EX-99 2 ex99-earningsye2022.htm EX-99 Document

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250 Glen Street
Glens Falls, NY 12801
NASDAQ® Symbol: "AROW"
Website: arrowfinancial.com

Media Contact: Rachael Murray
Tel: (518) 415-4313


Arrow Reports $48.8 million in Net Income, Record Loan Growth of $315 million in 2022

GLENS FALLS, N.Y. (January 30, 2023) – Arrow Financial Corporation (NasdaqGS® – AROW) reported net income for fiscal year 2022 of $48.8 million, a decrease of $1.1 million, or 2.1%, compared to fiscal year 2021. Diluted earnings per share was $2.95 for the year ended December 31, 2022, as compared to $3.01 for the year ended December 31, 2021, a decrease of 2.0%. For the fourth quarter of 2022, net income was $12.1 million, an increase of $1.8 million, or 17.2%, from the fourth quarter of 2021. Diluted EPS was $0.73 for the fourth quarter of 2022, an increase of 17.7% from $0.62 from the comparable 2021 quarter.

2022 Annual Highlights

Earnings:

•Diluted earnings per Share (EPS) was $2.95.
•Net income was $48.8 million.
•Revenue for 2022 was $149.2 million.
•Return on average assets (ROA) was 1.21%.
•Return on average equity (ROE) was 13.55%.
•Net interest margin was 3.03%.

Balance Sheet:

•Total assets were $3.97 billion as of December 31, 2022.
•Total cash and cash equivalents were $64.7 million as of December 31, 2022.
•Total loans were $2.98 billion as of December 31, 2022.
•Total deposits were $3.50 billion as of December 31, 2022.
•Total borrowings were $74.8 million as of December 31, 2022.
•Loans to deposits and borrowings as of December 31, 2022 was 83.49%.

Additional Items:

•Book value per share was $21.36, down 4.9% from the prior-year level, primarily as a result of unrealized losses within the available-for-sale investment portfolio due to higher interest rates.
•Nonperforming assets of $12.6 million at December 31, 2022, represented 0.32% of period-end assets, an increase from 0.29% at December 31, 2021.

Net income for 2022 was $48.8 million, down from $49.9 million for 2021. The decrease from the prior year was primarily the result of an increase in net interest income of $8.0 million, offset by a $4.5 million increase in the provision for credit loss, a decrease in Paycheck Protection Program (PPP) revenue earned of $6.2 million and a $2.3 million decrease in the gain on the sale of loans.

“Arrow Financial Corporation delivered another year of strong performance in 2022, with record loan growth, excellent earnings and sustained profitability. During 2022, we made key investments in our technology and our Team, with the upgrade of our core banking system and the payment of a special employee bonus for outstanding performance, respectively," said Arrow President and CEO Thomas J.
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Murphy. "With the economic headwinds anticipated for 2023, we will continue to focus on what we do best: organic growth, expense management, and deepening and growing relationships. Thank you to the Arrow Team for their continued commitment to our customers and the communities we serve."


The 2022 system upgrade reflects our strategic focus on a strong technology foundation and this investment paves the way for customer-facing enhancements and more efficient and improved internal operations as we continue to work toward fully leveraging the capabilities of our new bank core system.

Additionally in 2022, Arrow further optimized its branch network with the December consolidation of Glens Falls National Bank's Aviation Road Office into nearby Queensbury locations. Meanwhile, construction on our downtown Glens Falls headquarters advanced; once completed later this year, the energy-efficient space will improve both the employee and customer experience.

Please see below for further quarter- and year-end detail.

Income Statement

•Net Interest Income: Net interest income for the year ended December 31, 2022 was $118.3 million, an increase of $8.0 million, or 7.2%, from the prior year. Interest and fees on loans were $113.0 million, an increase of 7.6% from the $105.0 million for the year ended December 31, 2021. Interest and fees related to PPP loans, included in the $113.0 million, were $1.6 million. In 2021, $7.8 million of income was earned on PPP loans. Interest expense for the year ended December 31, 2022 was $11.3 million. This is an increase of $6.1 million, or 117.7%, from the $5.2 million in expense for the prior-year period.

•Net Interest Margin: Net interest margin was 3.03% for the year ended December 31, 2022, as compared to 2.97% for the year ended December 31, 2021. In the fourth quarter of 2022, the net interest margin was 3.08%, as compared to 2.77% for the fourth quarter of 2021. The increase in net interest margin was due to a variety of factors, including higher market rates impacting asset yields and a reduction in cash balances. Net interest margin in 2022, excluding PPP income, increased to 3.00% from 2.84% in the prior year. The cost of interest-bearing liabilities increased primarily due to the repricing of time deposits and municipal deposits.

Twelve Months Ended
December 31, 2022December 31, 2021
Interest and Dividend Income$129,651 $115,550 
Interest Expense11,308 5,195 
Net Interest Income118,343 110,355 
Average Earning Assets(1)
3,902,077 3,716,856 
Average Interest-Bearing Liabilities2,834,266 2,727,441 
Yield on Earning Assets(1)
3.32 %3.11 %
Cost of Interest-Bearing Liabilities0.40 0.19 
Net Interest Spread2.92 2.92 
Net Interest Margin3.03 2.97 
Income Earned on PPP Loans included in Net Interest Income$1,589 $7,811 
Net Interest Income excluding PPP loans116,754 102,544 
Net Interest Margin excluding PPP loans3.00 %2.84 %
(1) Includes Nonaccrual Loans.

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•Provision for Credit Losses: For 2022, the provision for credit losses related to the loan portfolio was $4.8 million, compared to $272 thousand in 2021. The key drivers affecting the provision were strong loan growth, increase in net charge-offs and a deterioration in forecasted economic conditions.

•Noninterest Income: Noninterest income was $30.9 million for the year ended December 31, 2022, a decrease of 4.5%, as compared to $32.4 million for the year ended December 31, 2021. Income from fiduciary activities in 2022 was $9.7 million, a decrease of $431 thousand from 2021, driven by market conditions. Fees and other services to customers increased $164 thousand to $11.6 million in 2022. Gain on sales of loans decreased $2.3 million from 2021 to $83 thousand in 2022. Other operating income increased $814 thousand from 2021 due to gains related to other investments and bank-owned life insurance proceeds.

•Noninterest Expense: Noninterest expense for the year ended December 31, 2022 increased by $3.5 million, or 4.5%, to $81.5 million, as compared to $78.0 million in 2021. The largest component of noninterest expense is salaries and benefits paid to our employees, which totaled $47.0 million in 2022. Salaries and benefits increased $2.2 million, or 4.9%, from the prior year. Technology and and equipment expense were $16.1 million, an increase of $1.2 million or 8.4%, from the prior year reflects our continued commitment to innovation. Noninterest expense for the fourth quarter of 2022 decreased $68 thousand, or 0.3%, as compared to the fourth quarter of 2021.

•Provision for Income Taxes: The provision for income taxes for 2022 was $14.1 million, compared to $14.5 million for 2021. The effective income tax rates for 2022 and 2021 were 22.4% and 22.6%, respectively.

Balance Sheet

•Total Assets: Total assets were $3.97 billion at December 31, 2022, a decrease of $58.4 million, or 1.5%, compared to December 31, 2021.

•Cash and Cash Equivalents: Total cash and cash equivalents were $64.7 million at December 31, 2022, a decrease of $393.0 million, or 85.9%, compared to December 31, 2021.

•Investments: Total investments were $757.1 million at December 31, 2022, a decrease of $5.9 million, or 0.8%, compared to December 31, 2021. In 2022, the rising interest rate environment resulted in an increase of unrealized losses versus the prior year.

•Loans: At December 31, 2022, total loan balances reached $3.0 billion, up $315 million, or 11.8%, from the prior-year level. Loan growth for the fourth quarter was $58.4 million. The consumer loan portfolio grew by $144.6 million, or 15.7%, over the balance at December 31, 2021, primarily as a result of continued strength in the indirect automobile lending program. The residential real estate loan portfolio increased $124.8 million, or 13.2%, from the prior year. Commercial loans, including commercial real estate, increased $45.9 million, or 5.7%, over the balances at December 31, 2021.

•Allowance for Credit Losses: The allowance for credit losses was $30.0 million at December 31, 2022, an increase of $2.7 million from December 31, 2021. The allowance for credit losses represents 1.00% of loans outstanding, a decrease from 1.02% at year-end 2021. When expressed as a percentage of nonperforming loans, the allowance for credit loss coverage ratio was 250.0% at year-end 2022 as compared to 233.9% at year-end 2021. Asset quality remained solid at December 31, 2022. Net loan losses, expressed as an annualized percentage of average loans outstanding, were 0.08% for the year ended December 31, 2022, as compared to 0.03% for the prior year. Nonperforming assets of $12.6 million at December 31, 2022, represented 0.32% of period-end assets, compared to $11.8 million or 0.29% at December 31, 2021.
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•Deposits: At December 31, 2022, total deposit balances were $3.5 billion, a decrease of $52.1 million, or 1.5%, from the prior-year level. Non-municipal deposits decreased by $26.6 million and municipal deposits decreased by $25.5 million as compared to December 31, 2021. Noninterest-bearing deposits grew by $26.6 million, or 3.3%, during 2022, and represented 23.9% of total deposits at year-end, as compared to the prior-year level of 22.8%. At December 31, 2022, total time deposits decreased $5.1 million from the prior-year level. Deposits decreased in the fourth quarter by $296.7 million. Non-municipal and municipal deposits decreased by $149.0 million and $147.7 million, respectively in the fourth quarter. The decline is deposits was primarily the result of both increased consumer spending and pressure from competitive rate pricing.

•Borrowings: Total borrowings were $74.8 million at December 31, 2022, an increase of $9.8 million, or 15.1%, compared to December 31, 2021.

•Capital: Total shareholders’ equity was $353.5 million at period-end, a decrease of $17.6 million, or 4.8%, from the year-end 2021 balance. Arrow's regulatory capital ratios remained strong in 2022. At December 31, 2022, Arrow's Common Equity Tier 1 Capital Ratio was 13.32% and Total Risk-Based Capital Ratio was 15.11%. The capital ratios of Arrow and both its subsidiary banks continued to significantly exceed the “well capitalized” regulatory standards.

Additional Commentary

•Cash and Stock Dividends: On December 15, 2022, Arrow distributed a cash dividend of $0.27 per share. Additionally, a 3% stock dividend was distributed on September 23, 2022.

•Industry Recognition: In the fourth quarter, both of Arrow's banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, maintained their BauerFinancial, Inc. 5-Star "Exceptional Performance" Bank ratings for the 15th and 13th consecutive years, respectively.

——————

About Arrow: Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York. The Company is the parent of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company. Other subsidiaries include North Country Investment Advisers, Inc. and Upstate Agency, LLC.

Non-GAAP Financial Measures Reconciliation: In addition to presenting information in conformity with accounting principles generally accepted in the United States of America (GAAP), this news release contains financial information determined by methods other than GAAP (non-GAAP). The following measures used in this release, which are commonly utilized by financial institutions, have not been specifically exempted by the Securities and Exchange Commission ("SEC") and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules. Certain non-GAAP financial measures include: tangible equity, return on tangible equity, tax-equivalent adjustment and related net interest income, tax-equivalent and the efficiency ratio. Management believes that the non-GAAP financial measures disclosed by the Company from time to time are useful in evaluating the Company'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. Non-GAAP financial measures may differ from similar measures presented by other companies. See the reconciliation of GAAP to non-GAAP measures in the section "Selected Quarterly Information."

Safe Harbor Statement: The information contained in this news release may contain statements that are not historical in nature but rather are based on management’s beliefs, assumptions, expectations, estimates and projections about the future. These statements may be "forward-looking statements"
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within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, involving a degree of uncertainty and attendant risk. In the case of all forward-looking statements, actual outcomes and results may differ materially from what the statements predict or forecast, explicitly or by implication. The Company undertakes no obligation to revise or update these forward-looking statements to reflect the occurrence of unanticipated events. This News Release should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and other filings with the Securities and Exchange Commission.

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ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts - Unaudited)

 Three Months EndedTwelve Months Ended
 December 31,December 31,
 2022202120222021
INTEREST AND DIVIDEND INCOME    
Interest and Fees on Loans$30,719 $25,631 $112,982 $104,985 
Interest on Deposits at Banks1,274 214 3,100 565 
Interest and Dividends on Investment Securities:
Fully Taxable3,121 1,678 10,357 6,487 
Exempt from Federal Taxes790 831 3,212 3,513 
Total Interest and Dividend Income35,904 28,354 129,651 115,550 
INTEREST EXPENSE    
Interest-Bearing Checking Accounts344 165 973 731 
Savings Deposits4,101 412 7,879 1,904 
Time Deposits over $250,000226 33 369 261 
Other Time Deposits234 123 604 632 
Federal Funds Purchased and
  Securities Sold Under Agreements to Repurchase		— — — 3 
Federal Home Loan Bank Advances200 197 605 783 
Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts		172 173 685 686 
Interest on Financing Leases48 49 193 195 
Total Interest Expense5,325 1,152 11,308 5,195 
NET INTEREST INCOME30,579 27,202 118,343 110,355 
Provision for Credit Losses1,409 558 4,798 272 
NET INTEREST INCOME AFTER PROVISION FOR
   CREDIT LOSSES		29,170 26,644 113,545 110,083 
NONINTEREST INCOME    
Income From Fiduciary Activities2,257 2,604 9,711 10,142 
Fees for Other Services to Customers2,710 2,968 11,626 11,462 
Insurance Commissions1,680 1,645 6,463 6,487 
Net Gain (Loss) on Securities48 (139)427 111 
Net Gain on Sales of Loans3 142 83 2,393 
Other Operating Income467 369 2,588 1,774 
Total Noninterest Income7,165 7,589 30,898 32,369 
NONINTEREST EXPENSE    
Salaries and Employee Benefits11,603 11,438 47,003 44,798 
Occupancy Expenses, Net1,481 1,334 6,202 5,814 
Technology and Equipment Expense4,316 3,868 16,118 14,870 
FDIC Assessments283 278 1,176 1,042 
Other Operating Expense3,109 3,942 11,031 11,524 
Total Noninterest Expense20,792 20,860 81,530 78,048 
INCOME BEFORE PROVISION FOR INCOME TAXES15,543 13,373 62,913 64,404 
Provision for Income Taxes3,456 3,064 14,114 14,547 
NET INCOME$12,087 $10,309 $48,799 $49,857 
Average Shares Outstanding1:
    
Basic16,535 16,509 16,513 16,499 
Diluted16,589 16,574 16,562 16,555 
Per Common Share:    
Basic Earnings$0.73 $0.62 $2.95 $3.02 
Diluted Earnings0.73 0.62 2.95 3.01 
1 Share and per share data have been restated for the September 23, 2022, 3% stock dividend.

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ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts - Unaudited)
 December 31, 2022December 31, 2021
ASSETS  
Cash and Due From Banks$31,886 $26,978 
Interest-Bearing Deposits at Banks32,774 430,718 
Investment Securities:
Available-for-Sale573,495 559,316 
Held-to-Maturity (Approximate Fair Value of $171,623 at
  December 31, 2022, and $201,292 at December 31, 2021)
175,364 196,566 
Equity Securities2,174 1,747 
Other Investments6,064 5,380 
Loans2,983,207 2,667,941 
Allowance for Credit Losses(29,952)(27,281)
Net Loans2,953,255 2,640,660 
Premises and Equipment, Net56,491 46,217 
Goodwill21,873 21,873 
Other Intangible Assets, Net1,500 1,918 
Other Assets114,633 96,579 
Total Assets$3,969,509 $4,027,952 
LIABILITIES
Noninterest-Bearing Deposits$836,871 $810,274 
Interest-Bearing Checking Accounts997,694 994,391 
Savings Deposits1,454,364 1,531,287 
Time Deposits over $250,00076,224 82,811 
Other Time Deposits133,211 131,734 
Total Deposits3,498,364 3,550,497 
Federal Home Loan Bank Overnight Advances27,000 — 
Federal Home Loan Bank Term Advances27,800 45,000 
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts20,000 20,000 
Finance Leases5,119 5,169 
Other Liabilities37,688 36,100 
Total Liabilities3,615,971 3,656,766 
STOCKHOLDERS’ EQUITY
Preferred Stock, $1 Par Value, 1,000,000 Shares Authorized
— — 
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (21,423,992 Shares Issued at December 31, 2022, and 20,800,144 Shares Issued at December 31, 2021)
21,424 20,800 
Additional Paid-in Capital400,270 377,996 
Retained Earnings 65,401 54,078 
Accumulated Other Comprehensive (Loss) Income(49,655)347 
Treasury Stock, at Cost (4,872,355 Shares at December 31, 2022, and 4,759,414 Shares at December 31, 2021)
(83,902)(82,035)
Total Stockholders’ Equity353,538 371,186 
Total Liabilities and Stockholders’ Equity$3,969,509 $4,027,952 
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Arrow Financial Corporation
Selected Quarterly Information
(Dollars In Thousands, Except Per Share Amounts - Unaudited)
Quarter Ended12/31/20229/30/20226/30/20223/31/202212/31/2021
Net Income$12,087 $12,163 $11,974 $12,575 $10,309 
Transactions in Net Income (Net of Tax):     
Net Changes in Fair Value of Equity Investments35 70 114 96 (104)
Share and Per Share Data:1
     
Period End Shares Outstanding16,552 16,523 16,503 16,493 16,522 
Basic Average Shares Outstanding16,535 16,512 16,494 16,511 16,509 
Diluted Average Shares Outstanding16,589 16,558 16,535 16,566 16,574 
Basic Earnings Per Share$0.73 $0.74 $0.72 $0.76 $0.62 
Diluted Earnings Per Share0.73 0.74 0.72 0.76 0.62 
Cash Dividend Per Share0.270 0.262 0.262 0.262 0.252 
Selected Quarterly Average Balances:     
  Interest-Bearing Deposits at Banks$143,499 $209,001 $232,545 $410,644 $551,890 
  Investment Securities845,859 821,052 822,112 797,347 681,732 
  Loans2,951,547 2,872,066 2,804,180 2,678,796 2,660,665 
  Deposits3,614,945 3,598,519 3,569,754 3,582,256 3,590,766 
  Other Borrowed Funds63,304 50,125 50,140 68,596 70,162 
  Shareholders’ Equity351,402 361,675 357,228 370,264 364,409 
  Total Assets4,074,028 4,047,738 4,012,999 4,054,943 4,060,540 
Return on Average Assets, annualized1.18 %1.19 %1.20 %1.26 %1.01 %
Return on Average Equity, annualized13.65 %13.34 %13.44 %13.77 %11.22 %
Return on Average Tangible Equity, annualized 2
14.62 %14.27 %14.40 %14.72 %12.01 %
Average Earning Assets3,940,905 3,902,119 3,858,837 3,886,787 3,894,287 
Average Paying Liabilities2,891,092 2,781,985 2,808,287 2,855,884 2,841,304 
Interest Income35,904 34,207 30,593 28,947 28,354 
Tax-Equivalent Adjustment 3
279 268 269 270 285 
Interest Income, Tax-Equivalent 3
36,183 34,475 30,862 29,217 28,639 
Interest Expense5,325 3,306 1,555 1,122 1,152 
Net Interest Income30,579 30,901 29,038 27,825 27,202 
Net Interest Income, Tax-Equivalent 3
30,858 31,169 29,307 28,095 27,487 
Net Interest Margin, annualized3.08 %3.14 %3.02 %2.90 %2.77 %
Net Interest Margin, Tax-Equivalent, annualized 3
3.11 %3.17 %3.05 %2.93 %2.80 %
Efficiency Ratio Calculation: 4
     
Noninterest Expense$20,792 $21,448 $20,345 $18,945 $20,860 
Less: Intangible Asset Amortization47 48 4849 52 
Net Noninterest Expense$20,745 $21,400 $20,297 $18,896 $20,808 
Net Interest Income, Tax-Equivalent$30,858 $31,169 $29,307 $28,095 $27,487 
Noninterest Income7,165 7,827 7,744 8,162 7,589 
Less: Net Gain (Loss) on Securities48 95 154 130 (139)
Net Gross Income$37,975 $38,901 $36,897 $36,127 $35,215 
Efficiency Ratio54.63 %55.01 %55.01 %52.30 %59.09 %
Period-End Capital Information:     
Total Stockholders’ Equity (i.e. Book Value)$353,538 $345,550 $356,498 $357,243 $371,186 
Book Value per Share 1
21.36 20.91 21.60 21.66 22.47 
Goodwill and Other Intangible Assets, net23,373 23,477 23,583 23,691 23,791 
Tangible Book Value per Share 1,2
19.95 19.49 20.17 20.22 21.03 
Capital Ratios:5
     
Tier 1 Leverage Ratio9.80 %9.71 %9.60 %9.37 %9.20 %
Common Equity Tier 1 Capital Ratio
13.32 %13.14 %13.14 %13.48 %13.77 %
Tier 1 Risk-Based Capital Ratio14.01 %13.85 %13.86 %14.23 %14.55 %
Total Risk-Based Capital Ratio15.11 %14.93 %14.93 %15.33 %15.69 %
Assets Under Trust Admin. & Investment Mgmt.$1,606,132 $1,515,994 $1,589,178 $1,793,747 $1,851,101 
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Arrow Financial Corporation
Selected Quarterly Information - Continued
(Dollars In Thousands, Except Per Share Amounts - Unaudited)
Footnotes:
1.
Share and per share data have been restated for the September 23, 2022, 3% stock dividend.

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 we believe provide investors with information that is useful in understanding our financial performance.
12/31/20229/30/20226/30/20223/31/202212/31/2021
Total Stockholders' Equity (GAAP)$353,538 $345,550 $356,498 $357,243 $371,186 
Less: Goodwill and Other Intangible assets, net23,373 23,477 23,583 23,691 23,791 
Tangible Equity (Non-GAAP)$330,165 $322,073 $332,915 $333,552 $347,395 
Period End Shares Outstanding16,552 16,523 16,503 16,493 16,522 
Tangible Book Value per Share (Non-GAAP)$19.95 $19.49 $20.17 $20.22 $21.03 
Net Income12,087 12,163 11,974 12,575 10,309 
Return on Tangible Equity (Net Income/Tangible Equity - Annualized)14.62 %14.27 %14.40 %14.72 %12.01 %
3.Non-GAAP Financial Measure Reconciliation: Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which we believe provides investors with information that is useful in understanding our financial performance.
12/31/20229/30/20226/30/20223/31/202212/31/2021
Interest Income (GAAP)$35,904 $34,207 $30,593 $28,947 $28,354 
Add: Tax Equivalent Adjustment (Non-GAAP)279 268 269 270 285 
Interest Income - Tax Equivalent (Non-GAAP)$36,183 $34,475 $30,862 $29,217 $28,639 
Net Interest Income (GAAP)$30,579 $30,901 $29,038 $27,825 $27,202 
Add: Tax-Equivalent adjustment (Non-GAAP)279 268 269 270 285 
Net Interest Income - Tax Equivalent (Non-GAAP)$30,858 $31,169 $29,307 $28,095 $27,487 
Average Earning Assets3,940,905 3,902,119 3,858,837 3,886,787 3,894,287 
Net Interest Margin (Non-GAAP)*3.11 %3.17 %3.05 %2.93 %2.80 %
4.Non-GAAP Financial Measure Reconciliation: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. We believe the efficiency ratio provides investors with information that is useful in understanding our financial performance. We define our efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals our tax-equivalent net interest income plus noninterest income, as adjusted).
5.
For the current quarter, all of the regulatory capital ratios in the table above, as well as the Total Risk-Weighted Assets and Common Equity Tier 1 Capital amounts listed in the table below, are estimates based on, and calculated in accordance with bank regulatory capital rules. All prior quarters reflect actual results. The December 31, 2022 CET1 ratio listed in the tables (i.e., 13.32%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).
12/31/20229/30/20226/30/20223/31/202212/31/2021
Total Risk Weighted Assets2,883,902 2,856,224 2,790,520 2,661,952 2,552,812 
Common Equity Tier 1 Capital384,003 375,394 366,798 358,738 351,497 
Common Equity Tier 1 Ratio13.32 %13.14 %13.14 %13.48 %13.77 %
 * Quarterly ratios have been annualized

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Arrow Financial Corporation
Average Consolidated Balance Sheets and Net Interest Income Analysis
(Dollars in Thousands - Unaudited)

Years Ended December 31:20222021
InterestRateInterestRate
AverageIncome/Earned/AverageIncome/Earned/
BalanceExpensePaidBalanceExpensePaid
Interest-Bearing Deposits at Banks$252,835 $3,100 1.23 %$418,488 565 0.14 %
 Investment Securities:
   Fully Taxable648,540 10,357 1.60 %470,133 6,487 1.38 %
   Exempt from Federal Taxes173,184 3,212 1.85 %185,072 3,513 1.90 %
Loans2,827,518 112,982 4.00 %2,643,163 104,985 3.97 %
 Total Earning Assets3,902,077 129,651 3.32 %3,716,856 115,550 3.11 %
Allowance for Credit Losses(27,954)(27,187)
Cash and Due From Banks30,462 36,464 
Other Assets142,895 156,509 
 Total Assets$4,047,480 $3,882,642 
Deposits:
   Interest-Bearing Checking Accounts$1,038,751 973 0.09 %$926,875 731 0.08 %
  Savings Deposits1,549,278 7,879 0.51 %1,496,906 1,904 0.13 %
  Time Deposits of $250,000 or More55,690 369 0.66 %87,033 261 0.30 %
  Other Time Deposits132,541 604 0.46 %141,677 632 0.45 %
    Total Interest-Bearing Deposits2,776,260 9,825 0.35 %2,652,491 3,528 0.13 %
Short-Term Borrowings2,124 92 4.33 %4,768 3 0.06 %
FHLBNY Term Advances and Other Long-Term Debt50,750 1,198 2.36 %65,000 1,469 2.26 %
Finance Leases5,132 193 3.76 %5,182 195 3.76 %
  Total Interest-Bearing Liabilities2,834,266 11,308 0.40 %2,727,441 5,195 0.19 %
Demand Deposits815,218 767,671 
Other Liabilities37,901 33,773 
 Total Liabilities3,687,385 3,528,885 
Stockholders’ Equity360,095 353,757 
 Total Liabilities and Stockholders’ Equity$4,047,480 $3,882,642 
Net Interest Income$118,343 $110,355 
Net Interest Spread2.92 %2.92 %
Net Interest Margin3.03 %2.97 %


10


Arrow Financial Corporation
Consolidated Financial Information
(Dollars in Thousands - Unaudited)
Quarter Ended:12/31/202212/31/2021
Loan Portfolio  
Commercial Loans$140,293 $172,518 
Commercial Real Estate Loans707,022 628,929 
  Subtotal Commercial Loan Portfolio847,315 801,447 
Consumer Loans 1,065,135 920,556 
Residential Real Estate Loans1,070,757 945,938 
Total Loans$2,983,207 $2,667,941 
Allowance for Credit Losses  
Allowance for Credit Losses, Beginning of Quarter$29,232 $26,956 
Loans Charged-off(1,261)(719)
Recoveries of Loans Previously Charged-off572 486 
Net Loans Charged-off(689)(233)
Provision for Credit Losses1,409 558 
Allowance for Credit Losses, End of Quarter$29,952 $27,281 
Nonperforming Assets  
Nonaccrual Loans$10,757 $10,764 
Loans Past Due 90 or More Days and Accruing1,157 823
Loans Restructured and in Compliance with Modified Terms69 77 
Total Nonperforming Loans11,983 11,664 
Repossessed Assets593 126 
Other Real Estate Owned— — 
Total Nonperforming Assets$12,576 $11,790 
Key Asset Quality Ratios  
Net Loans Charged-off to Average Loans, Quarter-to-date
  Annualized		0.09 %0.03 %
Provision for Credit Losses to Average Loans, Quarter-to-date
  Annualized		0.19 %0.08 %
Allowance for Credit Losses to Period-End Loans1.00 %1.02 %
Allowance for Credit Losses to Period-End Nonperforming Loans249.95 %233.89 %
Nonperforming Loans to Period-End Loans0.40 %0.44 %
Nonperforming Assets to Period-End Assets0.32 %0.29 %
Twelve-Month Period Ended:
Allowance for Credit Losses  
Allowance for Credit Losses, Beginning of Year$27,281 $29,232 
Impact of the Adoption of ASU 2016-13— (1,300)
Loans Charged-off(4,143)(2,239)
Recoveries of Loans Previously Charged-off2,016 1,316 
Net Loans Charged-off(2,127)(923)
Provision for Credit Losses4,798 272 
Allowance for Credit Losses, End of Year$29,952 $27,281 
Key Asset Quality Ratios  
Net Loans Charged-off to Average Loans0.08 %0.03 %
Provision for Credit Losses to Average Loans0.17 %0.01 %
11