EX-99 2 ex99-earningsq32022.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 $12.2 million in Q3 Net Income, Loan Growth of $80 Million in the Quarter

GLENS FALLS, N.Y. (October 27, 2022) – Arrow Financial Corporation (NasdaqGS® – AROW) announced financial results for the three-month period ended September 30, 2022. Net income for the third quarter of 2022 was $12.2 million and diluted earnings per share was $0.74. Loan growth and deposit growth were both strong in the quarter, increasing by $80 million and $249 million, respectively.

Third-Quarter Highlights

Earnings:
•Net income was $12.2 million.
•Net interest margin was 3.14%.
•Return on average assets (ROA) was 1.19%.
•Return on average equity (ROE) was 13.34%.
•Diluted earnings per share (EPS) was $0.74 for the third quarter.
•Net charge-offs for the third quarter of 2022 were $573 thousand as compared to $153 thousand for the comparable 2021 quarter.
•Revenue for third quarter of 2022 was $38.7 million as compared to $36.3 million for the prior-year quarter.

Balance Sheet:
•Total assets were $4.2 billion as of September 30, 2022, a record high.
•Total loans were $2.9 billion as of September 30, 2022, a record high.
•Total deposits were $3.8 billion as of September 30, 2022.
•Loans to deposits ratio as of September 30, 2022 was 77.1%

Additional Items:
•Book value per share was $20.91, down by 4.2% over the prior-year level, primarily as a result of unrealized losses within the available for sale investment portfolio as a result of increasing interest rates.
•Nonperforming assets of $10.0 million at September 30, 2022 represented 0.24% of period-end assets, down from 0.29% at September 30, 2021.

Net income for the third quarter of 2022 was $12.2 million, down slightly from $13.0 million for the prior-year period. The year-over-year decline in third-quarter net income was primarily due to a decrease of $2.4 million in income earned on loans made under the Paycheck Protection Program (PPP) in the third quarter of 2022, compared to the third quarter of 2021, offset by an increase in the provision expense for credit losses to $1.7 million for the third quarter of 2022, as compared to $99 thousand in the third quarter of 2021.

“Arrow had a very strong third quarter, including $80 million of loan growth in the third quarter to reach a record high," said Arrow President and CEO Thomas J. Murphy. "We also completed a conversion of our core banking system in the quarter, which represents a significant investment in technology, operational efficiency and the future of our digital experience. I am proud of our team for continuing to deliver value to our shareholders while advancing our long-term strategic initiatives.”

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In recognition of the team's tremendous dedication and efforts, Arrow awarded a special bonus in the third quarter, similar to special pandemic bonuses awarded in 2021 and 2020 for outstanding performance.

Additionally, subsidiary Glens Falls National Bank and Trust Company announced the consolidation of a smaller Queensbury branch (Aviation Road) into its largest Queensbury branch (Upper Glen Street) as part of our ongoing branch network optimization. The consolidation is expected to become effective in December, and is paired with significant renovations to enhance the Upper Glen Street branch customer experience.

Specific details include:

Income Statement

•Net Interest Income: Net interest income for the third quarter was $30.9 million, up 7.9% from $28.6 million in the comparable quarter of 2021. Interest and fees on loans were $29.6 million for the third quarter of 2022, an increase of 9.1% from $27.2 million for the quarter ending September 30, 2021 due to loan growth and higher market rates. Interest and fees related to PPP loans, included in the $29.6 million total, were $70 thousand in the third quarter of 2022, a decrease of $2.4 million from the third quarter of 2021 resulting from the wind-down of the PPP loan program. In addition, there was an inclusion of $536 thousand to interest income related to an amortization adjustment of indirect loans during the quarter ended September 30, 2022. Interest expense for the third quarter of 2022 was $3.3 million, an increase of $2.1 million, or 182.8%, from $1.2 million in expense for the comparable quarter ending September 30, 2021 due to year-over-year deposit growth and higher deposit rates.

•Net Interest Margin: Net interest margin was 3.14% for the quarter, compared to 3.04% for the third quarter of 2021. The increase in net interest margin was due to a variety of factors including higher market rates impacting asset yields, a reduction in cash balances and a one-time adjustment related to indirect loan fees. Net interest margin, excluding PPP income, increased to 3.14% from 2.84% in the comparable prior-year quarter. The cost of interest-bearing liabilities increased primarily due to the repricing of municipal deposits.

Three Months Ended
September 30, 2022September 30, 2021
Interest and Dividend Income$34,207 $29,807 
Interest Expense3,306 1,169 
Net Interest Income30,901 28,638 
Average Earning Assets(1)
3,902,119 3,734,206 
Average Interest-Bearing Liabilities2,781,985 2,705,283 
Yield on Earning Assets(1)
3.48 %3.17 %
Cost of Interest-Bearing Liabilities0.47 0.17 
Net Interest Spread3.01 3.00 
Net Interest Margin3.14 3.04 
Income Earned on PPP Loans included in Net Interest Income$70 $2,530 
Net Interest Income excluding PPP loans30,831 26,108 
Net Interest Margin excluding PPP loans3.14 %2.84 %
(1) Includes Nonaccrual Loans.


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•Provision for Credit Losses: For the third quarter of 2022, the provision for credit losses was $1.7 million, compared to $99 thousand in provision expense in the prior-year quarter. The key drivers for the increase were strong loan growth and a deterioration in forecasted economic conditions.

•Noninterest Income: Noninterest income for the three months ended September 30, 2022, was $7.8 million, compared to $7.7 million in the comparable 2021 quarter. Income from fiduciary activities for the three months ended September 30, 2022, decreased by $230 thousand over the comparable quarter of 2021, driven by market conditions. Fees and other services to customers increased $105 thousand over the comparable quarter of 2021. Gain on sales of loans decreased $193 thousand from the third quarter of 2021. Other operating income increased $176 thousand from the comparable quarter of 2021 due to a variety of factors, including bank-owned life insurance proceeds.

•Noninterest Expense: Noninterest expense for the third quarter of 2022 was $21.4 million, an increase from $19.4 million for the third quarter of 2021. The largest component of noninterest expense was salaries and benefits paid to our employees, which totaled $12.4 million for the third quarter of 2022. In the third quarter of 2022, $550 thousand relating to additional actuarial pension expense was recognized as a result of exceeding the threshold amount of lump sum distributions during the year. The expense for estimated credit losses on off-balance sheet credit exposures included in other expenses was $30 thousand.

•Provision for Income Taxes: The provision for income taxes was $3.4 million for the third quarter of 2022, compared to $3.8 million for the same quarter of 2021.

Balance Sheet

•Total Assets: Total assets were $4.2 billion at September 30, 2022, an increase of $161.7 million, or 4.0%, compared to September 30, 2021, and an increase of $241.6 million, or 6.1%, compared to June 30, 2022.

•Investments: Total investments were $759.4 million as of September 30, 2022, an increase of $72.2 million, or 10.5%, compared to September 30, 2021, and a decrease of $7.5 million, or 1.0%, compared to June 30, 2022. In 2022, the rising interest rate environment resulted in an increase of unrealized losses versus the comparable prior period.

•Loans: Total loans were $2.9 billion as of September 30, 2022 reaching a record high for Arrow. Loan growth for the third quarter of 2022 was $80.0 million and increased $270.0 million, or 10.2%, from September 30, 2021. In the third quarter, total outstanding commercial loans increased $16.3 million, or 2.0%, driven mostly by commercial real estate loan growth. The consumer loan portfolio grew by $24.5 million, or 2.4%, in the third quarter, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased $39.2 million, or 3.9%, for the third quarter of 2022.

•Allowance for Credit Losses: The allowance for credit losses was $29.2 million on September 30, 2022, which represented 1.00% of loans outstanding, as compared to 1.02% at September 30, 2021. Asset quality remained solid at September 30, 2022. Net loan losses, expressed as an annualized percentage of average loans outstanding, were 0.08% for the three-month period ended September 30, 2022, as compared to 0.07% for the three-month period ended June 30, 2022 and 0.02% for the three-month period ended September 30, 2021. Nonperforming assets of $10.0 million at September 30, 2022, represented 0.24% of period-end assets, compared to 0.29% at September 30, 2021.

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•Deposits: At September 30, 2022, deposit balances were $3.8 billion. Deposits in the third quarter of 2022 increased by $249.4 million from the prior quarter and increased by $189.5 million, or 5.3%, from the prior-year level. Municipal deposits increased $127.3 million in the third quarter and $13.8 million, or 1.4%, from September 30, 2021. Non-municipal deposits increased $122.1 million for the quarter and $175.7 million, or 6.7%, from September 30, 2021. Noninterest-bearing deposits represented 24.0% of total deposits at September 30, 2022, compared to 23.4% of total deposits at September 30, 2021. At September 30, 2022, total time deposits were $186.7 million.

•Capital: Total stockholders’ equity was $345.6 million on September 30, 2022, down $14.6 million, or 4.1%, from September 30, 2021. Accumulated other comprehensive loss was $49.1 million as of September 30, 2022, primarily as a result of unrealized losses within the available-for-sale investment portfolio. Arrow's regulatory capital ratios remained strong in the third quarter of 2022. As of September 30, 2022, Arrow's Common Equity Tier 1 Capital Ratio was 13.14% and Total Risk-Based Capital Ratio was 14.93%. The capital ratios of Arrow and both its subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, continued to exceed the “well capitalized” regulatory standards.

Additional Commentary

•Cash and Stock Dividends: On September 15, 2022, Arrow distributed a cash dividend of $0.27 per share. Additionally, a 3% stock dividend was distributed on September 23, 2022. This is the 14th consecutive year Arrow has declared a stock dividend.

•Industry Recognition: In the third quarter of 2022, both of Arrow's banking subsidiaries once again earned BauerFinancial, Inc. 5-Star Exceptional Performance Bank ratings.

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 Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company. Other subsidiaries include Upstate Agency, LLC and North Country Investment Advisers, Inc.

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). Some 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. These 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 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."




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Safe Harbor Statement

The information in this document may contain statements based on management’s beliefs, assumptions, expectations, estimates and projections about the future. Such "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, as amended, involve a degree of uncertainty and attendant risk. Actual outcomes and results may differ, explicitly or by implication. We are not obliged to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with Arrow’s Annual Report on Form 10-K for the year ended December 31, 2021 and other filings with the SEC.
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ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts - Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
INTEREST AND DIVIDEND INCOME    
Interest and Fees on Loans$29,618 $27,157 $82,263 $79,354 
Interest on Deposits at Banks1,201 163 1,826 351 
Interest and Dividends on Investment Securities: 
Fully Taxable2,603 1,632 7,236 4,809 
Exempt from Federal Taxes785 855 2,422 2,682 
Total Interest and Dividend Income34,207 29,807 93,747 87,196 
INTEREST EXPENSE   
Interest-Bearing Checking Accounts267 155 629 566 
Savings Deposits2,469 424 3,778 1,490 
Time Deposits over $250,00089 39 143 228 
Other Time Deposits150 133 370 511 
Federal Funds Purchased and
  Securities Sold Under Agreements to Repurchase		— — — 3 
Federal Home Loan Bank Advances110 197 405 586 
Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts		173 173 513 513 
Interest on Financing Leases48 48 145 146 
Total Interest Expense3,306 1,169 5,983 4,043 
NET INTEREST INCOME30,901 28,638 87,764 83,153 
Provision for Credit Losses1,715 99 3,389 (286)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES29,186 28,539 84,375 83,439 
NONINTEREST INCOME   
Income From Fiduciary Activities2,341 2,571 7,454 7,538 
Fees for Other Services to Customers3,071 2,966 8,916 8,494 
Insurance Commissions1,650 1,576 4,783 4,842 
Net Gain (Loss) on Securities 95 (106)379 250 
Net Gain on Sales of Loans18 211 80 2,251 
Other Operating Income652 476 2,121 1,405 
Total Noninterest Income7,827 7,694 23,733 24,780 
NONINTEREST EXPENSE   
Salaries and Employee Benefits12,427 11,377 35,400 33,360 
Occupancy Expenses, Net1,521 1,403 4,721 4,480 
Technology and Equipment Expense4,049 3,833 11,802 11,002 
FDIC Assessments295 249 893 764 
Other Operating Expense3,156 2,561 7,922 7,582 
Total Noninterest Expense21,448 19,423 60,738 57,188 
INCOME BEFORE PROVISION FOR INCOME TAXES15,565 16,810 47,370 51,031 
Provision for Income Taxes3,402 3,821 10,658 11,483 
NET INCOME$12,163 $12,989 $36,712 $39,548 
Average Shares Outstanding 1:
    
Basic16,512 16,508 16,506 16,495 
Diluted16,558 16,568 16,553 16,554 
Per Common Share:    
Basic Earnings$0.74 $0.79 $2.22 $2.40 
Diluted Earnings0.74 0.78 2.22 2.39 
1 2021 Share and Per Share Amounts 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)
 September 30,
2022		December 31, 2021September 30,
2021
ASSETS  
Cash and Due From Banks$44,872 $26,978 $49,430 
Interest-Bearing Deposits at Banks328,557 430,718 548,936 
Investment Securities:
Available-for-Sale at Fair Value575,054 559,316 486,900 
Held-to-Maturity (Fair Value of $175,800 at September 30, 2022; $201,292 at December 31, 2021; and $203,936 at September 30, 2021)
182,178 196,566 198,337 
Equity Securities2,126 1,747 1,886 
FHLB and Federal Reserve Bank Stock4,720 5,380 5,380 
Loans2,924,794 2,667,941 2,654,751 
Allowance for Credit Losses(29,232)(27,281)(26,956)
Net Loans2,895,562 2,640,660 2,627,795 
Premises and Equipment, Net54,015 46,217 44,003 
Goodwill21,873 21,873 21,873 
Other Intangible Assets, Net1,604 1,918 2,006 
Other Assets122,217 96,579 84,558 
Total Assets$4,232,778 $4,027,952 $4,071,104 
LIABILITIES  
Noninterest-Bearing Deposits910,221 810,274 841,910 
Interest-Bearing Checking Accounts1,113,850 994,391 1,035,358 
Savings Deposits1,584,373 1,531,287 1,515,692 
Time Deposits over $250,00059,059 82,811 73,889 
Other Time Deposits127,602 131,734 138,714 
Total Deposits3,795,105 3,550,497 3,605,563 
Federal Funds Purchased and
  Securities Sold Under Agreements to Repurchase		— — 2,426 
Federal Home Loan Bank Term Advances25,000 45,000 45,000 
Junior Subordinated Obligations Issued to Unconsolidated
  Subsidiary Trusts		20,000 20,000 20,000 
Finance Leases5,131 5,169 5,181 
Other Liabilities41,992 36,100 32,763 
Total Liabilities3,887,228 3,656,766 3,710,933 
STOCKHOLDERS’ EQUITY
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at September 30, 2022, December 31, 2021 and September 30, 2021
— — — 
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (21,423,992 Shares Issued at September 30, 2022 and 20,800,144 Shares Issued at December 31, 2021 and September 30, 2021)
21,424 20,800 20,800 
Additional Paid-in Capital399,461 377,996 377,349 
Retained Earnings57,778 54,078 47,936 
Accumulated Other Comprehensive (Loss) Income(49,070)347 (3,719)
Treasury Stock, at Cost (4,900,975 Shares at September 30, 2022; 4,759,414 Shares at December 31, 2021 and 4,780,496 Shares at September 30, 2021)
(84,043)(82,035)(82,195)
Total Stockholders’ Equity345,550 371,186 360,171 
Total Liabilities and Stockholders’ Equity$4,232,778 $4,027,952 $4,071,104 
7


Arrow Financial Corporation
Selected Quarterly Information
(Dollars In Thousands, Except Per Share Amounts - Unaudited)
Quarter Ended9/30/20226/30/20223/31/202212/31/20219/30/2021
Net Income$12,163 $11,974 $12,575 $10,309 $12,989 
Transactions in Net Income (Net of Tax):     
Net Changes in Fair Value of Equity Investments70 114 96 (104)(79)
Share and Per Share Data:1
    
Period End Shares Outstanding16,523 16,503 16,493 16,522 16,500 
Basic Average Shares Outstanding16,512 16,494 16,511 16,509 16,508 
Diluted Average Shares Outstanding16,558 16,535 16,566 16,574 16,568 
Basic Earnings Per Share$0.74 $0.72 $0.76 $0.62 $0.79 
Diluted Earnings Per Share0.74 0.72 0.76 0.61 0.78 
Cash Dividend Per Share0.262 0.262 0.262 0.252 0.245 
Selected Quarterly Average Balances:    
  Interest-Bearing Deposits at Banks$209,001 $232,545 $410,644 $551,890 $416,500 
  Investment Securities821,052 822,112 797,347 681,732 675,980 
  Loans2,872,066 2,804,180 2,678,796 2,660,665 2,641,726 
  Deposits3,598,519 3,569,754 3,582,256 3,590,766 3,435,933 
  Other Borrowed Funds50,125 50,140 68,596 70,162 72,187 
  Shareholders' Equity361,675 357,228 370,264 364,409 359,384 
  Total Assets4,047,738 4,012,999 4,054,943 4,060,540 3,902,041 
Return on Average Assets, annualized1.19 %1.20 %1.26 %1.01 %1.32 %
Return on Average Equity, annualized13.34 %13.44 %13.77 %11.22 %14.34 %
Return on Average Tangible Equity, annualized 2
14.27 %14.40 %14.72 %12.01 %15.36 %
Average Earning Assets$3,902,119 $3,858,837 $3,886,787 $3,894,287 $3,734,206 
Average Paying Liabilities2,781,985 2,808,287 2,855,884 2,841,304 2,705,283 
Interest Income34,207 30,593 28,947 28,354 29,807 
Tax-Equivalent Adjustment 3
268 269 270 285 292 
Interest Income, Tax-Equivalent 3
34,475 30,862 29,217 28,639 30,099 
Interest Expense3,306 1,555 1,122 1,152 1,169 
Net Interest Income30,901 29,038 27,825 27,202 28,638 
Net Interest Income, Tax-Equivalent 3
31,169 29,307 28,095 27,487 28,930 
Net Interest Margin, annualized3.14 %3.02 %2.90 %2.77 %3.04 %
Net Interest Margin, Tax-Equivalent, annualized 3
3.17 %3.05 %2.93 %2.80 %3.07 %
Efficiency Ratio Calculation: 4
    
Noninterest Expense$21,448 $20,345 $18,945 $20,860 $19,423 
Less: Intangible Asset Amortization48 48 49 52 51 
Net Noninterest Expense$21,400 $20,297 $18,896 $20,808 $19,372 
Net Interest Income, Tax-Equivalent$31,169 $29,307 $28,095 $27,487 $28,930 
Noninterest Income7,827 7,744 8,162 7,589 7,694 
Less: Net (Loss) Gain on Securities95 154 130 (139)(106)
Net Gross Income$38,901 $36,897 $36,127 $35,215 $36,730 
Efficiency Ratio55.01 %55.01 %52.30 %59.09 %52.74 %
Period-End Capital Information:     
Total Stockholders' Equity (i.e. Book Value)$345,550 $356,498 $357,243 $371,186 $360,171 
Book Value per Share 1
20.91 21.60 21.66 22.47 21.83 
Goodwill and Other Intangible Assets, net23,477 23,583 23,691 23,791 23,879 
Tangible Book Value per Share 1,2
19.49 20.17 20.22 21.03 20.38 
Capital Ratios:5
  
Tier 1 Leverage Ratio9.71 %9.60 %9.37 %9.20 %9.39 %
Common Equity Tier 1 Capital Ratio
13.14 %13.14 %13.48 %13.77 %13.71 %
Tier 1 Risk-Based Capital Ratio13.85 %13.86 %14.23 %14.55 %14.51 %
Total Risk-Based Capital Ratio14.93 %14.93 %15.33 %15.69 %15.66 %
Assets Under Trust Admin. & Investment Mgmt.$1,515,994 $1,589,178 $1,793,747 $1,851,101 $1,778,659 

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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 Measures Reconciliation: Tangible Book Value and 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.
9/30/20226/30/20223/31/202212/31/20219/30/2021
Total Stockholders' Equity (GAAP)$345,550 $356,498 $357,243 $371,186 $360,171 
Less: Goodwill and Other Intangible assets, net23,477 23,583 23,691 23,791 23,879 
Tangible Equity (Non-GAAP)$322,073 $332,915 $333,552 $347,395 $336,292 
Period End Shares Outstanding16,523 16,503 16,493 16,522 16,500 
Tangible Book Value per Share (Non-GAAP)$19.49 $20.17 $20.22 $21.03 $20.38 
Net Income12,163 11,974 12,575 10,309 12,989 
Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized)14.27 %14.40 %14.72 %12.01 %15.36 %
3.Non-GAAP Financial Measures Reconciliation: Net Interest Margin, Tax-Equivalent is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which Arrow believes provides investors with information that is useful in understanding its financial performance.
9/30/20226/30/20223/31/202212/31/20219/30/2021
Interest Income (GAAP)$34,207 $30,593 $28,947 $28,354 $29,807 
Add: Tax-Equivalent adjustment
     (Non-GAAP)		268 269 270 285 292 
Interest Income - Tax Equivalent
     (Non-GAAP)		$34,475 $30,862 $29,217 $28,639 $30,099 
Net Interest Income (GAAP)$30,901 $29,038 $27,825 $27,202 $28,638 
Add: Tax-Equivalent adjustment
     (Non-GAAP)		268 269 270 285 292 
Net Interest Income - Tax Equivalent
     (Non-GAAP)		$31,169 $29,307 $28,095 $27,487 $28,930 
Average Earning Assets$3,902,119 $3,858,837 $3,886,787 $3,894,287 $3,734,206 
Net Interest Margin (Non-GAAP)*3.17 %3.05 %2.93 %2.80 %3.07 %
4.Non-GAAP Financial Measures: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. Arrow believes the efficiency ratio provides investors with information that is useful in understanding its financial performance. Arrow defines efficiency ratio as the ratio of noninterest expense to net gross income (which equals 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 CET1 ratio at September 30, 2022 listed in the tables (i.e., 13.14%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).
9/30/20226/30/20223/31/202212/31/20219/30/2021
Total Risk Weighted Assets$2,856,224 $2,790,520 $2,661,952 $2,552,812 $2,511,910 
Common Equity Tier 1 Capital375,394 366,798 358,738 351,497 344,507 
Common Equity Tier 1 Ratio13.14 %13.14 %13.48 %13.77 %13.71 %
* 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)

Quarter Ended September 30:20222021
InterestRateInterestRate
AverageIncome/Earned/AverageIncome/Earned/
BalanceExpensePaidBalanceExpensePaid
Interest-Bearing Deposits at Banks$209,001 $1,201 2.28 %$416,500 $163 0.16 %
Investment Securities:
Fully Taxable651,899 2,603 1.58 494,869 1,632 1.31 
Exempt from Federal Taxes169,153 785 1.84 181,111 855 1.87 
Loans2,872,066 29,618 4.09 2,641,726 27,157 4.08 
Total Earning Assets3,902,119 34,207 3.48 3,734,206 29,807 3.17 
Allowance for Credit Losses(28,006)(27,040)
Cash and Due From Banks32,475 38,036 
Other Assets141,150 156,839 
Total Assets$4,047,738 $3,902,041 
Deposits:
Interest-Bearing Checking Accounts$996,116 267 0.11 $923,002 155 0.07 
Savings Deposits1,549,451 2,469 0.63 1,496,938 424 0.11 
Time Deposits of $250,000 or More49,459 89 0.71 71,435 39 0.22 
Other Time Deposits136,834 150 0.43 141,721 133 0.37 
Total Interest-Bearing Deposits2,731,860 2,975 0.43 2,633,096 751 0.11 
Short-Term Borrowings— — 2,012 — — 
FHLBNY Term Advances & Other Long-Term Debt45,000 283 2.50 65,000 370 2.26 
Finance Leases5,125 48 3.72 5,175 48 3.68 
Total Interest-Bearing Liabilities2,781,985 3,306 0.47 2,705,283 1,169 0.17 
Noninterest-bearing deposits866,659 802,837 
Other Liabilities37,419 34,537 
Total Liabilities3,686,063 3,542,657 
Stockholders’ Equity361,675 359,384 
Total Liabilities and Stockholders’ Equity$4,047,738 $3,902,041 
Net Interest Income$30,901 $28,638 
Net Interest Spread3.01 %3.00 %
Net Interest Margin3.14 %3.04 %

10


Arrow Financial Corporation
Consolidated Financial Information
(Dollars in Thousands - Unaudited)
Quarter Ended:9/30/202212/31/20219/30/2021
Loan Portfolio  
Commercial Loans$138,973 $172,518 $188,191 
Commercial Real Estate Loans679,217 628,929 615,080 
  Subtotal Commercial Loan Portfolio818,190 801,447 803,271 
Consumer Loans1,055,585 920,556 921,189 
Residential Real Estate Loans1,051,019 945,938 930,291 
Total Loans$2,924,794 $2,667,941 $2,654,751 
Allowance for Credit Losses   
Allowance for Credit Losses, Beginning of Quarter$28,090 $26,956 $27,010 
Loans Charged-off(1,147)(719)(444)
Less Recoveries of Loans Previously Charged-off574 486 291 
Net Loans Charged-off(573)(233)(153)
Provision for Credit Losses1,715 558 99 
Allowance for Credit Losses, End of Quarter$29,232 $27,281 $26,956 
Nonperforming Assets   
Nonaccrual Loans$8,812 $10,764 $10,723 
Loans Past Due 90 or More Days and Accruing514 823 555 
Loans Restructured and in Compliance with Modified Terms82 77 67 
Total Nonperforming Loans9,408 11,664 11,345 
Repossessed Assets604 126 272 
Other Real Estate Owned— — 79 
Total Nonperforming Assets$10,012 $11,790 $11,696 
Key Asset Quality Ratios   
Net Loans Charged-off to Average Loans,
   Quarter-to-date Annualized		0.08 %0.03 %0.02 %
Provision for Credit Losses to Average Loans,
  Quarter-to-date Annualized		0.24 %0.08 %0.01 %
Allowance for Credit Losses to Period-End Loans1.00 %1.02 %1.02 %
Allowance for Credit Losses to Period-End Nonperforming Loans310.71 %233.89 %237.60 %
Nonperforming Loans to Period-End Loans0.32 %0.44 %0.43 %
Nonperforming Assets to Period-End Assets0.24 %0.29 %0.29 %
Nine Month Period Ended:
Allowance for Loan Losses  
Allowance for Loan Losses, Beginning of Year$27,281 $29,232 
Impact of the Adoption of ASU 2016-13— (1,300)
Loans Charged-off(2,883)(1,520)
Less Recoveries of Loans Previously Charged-off1,445 830 
Net Loans Charged-off(1,438)(690)
Provision for Loan Losses3,389 (286)
Allowance for Loan Losses, End of Period$29,232 $26,956 
Key Asset Quality Ratios  
Net Loans Charged-off to Average Loans, Annualized0.07 %0.03 %
Provision for Loan Losses to Average Loans, Annualized0.16 %(0.01)%
11