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

About this update from Arrow Financial Corporation

GLENS FALLS, N.Y. , Jan. 30, 2023 /PRNewswire/ -- 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. 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, 2022 December 31, 2021 Interest and Dividend Income $ 129,651 $ 115,550 Interest Expense 11,308 5,195 Net Interest Income 118,343 110,355 Average Earning Assets(1) 3,902,077 3,716,856 Average Interest-Bearing Liabilities 2,834,266 2,727,441 Yield on Earning Assets(1) 3.32 % 3.11 % Cost of Interest-Bearing Liabilities 0.40 0.19 Net Interest Spread 2.92 2.92 Net Interest Margin 3.03 2.97 Income Earned on PPP Loans included in Net Interest Income $ 1,589 $ 7,811 Net Interest Income excluding PPP loans 116,754 102,544 Net Interest Margin excluding PPP loans 3.00 % 2.84 % (1) Includes Nonaccrual Loans. 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 . 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" 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 . ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts - Unaudited) Three Months Ended Twelve Months Ended December 31 , December 31 , 2022 2021 2022 2021 INTEREST AND DIVIDEND INCOME Interest and Fees on Loans $ 30,719 $ 25,631 $ 112,982 $ 104,985 Interest on Deposits at Banks 1,274 214 3,100 565 Interest and Dividends on Investment Securities : Fully Taxable 3,121 1,678 10,357 6,487 Exempt from Federal Taxes 790 831 3,212 3,513 Total Interest and Dividend Income 35,904 28,354 129,651 115,550 INTEREST EXPENSE Interest-Bearing Checking Accounts 344 165 973 731 Savings Deposits 4,101 412 7,879 1,904 Time Deposits over $250,000 226 33 369 261 Other Time Deposits 234 123 604 632 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase — — — 3 Federal Home Loan Bank Advances 200 197 605 783 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 172 173 685 686 Interest on Financing Leases 48 49 193 195 Total Interest Expense 5,325 1,152 11,308 5,195 NET INTEREST INCOME 30,579 27,202 118,343 110,355 Provision for Credit Losses 1,409 558 4,798 272 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 29,170 26,644 113,545 110,083 NONINTEREST INCOME Income From Fiduciary Activities 2,257 2,604 9,711 10,142 Fees for Other Services to Customers 2,710 2,968 11,626 11,462 Insurance Commissions 1,680 1,645 6,463 6,487 Net Gain (Loss) on Securities 48 (139) 427 111 Net Gain on Sales of Loans 3 142 83 2,393 Other Operating Income 467 369 2,588 1,774 Total Noninterest Income 7,165 7,589 30,898 32,369 NONINTEREST EXPENSE Salaries and Employee Benefits 11,603 11,438 47,003 44,798 Occupancy Expenses, Net 1,481 1,334 6,202 5,814 Technology and Equipment Expense 4,316 3,868 16,118 14,870 FDIC Assessments 283 278 1,176 1,042 Other Operating Expense 3,109 3,942 11,031 11,524 Total Noninterest Expense 20,792 20,860 81,530 78,048 INCOME BEFORE PROVISION FOR INCOME TAXES 15,543 13,373 62,913 64,404 Provision for Income Taxes 3,456 3,064 14,114 14,547 NET INCOME $ 12,087 $ 10,309 $ 48,799 $ 49,857 Average Shares Outstanding1: Basic 16,535 16,509 16,513 16,499 Diluted 16,589 16,574 16,562 16,555 Per Common Share: Basic Earnings $ 0.73 $ 0.62 $ 2.95 $ 3.02 Diluted Earnings 0.73 0.62 2.95 3.01 1 Share and per share data have been restated for the September 23, 2022 , 3% stock dividend. ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts - Unaudited) December 31, 2022 December 31, 2021 ASSETS Cash and Due From Banks $ 31,886 $ 26,978 Interest-Bearing Deposits at Banks 32,774 430,718 Investment Securities : Available-for-Sale 573,495 559,316 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 Securities 2,174 1,747 Other Investments 6,064 5,380 Loans 2,983,207 2,667,941 Allowance for Credit Losses (29,952) (27,281) Net Loans 2,953,255 2,640,660 Premises and Equipment, Net 56,491 46,217 Goodwill 21,873 21,873 Other Intangible Assets, Net 1,500 1,918 Other Assets 114,633 96,579 Total Assets $ 3,969,509 $ 4,027,952 LIABILITIES Noninterest-Bearing Deposits $ 836,871 $ 810,274 Interest-Bearing Checking Accounts 997,694 994,391 Savings Deposits 1,454,364 1,531,287 Time Deposits over $250,000 76,224 82,811 Other Time Deposits 133,211 131,734 Total Deposits 3,498,364 3,550,497 Federal Home Loan Bank Overnight Advances 27,000 — Federal Home Loan Bank Term Advances 27,800 45,000 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 20,000 Finance Leases 5,119 5,169 Other Liabilities 37,688 36,100 Total Liabilities 3,615,971 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 Capital 400,270 377,996 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' Equity 353,538 371,186 Total Liabilities and Stockholders' Equity $ 3,969,509 $ 4,027,952 Arrow Financial Corporation Selected Quarterly Information (Dollars In Thousands, Except Per Share Amounts - Unaudited) Quarter Ended 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 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 Investments 35 70 114 96 (104) Share and Per Share Data:1 Period End Shares Outstanding 16,552 16,523 16,503 16,493 16,522 Basic Average Shares Outstanding 16,535 16,512 16,494 16,511 16,509 Diluted Average Shares Outstanding 16,589 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 Share 0.73 0.74 0.72 0.76 0.62 Cash Dividend Per Share 0.270 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 Securities 845,859 821,052 822,112 797,347 681,732 Loans 2,951,547 2,872,066 2,804,180 2,678,796 2,660,665 Deposits 3,614,945 3,598,519 3,569,754 3,582,256 3,590,766 Other Borrowed Funds 63,304 50,125 50,140 68,596 70,162 Shareholders' Equity 351,402 361,675 357,228 370,264 364,409 Total Assets 4,074,028 4,047,738 4,012,999 4,054,943 4,060,540 Return on Average Assets, annualized 1.18 % 1.19 % 1.20 % 1.26 % 1.01 % Return on Average Equity, annualized 13.65 % 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 Assets 3,940,905 3,902,119 3,858,837 3,886,787 3,894,287 Average Paying Liabilities 2,891,092 2,781,985 2,808,287 2,855,884 2,841,304 Interest Income 35,904 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 Expense 5,325 3,306 1,555 1,122 1,152 Net Interest Income 30,579 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, annualized 3.08 % 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 Amortization 47 48 48 49 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 Income 7,165 7,827 7,744 8,162 7,589 Less: Net Gain (Loss) on Securities 48 95 154 130 (139) Net Gross Income $ 37,975 $ 38,901 $ 36,897 $ 36,127 $ 35,215 Efficiency Ratio 54.63 % 55.01 % 55.01 % 52.30 % 59.09 % Period-End Capital Information: Total Stockholders' Equity (i.e. Book Value) $ 353,538 $ 345,550 $ 56,498 $ 357,243 $ 71,186 Book Value per Share 1 21.36 20.91 21.60 21.66 22.47 Goodwill and Other Intangible Assets, net 23,373 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 Ratio 9.80 % 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 Ratio 14.01 % 13.85 % 13.86 % 14.23 % 14.55 % Total Risk-Based Capital Ratio 15.11 % 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 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. 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Total Stockholders' Equity (GAAP) $ 353,538 $ 345,550 $ 356,498 $ 357,243 $ 371,186 Less: Goodwill and Other Intangible assets, net 23,373 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 Outstanding 16,552 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 Income 12,087 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. 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 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 Assets 3,940,905 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%). 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Total Risk Weighted Assets 2,883,902 2,856,224 2,790,520 2,661,952 2,552,812 Common Equity Tier 1 Capital 384,003 375,394 366,798 358,738 351,497 Common Equity Tier 1 Ratio 13.32 % 13.14 % 13.14 % 13.48 % 13.77 % * Quarterly ratios have been annualized Arrow Financial Corporation Average Consolidated Balance Sheets and Net Interest Income Analysis (Dollars in Thousands - Unaudited) Years Ended December 31 : 2022 2021 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest-Bearing Deposits at Banks $ 252,835 $ 3,100 1.23 % $ 418,488 565 0.14 % Investment Securities: Fully Taxable 648,540 10,357 1.60 % 470,133 6,487 1.38 % Exempt from Federal Taxes 173,184 3,212 1.85 % 185,072 3,513 1.90 % Loans 2,827,518 112,982 4.00 % 2,643,163 104,985 3.97 % Total Earning Assets 3,902,077 129,651 3.32 % 3,716,856 115,550 3.11 % Allowance for Credit Losses (27,954) (27,187) Cash and Due From Banks 30,462 36,464 Other Assets 142,895 156,509 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 Deposits 1,549,278 7,879 0.51 % 1,496,906 1,904 0.13 % Time Deposits of $250,000 or More 55,690 369 0.66 % 87,033 261 0.30 % Other Time Deposits 132,541 604 0.46 % 141,677 632 0.45 % Total Interest-Bearing Deposits 2,776,260 9,825 0.35 % 2,652,491 3,528 0.13 % Short-Term Borrowings 2,124 92 4.33 % 4,768 3 0.06 % FHLBNY Term Advances and Other Long-Term Debt 50,750 1,198 2.36 % 65,000 1,469 2.26 % Finance Leases 5,132 193 3.76 % 5,182 195 3.76 % Total Interest-Bearing Liabilities 2,834,266 11,308 0.40 % 2,727,441 5,195 0.19 % Demand Deposits 815,218 767,671 Other Liabilities 37,901 33,773 Total Liabilities 3,687,385 3,528,885 Stockholders' Equity 360,095 353,757 Total Liabilities and Stockholders' Equity $ 4,047,480 $ 3,882,642 Net Interest Income $ 118,343 $ 110,355 Net Interest Spread 2.92 % 2.92 % Net Interest Margin 3.03 % 2.97 % Arrow Financial Corporation Consolidated Financial Information (Dollars in Thousands - Unaudited) Quarter Ended: 12/31/2022 12/31/2021 Loan Portfolio Commercial Loans $ 140,293 $ 172,518 Commercial Real Estate Loans 707,022 628,929 Subtotal Commercial Loan Portfolio 847,315 801,447 Consumer Loans 1,065,135 920,556 Residential Real Estate Loans 1,070,757 945,938 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-off 572 486 Net Loans Charged-off (689) (233) Provision for Credit Losses 1,409 558 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 Accruing 1,157 823 Loans Restructured and in Compliance with Modified Terms 69 77 Total Nonperforming Loans 11,983 11,664 Repossessed Assets 593 126 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 Loans 1.00 % 1.02 % Allowance for Credit Losses to Period-End Nonperforming Loans 249.95 % 233.89 % Nonperforming Loans to Period-End Loans 0.40 % 0.44 % Nonperforming Assets to Period-End Assets 0.32 % 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-off 2,016 1,316 Net Loans Charged-off (2,127) (923) Provision for Credit Losses 4,798 272 Allowance for Credit Losses, End of Year $ 29,952 $ 27,281 Key Asset Quality Ratios Net Loans Charged-off to Average Loans 0.08 % 0.03 % Provision for Credit Losses to Average Loans 0.17 % 0.01 % View original content: https://www.prnewswire.com/news-releases/arrow-reports-48-8-million-in-net-income-record-loan-growth-of-315-million-in-2022--301733332.html SOURCE Arrow Financial Corporation

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