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Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | FAIR VALUE OF FINANCIAL INSTRUMENTS (In Thousands) FASB ASC Subtopic 820-10 defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. We do not have any 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 September 30, 2018 were securities available-for-sale and equity securities and for December 31, 2017 and September 30, 2017 securities available-for-sale. Arrow held no securities or liabilities for trading on such dates. The table below presents the financial instrument's fair value and the amounts within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement:
Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis
|  |  | Fair Value Measurements at Reporting Date Using: |  |
| Fair Value |  | Quoted Prices In Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Life-to-Date Gains (Losses)
Fair Value of Assets and Liabilities Measured on a Recurring Basis: |  |  |  |  |  |  |  |  |
September 30, 2018 |  |  |  |  |  |  |  |  |
Securities Available-for Sale: |  |  |  |  |  |  |  |  |
U.S. Government & Agency Obligations | $ | 59,602 |  |  | $ | — |  |  | $ | 59,602 |  |  | $ | — |  |  |
State and Municipal Obligations | 2,548 |  |  | — |  |  | 2,548 |  |  | — |  |  |
Mortgage-Backed Securities | 277,461 |  |  | — |  |  | 277,461 |  |  | — |  |  |
Corporate and Other Debt Securities | 800 |  |  | — |  |  | 800 |  |  | — |  |  |
Total Securities Available-for-Sale | 340,411 |  |  | — |  |  | 340,411 |  |  | — |  |  |
Equity Securities | 1,916 |  |  | — |  |  | 1,916 |  |  | — |  |  |
Total Securities Measured on a Recurring Basis | $ | 342,327 |  |  | $ | — |  |  | $ | 342,327 |  |  | $ | — |  |  |
December 31, 2017 |  |  |  |  |  |  |  |  |
Securities Available-for Sale: |  |  |  |  |  |  |  |  |
U.S. Government & Agency Obligations | $ | 59,894 |  |  | $ | — |  |  | $ | 59,894 |  |  | $ | — |  |  |
State and Municipal Obligations | 10,349 |  |  | — |  |  | 10,349 |  |  | — |  |  |
Mortgage-Backed Securities | 227,596 |  |  | — |  |  | 227,596 |  |  | — |  |  |
Corporate and Other Debt Securities | 800 |  |  | — |  |  | 800 |  |  | — |  |  |
Equity Securities | 1,561 |  |  | — |  |  | 1,561 |  |  | — |  |  |
Total Securities Available-for Sale | $ | 300,200 |  |  | $ | — |  |  | $ | 300,200 |  |  | $ | — |  |  |
September 30, 2017 |  |  |  |  |  |  |  |  |
Securities Available-for Sale: |  |  |  |  |  |  |  |  |
U.S. Government & Agency Obligations | $ | 146,978 |  |  | $ | 64,730 |  |  | $ | 82,248 |  |  | $ | — |  |  |
State and Municipal Obligations | 11,902 |  |  | — |  |  | 11,902 |  |  | — |  |  |
Mortgage-Backed Securities | 152,806 |  |  | — |  |  | 152,806 |  |  | — |  |  |
Corporate and Other Debt Securities | 2,299 |  |  | — |  |  | 2,299 |  |  | — |  |  |
Equity Securities | 1,474 |  |  | — |  |  | 1,474 |  |  | — |  |  |
Total Securities Available-for Sale | $ | 315,459 |  |  | $ | 64,730 |  |  | $ | 250,729 |  |  | $ | — |  |  |
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis: |  |  |  |  |  |  |  |  |
September 30, 2018 |  |  |  |  |  |  |  |  |
Collateral Dependent Impaired Loans | $ | 857 |  |  | $ | — |  |  | $ | — |  |  | $ | 857 |  |  | $ | (58 | )
Other Real Estate Owned and Repossessed Assets, Net | 1,220 |  |  | — |  |  | — |  |  | 1,220 |  |  | (559 | )
December 31, 2017 |  |  |  |  |  |  |  |  |
Collateral Dependent Impaired Loans | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Other Real Estate Owned and Repossessed Assets, Net | $ | 1,847 |  |  | $ | — |  |  | — |  |  | 1,847 |  |  | $ | (569 | )
September 30, 2017 |  |  |  |  |  |  |  |  |
Collateral Dependent Impaired Loans | $ | 1,502 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,502 |  |  | $ | (138 | )
Other Real Estate Owned and Repossessed Assets, Net | 1,713 |  |  | — |  |  | — |  |  | 1,713 |  |  | (655 | )
We determine 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).
The Company determined that the previously reported U.S. Government & Agency Obligations of $59,894 were incorrectly classified as Level 1 securities, instead of the correct classification as Level 2 securities. The Company corrected the fair value leveling disclosure the year ended December 31, 2017 to reflect the correction of this classification. This error had no impact on the fair value of U.S. Government & Agency Obligations or the total securities available-for-sale. There were no transfers between Levels 1, 2 and 3 for the three months ended September 30, 2018, December 31, 2017 and September 30, 2017. Fair Value Methodology for Assets and Liabilities Measured on a Recurring Basis The fair value of Level 1 securities available-for-sale are based on unadjusted, quoted market prices from exchanges in active markets. The fair value of Level 2 securities available-for-sale are based on an independent bond and equity pricing service for identical assets or significantly similar securities and an independent equity pricing service for equity securities not actively traded. The pricing services use a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. Fair Value Methodology for Assets and Liabilities Measured on a Nonrecurring Basis The fair value of collateral dependent impaired loans and other real estate owned was based on third-party appraisals less estimated cost to sell. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. Other assets which might have been included in this table include mortgage servicing rights, goodwill and other intangible assets. Arrow evaluates each of these assets for impairment on an annual basis, with no impairment recognized for these assets at September 30, 2018, December 31, 2017 and September 30, 2017. Fair Value Methodology for Financial Instruments Not Measured on a Recurring or Nonrecurring Basis The fair value for securities held-to-maturity is determined utilizing an independent bond pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" requires that, effective for the first quarter of 2018, 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 residential real estate loans vs. other loans. Then a credit loss component is determined utilizing the credit loss assumptions used in the allowance for loan and lease loss model. Finally, a discount spread is applied separately for consumer loans vs. commercial loans based on market information and utilization of the Swap Curve. Fair value for nonperforming loans is generally based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. The fair value of time deposits is based on the discounted value of contractual cash flows, except that the fair value is limited to the extent that the customer could redeem the certificate after imposition of a premature withdrawal penalty. The discount rates are estimated using the Federal Home Loan Bank of New York ("FHLBNY") yield curve, which is considered representative of Arrow’s time deposit rates. The fair value of all other deposits is equal to the carrying value. The fair value of FHLBNY advances is estimated based on the discounted value of contractual cash flows. The discount rate is estimated using current rates on FHLBNY advances with similar maturities and call features. The book value of the outstanding trust preferred securities (Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts) are considered to approximate fair value since the interest rates are variable (indexed to LIBOR) and Arrow is well-capitalized. Fair Value by Balance Sheet Grouping The following table presents a summary of the carrying amount, the fair value or an amount approximating fair value and the fair value hierarchy of Arrow’s financial instruments:
Schedule of Fair Values by Balance Sheet Grouping
|  |  |  |  | Fair Value Hierarchy
| Book Value |  | Fair Value |  | Level 1 |  | Level 2 |  | Level 3
September 30, 2018 |  |  |  |  |  |  |  |  |
Cash and Cash Equivalents | $ | 92,295 |  |  | $ | 92,295 |  |  | $ | 92,295 |  |  | $ | — |  |  | $ | — |
Securities Available-for-Sale | 340,411 |  |  | 340,411 |  |  | — |  |  | 340,411 |  |  | — |
Securities Held-to-Maturity | 289,952 |  |  | 282,719 |  |  | — |  |  | 282,719 |  |  | — |
Equity Securities | 1,916 |  |  | 1,916 |  |  | — |  |  | 1,916 |  |  | — |
Federal Home Loan Bank and Federal Reserve Bank Stock | 10,866 |  |  | 10,866 |  |  | — |  |  | 10,866 |  |  | — |
Net Loans | 2,106,097 |  |  | 2,030,278 |  |  | — |  |  | — |  |  | 2,030,278 |
Accrued Interest Receivable | 8,028 |  |  | 8,028 |  |  | — |  |  | 8,028 |  |  | — |
Deposits | 2,407,855 |  |  | 2,398,987 |  |  | — |  |  | 2,398,987 |  |  | — |
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase | 62,503 |  |  | 62,503 |  |  | — |  |  | 62,503 |  |  | — |
Federal Home Loan Bank Overnight Advances | 131,000 |  |  | 131,000 |  |  | — |  |  | 131,000 |  |  | — |
Federal Home Loan Bank Term Advances | 45,000 |  |  | 44,488 |  |  | — |  |  | 44,488 |  |  | — |
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 |  |  | 20,000 |  |  | — |  |  | 20,000 |  |  | — |
Accrued Interest Payable | 485 |  |  | 485 |  |  | — |  |  | 485 |  |  | — |
December 31, 2017 |  |  |  |  |  |  |  |  |
Cash and Cash Equivalents | $ | 72,838 |  |  | $ | 72,838 |  |  | $ | 72,838 |  |  | $ | — |  |  | $ | — |
Securities Available-for-Sale | 300,200 |  |  | 300,200 |  |  | — |  |  | 300,200 |  |  | — |
Securities Held-to-Maturity | 335,907 |  |  | 335,901 |  |  | — |  |  | 335,901 |  |  | — |
Federal Home Loan Bank and Federal Reserve Bank Stock | 9,949 |  |  | 9,949 |  |  | — |  |  | 9,949 |  |  | — |
Net Loans | 1,932,184 |  |  | 1,901,046 |  |  | — |  |  | — |  |  | 1,901,046 |
Accrued Interest Receivable | 6,753 |  |  | 6,753 |  |  | — |  |  | 6,753 |  |  | — |
Deposits | 2,245,116 |  |  | 2,236,548 |  |  | — |  |  | 2,236,548 |  |  | — |
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase | 64,966 |  |  | 64,966 |  |  | — |  |  | 64,966 |  |  | — |
Federal Home Loan Bank Overnight Advances | 105,000 |  |  | 105,000 |  |  | — |  |  | 105,000 |  |  | — |
Federal Home Loan Bank Term Advances | 55,000 |  |  | 54,781 |  |  | — |  |  | 54,781 |  |  | — |
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 |  |  | 20,000 |  |  | — |  |  | 20,000 |  |  | — |
Accrued Interest Payable | 410 |  |  | 410 |  |  | — |  |  | 410 |  |  | — |
September 30, 2017 |  |  |  |  |  |  |  |  |
Cash and Cash Equivalents | $ | 80,666 |  |  | $ | 80,666 |  |  | $ | 80,666 |  |  | $ | — |  |  | $ | — |
Securities Available-for-Sale | 315,459 |  |  | 315,459 |  |  | 64,730 |  |  | 250,729 |  |  | — |
Securities Held-to-Maturity | 341,526 |  |  | 343,899 |  |  | — |  |  | 343,899 |  |  | — |
Federal Home Loan Bank and Federal Reserve Bank Stock | 6,704 |  |  | 6,704 |  |  | — |  |  | 6,704 |  |  | — |
Net Loans | 1,891,104 |  |  | 1,870,379 |  |  | — |  |  | — |  |  | 1,870,379 |
Accrued Interest Receivable | 6,563 |  |  | 7,692 |  |  | — |  |  | 7,692 |  |  | — |
Deposits | 2,307,116 |  |  | 2,299,011 |  |  | — |  |  | 2,299,011 |  |  | — |
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase | 61,419 |  |  | 61,419 |  |  | — |  |  | 61,419 |  |  | — |
Federal Home Loan Bank Overnight Advances | 33,000 |  |  | 33,000 |  |  | — |  |  | 33,000 |  |  | — |
Federal Home Loan Bank Term Advances | 55,000 |  |  | 55,110 |  |  | — |  |  | 55,110 |  |  | — |
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 |  |  | 20,000 |  |  | — |  |  | 20,000 |  |  | — |
Accrued Interest Payable | 260 |  |  | 260 |  |  | — |  |  | 260 |  |  | — |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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