EX-99.1 3 ex99-earningsye2023.htm EX-99.1 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 4th Quarter Net Income of $7.7 Million or $0.46 per Share and $30.1 Million or $1.77 per Share for 2023. Declares Cash Dividend of $0.27 per Share, its 43rd Consecutive Quarterly Dividend

GLENS FALLS, N.Y. (February 1, 2024) – Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow") reported net income of $7.7 million, and fully diluted earnings per share ("EPS") of $0.46 per share for the fourth quarter of 2023, versus $12.1 million and EPS of $0.71, for the same period in 2022. For the year ended 2023, net income totaled $30.1 million, with EPS of $1.77, versus $48.8 million, and EPS of $2.86, for the same period in 2022.

The Board of Directors of Arrow declared a quarterly cash dividend of $0.27 per share payable February 23, 2024 to shareholders of record as of February 12, 2024. This marks the 43rd consecutive quarterly cash dividend declared by Arrow.

This Earnings Release and related commentary should be read in conjunction with our February 1, 2024 Form 8-K and related Fourth Quarter 2023 Investor Presentation, which can also be found on our website: arrowfinancial.com/documents/investor-presentations.

Arrow President and CEO David S. DeMarco:

“As we reflect on a challenging year, I want to thank our employees who continued to diligently serve the needs of our customers, communities and shareholders. Arrow finished the year with robust loan growth, posting record high loan balances while maintaining strong credit, capital and liquidity positions. We also expanded our existing stock repurchase program by $5 million and reinstated our dividend reinvestment program. Our solid finish to the year is directly attributable to the hard work and dedication of our exceptional team."

Highlights and Key Metrics

•Loans reached a record of $3.2 billion, an increase of $224 million (7.5%) for the year and $68 million (9% annualized growth) during the fourth quarter1
•Fourth-quarter loan yields increased by 16bps from the prior quarter to 4.86%, while loan rates reached 5.01% at December 31, 2023
•Retail deposit balances of $3.5 billion, slightly ahead of year-end 2022
•Net interest margin was 2.53% for the quarter, and 2.65% for the full year (2.55% and 2.67% on a full tax equivalent basis, respectively)
•Sold all 27,771 of Visa Class B shares for a pre-tax gain of $9.3 million; Recognized a pre-tax loss of $9.2 million on repositioning of investment portfolio (sale of ~$110 million of securities); Reinvestment of proceeds resulted in annual interest income run-rate improvement of over $3 million
•Net charge-offs remained low at 0.05% for the quarter
•Tangible Book Value at year-end was $21.06, an increase from $19.37 from the prior year
•Nonperforming assets increased to $21.5 million or 0.51% of period-end assets, primarily due to one large loan relationship of approximately $15 million, which is well collateralized



1 Excludes $5.8 million Fair Value hedge adjustment
1

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

Income Statement

•Net Income: Net income for 2023 was $30.1 million, down from $48.8 million for 2022. The decrease from the prior year was primarily the result of a decrease in net interest income of $13.5 million and an increase of non-interest expense of $11.5 million, partially offset by a $1.4 million decrease in the provision for credit loss and a $6.7 million decrease in the provision for income taxes.

•Net Interest Income: Net interest income for the year ended December 31, 2023 was $104.8 million, a decrease of $13.5 million, or 11.4%, from the prior year, primarily due to an increase in interest expense. Interest and fees on loans were $142.0 million, an increase of 25.7% from the $113.0 million for the year ended December 31, 2022. The increase was primarily driven by loan growth and higher loan rates. Interest expense for the year ended December 31, 2023 was $57.7 million. This represents an increase of $46.4 million, or 410.5%, from the $11.3 million in expense for the prior-year period. The increase was driven primarily by higher deposit rates and changes in deposit composition.

•Net Interest Margin: Net interest margin was 2.65% for the year ended December 31, 2023, as compared to 3.03% for the year ended December 31, 2022. In the fourth quarter of 2023, the net interest margin was 2.53%, as compared to 3.08% for the fourth quarter of 2022. The decrease in net interest margin compared to the fourth quarter of 2022 and the full year 2022 was primarily the result of the cost of interest-bearing liabilities increasing at a faster pace than the yield on average earning assets. In addition, deposits have continued to migrate to higher cost products, such as money market savings and time deposits.

Twelve Months Ended
(dollars in thousands)
December 31, 2023December 31, 2022
Interest and Dividend Income$162,564 $129,651 
Interest Expense57,732 11,308 
Net Interest Income104,832 118,343 
Average Earning Assets(1)
3,948,708 3,902,077 
Average Interest-Bearing Liabilities2,903,925 2,834,266 
Yield on Earning Assets(1)
4.12 %3.32 %
Cost of Interest-Bearing Liabilities1.99 0.40 
Net Interest Spread2.13 2.92 
Net Interest Margin2.65 3.03 
Income Earned on PPP Loans included in Net Interest Income$— $1,589 
Net Interest Income excluding PPP loans104,832 116,754 
Net Interest Margin excluding PPP loans2.65 %3.00 %
(1) Includes Nonaccrual Loans.

•Provision for Credit Losses: For 2023, the provision for credit losses related to the loan portfolio was $3.4 million, compared to $4.8 million in 2022. The key drivers for the provision for credit losses in 2023 were loan growth and charge-offs, offset by changes to the economic forecast factors embedded in the credit loss allowance model as well as qualitative factors relating to local and Arrow specific conditions.

2

•Noninterest Income: Noninterest income was $29.1 million for the year ended December 31, 2023, a decrease of 5.8%, as compared to $30.9 million for the year ended December 31, 2022. Income from fiduciary activities, which includes Wealth Management services, was fairly consistent to the prior year. Fees and other services to customers declined compared to the prior year, primarily due to lower interchange fees.

•Noninterest Expense: Noninterest expense for the year ended December 31, 2023 increased by $11.4 million, or 14.0%, to $93.0 million, as compared to $81.6 million in 2022. The largest component of noninterest expense is salaries and benefits paid to our employees, which totaled $47.7 million in 2023. Salaries and benefits increased $0.7 million, or 1.4%, from the prior year. The overall increase from the prior year was primarily related to $4.8 million of additional legal and professional fees incurred in 2023 associated with the delay in the filing of the Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K"), and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, as well as an increase in costs related to technology and Federal Deposit Insurance Corporation insurance.

•Provision for Income Taxes: The provision for income taxes for 2023 was $7.4 million, compared to $14.1 million for 2022. The effective income tax rates for 2023 and 2022 were 19.8% and 22.4%, respectively. The reduction in the effective tax rate was the result of substantially similar permanent favorable tax benefits in each year while pre-tax income decreased in 2023.

Balance Sheet

•Total Assets: Total assets were $4.17 billion at December 31, 2023, an increase of $200.4 million, or 5.0%, compared to December 31, 2022.

•Cash and Cash Equivalents: Total cash and cash equivalents were $142.5 million at December 31, 2023, an increase of $77.9 million, or 120.4%, compared to December 31, 2022.

•Investments: Total investments were $636.1 million at December 31, 2023, a decrease of $121.0 million, or 16.0%, compared to December 31, 2022. The decrease was driven primarily by paydowns and maturities of approximately $119 million and the net decrease from the repositioning of investment portfolio of approximately $25 million, partially offset by an improvement in the mark-to-market adjustments of $23 million. The proceeds were primarily used to fund loan growth and for general corporate purposes. There were no credit quality issues related to the investment portfolio.

•Balance Sheet Management: In the fourth quarter of 2023, Arrow entered into balance sheet transactions to improve profitability and its asset-liability management position. Arrow sold all 27,771 of its previously held Visa Class B shares for a pre-tax gain of $9.3 million while recognizing a pre-tax loss of $9.2 million on the repositioning of the investment portfolio, resulting in an annual interest income run-rate improvement of over $3 million in pre-tax earnings.

•Loans2: At December 31, 2023, total loan balances reached $3.2 billion, up $224 million, or 7.5%, from the prior-year level. Loan growth for the fourth quarter was $67.7 million. The consumer loan portfolio grew by $46.5 million, or 4.4%, over the balance at December 31, 2022. The residential real estate loan portfolio increased $123.0 million, or 11.55%, from the prior year primarily as a result of the continued strength of the housing market within Arrow's service area. Commercial loans, including commercial real estate, increased $54.4 million, or 6.4%, over the balances at December 31, 2022.

•Allowance for Credit Losses: The allowance for credit losses was $31.3 million at December 31, 2023, an increase of $1.3 million from December 31, 2022. The allowance for credit losses
2 Excludes $5.8 million Fair Value hedge adjustment
3

represents 0.97% of loans outstanding, a decrease from 1.00% at year-end 2022. Asset quality remained solid at December 31, 2023. Net loan losses, expressed as an annualized percentage of average loans outstanding, were 0.07% for the year ended December 31, 2023, as compared to 0.08% for the prior year. Nonperforming assets of $21.5 million at December 31, 2023, represented 0.51% of period-end assets, compared to $12.6 million or 0.32% at December 31, 2022. As stated above, the increase is primarily due to one large loan relationship of approximately $15 million, which is well collateralized.

•Deposits: At December 31, 2023, total deposit balances were $3.7 billion, an increase of $189.2 million, or 5.4%, from the prior-year level. Arrow obtained $175 million of brokered CDs with corresponding three-year swaps as part of a funding hedge to strategically manage its asset-liability profile and cost of funds. Non-municipal deposits, excluding brokered CDs, increased by $45.3 million and municipal deposits decreased by $31.1 million as compared to December 31, 2022. Noninterest-bearing deposits decreased by $78.4 million, or 9.4%, during 2023, and represented 20.6% of total deposits at year-end, as compared to the prior-year level of 23.9%. At December 31, 2023, total time deposits, excluding brokered CDs, increased $278.6 million from the prior-year level. The change in composition of deposits was primarily pressure from competitive rate pricing and the migration from low to higher costing products.

•Capital: Total shareholders’ equity was $379.8 million at December 31, 2023, an increase of $26.2 million, or 7.4%, from the year-end 2022 balance. Arrow's regulatory capital ratios remained strong in 2023. At December 31, 2023, Arrow's Common Equity Tier 1 Capital Ratio was 13.00% and Total Risk-Based Capital Ratio was 14.74%. The capital ratios of Arrow and both of its subsidiary banks, Glens Falls National Bank and Trust Company ("GFNB") and Saratoga National Bank and Trust Company ("SNB"), continued to significantly exceed the “well capitalized” regulatory standards.

Additional Commentary

•Industry Recognition: Both GFNB and SNB continue to maintain their Bauer Financial 5-Star "Exceptional Performance" ratings for the 16th and 14th 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. Arrow is the parent of GFNB and SNB. 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 Arrow 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. 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" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, involving a
4

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. Arrow 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 Arrow’s 2022 Form 10-K, and other filings with the SEC.
5


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,
 2023202220232022
INTEREST AND DIVIDEND INCOME    
Interest and Fees on Loans$38,813 $30,719 $142,016 $112,982 
Interest on Deposits at Banks1,873 1,274 5,831 3,100 
Interest and Dividends on Investment Securities:
Fully Taxable2,941 3,121 11,764 10,357 
Exempt from Federal Taxes697 790 2,953 3,212 
Total Interest and Dividend Income44,324 35,904 162,564 129,651 
INTEREST EXPENSE    
Interest-Bearing Checking Accounts1,317 344 3,663 973 
Savings Deposits10,513 4,101 34,343 7,879 
Time Deposits over $250,0001,807 226 4,966 369 
Other Time Deposits3,406 234 7,127 604 
Borrowings1,447 200 6,756 605 
Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts		173 172 686 685 
Interest on Financing Leases48 48 191 193 
Total Interest Expense18,711 5,325 57,732 11,308 
NET INTEREST INCOME25,613 30,579 104,832 118,343 
Provision for Credit Losses525 1,409 3,381 4,798 
NET INTEREST INCOME AFTER PROVISION FOR
   CREDIT LOSSES		25,088 29,170 101,451 113,545 
NONINTEREST INCOME    
Income From Fiduciary Activities2,363 2,257 9,444 9,711 
Fees for Other Services to Customers2,725 2,710 10,798 11,626 
Insurance Commissions1,723 1,680 6,498 6,463 
Net Gain (Loss) on Securities122 48 (92)427 
Net Gain on Sales of Loans7 3 32 83 
Other Operating Income544 467 2,437 2,588 
Total Noninterest Income7,484 7,165 29,117 30,898 
NONINTEREST EXPENSE    
Salaries and Employee Benefits11,693 11,603 47,667 47,003 
Occupancy Expenses, Net1,826 1,481 6,554 6,202 
Technology and Equipment Expense4,458 4,316 17,608 16,118 
FDIC Assessments572 283 2,050 1,176 
Other Operating Expense4,641 3,109 19,169 11,031 
Total Noninterest Expense23,190 20,792 93,048 81,530 
INCOME BEFORE PROVISION FOR INCOME TAXES9,382 15,543 37,520 62,913 
Provision for Income Taxes1,659 3,456 7,445 14,114 
NET INCOME$7,723 $12,087 $30,075 $48,799 
Average Shares Outstanding1:
    
Basic17,002 17,031 17,037 17,008 
Diluted17,004 17,087 17,037 17,059 
Per Common Share:    
Basic Earnings$0.46 $0.70 $1.77 $2.86 
Diluted Earnings0.46 0.71 1.77 2.86 
1 Share and per share data have been restated for the September 26, 2023, 3% stock dividend.

6


ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts - Unaudited)
 December 31, 2023December 31, 2022
ASSETS  
Cash and Due From Banks$36,755 $31,886 
Interest-Bearing Deposits at Banks105,781 32,774 
Investment Securities:
Available-for-Sale497,769 573,495 
Held-to-Maturity (Approximate Fair Value of $128,837 at
 December 31, 2023, and $171,623 at December 31, 2022)
131,395 175,364 
Equity Securities1,925 2,174 
Other Investments5,049 6,064 
Loans3,212,908 2,983,207 
Allowance for Credit Losses(31,265)(29,952)
Net Loans3,181,643 2,953,255 
Premises and Equipment, Net59,642 56,491 
Goodwill21,873 21,873 
Other Intangible Assets, Net1,110 1,500 
Other Assets126,926 114,633 
Total Assets$4,169,868 $3,969,509 
LIABILITIES
Noninterest-Bearing Deposits$758,425 $836,871 
Interest-Bearing Checking Accounts799,785 997,694 
Savings Deposits1,466,280 1,454,364 
Time Deposits over $250,000179,301 76,224 
Other Time Deposits483,775 133,211 
Total Deposits3,687,566 3,498,364 
Borrowings26,500 54,800 
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts20,000 20,000 
Finance Leases5,066 5,119 
Other Liabilities50,964 37,688 
Total Liabilities3,790,096 3,615,971 
STOCKHOLDERS’ EQUITY
Preferred Stock, $1 Par Value, 1,000,000 Shares Authorized
— — 
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (22,066,559 Shares Issued at December 31, 2023, and 21,423,992 Shares Issued at December 31, 2022)
22,067 21,424 
Additional Paid-in Capital412,551 400,270 
Retained Earnings 65,792 65,401 
Accumulated Other Comprehensive (Loss) Income(33,416)(49,655)
Treasury Stock, at Cost (5,124,073 Shares at December 31, 2023, and 4,872,355 Shares at December 31, 2022)
(87,222)(83,902)
Total Stockholders’ Equity379,772 353,538 
Total Liabilities and Stockholders’ Equity$4,169,868 $3,969,509 
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Arrow Financial Corporation
Selected Quarterly Information
(Dollars In Thousands, Except Per Share Amounts - Unaudited)
Quarter Ended12/31/20239/30/20236/30/20233/31/202312/31/2022
Net Income$7,723 $7,743 $6,047 $8,562 $12,087 
Transactions in Net Income (Net of Tax):     
Net Changes in Fair Value of Equity Investments90 52 (133)(76)35 
Share and Per Share Data:1
     
Period End Shares Outstanding16,942 17,049 17,050 17,050 17,048 
Basic Average Shares Outstanding17,002 17,050 17,050 17,048 17,031 
Diluted Average Shares Outstanding17,004 17,050 17,050 17,060 17,087 
Basic Earnings Per Share$0.46 $0.46 $0.35 $0.50 $0.70 
Diluted Earnings Per Share0.46 0.46 0.35 0.50 0.71 
Cash Dividend Per Share0.270 0.262 0.262 0.262 0.262 
Selected Quarterly Average Balances:     
  Interest-Bearing Deposits at Banks$136,026 $131,814 $130,057 $40,436 $143,499 
  Investment Securities713,144 745,693 787,175 813,461 845,859 
  Loans3,170,262 3,096,240 3,036,410 2,991,928 2,951,547 
  Deposits3,593,949 3,491,028 3,460,711 3,480,279 3,614,945 
  Other Borrowed Funds149,507 208,527 220,616 100,596 63,304 
  Shareholders’ Equity363,753 362,701 365,070 359,556 351,402 
  Total Assets4,159,313 4,109,995 4,087,653 3,978,851 4,074,028 
Return on Average Assets, annualized0.74 %0.75 %0.59 %0.87 %1.18 %
Return on Average Equity, annualized8.42 %8.47 %6.64 %9.66 %13.65 %
Return on Average Tangible Equity, annualized 2
8.99 %9.05 %7.10 %10.33 %14.62 %
Average Earning Assets4,019,432 3,973,747 3,953,642 3,845,825 3,940,905 
Average Paying Liabilities2,985,717 2,920,518 2,924,743 2,782,299 2,891,092 
Interest Income44,324 42,117 40,013 36,110 35,904 
Tax-Equivalent Adjustment 3
184 183 196 202 279 
Interest Income, Tax-Equivalent 3
44,508 42,300 40,209 36,312 36,183 
Interest Expense18,711 16,764 14,241 8,016 5,325 
Net Interest Income25,613 25,353 25,772 28,094 30,579 
Net Interest Income, Tax-Equivalent 3
25,797 25,536 25,968 28,296 30,858 
Net Interest Margin, annualized2.53 %2.53 %2.61 %2.96 %3.08 %
Net Interest Margin, Tax-Equivalent, annualized 3
2.55 %2.55 %2.63 %2.98 %3.11 %
Efficiency Ratio Calculation: 4
     
Noninterest Expense$23,190 $23,479 $24,083 $22,296 $20,792 
Less: Intangible Asset Amortization43 43 4445 47 
Net Noninterest Expense$23,147 $23,436 $24,039 $22,251 $20,745 
Net Interest Income, Tax-Equivalent$25,797 $25,536 $25,968 $28,296 $30,858 
Noninterest Income7,484 8,050 6,906 6,677 7,165 
Less: Net Gain (Loss) on Securities158 71 (181)(104)48 
Net Gross Income$33,123 $33,515 $33,055 $35,077 $37,975 
Efficiency Ratio69.88 %69.93 %72.72 %63.43 %54.63 %
Period-End Capital Information:     
Total Stockholders’ Equity (i.e. Book Value)$379,772 $360,014 $361,443 $363,371 $353,538 
Book Value per Share 1
22.42 21.12 21.20 21.31 20.74 
Goodwill and Other Intangible Assets, net22,983 23,078 23,175 23,273 23,373 
Tangible Book Value per Share 1,2
21.06 19.76 19.84 19.95 19.37 
 
Capital Ratios:5
    
Tier 1 Leverage Ratio9.84 %9.94 %9.92 %10.13 %9.80 %
Common Equity Tier 1 Capital Ratio
13.00 %13.17 %13.27 %13.34 %13.32 %
Tier 1 Risk-Based Capital Ratio13.66 %13.84 %13.96 %14.03 %14.01 %
Total Risk-Based Capital Ratio14.74 %14.94 %15.08 %15.15 %15.11 %
Assets Under Trust Admin. & Investment Mgmt.$1,763,194 $1,627,522 $1,711,460 $1,672,117 $1,606,132 
8

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 26, 2023, 3% stock dividend.

2.
Non-GAAP Financial Measure Reconciliation: Tangible Book Value, Tangible Equity, and Return on Average 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.
12/31/20239/30/20236/30/20233/31/202312/31/2022
Total Stockholders' Equity (GAAP)$379,772 $360,014 $361,443 $363,371 $353,538 
Less: Goodwill and Other Intangible assets, net22,983 23,078 23,175 23,273 23,373 
Tangible Equity (Non-GAAP)$356,789 $336,936 $338,268 $340,098 $330,165 
Period End Shares Outstanding16,942 17,049 17,050 17,050 17,048 
Tangible Book Value per Share (Non-GAAP)$21.06 $19.76 $19.84 $19.95 $19.37 
Net Income7,723 7,743 6,047 8,562 12,087 
Return on Average Tangible Equity (Net Income/Average Tangible Equity - Annualized)
8.99 %9.05 %7.10 %10.33 %14.62 %
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.
12/31/20239/30/20236/30/20233/31/202312/31/2022
Interest Income (GAAP)$44,324 $42,117 $40,013 $36,110 $35,904 
Add: Tax Equivalent Adjustment (Non-GAAP)184 183 196 202 279 
Interest Income - Tax Equivalent (Non-GAAP)$44,508 $42,300 $40,209 $36,312 $36,183 
Net Interest Income (GAAP)$25,613 $25,353 $25,772 $28,094 $30,579 
Add: Tax-Equivalent adjustment (Non-GAAP)184 183 196 202 279 
Net Interest Income - Tax Equivalent (Non-GAAP)$25,797 $25,536 $25,968 $28,296 $30,858 
Average Earning Assets4,019,432 3,973,747 3,953,642 3,845,825 3,940,905 
Net Interest Margin (Non-GAAP)*2.55 %2.55 %2.63 %2.98 %3.11 %
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, 2023 CET1 ratio listed in the tables (i.e., 13.00%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).
12/31/20239/30/20236/30/20233/31/202312/31/2022
Total Risk Weighted Assets3,032,188 2,988,438 2,937,837 2,909,610 2,883,902 
Common Equity Tier 1 Capital394,166 393,541 389,966 388,228 384,003 
Common Equity Tier 1 Ratio13.00 %13.17 %13.27 %13.34 %13.32 %
 * 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 31:20232022
InterestRateInterestRate
AverageIncome/Earned/AverageIncome/Earned/
BalanceExpensePaidBalanceExpensePaid
Interest-Bearing Deposits at Banks$109,906 $5,831 5.31 %$252,835 3,100 1.23 %
 Investment Securities:
   Fully Taxable622,575 11,764 1.89 %648,540 10,357 1.60 %
   Exempt from Federal Taxes141,966 2,953 2.08 %173,184 3,212 1.85 %
Loans3,074,261 142,016 4.62 %2,827,518 112,982 4.00 %
 Total Earning Assets3,948,708 162,564 4.12 %3,902,077 129,651 3.32 %
Allowance for Credit Losses(30,799)(27,954)
Cash and Due From Banks30,640 30,462 
Other Assets135,970 142,895 
 Total Assets$4,084,519 $4,047,480 
Deposits:
   Interest-Bearing Checking Accounts$855,931 3,663 0.43 %$1,038,751 973 0.09 %
  Savings Deposits1,498,749 34,343 2.29 %1,549,278 7,879 0.51 %
  Time Deposits of $250,000 or More137,974 4,966 3.60 %55,690 369 0.66 %
  Other Time Deposits241,218 7,127 2.95 %132,541 604 0.46 %
    Total Interest-Bearing Deposits2,733,872 50,099 1.83 %2,776,260 9,825 0.35 %
Borrowings144,971 6,756 4.66 %32,874 605 1.84 %
Junior Subordinated Obligations Trusts20,000 686 3.43 %20,000 685 3.43 %
Finance Leases5,082 191 3.76 %5,132 193 3.76 %
  Total Interest-Bearing Liabilities2,903,925 57,732 1.99 %2,834,266 11,308 0.40 %
Demand Deposits772,889 815,218 
Other Liabilities44,924 37,901 
 Total Liabilities3,721,738 3,687,385 
Stockholders’ Equity362,781 360,095 
 Total Liabilities and Stockholders’ Equity$4,084,519 $4,047,480 
Net Interest Income$104,832 118,343 
Net Interest Spread2.13 %2.92 %
Net Interest Margin2.65 %3.03 %


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Arrow Financial Corporation
Consolidated Financial Information
(Dollars in Thousands - Unaudited)
Quarter Ended:12/31/202312/31/2022
Loan Portfolio  
Commercial Loans$156,224 $140,293 
Commercial Real Estate Loans745,487 707,022 
  Subtotal Commercial Loan Portfolio901,711 847,315 
Consumer Loans 1,111,667 1,065,135 
Residential Real Estate Loans1,199,530 1,070,757 
Total Loans$3,212,908 $2,983,207 
Allowance for Credit Losses  
Allowance for Credit Losses, Beginning of Quarter$31,112 $29,232 
Loans Charged-off(1,366)(1,261)
Recoveries of Loans Previously Charged-off994 572 
Net Loans Charged-off(372)(689)
Provision for Credit Losses525 1,409 
Allowance for Credit Losses, End of Quarter$31,265 $29,952 
Nonperforming Assets  
Nonaccrual Loans$20,645 $10,757 
Loans Past Due 90 or More Days and Accruing452 1,157
Loans Restructured and in Compliance with Modified Terms54 69 
Total Nonperforming Loans21,151 11,983 
Repossessed Assets312 593 
Other Real Estate Owned— — 
Total Nonperforming Assets$21,463 $12,576 
Key Asset Quality Ratios  
Net Loans Charged-off to Average Loans, Quarter-to-date
  Annualized		0.05 %0.09 %
Provision for Credit Losses to Average Loans, Quarter-to-date
  Annualized		0.07 %0.19 %
Allowance for Credit Losses to Period-End Loans0.97 %1.00 %
Allowance for Credit Losses to Period-End Nonperforming Loans147.82 %249.95 %
Nonperforming Loans to Period-End Loans0.66 %0.40 %
Nonperforming Assets to Period-End Assets0.51 %0.32 %
Twelve-Month Period Ended:
Allowance for Credit Losses  
Allowance for Credit Losses, Beginning of Year29,952 27,281 
Loans Charged-off(5,177)(4,143)
Recoveries of Loans Previously Charged-off3,109 2,016 
Net Loans Charged-off(2,068)(2,127)
Provision for Credit Losses3,381 4,798 
Allowance for Credit Losses, End of Year$31,265 $29,952 
Key Asset Quality Ratios  
Net Loans Charged-off to Average Loans0.07 %0.08 %
Provision for Credit Losses to Average Loans0.11 %0.17 %
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