||||||||||
| Basis of AFS investments Sold | ||||||||||||||
| Net Loss Recognized on Sale of AFS Securities | $ | $ | ( | |||||||||||
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The following table is the schedule of Held-To-Maturity Securities at December 31, 2025 and 2024:
| Held-To-Maturity Securities | ||||||||||||||||||||
| State and Municipal Obligations | Mortgage- Backed Securities | Total Held-To Maturity Securities | ||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||
| Held-To-Maturity Securities, at Amortized Cost | $ | $ | $ | |||||||||||||||||
| Gross Unrealized Gains | ||||||||||||||||||||
| Gross Unrealized Losses | ( | ( | ( | |||||||||||||||||
| Held-To-Maturity Securities, at Fair Value | $ | $ | $ | |||||||||||||||||
| Held-To-Maturity Securities, Pledged as Collateral, at Carrying Value | ||||||||||||||||||||
| Held-To-Maturity Securities, Pledged as Collateral, at Fair Value | ||||||||||||||||||||
| Maturities of Debt Securities, at Amortized Cost: | ||||||||||||||||||||
| Within One Year | ||||||||||||||||||||
| From 1 - 5 Years | ||||||||||||||||||||
| From 5 - 10 Years | ||||||||||||||||||||
| Over 10 Years | ||||||||||||||||||||
| Maturities of Debt Securities, at Fair Value: | ||||||||||||||||||||
| Within One Year | ||||||||||||||||||||
| From 1 - 5 Years | ||||||||||||||||||||
| From 5 - 10 Years | ||||||||||||||||||||
| Over 10 Years | ||||||||||||||||||||
| Securities in a Continuous Loss Position, at Fair Value: | ||||||||||||||||||||
| Less than 12 Months | $ | $ | $ | |||||||||||||||||
| 12 Months or Longer | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
| Number of Securities in a Continuous Loss Position | ||||||||||||||||||||
| Unrealized Losses on Securities in a Continuous Loss Position: | ||||||||||||||||||||
| Less than 12 Months | $ | $ | $ | |||||||||||||||||
| 12 Months or Longer | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
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| Held-To-Maturity Securities | ||||||||||||||||||||
| State and Municipal Obligations | Mortgage- Backed Securities | Total Held-To Maturity Securities | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Held-To-Maturity Securities, at Amortized Cost | $ | $ | $ | |||||||||||||||||
| Gross Unrealized Gains | ||||||||||||||||||||
| Gross Unrealized Losses | ( | ( | ( | |||||||||||||||||
| Held-To-Maturity Securities, at Fair Value | $ | $ | $ | |||||||||||||||||
| Held-To-Maturity Securities, Pledged as Collateral, at Carrying Value | ||||||||||||||||||||
| Held-To-Maturity Securities, Pledged as Collateral, at Fair Value | ||||||||||||||||||||
| Securities in a Continuous Loss Position, at Fair Value: | ||||||||||||||||||||
| Less than 12 Months | $ | $ | $ | |||||||||||||||||
| 12 Months or Longer | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
| Number of Securities in a Continuous Loss Position | ||||||||||||||||||||
| Unrealized Losses on Securities in a Continuous Loss Position: | ||||||||||||||||||||
| Less than 12 Months | $ | $ | $ | |||||||||||||||||
| 12 Months or Longer | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
In the tables above, maturities of mortgage-backed securities are included based on their contractual 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 December 31, 2025 and December 31, 2024 do not reflect any material deterioration of the credit worthiness of the issuing entities.
Arrow evaluates available-for-sale debt securities in unrealized loss positions at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized within the allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. Arrow determined that at December 31, 2025, gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. Arrow does not intend to sell, nor is it more likely than not that Arrow will be required to sell the security before recovery of its amortized cost basis, which may be at maturity. Arrow carried no allowance for credit loss at December 31, 2025 and there was no credit loss expense recognized by Arrow with respect to the securities portfolio during 2025.
Arrow's held to maturity debt securities are comprised of securities issued by U.S. government agencies or U.S. government-sponsored enterprises or state and municipal obligations. U.S. government agencies and U.S. government-sponsored enterprise securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Arrow determined that the expected credit loss on its held to maturity debt portfolio was immaterial and therefore no allowance for credit loss was recorded as of December 31, 2025.
The following table is the schedule of Equity Securities at December 31, 2025 and 2024.
| Equity Securities | ||||||||||||||
| December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Equity Securities, at Fair Value | $ | $ | ||||||||||||
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The following is a summary of realized and unrealized gains and losses recognized in income on equity securities during the years ended December 31, 2025 and 2024:
| December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Net Gain on Equity Securities | $ | $ | $ | |||||||||||||||||
| Less: Net Gain recognized during the reporting period on equity securities sold during the period | ||||||||||||||||||||
| Unrealized Net Gain (Loss) recognized during the reporting period on equity securities still held at the reporting date | $ | $ | $ | ( | ||||||||||||||||
Schedule of Federal Reserve Bank and Federal Home Loan Bank Stock (at cost)
| December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Federal Reserve Bank Stock | $ | $ | ||||||||||||
| Federal Home Loan Bank Stock | ||||||||||||||
| Total Federal Reserve Bank and Federal Home Loan Bank Stock | $ | $ | ||||||||||||
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Note 5.LOANS (Dollars In Thousands)
Loan Categories and Past Due Loans
The following table presents loan balances outstanding as of December 31, 2025 and December 31, 2024 and an analysis of the recorded investment in loans that are past due at these dates. Loans held-for-sale of $3,383 and $759 as of December 31, 2025, and December 31, 2024, respectively, are included in the residential real estate balances for current loans.
| Schedule of Past Due Loans by Loan Category | |||||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| Commercial | Real Estate | Consumer | Residential | Total | |||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| Loans Past Due 30-59 Days | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loans Past Due 60-89 Days | |||||||||||||||||||||||||||||
| Loans Past Due 90 or More Days | |||||||||||||||||||||||||||||
| Total Loans Past Due | |||||||||||||||||||||||||||||
| Current Loans | |||||||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Loans Past Due 30-59 Days | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Loans Past Due 60-89 Days | |||||||||||||||||||||||||||||
| Loans Past Due 90 or More Days | |||||||||||||||||||||||||||||
| Total Loans Past Due | |||||||||||||||||||||||||||||
| Current Loans | |||||||||||||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Schedule of Non Accrual Loans by Category | |||||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| December 31, 2025 | Commercial | Real Estate | Consumer | Residential | Total | ||||||||||||||||||||||||
| Loans 90 or More Days Past Due and Still Accruing Interest | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Nonaccrual Loans | |||||||||||||||||||||||||||||
| Nonaccrual With No Allowance for Credit Loss | |||||||||||||||||||||||||||||
| Interest Income on Nonaccrual Loans | |||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Loans 90 or More Days Past Due and Still Accruing Interest | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Nonaccrual Loans | |||||||||||||||||||||||||||||
| Nonaccrual With No Allowance for Credit Loss | |||||||||||||||||||||||||||||
| Interest Income on Nonaccrual Loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Arrow disaggregates its loan portfolio into the following four categories:
Commercial - Arrow offers a variety of loan options to meet the specific needs of our commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment or other assets owned by the borrower. In the event of default by the borrower, Arrow 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 - Arrow offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. Commercial real estate loans are 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, hotels, commercial structures, housing businesses, healthcare facilities, and both owner- and non-owner-occupied facilities. Arrow also offers commercial construction and land development loans to finance projects. These real estate loans are also typically secured by first liens on the real estate, which may include apartments, hotels, 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
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project. Arrow’s Commercial Real Estate loans are primarily located within the footprint of the Company’s branch network, with some loans extending into the greater upstate New York area. Arrow does not provide Commercial Real Estate loans in major metropolitan areas such as New York City, Boston, etc.
Consumer Loans - This category is primarily comprised of automobile loans. Arrow primarily finances the purchases of automobiles indirectly through dealer relationships located throughout upstate New York and Vermont. Most automobile loans carry a fixed rate of interest with principal repayment terms typically ranging from to seven years . Automobile loans are underwritten on a secured basis using the underlying collateral being financed. Arrow 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 to five years , based upon the nature of the collateral and the size of the loan. In addition to installment loans, Arrow 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. Arrow originates fixed-rate and adjustable-rate one-to-four-family residential real estate loans for the construction, purchase of real estate or refinancing of an existing mortgage. These loans are collateralized primarily by owner-occupied properties generally located in Arrow'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. Arrow’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 Arrow'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, Arrow offers fixed home equity loans, as well as home equity lines of credit to consumers to finance home improvements, debt consolidation, education and other uses. Arrow 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.
Schedule of Supplemental Loan Information
| 2025 | 2024 | ||||||||||
Supplemental Information: | |||||||||||
| Unamortized deferred loan origination costs, net of deferred loan origination fees, included in the above balances | $ | $ | |||||||||
| Overdrawn deposit accounts, included in the above balances | |||||||||||
| Residential real estate loans serviced for Freddie Mac, not included in the balances above | |||||||||||
Allowance for Credit Losses
Loan segments were selected by class code and application code to ensure each segment is comprised of loans with homogenous loan characteristics and similar risk profiles. The resulting loan segments are commercial, commercial real estate, consumer and residential real estate loans. The consumer segment is mainly comprised of automobile loans, and since they are relatively short-term in nature, with similar dollar amounts and collateral, the vintage analysis method was selected to determine the credit loss reserve. The vintage method utilizes Arrow loan data exclusively as the method calculates a loss rate based on the total origination balance of the loans by year and the charge-off and recovery rate of the same origination year. Arrow maintains, over the life of the loan, the loss curve by vintage year. The discounted cash flow method (DCF) is used to calculate the reserve for credit losses for the commercial, commercial real estate and residential real estate segments.
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The following table details activity in the allowance for credit losses on loans for the twelve months ended December 31, 2025 and December 31, 2024
| Allowance for Credit Losses | |||||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| Commercial | Real Estate | Consumer | Residential | Total | |||||||||||||||||||||||||
| Rollforward of the Allowance for Credit Losses for the Year Ended: | |||||||||||||||||||||||||||||
| December 31, 2024 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||
| Provision | ( | ||||||||||||||||||||||||||||
| December 31, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||
| Provision | ( | ( | |||||||||||||||||||||||||||
| December 31, 2024 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||
| Provision | ( | ||||||||||||||||||||||||||||
| December 31, 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Estimated Credit Losses on Off-Balance Sheet Credit Exposures Recognized as Other Liabilities
Financial instrument credit losses apply to off-balance sheet credit exposures such as unfunded loan commitments and standby letters of credit. A liability for expected credit losses for off-balance sheet exposures is recognized if the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancellable by the entity. Changes in the allowance are reflected in other operating expenses within the non-interest expense category. As of December 31, 2025 and 2024, estimated credit losses on unfunded commitment off-balance sheet credit exposure was $1.3 million and $1.6 million, respectively, and is included in other liabilities on the consolidated balance sheets.
Individually Evaluated Loans
Loans that do not share similar risk characteristics, which are primarily nonaccrual loans in excess of $250,000, are evaluated on an individual basis. For collateral-dependent financial assets, when repayment is expected to be provided substantially through the sale of the collateral, the Company measures expected credit losses using the fair value of the collateral less estimated costs to sell. When repayment is expected to be provided substantially through the operation of the collateral, expected credit losses are measured using the fair value of the collateral at the reporting date. The allowance for credit losses is recorded for the amount by which the loan’s amortized cost exceeds the fair value of the collateral, as applicable.
The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2025 and December 31, 2024:
| December 31, 2025 | Collateral Type -Residential Real Estate | Collateral Type - Commercial Real Estate | Total Loans | ||||||||||||||
| Commercial | $ | $ | $ | ||||||||||||||
| Commercial Real Estate | |||||||||||||||||
| Consumer | |||||||||||||||||
| Residential | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
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| December 31, 2024 | Collateral Type -Residential Real Estate | Collateral Type - Commercial Real Estate | Total Loans | ||||||||||||||
| Commercial | $ | $ | $ | ||||||||||||||
| Commercial Real Estate | |||||||||||||||||
| Consumer | |||||||||||||||||
| Residential | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
Through the provision for credit losses, an allowance for credit losses is maintained that reflects the best estimate of the calculated expected credit losses in Arrow's loan portfolio as of the balance sheet date. Additions are made to the allowance for credit losses through a periodic provision for credit losses. Actual credit losses are charged against the allowance for credit losses when loans are deemed uncollectible and recoveries of amounts previously charged off are recorded as credits to the allowance for credit losses.
Arrow's 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, the independent internal loan review department performs periodic reviews of the credit quality indicators on individual loans in the commercial loan portfolio.
Arrow considers the need to qualitatively adjust expected credit loss estimates for information not already captured in the loss estimation process. See Note 2. Summary of Significant Accounting Policies, for discussion of the qualitative adjustments considered and utilized in the determination of the allowance for credit losses.
Loan Credit Quality Indicators and Modifications
Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction.
In some cases, the Company provides multiple types of concession on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, may be granted.
The following tables present the amortized cost basis of loans at December 31, 2025 that were both experiencing financial difficulty and modified during the year ended December 31, 2025, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class financing receivable is also present below. The Company did not modify loans to borrowers experiencing financial difficulty during the year ended December 31, 2024.
| Year Ended December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Principal Forgiveness | Payment Delay | Term Extension | Interest Rate Reduction | Combination Term Extension and Principal Forgiveness | Combination Term Extension and Interest Rate Reduction | Total Class of Financing Receivable | |||||||||||||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||
| Commercial Real Estate | % | ||||||||||||||||||||||||||||||||||||||||
| Consumer | % | ||||||||||||||||||||||||||||||||||||||||
| Residential | % | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||
The Company has not committed to lend additional amounts to the borrowers in the previous table.
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last 12 months.
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| December 31, 2025 | |||||||||||||||||||||||||||||
| Current | Loans Past Due 30-59 Days | Loans Past Due 60-89 Days | Loans Past Due 90 or more Days | Total Loans Past Due | |||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commercial Real Estate | |||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The following table presents the financial effect of the loan modification presented above to borrowers experiencing financial difficulty for the year ended December 31, 2025. Loan modifications currently included in the Payment Delay column of the tables above are modifications to bring past due balances current, without extending the term, adjusting the interest rate, or forgiving any principal amounts. The modifications increased the monthly payment amounts for a certain number of months of the remaining term of the loans. Present value of cash flows under the new terms have not changed by 10% or more in comparison to the original terms.
| Year Ended December 31, 2025 | |||||||||||||||||
| Principal Forgiveness | Weighted-Average Interest Rate Reduction | Weighted-Average Term Extension | |||||||||||||||
| Commercial | $ | % | |||||||||||||||
| Commercial Real Estate | % | ||||||||||||||||
| Consumer | % | ||||||||||||||||
| Residential | % | ||||||||||||||||
| Total | $ | % | |||||||||||||||
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The following table presents credit quality indicators by total loans amortized cost basis by origination year as of December 31, 2025 and December 31, 2024:
| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | ||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||
| Satisfactory | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||
| Total Commercial Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial Real Estate: | ||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||
| Satisfactory | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||
| Total Commercial Real Estate Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||
| Total Consumer Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential: | ||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||
| Total Residential Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
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| Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||||||||
| December 31, 2024 | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | ||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||
| Satisfactory | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||
| Total Commercial Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial Real Estate: | ||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||
| Satisfactory | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||
| Total Commercial Real Estate Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||
| Total Consumer Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Residential: | ||||||||||||||||||||||||||
| Risk rating | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||
| Total Residential Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
For the purposes of the table above, nonperforming consumer and residential loans were those loans on nonaccrual status or are 90 days or more past due and still accruing interest.
At December 31, 2025 and 2024, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is $795 thousand and $2.6 million, respectively.
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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 credit 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.
Note 6.PREMISES AND EQUIPMENT (Dollars In Thousands)
A summary of premises and equipment at December 31, 2025 and 2024 is presented below:
| 2025 | 2024 | ||||||||||
| Land and Bank Premises | $ | $ | |||||||||
| Equipment, Furniture and Fixtures | |||||||||||
| Construction in Progress | |||||||||||
| Leasehold Improvements | |||||||||||
| Total Cost | |||||||||||
| Accumulated Depreciation and Amortization | ( | ( | |||||||||
| Net Owned Premises and Equipment | |||||||||||
| Leased Assets (see Note 18. Leases to the Consolidated Financial Statements) | |||||||||||
| Net Premises and Equipment | $ | $ | |||||||||
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Note 7.GOODWILL AND OTHER INTANGIBLE ASSETS (Dollars In Thousands)
The following table presents information on Arrow’s goodwill as of December 31, 2025, 2024 and 2023:
| Total Goodwill | |||||
Balance, December 31, 2022 | $ | ||||
| Goodwill Acquired | |||||
Balance, December 31, 2023 | |||||
| Goodwill acquired related to the acquisition of the assets of A&B Agency, Inc and the Whitehall Branch | |||||
Balance, December 31, 2024 | |||||
| Goodwill Acquired | |||||
Balance, December 31, 2025 | $ | ||||
The following table presents information on Arrow’s other intangible assets (other than goodwill) as of December 31, 2025, 2024 and 2023:
Depositor Intangibles1 | Mortgage Servicing Rights2 | Customer Intangibles1 | Total | ||||||||||||||||||||
Gross Carrying Amount, December 31, 2025 | $ | $ | $ | $ | |||||||||||||||||||
| Accumulated Amortization | ( | ( | ( | ( | |||||||||||||||||||
Net Carrying Amount, December 31, 2025 | $ | $ | $ | $ | |||||||||||||||||||
Gross Carrying Amount, December 31, 2024 | $ | $ | $ | $ | |||||||||||||||||||
| Accumulated Amortization | ( | ( | ( | ( | |||||||||||||||||||
Net Carrying Amount, December 31, 2024 | $ | $ | $ | $ | |||||||||||||||||||
| Rollforward of Intangible Assets: | |||||||||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of Intangible Assets | ( | ( | ( | ||||||||||||||||||||
Balance, December 31, 2023 | |||||||||||||||||||||||
| Intangible Assets Acquired | |||||||||||||||||||||||
| Amortization of Intangible Assets | ( | ( | ( | ( | |||||||||||||||||||
Balance, December 31, 2024 | |||||||||||||||||||||||
| Intangible Assets Acquired | |||||||||||||||||||||||
| Amortization of Intangible Assets | ( | ( | ( | ( | |||||||||||||||||||
Balance, December 31, 2025 | $ | $ | $ | $ | |||||||||||||||||||
1 Amortization of depositor intangibles and customer intangibles are reported in the Consolidated Statements of Income as a
component of other operating expense.
component of other operating expense.
2 Amortization of mortgage servicing rights is reported in the Consolidated Statements of Income as a reduction of mortgage
servicing fee income, which is included with fees for other services to customers.
servicing fee income, which is included with fees for other services to customers.
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The following table presents the remaining estimated annual amortization expense for Arrow's intangible assets as of December 31, 2025:
| Depositor Intangibles | Mortgage Servicing Rights | Customer Intangibles | Total | |||||||||||||||||||||||
| Estimated Annual Amortization Expense: | ||||||||||||||||||||||||||
| 2026 | $ | $ | $ | $ | ||||||||||||||||||||||
| 2027 | ||||||||||||||||||||||||||
| 2028 | ||||||||||||||||||||||||||
| 2029 | ||||||||||||||||||||||||||
| 2030 | ||||||||||||||||||||||||||
| 2031 and beyond | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Note 8.COMMITMENTS AND CONTINGENCIES (Dollars 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 December 31, 2025 and 2024:
| Balance at December 31, | 2025 | 2024 | |||||||||
| Notional Amount: | |||||||||||
| Commitments to Extend Credit | $ | $ | |||||||||
| Standby Letters of Credit | |||||||||||
| Fair Value: | |||||||||||
| Commitments to Extend Credit | $ | $ | |||||||||
| Standby Letters of Credit | ( | ( | |||||||||
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 expected to expire without being 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 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 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 December 31, 2025 and 2024 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 CDs. 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 December 31, 2025 and 2024 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
76
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 Arrow Bank 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. Legal expenses incurred in connection with loss contingencies are expensed as incurred.
Note 9.TIME DEPOSITS (Dollars In Thousands)
The following summarizes the contractual maturities of time deposits during years subsequent to December 31, 2025:
| Year of Maturity | Total Time Deposits | |||||||
| 2026 | $ | |||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| 2031 and beyond | ||||||||
| Total | $ | |||||||
Brokered certificate of deposits totaled $300 million and $270 million at December 31, 2025 and 2024, respectively.
77
Note 10.DEBT (Dollars in Thousands)
Schedule of Borrowings:
| 2025 | 2024 | ||||||||||
| Balances at December 31: | |||||||||||
| FHLBNY Overnight Advances | |||||||||||
| FHLBNY Term Advances | |||||||||||
| Total Borrowings | $ | $ | |||||||||
| Maximum Borrowing Capacity at December 31: | |||||||||||
| Federal Funds Purchased | $ | $ | |||||||||
| Federal Home Loan Bank of New York | |||||||||||
| Federal Reserve Bank of New York | |||||||||||
| Available Borrowing Capacity at December 31: | |||||||||||
| Federal Funds Purchased | $ | $ | |||||||||
| Federal Home Loan Bank of New York | |||||||||||
| Federal Reserve Bank of New York | |||||||||||
Arrow Bank has in place unsecured federal funds lines of credit with two correspondent banks. As a member of the FHLBNY, Arrow participates in the advance program which allows for overnight and term advances up to the limit of pledged collateral, including FHLBNY stock and any loans secured by real estate such as commercial real estate, residential real estate and home equity loans. Arrow Bank has also established borrowing facilities with the Federal Reserve Bank of New York for potential “discount window” advances, pledging certain consumer loans as collateral. The maximum borrowing capacities at the FHLBNY and FRB are determined based on the fair value of the collateral pledged, subject to discounts determined by the respective lenders.
As of December 31, 2025 and 2024, the carrying cost for the FHLBNY collateral was approximately $1,064 million and $969 million, respectively. As of December 31, 2025 and 2024, the carrying cost for the FRB collateral was approximately $939 million and $769 million, respectively. As of December 31, 2025 and 2024, the fair value of the FHLBNY collateral was approximately $948 million and $827 million, respectively. As of December 31, 2025 and 2024, the fair value of the FRB collateral was approximately $939 million and $571 million, respectively. The investment in FHLBNY stock is proportional to the total of Arrow Bank's overnight and term advances (see the Schedule of Federal Reserve Bank and Federal Home Loan Bank Stock in Note 4. Investment Securities, to the Consolidated Financial Statements).
Long Term Debt - FHLBNY Term Advances
In addition to overnight advances, Arrow Bank also borrows longer-term funds from the FHLBNY.
Maturity Schedule of FHLBNY Term Advances:
| Balances | Weighted Average Rate | |||||||||||||||||||||||||
| Final Maturity | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| First Year | $ | $ | % | % | ||||||||||||||||||||||
| Second Year | % | % | ||||||||||||||||||||||||
| Third Year | % | % | ||||||||||||||||||||||||
| Total | $ | $ | % | % | ||||||||||||||||||||||
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Long Term Debt - Guaranteed Preferred Beneficial Interests in Corporation's Junior Subordinated Debentures
During 2025, there were two classes of financial instruments issued and outstanding by two separate subsidiary business trusts of Arrow, identified as “Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts” on the Consolidated Balance Sheets and the Consolidated Statements of Income.
The first of the two classes of trust-issued instruments outstanding at year-end was issued by Arrow Capital Statutory Trust II ("ACST II"), a Delaware business trust established on July 16, 2003, upon the filing of a certificate of trust with the Delaware Secretary of State. In July 2003, ACST II issued all of its voting (common) stock to Arrow and issued and sold to an unaffiliated purchaser 30-year guaranteed preferred beneficial interests in the trust's assets ("ACST II trust preferred securities"). The rate on the securities is variable, adjusting quarterly to 3-month SOFR plus 3.15 %. ACST II used the proceeds of the sale of its trust preferred securities to purchase an identical amount of junior subordinated debentures issued by Arrow that bear an interest rate identical at all times to the rate payable on the ACST II trust preferred securities. The ACST II trust preferred securities became redeemable after July 23, 2008 and mature on July 23, 2033.
The second of the two classes of trust-issued instruments outstanding at year-end was issued by Arrow Capital Statutory Trust III ("ACST III"), a Delaware business trust established on December 23, 2004, upon the filing of a certificate of trust with the Delaware Secretary of State. On December 28, 2004, the ACST III issued all of its voting (common) stock to Arrow and issued and sold to an unaffiliated purchaser 30-year guaranteed preferred beneficial interests in the trust's assets ("ACST III"). The rate on the ACST III trust preferred securities is variable, adjusting quarterly, to 3-month SOFR plus 2.00 %. ACST III used the proceeds of the sale of its trust preferred securities to purchase an identical amount of junior subordinated debentures issued by Arrow that bear an interest rate identical at all times to the rate payable on the ACST III trust preferred securities. The ACST III trust preferred securities became redeemable on or after March 31, 2010 and mature on December 28, 2034. 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.
The primary assets of the two subsidiary trusts having trust preferred securities outstanding at year-end, ACST II and ACST III (the “Trusts”), are Arrow's junior subordinated debentures discussed above, and the sole revenues of the Trusts are payments received by them from Arrow with respect to the junior subordinated debentures. The trust preferred securities issued by the Trusts are non-voting. All common voting securities of the Trusts are owned by Arrow. Arrow used the net proceeds from its sale of junior subordinated debentures to the Trusts, facilitated by the Trust’s sale of their trust preferred securities to the purchasers thereof, for general corporate purposes. The trust preferred securities and underlying junior subordinated debentures, with associated expense that is tax deductible, qualify as Tier I capital under regulatory definitions.
Arrow's primary source of funds to pay interest on the debentures that are held by the Trusts are current dividends received by Arrow from Arrow Bank. Accordingly, Arrow's ability to make payments on the debentures, and the ability of the Trusts to make payments on their trust preferred securities, are dependent upon the continuing ability of Arrow Bank to pay dividends to Arrow. Since the trust preferred securities issued by the subsidiary trusts and the underlying junior subordinated debentures issued by Arrow are classified as debt for financial statement purposes, the expense associated with these securities is recorded as interest expense in the Consolidated Statements of Income.
Schedule of Guaranteed Preferred Beneficial Interests in Corporation's Junior Subordinated Debentures
| 2025 | 2024 | ||||||||||
| ACST II | |||||||||||
| Balance at December 31, | $ | $ | |||||||||
| Period End: | |||||||||||
| Variable Interest Rate | % | % | |||||||||
| Fixed Interest Rate resulting from cash flow hedge agreement | % | % | |||||||||
| ACST III | |||||||||||
| Balance at December 31, | $ | $ | |||||||||
| Period End: | |||||||||||
| Variable Interest Rate | % | % | |||||||||
| Fixed Interest Rate resulting from cash flow hedge agreement | % | % | |||||||||
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Note 11.COMPREHENSIVE INCOME (LOSS), NET OF TAX (Dollars In Thousands)
The following table presents the components of other comprehensive income (loss) for the years ended December 31, 2025, 2024 and 2023:
| Schedule of Comprehensive Income (Loss) | |||||||||||||||||
| Before-Tax Amount | Tax (Benefit) Expense | Net-of-Tax Amount | |||||||||||||||
| 2025 | |||||||||||||||||
| Net Unrealized Securities Holding Gains Arising During the Period | $ | ( | |||||||||||||||
| Net Unrealized Losses on Cash Flow Swap | ( | ( | |||||||||||||||
| Reclassification of Net Unrealized Gain on Cash Flow Hedge Agreements | ( | ( | |||||||||||||||
| Net Retirement Plan Gain | ( | ||||||||||||||||
| Amortization of Net Retirement Plan Actuarial Gain | ( | ( | |||||||||||||||
| Amortization of Net Retirement Plan Prior Service Cost | ( | ||||||||||||||||
| Other Comprehensive Income | $ | ( | |||||||||||||||
| 2024 | |||||||||||||||||
| Net Unrealized Securities Holding Gains Arising During the Period | $ | ( | |||||||||||||||
| Reclassification Adjustment for Securities Losses Included in Net Income | ( | ||||||||||||||||
| Net Unrealized Gains on Cash Flow Swap | ( | ||||||||||||||||
| Reclassification of Net Unrealized Gain on Cash Flow Hedge Agreements | ( | ( | |||||||||||||||
| Net Retirement Plan Gain | ( | ||||||||||||||||
| Prior Service Cost | ( | ( | |||||||||||||||
| Amortization of Net Retirement Plan Actuarial Gain | ( | ( | |||||||||||||||
| Amortization of Net Retirement Plan Prior Service Cost | ( | ||||||||||||||||
| Other Comprehensive Income | $ | ( | |||||||||||||||
| 2023 | |||||||||||||||||
| Net Unrealized Securities Holding Gains Arising During the Period | $ | ( | |||||||||||||||
| Reclassification Adjustment for Securities Losses Included in Net Income | ( | ||||||||||||||||
| Net Unrealized Gains on Cash Flow Swap | ( | ( | |||||||||||||||
| Reclassification of Net Unrealized Loss on Cash Flow Hedge Agreements | ( | ||||||||||||||||
| Net Retirement Plan Gain | ( | ||||||||||||||||
| Prior Service Cost | ( | ( | |||||||||||||||
| Amortization of Net Retirement Plan Actuarial Gain | ( | ( | |||||||||||||||
| Amortization of Net Retirement Plan Prior Service Cost | ( | ||||||||||||||||
| Other Comprehensive Income | $ | ( | |||||||||||||||
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Changes in Accumulated Other Comprehensive (Loss) Income by Component (1) | |||||||||||||||||||||||||||||
| Unrealized | Defined Benefit Plan Items | ||||||||||||||||||||||||||||
| Gains and | Unrealized | ||||||||||||||||||||||||||||
| Losses on | Gain On | Net | Net Prior | ||||||||||||||||||||||||||
| Available-for- | Cash Flow | Actuarial | Service | ||||||||||||||||||||||||||
| Sale Securities | Swap | Gain (Loss) | (Cost ) Credit | Total | |||||||||||||||||||||||||
| For the year-to-date periods ended: | |||||||||||||||||||||||||||||
| December 31, 2024 | $ | ( | ( | ( | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income | ( | ( | ( | ||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ||||||||||||||||||||||||||||
| December 31, 2025 | $ | ( | ( | ( | |||||||||||||||||||||||||
| December 31, 2023 | $ | ( | ( | ( | ( | ||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ||||||||||||||||||||||||||||
| December 31, 2024 | $ | ( | ( | ( | |||||||||||||||||||||||||
| December 31, 2022 | $ | ( | ( | ( | ( | ||||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | ( | ||||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
| December 31, 2023 | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
(1) All amounts are net of tax. Amounts in parentheses indicate debits.
81
The following table presents the reclassifications out of accumulated other comprehensive income (loss)
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (1) | ||||||||||||||
| Details about Accumulated Other Comprehensive Income (Loss) Components | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | Affected Line Item in the Statement Where Net Income Is Presented | ||||||||||||
| For the year-to-date periods ended: | ||||||||||||||
| December 31, 2025 | ||||||||||||||
| Reclassification of net unrealized gain on cash flow hedge agreements | Interest Expense | |||||||||||||
| Amortization of defined benefit pension items | ||||||||||||||
| Prior-service credit | ( | (2) | Salaries and Employee Benefits | |||||||||||
| Actuarial gain | (2) | Salaries and Employee Benefits | ||||||||||||
| Total before tax | ||||||||||||||
| ( | Provision for Income Taxes | |||||||||||||
| Total reclassifications for the period | $ | Net of tax | ||||||||||||
| December 31, 2024 | ||||||||||||||
| Unrealized gains and losses on available-for-sale securities | ( | Net Gain (Loss) on Securities | ||||||||||||
| Reclassification of net unrealized gain on cash flow hedge agreements | Interest Expense | |||||||||||||
| Amortization of defined benefit pension items | ||||||||||||||
| Prior-service credit | $ | ( | (2) | Salaries and Employee Benefits | ||||||||||
| Actuarial gain | (2) | Salaries and Employee Benefits | ||||||||||||
| ( | Total before tax | |||||||||||||
| Provision for Income Taxes | ||||||||||||||
| Total reclassifications for the period | $ | ( | Net of tax | |||||||||||
| December 31, 2023 | ||||||||||||||
| Unrealized gains and losses on available-for-sale securities | $ | ( | Net Gain (Loss) on Securities | |||||||||||
| Reclassification of net unrealized loss on cash flow hedge agreements | ( | Interest Expense | ||||||||||||
| Amortization of defined benefit pension items | ||||||||||||||
| Prior-service credit | $ | ( | (2) | Salaries and Employee Benefits | ||||||||||
| Actuarial gain | (2) | Salaries and Employee Benefits | ||||||||||||
| ( | Total before tax | |||||||||||||
| Provision for Income Taxes | ||||||||||||||
| Total reclassifications for the period | $ | ( | Net of tax | |||||||||||
(1) Amounts in parentheses indicate debits to profit/loss.
(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 13. Retirement Benefit Plans to the Consolidated Financial Statements for additional details).
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Note 12.STOCK-BASED COMPENSATION (Dollars In Thousands, Except Share and Per Share Amounts)
Arrow has established three stock-based compensation plans: a Long Term Incentive Plan, an Employee Stock Purchase Plan (ESPP) and an Employee Stock Ownership Plan (ESOP). When applicable, share and per share data have been adjusted for the September 26, 2023 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.
Shares Available for Grant at December 31, 2025 | ||||||||||||||
Restricted Stock Awards - From time to time, the Company grants restricted stock awards which will generally vest over a four-year period. Unvested restricted stock will generally be forfeited if the recipient ceases to be employed by the Company, with limited exceptions. Grantees of restricted stock awards are entitled to receive all dividends and distributions declared and paid on restricted stock, or cash payments equivalent to such dividends or distributions, including those declared and paid during the vesting period.
The following table summarizes information about restricted stock awards for the year ended December 31, 2025:
| Restricted Stock Awards | Weighted Average Grant Date Fair Value | |||||||
Outstanding at January 1, 2025 | ||||||||
| Granted | ||||||||
| Vested | ( | |||||||
| Forfeited | ||||||||
Outstanding at December 31, 2025 | ||||||||
The following table presents information on the amounts expensed related to restricted stock awards.
| For the Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Amount expensed | $ | $ | ||||||||||||
The following is the Schedule of Other Information on restricted stock awards.
| 2025 | ||||||||
| Restricted Stock Awards Granted | ||||||||
| Weighted Average Grant Date Information: | ||||||||
| Fair Value of Awards Granted | $ | |||||||
| Total Grant Date Fair Value of Awards Granted in Period | $ | |||||||
| Total Fair Value of Awards Vested in Period | $ | |||||||
| Amount Expensed During the Year | $ | |||||||
| Compensation Costs for Non-vested Awards Not Yet Recognized | $ | |||||||
| Weighted Average Expected Vesting Period, In Years | ||||||||
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 period. The Company did not
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The following table summarizes information about stock option activity for the year ended December 31, 2025.
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
Outstanding at January 1, 2025 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
| Forfeited | ( | $ | |||||||||||||||||||||
Outstanding at December 31, 2025 | $ | $ | |||||||||||||||||||||
| Vested at Period-End | $ | $ | |||||||||||||||||||||
| Expected to Vest | $ | $ | |||||||||||||||||||||
The following is the Schedule of Stock Options Granted Under the Long Term Incentive Plan by Exercise Price Range.
| Exercise Price Ranges | |||||||||||||||||
$ | $ | $ | $ | Total | |||||||||||||
Outstanding at December 31, 2025 | |||||||||||||||||
| Number of Stock Options Outstanding | |||||||||||||||||
| Weighted-Average Remaining Contractual Life (in years) | |||||||||||||||||
| Weighted-Average Exercise Price | $ | $ | $ | $ | $ | ||||||||||||
Vested at December 31, 2025 | |||||||||||||||||
| Number of Stock Options Outstanding | |||||||||||||||||
| Weighted-Average Remaining Contractual Life (in years) | |||||||||||||||||
| Weighted-Average Exercise Price | $ | $ | $ | $ | $ | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Stock Options Granted | ||||||||||||||||||||
| Weighted Average Grant Date Information: | ||||||||||||||||||||
| Fair Value of Options Granted | $ | $ | $ | |||||||||||||||||
| Fair Value Assumptions: | ||||||||||||||||||||
| Dividend Yield | % | % | % | |||||||||||||||||
| Expected Volatility | % | % | % | |||||||||||||||||
| Risk Free Interest Rate | % | % | % | |||||||||||||||||
| Expected Lives (in years) | ||||||||||||||||||||
| Amount Expensed During the Year | $ | $ | $ | |||||||||||||||||
| Compensation Costs for Non-vested Awards Not Yet Recognized | ||||||||||||||||||||
| Weighted Average Expected Vesting Period, In Years | ||||||||||||||||||||
| Proceeds From Stock Options Exercised | $ | $ | $ | |||||||||||||||||
| Tax Benefits Related to Stock Options Exercised | ||||||||||||||||||||
| Intrinsic Value of Stock Options Exercised | ||||||||||||||||||||
Restricted Stock Units - Historically, the Company has granted 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. Restricted stock units vested over three years from the grant date. Once vested, the restricted stock units are no longer forfeitable. Vested units settle upon retirement of the recipient. Unvested restricted stock units generally forfeit if the recipient ceases to be employed by the Company, with limited exceptions. The Company did not grant restricted stock units in 2025.
84
There were no The following table summarizes the activity for the year ended December 31, 2023.
| Restricted Stock Units | Weighted Average Grant Date Fair Value | ||||||||||
| Non-vested at January 1, 2023 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Non-vested at December 31, 2023 | |||||||||||
There was no 321 thousand related to restricted stock units.
Employee Stock Purchase Plan
In April 2023, Arrow suspended the operation of the ESPP as a result of the now resolved delay in filing the 2022 Form 10-K and the 2023 Q1 Form 10-Q and the related effects under applicable securities laws. In October 2023, the Board of Directors approved the adoption of the 2023 ESPP, which is intended to satisfy the requirements of Section 423 of the Internal Revenue Code. Under this plan, the amount of the discount is 10 %. Arrow previously sponsored an ESPP under which employees purchased 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. The new qualified 2023 ESPP was approved by Arrow shareholders at the 2024 annual meeting of shareholders.
Director Stock Plan
Arrow maintains a director stock plan, pursuant to which a portion of the directors’ fees, as determined by the Board in its sole discretion, is paid to the directors in shares of Company common stock, as opposed to cash or any other form of compensation, subject to applicable law. Each director may elect to receive a greater amount or percentage of his or her directors’ fees payable in common stock from the portion that would otherwise have been payable in cash to the director.
Employee Stock Ownership Plan
Arrow maintains an employee stock ownership plan. Substantially all employees of Arrow and its subsidiaries are eligible to participate upon satisfaction of applicable service requirements. The Company makes voluntary cash contributions to the Plan each year.
Schedule of ESOP Compensation Expense
| 2025 | 2024 | 2023 | ||||||||||||||||||
| ESOP Compensation Expense | $ | $ | $ | |||||||||||||||||
Note 13. RETIREMENT BENEFIT PLANS (Dollars in Thousands)
Arrow sponsors qualified and nonqualified defined benefit pension plans and other postretirement benefit plans for its employees. Arrow maintains a non-contributory pension plan, which covers substantially all employees. 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 allows for grandfathered participants to receive automatic increases of Company contributions each year based on the increase in inflation and limited to a maximum of 5 %.
As of December 31, 2025, Arrow uses the sex-distinct Amount-Weighted Pri-2012 Mortality Tables for employees, healthy retirees and contingent survivors, with mortality improvements projected using Scale MP-2021 on a generational basis for the Pension Plan and the sex-distinct White Collar Amount-Weighted Pri-2012 Mortality Tables for employees, healthy retirees and contingent survivors, with mortality improvements projected using Scale MP-2021 on a generational basis for the Select Executive Retirement Plan.
Segment interest rates of 4.07 %, 5.15 % and 6.01 % were used in determining the present value of a lump sum payment/annuitizing cash balance accounts as of December 31, 2025
85
The following tables set forth changes in the plans’ benefit obligations (projected benefit obligation for pension benefits and accumulated benefit obligation for postretirement benefits) and changes in the plans’ assets and the funded status of the pension plans and other postretirement benefit plan at December 31:
Schedule of Defined Benefit Plan Disclosures
| Employees' Pension Plan | Select Executive Retirement Plan | Postretirement Benefit Plans | |||||||||||||||
| Defined Benefit Plan Funded Status | |||||||||||||||||
| December 31, 2025 | |||||||||||||||||
| Fair Value of Plan Assets | $ | $ | $ | ||||||||||||||
| Benefit Obligation | |||||||||||||||||
| Funded Status of Plan | $ | $ | ( | $ | ( | ||||||||||||
| December 31, 2024 | |||||||||||||||||
| Fair Value of Plan Assets | $ | $ | $ | ||||||||||||||
| Benefit Obligation | |||||||||||||||||
| Funded Status of Plan | $ | $ | ( | $ | ( | ||||||||||||
| Change in Benefit Obligation | |||||||||||||||||
Benefit Obligation, at January 1, 2025 | $ | $ | $ | ||||||||||||||
Service Cost 1 | |||||||||||||||||
Interest Cost 2 | |||||||||||||||||
| Plan Participants' Contributions | |||||||||||||||||
| Actuarial Loss (Gain) | ( | ( | |||||||||||||||
| Benefits Paid | ( | ( | ( | ||||||||||||||
Benefit Obligation, at December 31, 2025 | $ | $ | $ | ||||||||||||||
Benefit Obligation, at January 1, 2024 | $ | $ | $ | ||||||||||||||
Service Cost 1 | |||||||||||||||||
Interest Cost 2 | |||||||||||||||||
| Plan Participants' Contributions | |||||||||||||||||
| Amendments / Curtailments / Special Termination | |||||||||||||||||
| Actuarial (Gain) | ( | ( | ( | ||||||||||||||
| Benefits Paid | ( | ( | ( | ||||||||||||||
Benefit Obligation, at December 31, 2024 | |||||||||||||||||
86
| Employees' Pension Plan | Select Executive Retirement Plan | Postretirement Benefit Plans | |||||||||||||||
| Change in Fair Value of Plan Assets | |||||||||||||||||
Fair Value of Plan Assets, at January 1, 2025 | $ | $ | $ | ||||||||||||||
| Actual Return on Plan Assets | |||||||||||||||||
| Employer Contributions | |||||||||||||||||
| Plan Participants' Contributions | |||||||||||||||||
| Benefits Paid | ( | ( | ( | ||||||||||||||
Fair Value of Plan Assets, at December 31, 2025 | $ | $ | $ | ||||||||||||||
Fair Value of Plan Assets, at January 1, 2024 | $ | $ | $ | ||||||||||||||
| Actual Return on Plan Assets | |||||||||||||||||
| Employer Contributions | |||||||||||||||||
| Plan Participants' Contributions | |||||||||||||||||
| Benefits Paid | ( | ( | ( | ||||||||||||||
Fair Value of Plan Assets, at December 31, 2024 | $ | $ | $ | ||||||||||||||
Accumulated Benefit Obligation at December 31, 2025 | $ | $ | $ | ||||||||||||||
| Amounts Recognized in the Consolidated Balance Sheets | |||||||||||||||||
| December 31, 2025 | |||||||||||||||||
| Prepaid Pension Asset | $ | $ | $ | ||||||||||||||
| Accrued Benefit Liability | ( | ( | |||||||||||||||
| Net Benefit (Expense) Recognized | $ | $ | ( | $ | ( | ||||||||||||
| December 31, 2024 | |||||||||||||||||
| Prepaid Pension Asset | $ | $ | $ | ||||||||||||||
| Accrued Benefit Liability | ( | ( | |||||||||||||||
| Net Benefit (Expense) Recognized | $ | $ | ( | $ | ( | ||||||||||||
| Amounts Recognized in Other Comprehensive (Loss) Income | |||||||||||||||||
For the Year Ended December 31, 2025 | |||||||||||||||||
| Net Unamortized Gain Arising During the Period | $ | ( | $ | ( | $ | ( | |||||||||||
| Amortization of Net (Gain) | |||||||||||||||||
| Amortization of Prior Service Cost | ( | ( | ( | ||||||||||||||
| Total Other Comprehensive (Loss) for Pension and Other Postretirement Benefit Plans | $ | ( | $ | ( | $ | ( | |||||||||||
For the Year Ended December 31, 2024 | |||||||||||||||||
| Net Unamortized Gain Arising During the Period | $ | ( | $ | ( | $ | ( | |||||||||||
| Prior Service Cost | |||||||||||||||||
| Amortization of Net (Loss) Gain | ( | ||||||||||||||||
| Amortization of Prior Service Cost | ( | ( | ( | ||||||||||||||
| Total Other Comprehensive (Loss) for Pension and Other Postretirement Benefit Plans | $ | ( | $ | ( | $ | ( | |||||||||||
For the Year Ended December 31, 2023 | |||||||||||||||||
| Net Unamortized Loss (Gain) Arising During the Period | $ | ( | $ | $ | ( | ||||||||||||
| Net Prior Service Cost Arising During the Period | |||||||||||||||||
| Amortization of Net (Loss) Gain | ( | ( | |||||||||||||||
| Amortization of Prior Service Cost | ( | ( | ( | ||||||||||||||
| Total Other Comprehensive (Loss) Gain for Pension and Other Postretirement Benefit Plans | $ | ( | $ | $ | ( | ||||||||||||
87
| Employees' Pension Plan | Select Executive Retirement Plan | Postretirement Benefit Plans | |||||||||||||||
| Accumulated Other Comprehensive Income | |||||||||||||||||
| December 31, 2025 | |||||||||||||||||
| Net Actuarial Gain | $ | ( | $ | ( | $ | ( | |||||||||||
| Prior Service Cost | |||||||||||||||||
| Total Accumulated Other Comprehensive (Loss), Before Tax | $ | ( | $ | ( | $ | ( | |||||||||||
| December 31, 2024 | |||||||||||||||||
| Net Actuarial Gain | $ | ( | $ | ( | $ | ( | |||||||||||
| Prior Service Cost | |||||||||||||||||
| Total Accumulated Other Comprehensive (Loss) Income, Before Tax | $ | ( | $ | $ | ( | ||||||||||||
| Net Periodic Benefit Cost | |||||||||||||||||
For the Year Ended December 31, 2025 | |||||||||||||||||
Service Cost 1 | $ | $ | $ | ||||||||||||||
Interest Cost 2 | |||||||||||||||||
Expected Return on Plan Assets 2 | ( | ||||||||||||||||
Amortization of Prior Service Cost 2 | |||||||||||||||||
Amortization of Net Gain 2 | ( | ||||||||||||||||
| Net Periodic Benefit Cost | $ | $ | $ | ( | |||||||||||||
For the Year Ended December 31, 2024 | |||||||||||||||||
Service Cost 1 | $ | $ | $ | ||||||||||||||
Interest Cost 2 | |||||||||||||||||
Expected Return on Plan Assets 2 | ( | ||||||||||||||||
Amortization of Prior Service Cost 2 | |||||||||||||||||
Amortization of Net Loss (Gain) 2 | ( | ||||||||||||||||
| Net Periodic Benefit Cost | $ | $ | $ | ||||||||||||||
For the Year Ended December 31, 2023 | |||||||||||||||||
Service Cost 1 | $ | $ | $ | ||||||||||||||
Interest Cost 2 | |||||||||||||||||
Expected Return on Plan Assets 2 | ( | ||||||||||||||||
Amortization of Prior Service Cost 2 | |||||||||||||||||
Amortization of Net Loss (Gain) 2 | ( | ||||||||||||||||
| Net Periodic Benefit Cost | $ | $ | $ | ||||||||||||||
| Weighted-Average Assumptions Used in Calculating Benefit Obligation | |||||||||||||||||
| December 31, 2025 | |||||||||||||||||
| Discount Rate | % | % | % | ||||||||||||||
| Rate of Compensation Increase | % | % | % | ||||||||||||||
| Interest Rate Credit for Determining Projected Cash Balance Account | % | % | |||||||||||||||
| Interest Rates segments to Annuitize Cash Balance Account (Segment 1, Segment 2 and Segment 3, respectively) | |||||||||||||||||
| Interest Rates to Convert Annuities to Actuarially Equivalent Lump Sum Amounts (Segment 1, Segment 2 and Segment 3, respectively) | |||||||||||||||||
88
| Employees' Pension Plan | Select Executive Retirement Plan | Postretirement Benefit Plans | |||||||||||||||
| December 31, 2024 | |||||||||||||||||
| Discount Rate | % | % | % | ||||||||||||||
| Rate of Compensation Increase | % | % | % | ||||||||||||||
| Interest Rate Credit for Determining Projected Cash Balance Account | % | % | |||||||||||||||
| Weighted-Average Assumptions Used in Calculating Net Periodic Benefit Cost | |||||||||||||||||
| December 31, 2025 | |||||||||||||||||
| Discount Rate | % | % | % | ||||||||||||||
| Expected Long-Term Return on Plan Assets | % | ||||||||||||||||
| Rate of Compensation Increase | % | % | % | ||||||||||||||
| Interest Rate Credit for Determining Projected Cash Balance Account | % | % | |||||||||||||||
| Interest Rates to Annuitize Cash Balance Account (Segment 1, Segment 2, and Segment 3, respectively) | |||||||||||||||||
| Interest Rates to Convert Annuities to Actuarially Equivalent Lump Sum Amounts (Segment 1, Segment 2 and Segment 3, respectively) | |||||||||||||||||
| December 31, 2024 | |||||||||||||||||
| Discount Rate | % | % | % | ||||||||||||||
| Expected Long-Term Return on Plan Assets | % | ||||||||||||||||
| Rate of Compensation Increase | % | % | % | ||||||||||||||
| Interest Rate Credit for Determining Projected Cash Balance Account | % | % | |||||||||||||||
| Interest Rates to Annuitize Cash Balance Account (Segment 1, Segment 2, and Segment 3, respectively) | |||||||||||||||||
| Interest Rates to Convert Annuities to Actuarially Equivalent Lump Sum Amounts (Segment 1, Segment 2 and Segment 3, respectively) | |||||||||||||||||
| December 31, 2023 | |||||||||||||||||
| Discount Rate | % | % | % | ||||||||||||||
| Expected Long-Term Return on Plan Assets | % | ||||||||||||||||
| Rate of Compensation Increase | % | % | % | ||||||||||||||
| Interest Rate Credit for Determining Projected Cash Balance Account | % | % | |||||||||||||||
| Interest Rates to Annuitize Cash Balance Account (Segment 1, Segment 2, and Segment 3, respectively) | |||||||||||||||||
| Interest Rates to Convert Annuities to Actuarially Equivalent Lump Sum Amounts (Segment 1, Segment 2 and Segment 3, respectively) | |||||||||||||||||
Footnotes:
1.Included in Salaries and Employee Benefits on the Consolidated Statements of Income
2.Included in on the Consolidated Statements of Income
89
Schedule of Defined Benefit Plan Disclosures
Information about Defined Benefit Plan Assets - Employees' Pension Plan
| Fair Value Measurements Using: | |||||||||||||||||||||||||||||||||||||||||
| Asset Category | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Percent of Total | Target Allocation Minimum | Target Allocation Maximum | ||||||||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Cash | $ | $ | $ | $ | % | % | % | ||||||||||||||||||||||||||||||||||
| Interest-Bearing Money Market Fund | % | % | % | ||||||||||||||||||||||||||||||||||||||
| Arrow Common Stock | % | % | % | ||||||||||||||||||||||||||||||||||||||
North Country Funds - Equity 1 | % | ||||||||||||||||||||||||||||||||||||||||
| Other Mutual Funds - Equity | % | ||||||||||||||||||||||||||||||||||||||||
| Total Equity Funds | % | % | % | ||||||||||||||||||||||||||||||||||||||
| Other Mutual Funds - Fixed Income | % | % | % | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Cash | $ | $ | $ | $ | % | % | % | ||||||||||||||||||||||||||||||||||
| Interest-Bearing Money Market Fund | % | % | % | ||||||||||||||||||||||||||||||||||||||
| Arrow Common Stock | % | % | % | ||||||||||||||||||||||||||||||||||||||
North Country Funds - Equity 1 | % | ||||||||||||||||||||||||||||||||||||||||
| Other Mutual Funds - Equity | % | ||||||||||||||||||||||||||||||||||||||||
| Total Equity Funds | % | % | % | ||||||||||||||||||||||||||||||||||||||
| Other Mutual Funds - Fixed Income | % | ||||||||||||||||||||||||||||||||||||||||
| Total Fixed Income Funds | % | % | % | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | % | ||||||||||||||||||||||||||||||||||||||
Footnote:
1 The North Country Funds - Equity is a publicly traded mutual funds that was advised by Arrow's subsidiary, North Country
Investment Advisers, Inc. until the fund was transferred to a new investment advisor in the first half of 2025.
Schedule of Defined Benefit Plan Disclosures
| Employees' Pension Plan | Select Executive Retirement Plan | Postretirement Benefit Plans | |||||||||||||||
| Expected Future Benefit Payments | |||||||||||||||||
| 2026 | $ | $ | $ | ||||||||||||||
| 2027 | |||||||||||||||||
| 2028 | |||||||||||||||||
| 2029 | |||||||||||||||||
| 2030 | |||||||||||||||||
| 2031 - 2035 | |||||||||||||||||
Estimated Contributions During 2026 | $ | $ | $ | ||||||||||||||
90
| Assumed Health Care Cost Trend Rates | |||||||||||||||||
| December 31, 2025 | |||||||||||||||||
| Health Care Cost Trend Rate Assumed for Next Year | % | ||||||||||||||||
| Rate to which the Cost Trend Rate is Assumed to Decline (the Ultimate Trend Rate) | % | ||||||||||||||||
| Year that the Rate Reaches the Ultimate Trend Rate | |||||||||||||||||
| December 31, 2024 | |||||||||||||||||
| Health Care Cost Trend Rate Assumed for Next Year | % | ||||||||||||||||
| Rate to which the Cost Trend Rate is Assumed to Decline (the Ultimate Trend Rate) | % | ||||||||||||||||
| Year that the Rate Reaches the Ultimate Trend Rate | |||||||||||||||||
Fair Value of Plan Assets (Defined Benefit Plan):
For information on fair value measurements, including descriptions of level 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by Arrow, see Notes 2. Summary of Significant Accounting Policies and 17. Fair Values to the Consolidated Financial Statements.
The fair value of level 1 financial instruments in the table above are based on unadjusted, quoted market prices from exchanges in active markets.
In accordance with ERISA guidelines, the Board authorized the purchase of Arrow common stock up to 10% of the fair market value of the plan's assets at the time of acquisition.
Pension Plan Investment Policies and Strategies:
The pension assets are held in trust and are invested for the exclusive purpose of providing benefits to participants. The investment objective is to achieve an inflation-protected rate of return that meets the actuarial assumption which is used for funding purposes. The investment strategy attempts to maximize the investment return on assets at a level of risk deemed appropriate by the Company while complying with ERISA and any applicable regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the risk/reward profile of the assets. Asset allocation ranges are established, periodically reviewed, and adjusted as funding levels, and participant benefit characteristics change. Active and passive investment management is employed to help enhance the risk/return profile of the assets.
The plan’s assets are invested in a diversified portfolio of equity securities comprised of companies with small, mid, and large capitalizations. Both domestic and international equities are allowed to provide further diversification and opportunity for return in potentially higher growth economies with lower correlation of returns. Growth and value styles of investment are employed to increase the diversification and offer varying opportunities for appreciation. The fixed income portion of the plan may be invested in U.S. dollar denominated debt securities that shall be rated within the top four ratings categories by nationally recognized ratings agencies. The fixed income portion will be invested without regard to industry or sector based on analysis of each target security’s structural and repayment features, current pricing and trading opportunities as well as credit quality of the issuer. Individual bonds with ratings that fall below the plan’s rating requirements will be sold only when it is in the best interests of the plan. Hybrid investments, such as convertible bonds, may be used to provide growth characteristics while offering some protection to declining equity markets by having a fixed income component. Alternative investments such as Treasury Inflation Protected Securities, commodities, and REITs may be used to further enhance diversification while offering opportunities for return. In accordance with ERISA guidelines, common stock of the Company may be purchased up to 10% of the fair market value of the plan’s assets at the time of acquisition. Derivative investments are prohibited in the plan.
The return on assets assumption was developed through review of historical market returns, historical asset class volatility and correlations, current market conditions, the plan’s past experience, and expectations on potential future market returns. The assumption represents a long-term average view of the performance of the assets in the plan, a return that may or may not be achieved during any one calendar year. The assumption is based on the return of the plan using the historical returns adjusted for the potential for lower than historical returns due to low interest rates and other items of potential impact.
91
Note 14.OTHER EXPENSES (Dollars In Thousands)
Other operating expenses included in the Consolidated Statements of Income are as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Legal and Other Professional Fees | |||||||||||||||||
| Postage and Courier | |||||||||||||||||
| Advertising and Promotion | |||||||||||||||||
| Stationery and Printing | |||||||||||||||||
| Intangible Asset Amortization | |||||||||||||||||
| All Other | |||||||||||||||||
| Total Other Operating Expense | $ | $ | $ | ||||||||||||||
92
Note 15.INCOME TAXES (Dollars In Thousands)
The provision for income taxes is summarized below:
| Current Tax Expense: | 2025 | 2024 | 2023 | ||||||||||||||
| Federal | $ | $ | $ | ||||||||||||||
| State | |||||||||||||||||
| Total Current Tax Expense | |||||||||||||||||
| Deferred Tax Expense (Benefit): | |||||||||||||||||
| Federal | ( | ||||||||||||||||
| State | ( | ( | ( | ||||||||||||||
| Total Deferred Tax Expense (Benefit) | ( | ||||||||||||||||
| Total Provision for Income Taxes | $ | $ | $ | ||||||||||||||
In December 2023, the FASB issued ASU No. 2023-09—Income Taxes (Topic 740)—Improvements to Income Tax Disclosures, intended to enhance the transparency of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 became effective for the Company on January 1, 2025 for annual reporting periods on a prospective basis.
The provisions for income taxes differed from the amounts computed by applying the of 21% to pre-tax income as a result of the following:
| 2025 | ||||||||||||||
| Amount | Percent | |||||||||||||
| Statutory Federal Tax Rate | $ | % | ||||||||||||
State Taxes, Net of Federal Income Tax Benefit (1) | ||||||||||||||
| Nontaxable or Nondeductible Items | ||||||||||||||
| Tax-Exempt Investment Income | ( | ( | ||||||||||||
| Bank Owned Life Insurance | ( | ( | ||||||||||||
Other Items, Net (2) | ||||||||||||||
| Tax Credits | ||||||||||||||
| Low Income Housing Credits | ( | ( | ||||||||||||
| Purchased Energy Production Credits | ( | ( | ||||||||||||
| Provision for Income Taxes | $ | % | ||||||||||||
(1) State taxes in New York made up the majority (greater than 50%) of the tax effect in this category. | ||||||||||||||
(2) The "Nontaxable or Nondeductible Items" category includes items such as meals and entertainment, compensation related deductions and other non-deductible expenses. None of those items individually or in the aggregate exceeded the 5% quantitative threshold for separate disaggregation in the current year. | ||||||||||||||
The provision for income taxes differed from the amounts computed by applying the Federal Income Tax Rate of 21% to pre-tax income as a result of the following:
| 2024 | 2023 | ||||||||||
| Statutory Federal Tax Rate | |||||||||||
| (Decrease) Increase Resulting From: | |||||||||||
| Tax-Exempt Investment Income | ( | ( | |||||||||
| State Taxes, Net of Federal Income Tax Benefit | |||||||||||
| Bank Owned Life Insurance | ( | ( | |||||||||
| Other Items, Net | ( | ||||||||||
| Effective Tax Rate | |||||||||||
93
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2025 and 2024 are presented below:
| 2025 | 2024 | ||||||||||
| Deferred Tax Assets: | |||||||||||
| Net Unrealized Losses on Securities Available-for-Sale Included in Accumulated Other Comprehensive Income | $ | $ | |||||||||
| Allowance for Credit Losses | |||||||||||
| Lease liabilities | |||||||||||
| Pension and Deferred Compensation Plans | |||||||||||
| Other | |||||||||||
| Total Gross Deferred Tax Assets | |||||||||||
| Valuation Allowance for Deferred Tax Assets | |||||||||||
| Total Gross Deferred Tax Assets, Net of Valuation Allowance | $ | $ | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Pension Plans | $ | $ | |||||||||
| Depreciation | |||||||||||
| ROU assets | |||||||||||
| Deferred Income | |||||||||||
| Prepaid Pension Included in Accumulated Other Comprehensive Income | |||||||||||
| Net Unrealized Gains on Equity Securities | |||||||||||
| Goodwill | |||||||||||
| Gain on Cash Flow Hedge Agreements Included in Accumulated Other Comprehensive Income | |||||||||||
| Other | |||||||||||
| Total Gross Deferred Tax Liabilities | $ | $ | |||||||||
| Deferred Tax (Liability) Asset, Net | $ | ( | $ | ||||||||
Management believes that the realization of the recognized gross deferred tax assets at December 31, 2025 and 2024 is more likely than not, based on historic earnings and expectations as to future taxable income.
The following table presents income taxes paid for the year ended December 31, 2025.
Federal Taxes Paid | $ | |||||||
New York State Taxes Paid | ||||||||
Purchase of Energy Tax Credits | ||||||||
Total Paid | $ | |||||||
Interest and penalties are recorded as a component of the provision for income taxes, if any. There are no current examinations of our Federal income tax returns, nor have we been notified of any upcoming examinations. During 2024 the State of New York completed a desk audit of the Special Additional Mortgage Recording Tax Credit that Arrow claimed on the 2021 New York State income tax return. The audit resulted in an insignificant balance due. Our tax years 2022 through 2025 are subject to Federal and New York State examination. Management annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of December 31, 2025.
Purchased Energy Production Credits
94
Note 16. EARNINGS PER SHARE (Dollars 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 each of the years in the three-year period ended December 31, 2025.
| Earnings Per Share | |||||||||||||||||
| Year-to-Date Period Ended: | |||||||||||||||||
| 12/31/2025 | 12/31/2024 | 12/31/2023 | |||||||||||||||
| Earnings Per Share - Basic: | |||||||||||||||||
| Net Income | $ | $ | $ | ||||||||||||||
| Less: income attributable to unvested stock based compensation awards | ( | ||||||||||||||||
| Net earnings allocated to common shareholders | |||||||||||||||||
| Weighted Average Shares - Basic | |||||||||||||||||
| Earnings Per Share - Basic | $ | $ | $ | ||||||||||||||
| Earnings Per Share - Diluted: | |||||||||||||||||
| Net earnings allocated to common shareholders | $ | $ | $ | ||||||||||||||
| Weighted Average Shares - Basic | |||||||||||||||||
| Dilutive Average Shares attributable to stock based compensation awards | |||||||||||||||||
| Weighted Average Shares - Diluted | |||||||||||||||||
| Earnings Per Share - Diluted | $ | $ | $ | ||||||||||||||
Note 17.FAIR VALUES (Dollars In Thousands)
FASB ASC Subtopic 820-10 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (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 December 31, 2025 and 2024 were securities available-for-sale, equity securities and derivatives. Arrow held no securities or liabilities for trading on such dates. For information on fair value measurements, including descriptions of level 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by Arrow, see Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements.
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 Measurements at Reporting Date Using: | |||||||||||||||||||||||
| Fair Value of Assets and Liabilities Measured on a Recurring Basis: | Fair Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Securities Available-for Sale: | |||||||||||||||||||||||
| U.S. Treasuries | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Government & Agency Obligations | $ | ||||||||||||||||||||||
| State and Municipal Obligations | |||||||||||||||||||||||
| Mortgage-Backed Securities | |||||||||||||||||||||||
| Corporate and Other Debt Securities | |||||||||||||||||||||||
| Total Securities Available-for-Sale | $ | ||||||||||||||||||||||
| Equity Securities | |||||||||||||||||||||||
| Total Securities Measured on a Recurring Basis | |||||||||||||||||||||||
| Derivative Assets | |||||||||||||||||||||||
| Total Measured on a Recurring Basis | $ | $ | $ | $ | |||||||||||||||||||
95
| Liabilities: | |||||||||||||||||||||||
| Derivative Liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Total Measured on a Recurring Basis | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Securities Available-for Sale: | |||||||||||||||||||||||
| U.S. Treasuries | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Government & Agency Obligations | $ | ||||||||||||||||||||||
| State and Municipal Obligations | |||||||||||||||||||||||
| Mortgage-Backed Securities | |||||||||||||||||||||||
| Corporate and Other Debt Securities | |||||||||||||||||||||||
| Total Securities Available-for-Sale | |||||||||||||||||||||||
| Equity Securities | |||||||||||||||||||||||
| Total Securities Measured on a Recurring Basis | |||||||||||||||||||||||
| Derivative Assets | |||||||||||||||||||||||
| Total Measured on a Recurring Basis | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative Liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Total Measured on a Recurring Basis | $ | $ | $ | $ | |||||||||||||||||||
| Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis: | Fair Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||
| Collateral Dependent Impaired Loans | $ | $ | $ | $ | |||||||||||||||||||
| Other Real Estate Owned and Repossessed Assets, Net | |||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Collateral Dependent Impaired Loans | $ | $ | $ | $ | |||||||||||||||||||
| Other Real Estate Owned and Repossessed Assets, Net | |||||||||||||||||||||||
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; and,
•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 AFS securities are based on unadjusted, quoted market prices from exchanges in active markets. The fair value of Level 2 AFS securities 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 equities are based on the last observable price in open markets. The fair value of Level 2 equities are based on the last observable price in open markets. 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
96
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 December 31, 2025 and 2024.
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.
Local municipal held-to-maturity securities are recorded at cost on the financial statements. That determination is due to several factors including that there is no reliable external pricing available, the vast majority of maturities are under 1-year, and each are guaranteed by their respective municipalities, who are in turn guaranteed by the State of New York.
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 credit 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. The discount rates are estimated using the FHLBNY yield curve, which is considered representative of Arrow’s time deposit rates.
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.
97
Fair Value by Balance Sheet Grouping
The following table presents a summary of the carrying amount, the fair value and the fair value hierarchy of Arrow’s financial instruments:
| Schedule of Fair Values by Balance Sheet Grouping | |||||||||||||||||||||||||||||
| Fair Value Hierarchy | |||||||||||||||||||||||||||||
| Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Securities Available-for-Sale | |||||||||||||||||||||||||||||
| Securities Held-to-Maturity | |||||||||||||||||||||||||||||
| Equity Securities | |||||||||||||||||||||||||||||
| Federal Home Loan Bank and Federal Reserve Bank Stock | |||||||||||||||||||||||||||||
| Net Loans | |||||||||||||||||||||||||||||
| Accrued Interest Receivable | |||||||||||||||||||||||||||||
| Derivative Assets | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Borrowings | |||||||||||||||||||||||||||||
| Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | |||||||||||||||||||||||||||||
| Accrued Interest Payable | |||||||||||||||||||||||||||||
| Derivative Liabilities | |||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Securities Available-for-Sale | |||||||||||||||||||||||||||||
| Securities Held-to-Maturity | |||||||||||||||||||||||||||||
| Equity Securities | |||||||||||||||||||||||||||||
| Federal Home Loan Bank and Federal Reserve Bank Stock | |||||||||||||||||||||||||||||
| Net Loans | |||||||||||||||||||||||||||||
| Accrued Interest Receivable | |||||||||||||||||||||||||||||
| Derivative Assets | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Borrowings | |||||||||||||||||||||||||||||
| Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | |||||||||||||||||||||||||||||
| Accrued Interest Payable | |||||||||||||||||||||||||||||
| Derivative Liabilities | |||||||||||||||||||||||||||||
Note 18.LEASES (Dollars In Thousands)
Arrow 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 or obligations of the Company for leases that have not commenced as of the reporting date.
Arrow leases three of its branch offices, at market rates, from Stewart’s Shops Corp. Additionally, on June 14th, 2024, Arrow entered into a sale-leaseback agreement with Stewart's Shops Corp. for a bank branch location. The sale price of the property was $1.1 million which resulted in a gain of $377 thousand. The lease agreement began in June 2024 and runs through May 2029, with rent totaling $5 thousand per month for the remainder of the lease. Mr. Gary C. Dake, CEO of Stewart’s Shops Corp., served as a Director on the Board of Directors for Arrow and Arrow Bank. Mr. Dake retired from the Company's Board at the Annual Meeting on June 4, 2025.
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The following includes quantitative data related to the Company's leases as of and for the twelve months ended December 31, 2025 and December 31, 2024:
| Twelve Months Ended | ||||||||||||||
| Finance Lease Amounts: | Classification | December 31, 2025 | December 31, 2024 | |||||||||||
| Right-of-Use Assets | $ | $ | ||||||||||||
| Lease Liabilities | Finance Leases | |||||||||||||
| Operating Lease Amounts: | ||||||||||||||
| Right-of-Use Assets | $ | $ | ||||||||||||
| Lease Liabilities | ||||||||||||||
| Other Information: | ||||||||||||||
| Cash Paid For Amounts Included In The Measurement Of Lease Liabilities: | ||||||||||||||
| Operating Outgoing Cash Flows From Finance Leases | ||||||||||||||
| Operating Outgoing Cash Flows From Operating Leases | ||||||||||||||
| Financing Outgoing Cash Flows From Finance Leases | ||||||||||||||
| Right-of-Use Assets Obtained In Exchange For New Finance Lease Liabilities | ||||||||||||||
| Right-of-Use Assets Obtained In Exchange For New Operating Lease Liabilities | ||||||||||||||
| Weighted-average Remaining Lease Term - Finance Leases (Yrs.) | ||||||||||||||
| Weighted-average Remaining Lease Term - Operating Leases (Yrs.) | ||||||||||||||
| Weighted-average Discount Rate—Finance Leases | % | % | ||||||||||||
| Weighted-average Discount Rate—Operating Leases | % | % | ||||||||||||
| Lease cost information for the Company's leases is as follows: | |||||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||
| December 31, 2025 | December 31, 2024 | December 31, 2025 | December 31, 2024 | ||||||||||||||||||||
| Lease Cost: | |||||||||||||||||||||||
| Finance Lease Cost: | |||||||||||||||||||||||
| Reduction in the Carrying Amount of Right-of-Use Assets | $ | $ | $ | $ | |||||||||||||||||||
| Interest on Lease Liabilities | |||||||||||||||||||||||
| Operating Lease Cost | |||||||||||||||||||||||
| Short-term Lease Cost | |||||||||||||||||||||||
| Variable Lease Cost | |||||||||||||||||||||||
| Total Lease Cost | $ | $ | $ | $ | |||||||||||||||||||
Future Lease Payments at December 31, 2025 are as follows: | ||||||||||||||
Operating Leases | Finance Leases | |||||||||||||
| Twelve Months Ended: | ||||||||||||||
| 12/31/2025 | $ | $ | ||||||||||||
| 12/31/2026 | ||||||||||||||
| 12/31/2027 | ||||||||||||||
| 12/31/2028 | ||||||||||||||
| 12/31/2029 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total Undiscounted Cash Flows | ||||||||||||||
| Less: Net Present Value Adjustment | ||||||||||||||
| Lease Liability | $ | $ | ||||||||||||
Note 19. 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.
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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, 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 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 Arrow's assets or liabilities. Arrow's goal is to have 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 entering into offsetting interest rate swap agreements with a counterparty to swap the fixed rate to a variable rate to manage interest rate exposure.
These back-to-back 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 material interest rate exposure to Arrow's consolidated statements of income. 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, not designated as hedging instruments, outstanding as well as the notional amount of the interest rate swap agreements:
| Derivatives Not Designated as Hedging Instruments - Interest Rate Swap Agreements | |||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| $ | $ | ||||||||||
| Notional amount | |||||||||||
Derivatives Designated as Hedging Instruments
In the third quarter of 2023, Arrow had entered into two pay-fixed portfolio layer method ("PLM") fair value swaps, designated as hedging instruments, with a total notional amount of $250 million and $50 million, respectively. Arrow had designated the fair value swaps under PLM. Under PLM, the hedged items are designated as hedged layers of a closed portfolio of financial loans that are anticipated to remain outstanding for the designated hedged period.
In the third quarter of 2025, Arrow voluntarily terminated the fair value swaps as part of Arrow's ongoing interest-rate risk management resulting in a cash payment of approximately $3.0 million to settle the derivative liabilities. The cumulative fair value adjustment of approximately $3.0 million recorded on the hedged loans remains as part of the carrying amount of those loans and will be amortized over the remaining contractual life of more than 15 years of the previously hedged portfolio.
The amortization of the loss related to the fair value swaps on the Consolidated Balance Sheets will be adjusted through interest income. The amortization of the loss for 2025 was approximately $83 thousand. Following the termination, Arrow no longer has derivatives designated as fair value hedges.
The following table depicts the fair value adjustment recorded related to the notional amount of derivatives, designed as hedging instruments, outstanding as well as the notional amount of the interest rate swap agreements:
| Derivatives Designated as Hedging Instruments - Fair Value Agreements | |||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| $ | $ | ||||||||||
| Notional amount | |||||||||||
The following table summarizes the effect of the fair value hedging relationship recognized on the consolidated statement of income:
| Derivatives Designated as Hedging Instruments - Fair Value Agreements | |||||||||||
| Twelve Months Ended | Twelve Months Ended | ||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| Hedged Asset | $ | $ | |||||||||
| Fair value derivative designated as hedging instrument | ( | ||||||||||
| Total (loss) gain recognized in the consolidated statements of income with interest and fees on loans | ( | ||||||||||
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The following table represents the carrying value of the portfolio layer method hedged assets and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset:
| Derivatives Designated as Hedging Instruments - Fair Value Swap Agreements | |||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| Carrying Value of Portfolio Layer Method Hedged Asset | $ | $ | |||||||||
| Cumulative Fair Value Hedging Adjustment | |||||||||||
In the third quarter of 2024, Arrow entered into a forward interest rate swap agreement which commenced in the first quarter of 2025, designated as a cash flow hedge, to add stability to interest expense and to manage its exposure to the variability of the future cash flows attributable to the contractually specified interest rates. The notional amount is $125 million and will synthetically fix the variable rate interest payments. The effective fixed rate was 3.29 % until maturity. Arrow entered into pay-fixed interest rate swaps to convert rolling 90 days brokered deposits.
For derivatives that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period during which the hedge transaction affects earnings.
The following table indicates the effect of cash flow hedge accounting on AOCI and on the consolidated statement of income.
| Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements | |||||||||||
| Twelve Months Ended | Twelve Months Ended | ||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| $ | $ | ||||||||||
| Amount of (loss) gain recognized in AOCI | ( | ||||||||||
| Amount of gain reclassified from AOCI interest expense | |||||||||||
In the fourth quarter of 2023, Arrow entered into two interest rate swaps, designated as cash flow hedges, to add stability to interest expense and to manage its exposure to the variability of the future cash flows attributable to the contractually specified interest rates. The notional amounts were $100 million and $75 million, respectively. Arrow entered into pay-fixed interest rate swaps to convert rolling 90 days brokered deposits.
In the third quarter of 2025, Arrow voluntarily terminated these swaps as part of Arrow's ongoing interest-rate risk management and concurrently entered into two new pay-fixed, receive-variable longer termed swaps with lower fixed rates and identical notional amounts. The benefit of the lower fixed rates will be partially offset by early termination fees of $1.4 million that will be amortized over the life of the terminated swaps.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income ("AOCI") and subsequently reclassified into interest expense in the same period during which the hedge transaction affects earnings.
The following table indicates the effect of cash flow hedge accounting on AOCI and on the consolidated statement of income.
| Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements | |||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| $ | $ | ||||||||||
| Amount of (loss) gain recognized in AOCI | ( | ||||||||||
| Amount of (loss) gain reclassified from AOCI to interest expense | ( | ||||||||||
In 2019, Arrow 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.
The following table indicates the effect of cash flow hedge accounting on AOCI and on the consolidated statement of income.
| Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements | |||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| $ | $ | ||||||||||
| Amount of (loss) gain recognized in AOCI | ( | ||||||||||
| Amount of (loss) gain reclassified from AOCI to interest expense | ( | ||||||||||
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Note 20.REGULATORY MATTERS (Dollars in Thousands)
In the normal course of business, Arrow and its subsidiaries operate under certain regulatory restrictions, such as the extent and structure of covered inter-company borrowings and maintenance of reserve requirement balances.
The principal source of the funds for the payment of stockholder dividends by Arrow has been from dividends declared and paid to Arrow by Arrow Bank. As of December 31, 2025, the maximum amount that could have been paid by to Arrow by Arrow Bank, without prior regulatory approval, was approximately $27.7 million.
Under current Federal Reserve regulations, Arrow is prohibited from borrowing from Arrow Bank unless such borrowings are secured by specific obligations. Additionally, the maximum of any such borrowings from Arrow Bank (aggregated with all other "covered transactions" between Arrow Bank and Arrow) is limited to 10% of that bank’s capital and surplus. Loans and other covered transactions between Arrow Bank and all of its affiliates cannot exceed 20% of that bank's capital and surplus.
Arrow and Arrow Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if undertaken, could have a direct material effect on an institution’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Arrow and Arrow Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Current quantitative measures established by regulation to ensure capital adequacy require Arrow and Arrow Bank to maintain minimum capital amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2025 and 2024, that Arrow Bank meet all capital adequacy requirements to which it is subject. The regulatory capital requirements incorporate a capital concept, the so-called "capital conservation buffer" (set at 2.5%), which must be added to each of the minimum required risk-based capital ratios (i.e., the minimum CET1 ratio, the minimum Tier 1 risk-based capital ratio and the minimum total risk-based capital ratio).
As of December 31, 2025, Arrow Bank qualified as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” Arrow Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage, and CET1 risk-based ratios as set forth in the table below. There are no conditions or events that management believes have changed Arrow’s or Arrow Bank's categories. The actual capital amounts and ratios for Arrow and Arrow Bank are presented in the table below as of December 31, 2025 and 2024:
| Actual | Minimum Amounts For Capital Adequacy Purposes (including "capital conservation buffer") | Minimum Amounts To Be Well-Capitalized | |||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||
As of December 31, 2025 | |||||||||||||||||||||||||||||||||||
| Total Capital (to Risk Weighted Assets): | |||||||||||||||||||||||||||||||||||
| Arrow | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Arrow Bank National Association | % | % | % | ||||||||||||||||||||||||||||||||
| Tier I Capital (to Risk Weighted Assets): | |||||||||||||||||||||||||||||||||||
| Arrow | % | % | % | ||||||||||||||||||||||||||||||||
| Arrow Bank National Association | % | % | % | ||||||||||||||||||||||||||||||||
| Tier I Capital (to Average Assets): | |||||||||||||||||||||||||||||||||||
| Arrow | % | % | % | ||||||||||||||||||||||||||||||||
| Arrow Bank National Association | % | % | % | ||||||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital (to Risk Weighted Assets): | |||||||||||||||||||||||||||||||||||
| Arrow | % | % | % | ||||||||||||||||||||||||||||||||
| Arrow Bank National Association | % | % | % | ||||||||||||||||||||||||||||||||
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| Actual | Minimum Amounts For Capital Adequacy Purposes (including "capital conservation buffer") | Minimum Amounts To Be Well-Capitalized | |||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||
As of December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Total Capital (to Risk Weighted Assets): | |||||||||||||||||||||||||||||||||||
| Arrow | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Arrow Bank National Association | % | % | % | ||||||||||||||||||||||||||||||||
| Tier I Capital (to Risk Weighted Assets): | |||||||||||||||||||||||||||||||||||
| Arrow | % | % | % | ||||||||||||||||||||||||||||||||
| Arrow Bank National Association | % | % | % | ||||||||||||||||||||||||||||||||
| Tier I Capital (to Average Assets): | |||||||||||||||||||||||||||||||||||
| Arrow | % | % | % | ||||||||||||||||||||||||||||||||
| Arrow Bank National Association | % | % | % | ||||||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital (to Risk Weighted Assets): | |||||||||||||||||||||||||||||||||||
| Arrow | % | % | % | ||||||||||||||||||||||||||||||||
| Arrow Bank National Association | % | % | % | ||||||||||||||||||||||||||||||||
Note 21.PARENT ONLY FINANCIAL INFORMATION (Dollars In Thousands)
Condensed financial information for Arrow Financial Corporation is as follows:
| BALANCE SHEETS | December 31, | ||||||||||
| ASSETS | 2025 | 2024 | |||||||||
Interest-Bearing Deposits with Arrow Bank | $ | $ | |||||||||
| Equity Securities | |||||||||||
| Investment in Subsidiaries at Equity | |||||||||||
| Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES | |||||||||||
| Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | $ | $ | |||||||||
| Other Liabilities | |||||||||||
| Total Liabilities | |||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
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| STATEMENTS OF INCOME | Years Ended December 31, | ||||||||||||||||
| Income: | 2025 | 2024 | 2023 | ||||||||||||||
| Dividends from Bank Subsidiaries | $ | $ | $ | ||||||||||||||
| Interest and Dividends on Investments | |||||||||||||||||
| Other Income (Including Management Fees) | |||||||||||||||||
| Total Income | |||||||||||||||||
| Expense: | |||||||||||||||||
| Interest Expense | |||||||||||||||||
| Other Expense | |||||||||||||||||
| Total Expense | |||||||||||||||||
| Income Before Income Tax Benefit and Equity | |||||||||||||||||
| in Undistributed Net Income of Subsidiaries | |||||||||||||||||
| Income Tax Benefit | |||||||||||||||||
| Equity in Undistributed Net Income of Subsidiaries | |||||||||||||||||
| Net Income | $ | $ | $ | ||||||||||||||
The Statement of Changes in Stockholders’ Equity is not reported because it is identical to the Consolidated Statement of Changes in Stockholders’ Equity.
| STATEMENTS OF CASH FLOWS | Years Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||||
| Net Income | $ | $ | $ | ||||||||||||||
| Undistributed Net Income of Subsidiaries | ( | ( | ( | ||||||||||||||
| Shares Issued Under the Directors’ Stock Plan | |||||||||||||||||
| Changes in Other Assets and Other Liabilities | ( | ( | ( | ||||||||||||||
| Net Cash Provided by Operating Activities | |||||||||||||||||
| Cash Flows from Financing Activities: | |||||||||||||||||
| Stock Options Exercised | |||||||||||||||||
| Shares Issued Under the Employee Stock Purchase Plan | |||||||||||||||||
| Shares Issued for Dividend Reinvestment Plans | |||||||||||||||||
| Purchase of Treasury Stock | ( | ( | ( | ||||||||||||||
| Cash Dividends Paid | ( | ( | ( | ||||||||||||||
| Net Cash Used in Financing Activities | ( | ( | ( | ||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | ( | ( | |||||||||||||||
| Cash and Cash Equivalents at Beginning of the Year | |||||||||||||||||
| Cash and Cash Equivalents at End of the Year | $ | $ | $ | ||||||||||||||
| Supplemental Disclosures to Statements of Cash Flow Information: | |||||||||||||||||
| Interest Paid | $ | $ | $ | ||||||||||||||
Note 22. Segment Reporting
The Company's revenue is primarily derived from community banking. Arrow's Chief Executive Officer ("CEO") is considered to be the Company's Chief Operating Decision Maker ("CODM"). The CEO manages its operations and monitors Arrow's financial performance on a consolidated basis The Executive Management Team includes the following officers of the Company:
•President and CEO,
•Senior Executive Vice President, Chief Financial Officer, Treasurer & Chief Accounting Officer,
•Senior Executive Vice President, Chief Risk Officer,
•Senior Executive Vice President, Chief Banking Officer,
•Executive Vice President, Chief Information Officer and
•Executive Vice President, Chief Human Resources Officer.
Financial performance is reported to the CODM monthly. Net consolidated income and EPS are the primary measures used by the Executive Management team to evaluate Arrow's performance. Secondary measures include metrics like ROA and Net Interest Margin. All measures are reviewed and either affirmed or changed annually by the CODM and the Board of Directors. The presentation of financial performance to the CODM is consistent with the amounts and financial statement captions shown on the Company's consolidated balance sheets and consolidated statements of income. Significant expenses of
104
the Company are adequately segmented in the consolidated statements of income to include all significant items when considering both quantitative and qualitative factors. These significant expenses include salaries and employee benefits, occupancy expense, technology and equipment expense, FDIC assessments and other operating expense.
All of the Company's financial results are considered by the Executive Management Team to be aggregated into one reportable segment which is community banking. While the Company does designate management responsibilities by certain business-lines, the Company's CODM evaluates financial performance on a Company-wide basis. The primary source of Arrow's revenue is from its community banking operation. All of Arrow's designated business lines have either similar characteristics, products and services, or are complementary products. Therefore, the operations of the Company are managed and considered by the Executive Management Team as one reportable segment.
NOTE 23. RELATED PARTY TRANSACTIONS (In Thousands)
Loans to principal officers, directors and their affiliates during 2025 were as follows:
Balance January 1, 2025 | $ | ||||
| New loans | |||||
| Repayments | ( | ||||
| Other reduction - change in related party status during 2025 | ( | ||||
Balance December 31, 2025 | $ | ||||
Deposits from principal officers, directors and their affiliates at December 31, 2025 and 2024 were approximately $14.0 million and $12.3 million.
In addition, during 2025 Arrow leased properties from Director that retired from the Board in June 2025, further discussion of those transactions is included in Note 18. Leases to the Consolidated Financial Statements.
Note 24.SUBSEQUENT EVENTS
On February 26, 2026, Arrow and Adirondack Bancorp, Inc., the parent company of Adirondack Bank, jointly announced that both companies’ boards of directors have unanimously approved an agreement and plan of merger (the “Agreement”) pursuant to which Adirondack will merge with and into Arrow Merger Sub, Inc. ("Merger Sub"), a Maryland Corporation and wholly owned subsidiary of Arrow.
Upon the terms and subject to the conditions of the Agreement, Adirondack shareholders will receive a combination of stock and cash upon closing of the merger with Arrow. Each outstanding share of Adirondack common stock will be converted into 1.8610 shares of Arrow common stock plus $18.72 in cash. Based on the closing stock price of AROW common stock of $34.43 as of February 25, 2026, the aggregate implied transaction value was approximately $89.1 million.
Management expects the closing of the transaction late in the second quarter or early in the third quarter of 2026 following receipt of approvals from regulatory authorities, the approval of Adirondack shareholders, and the satisfaction of other customary closing conditions.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, under the supervision and with the participation of the Chief Executive Officer (who is our principal executive officer) and Chief Financial Officer (who is our principal financial officer), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of December 31, 2025.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2025, our disclosure controls and procedures over financial reporting were effective.
Management’s Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. As of December 31, 2025, management evaluated the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established by the Committee of Sponsoring Organization of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2025. The results of management assessment were reviewed with the Company's Audit and Risk Committee of its Board of Directors. The independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2025, which is included in Part II, Item 8 of this Report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended December 31, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Rule 10b5-1 Trading Arrangements of our Directors and Officers
During the fourth quarter of 2025, none of Arrow’s directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted terminated
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections – None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item regarding directors, nominees for director, and the committees of the Company's Board is set forth under the captions "Voting Item 1: Election of Directors" and “Corporate Governance” in Arrow's Proxy Statement for its Annual Meeting of Shareholders to be held June 3, 2026 (the "Proxy Statement"), which sections are incorporated herein by reference. Information regarding Compliance with Section 16(a) of the Exchange Act is set forth in the Company's Proxy Statement under the caption "Delinquent Section 16(a) Reports” and is incorporated herein by reference. Certain required information regarding our Executive Officers is contained in Part I, Item 1.G. of this Report, "Executive Officers of the Registrant."
Arrow has adopted a Financial Code of Ethics applicable to our principal executive officer, principal financial officer and principal accounting officer, a copy of which can be found on our website at www.arrowfinancial.com under the link "Corporate Governance" on the header tab "Corporate."
Item 11. Executive Compensation
The information required by this item is set forth under the captions “Corporate Governance - Director Independence,” "Compensation Discussion and Analysis” including the “Compensation Committee Report” section thereof, “Executive Compensation,” “Agreements with Named Executive Officers” including the "Potential Payments Upon Termination or Change of Control” and “Potential Payments Table” sections thereof, and “Voting Item 1: Election of Directors - Director Compensation” of the Proxy Statement, which sections are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain information required by this item is set forth under the caption "Stock Ownership Information" of the Proxy Statement, which section is incorporated herein by reference, and under the caption "Equity Compensation Plan Information" in Part II, Item 5 of this Report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Director Independence:
The information required by this item is set forth under the captions “Corporate Governance - Related Party Transactions” and “Corporate Governance - Director Independence” of the Proxy Statement, which sections are incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item is set forth under the captions "Voting Item 3. Ratification of Independent Registered Public Accounting Firm - Independent Registered Public Accounting Firm Fees," and “Corporate Governance - Board Committees” of the Proxy Statement, which sections are incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
1. Financial Statements
The following financial statements, the notes thereto, and the independent auditors’ report thereon are filed in Part II, Item 8 of this Report. See the index to such financial statements at the beginning of Item 8.
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2025 and 2024
Consolidated Statements of Income for the Years Ended December 31, 2025, 2024 and 2023
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2025, 2024 and 2023
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2025, and 2024
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023
Notes to Consolidated Financial Statements
2. Schedules
All schedules are omitted as the required information is either not applicable or not required or is contained in the respective financial statements or in the notes thereto.
3. Exhibits:
See Exhibit Index on page 108.
Item 16. Form 10-K Summary - None
107
EXHIBIT INDEX
The following exhibits are incorporated by reference herein.
Exhibit Number | Exhibit | ||||
3.(i) | Certificate of Incorporation of the Registrant as Amended through June 3, 2019, incorporated herein 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 February 1, 2024, Exhibit 3.1 | ||||
| 4.1 | Amended and Restated Declaration of the Trust by and among U.S. Bank National Association, as Institutional Trustee, the Registrant, as Sponsor and certain Administrators named therein, dated as of July 23, 2003, relating to Arrow Capital Statutory Trust II, incorporated herein by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, Exhibit 4.1 | ||||
| 4.2 | Indenture between the Registrant, as Issuer, and U.S. Bank National Association, as Trustee, dated as of July 23, 2003, incorporated herein by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, Exhibit 4.2 | ||||
| 4.3 | Placement Agreement by and among the Registrant, Arrow Capital Statutory Trust II and SunTrust Capital Markets, Inc., dated July 23, 2003, incorporated herein by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, Exhibit 4.3 | ||||
| 4.4 | Guarantee Agreement by and between the Registrant and U.S. Bank National Association, dated as of July 23, 2003, incorporated herein by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, Exhibit 4.4 | ||||
| 4.5 | Amended and Restated Trust Agreement among the Registrant, as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware trustee, and certain Administrators named therein, dated as of December 28, 2004, relating to Arrow Capital Statutory Trust III, incorporated herein by reference from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, Exhibit 4.6 | ||||
| 4.6 | Junior Subordinated Indenture between the Registrant, as Issuer, and Wilmington Trust Company, as Trustee, dated as of December 28, 2004, incorporated herein by reference from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, Exhibit 4.7 | ||||
| 4.7 | Placement Agreement among the Registrant, Arrow Capital Statutory Trust III and SunTrust Capital Markets, Inc., dated December 28, 2004, incorporated herein by reference from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, Exhibit 4.8 | ||||
| 4.8 | Guarantee Agreement between the Registrant and Wilmington Trust Company, dated as of December 28, 2004, incorporated herein by reference from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, Exhibit 4.9 | ||||
| 4.9 | Description of the Company's Securities incorporated herein by reference from the Registrant's Annual Report filed on Form 10-K for the year ended December 31, 2019, Exhibit 4.9 | ||||
| 10.1 | 2022 Long Term Incentive Plan of the Registrant, incorporated herein by reference from the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 25, 2022 as Annex A* | ||||
| 10.2 | Profit Sharing Plan of the Registrant, as amended, incorporated herein by reference from the Registrant’s Annual Report filed on Form 10-K for the year ended December 31, 2008, Exhibit 10.6* | ||||
| 10.3 | Directors’ Deferred Compensation Plan of the Registrant, as amended and restated, incorporated herein by reference from the Registrant’s Annual Report filed on Form 10-K for the year ended December 31, 2008, Exhibit 10.7* | ||||
| 10.4 | Arrow Financial Corporation Directors’ Stock Plan, incorporated herein by reference from the Registrant’s Definitive Proxy Statement on Schedule 14A filed on September 13, 2023, Appendix A* | ||||
| 10.5 | Select Executive Retirement Plan of the Registrant for benefits accrued or vested after December 31, 2004, as amended and restated, incorporated herein by reference from the Registrant’s Annual Report filed on Form 10-K for the year ended December 31, 2008, Exhibit 10.9* | ||||
| 10.6 | Select Executive Retirement Plan of the Registrant for benefits accrued or vested after December 31, 2004, as amended and restated, incorporated herein by reference from the Registrant’s Annual Report filed on Form 10-K for the year ended December 31, 2008, Exhibit 10.9* | ||||
| 10.7 | Short Term Incentive Plan of the Registrant, as amended, incorporated herein by reference from the Registrant’s Annual Report filed on Form 10-K for the year ended December 31, 2008, Exhibit 10.12* | ||||
| 10.8 | 2013 Long Term Incentive Plan of the Registrant, incorporated herein by reference from the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 20, 2013 as Appendix A* | ||||
| 10.9 | Form of Incentive Stock Option Certificate (Employee Award) of the Registrant incorporated herein by reference from the Registrant’s Annual Report filed on Form 10-K for the year ended December 31, 2013, Exhibit 10.15* | ||||
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Exhibit Number | Exhibit | ||||
| 10.10 | Form of Non-Qualified Stock Option Certificate (Employee Award) of the Registrant Form of Non-Qualified Stock Option Certificate (Employee Award) of the Registrant incorporated herein by reference from the Registrant’s Annual Report filed on Form 10-K for the year ended December 31, 2013, Exhibit 10.16* | ||||
| 10.11 | Form of Non-Qualified Stock Option Certificate (Director Award) of the Registrant incorporated herein by reference from the Registrant’s Annual Report filed on Form 10-K for the year ended December 31, 2013, Exhibit 10.17* | ||||
| 10.12 | Form of Restricted Stock Unit Award Agreement of the Registrant incorporated herein by reference from the Registrant’s Annual Report filed on Form 10-K for the year ended December 31, 2021, Exhibit 10.16* | ||||
| 10.13 | Amendment dated October 18, 2013 to Registrant’s Select Executive Retirement Plan for benefits accrued or vested after December 31, 2004, as amended and restated, incorporated herein by reference from the Registrant’s Annual Report filed on Form10-K for the year ended December 31, 2013, Exhibit 10.18* | ||||
| 10.14 | Amendment dated January 1, 2018 to Registrant's Select Executive Retirement Plan, incorporated herein, by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, Exhibit 10.1* | ||||
| 10.15 | Form of Restricted Stock Award Agreement Form 2024 (Single Trigger At Will Employees), incorporated herein, by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, Exhibit 10.1* | ||||
| 10.16 | Form of Restricted Stock Award Agreement Form 2024 (Double Trigger Contracted Employees), incorporated herein, by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, Exhibit 10.2* | ||||
| 10.17 | Form of Restricted Stock Award Agreement Form 2024 (Non-Employee Directors), incorporated herein, by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, Exhibit 10.3* | ||||
| 14 | Financial Code of Ethics, incorporated herein by reference from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, Exhibit 14 | ||||
| 16.1 | Change in Registrant's Certifying Accountant (incorporated herein by reference to Current Report on Form 8-K filed March 19, 2024). | ||||
The following exhibits are submitted herewith:
Exhibit Number | Exhibit | ||||
| 19.1 | |||||
| 21 | Subsidiaries of Arrow Financial Corporation | ||||
| 23.1 | Consent of Independent Registered Public Accounting Firm | ||||
| 23.2 | Consent of Independent Registered Public Accounting Firm | ||||
| 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 | ||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | ||||
* Management contracts or compensation plans required to be filed as an exhibit.
109
Pursuant to the requirements of Section 13 or 15(d) 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
| Date: | March 6, 2026 | By: /s/ David S. DeMarco David S. DeMarco President and Chief Executive Officer (Principal Executive Officer) | ||||||
| Date: | March 6, 2026 | By: /s/ Penko Ivanov Penko Ivanov Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 6, 2026 by the following persons in the capacities indicated.
/s/ Mark L. Behan Mark L. Behan Director | /s/ David G. Kruczlnicki David G. Kruczlnicki Director | ||||
/s/ Tenée R. Casaccio Tenée R. Casaccio Director and Chair | /s/ Elizabeth A. Miller Elizabeth A. Miller Director | ||||
_/s/ Gregory J. Champion Gregory J. Champion Director | /s/ Philip C. Morris Philip C. Morris Director | ||||
/s/ James M. Dawsey James M. Dawsey Director | /s/ Raymond F. O'Conor Raymond F. O'Conor Director | ||||
/s/ David S. DeMarco David S. DeMarco Director | /s/ Colin L. Read Colin L. Read Director | ||||
/s/ Kristine D. Duffy Kristine D. Duffy Director | /s/ Daniel J. White Daniel J. White Director | ||||
/s/ Darrin Jahnel Darrin Jahnel Director | |||||
110
FAQ
What is Arrow Financial Corporation’s core business according to its 10-K for AROW?
Arrow Financial Corporation’s core business is owning and supervising Arrow Bank National Association, which provides commercial, mortgage and consumer lending, wealth management, trust and retirement services, plus insurance and investment advisory services, primarily in upstate New York and through an indirect auto lending network in New York and Vermont.
How large is Arrow Bank’s platform in the Arrow Financial (AROW) 10-K?
Arrow Bank National Association reports total assets of $4,421,212 thousand as of December 31, 2025, with 578 full-time equivalent employees and 38 bank branches. The platform is supported by nine insurance offices and several non-bank subsidiaries providing insurance, investment advisory and real estate investment services.
What are the key terms of Arrow Financial’s merger with Adirondack Bancorp for AROW investors?
Under the merger agreement, each Adirondack Bancorp share will convert into 1.8610 shares of Arrow common stock plus $18.72 in cash. Based on Arrow’s February 25, 2026 closing price, the implied transaction value is approximately $89.1 million, with closing targeted for late second or early third quarter 2026, subject to approvals.
What major risks does Arrow Financial (AROW) highlight in its 10-K?
Arrow highlights macroeconomic risks like inflation, interest-rate changes and regional downturns, as well as competitive pressure, technology and AI execution, cybersecurity and fraud threats, commercial and indirect consumer credit risk, liquidity pressures, extensive regulatory oversight and the possibility that the Adirondack merger may not close or deliver expected synergies.
How strong are Arrow Financial’s regulatory capital levels in the AROW 10-K?
Arrow states that both the holding company and Arrow Bank exceeded, by a substantial amount, all minimum capital ratios as of December 31, 2025. Arrow Bank met the thresholds to be classified as well-capitalized, including CET1, Tier 1, total risk-based and leverage ratios, plus associated capital conservation buffers.
How does Arrow Financial (AROW) describe its community and social responsibility efforts?
Arrow emphasizes community support through charitable contributions, partnerships and employee volunteerism. Since 2019, Arrow and its team members have donated more than $4 million to nonprofits in its service area and offers financial literacy initiatives, first-time homebuyer lending programs and investments in energy-efficient infrastructure and digital banking to support sustainability.
What human capital strategies does Arrow Financial highlight in its AROW filing?
Arrow stresses investment in employee well-being, development and engagement, including competitive compensation and benefits, diversity and inclusion initiatives, and a learning platform called Arrow University. As of December 31, 2025, it employed 578 full-time equivalent staff, including 40 in its insurance agency subsidiary, across its regional footprint.
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