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What changed in ARROW FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ARROW FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+307 added−330 removedSource: 10-K (2024-03-11) vs 10-K (2023-07-18)

Top changes in ARROW FINANCIAL CORP's 2023 10-K

307 paragraphs added · 330 removed · 235 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

53 edited+26 added−40 removed183 unchanged
Biggest changeSome of the steps we have taken to help promote environmentally responsible corporate citizenship include: • Expanded our philanthropic support of environmental sustainability in our community, including organizations that impact soil and water conservation, land conservation, sustainable farming, mountain and lake protection and stewardship, and parks and recreation • Incorporated energy-saving features into the renovation of our branches, such as interior and exterior LED lighting and energy-efficient plumbing in 40% of our branch network • Incorporated the above environmentally friendly attributes into our Glens Falls, New York, headquarters renovation, which includes approximately 76,000 square feet of office space; motion-activated lighting; significant improvements to exterior wall and roof insulation; new HVAC systems with higher efficiency which meet modern fresh-air and ventilation requirements; energy-efficient windows and entry doors; low-VOC materials; a separate tie-in to the city stormwater and sewer system to bypass the municipal treatment of rainwater collected off the building; and green plantings on a portion of the roof • Installed solar panels at part of our corporate headquarters, to support the main campus with approximately 3,000 square feet of green energy • Installed electric vehicle charging stations at our SNB Main Office, with utilization offered at no charge to customers • Reduced emissions via remote work and video conferencing for large segments of employees • Provided and encouraged digital banking options and paperless statements Socially, Arrow is proud of its many contributions to its employees, customers and communities, including providing professional development and holistic support of its team, giving back to its communities in dollars and volunteer hours, and meeting financial needs of the low- to moderate-income population.
Biggest changeCustomers • Included energy-saving features into the renovation of our branches, such as interior and exterior LED lighting and energy-efficient plumbing in 60 percent of our branch network • Incorporated the above environmentally friendly attributes into our Glens Falls, New York, headquarters renovation, which includes approximately 76,000 square feet of office space; motion-activated lighting; significant improvements to exterior wall and roof insulation; new HVAC systems with higher efficiency, which meet modern fresh-air and ventilation requirements; energy-efficient windows and entry doors; low-VOC materials; a separate tie-in to the city stormwater and sewer system to bypass the municipal treatment of rainwater collected off the building; and green plantings on a portion of the roof • Installed solar panels at 20 South Street, part of our corporate headquarters, to support the main campus with approximately 3,000 square feet of green energy • Reduced emissions via remote work and video conferencing for large segments of employees • Provided and encouraged digital banking options and paperless statements • Installed electric vehicle charging stations at our SNB Main Office • Lending program to facilitate first-time home ownership • Bank On-certified checking product for the unbanked or underbanked population with no overdraft fees • Partnership with numerous organizations to meet the financial needs of the low- to moderate-income population • Educated and empowered our customers to prevent, detect and report fraud on their accounts with us • Introduced easy-to-use fraud prevention digital services for businesses to monitor and approve activity on their accounts Communities • Maintained our philanthropic support of environmental sustainability in our community, including organizations that impact soil and water conservation, land conservation, sustainable farming, mountain and lake protection and stewardship, and parks and recreation • Donated nearly $3 million in giving in the last five years and more than 31,000 hours served in the last four years • More than $781,000, including more than $103,000 from employee donations directly and nearly 11,200 hours donated to our communities in 2023, a 19 percent increase over 2022, in support of arts and culture, child care, economic and workforce development, emergency assistance, food security, financial literacy, mental and physical health, safe and affordable housing, transportation and more • Prioritization of donations to organizations that make it their mission to provide affordable homeownership, environmental or sustainable activities and programming, economic empowerment, health and human services and social progress • CRA rating of “Satisfactory” for meeting the credit needs of our communities and a CRA rating of “Outstanding” for community development 13 Arrow believes that strong corporate governance is the foundation to delivering on our commitments to stakeholders.
From time to time, a portion of the Arrow's residential real estate loan originations are sold into the secondary market, primarily to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and other governmental agencies.
From time to time, a portion of Arrow's residential real estate loan originations are sold into the secondary market, primarily to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and other governmental agencies.
Limits were imposed for debit card interchange fees for issuers that have assets greater than $10 billion, which also could affect the amount of interchange fees collected by financial institutions with less than $10 billion in assets.
Limits were imposed for debit card 10 interchange fees for issuers that have assets greater than $10 billion, which also could affect the amount of interchange fees collected by financial institutions with less than $10 billion in assets.
Any breach of Arrow's system security could result in disruption of its operations, unauthorized access to confidential customer information, significant regulatory costs, litigation exposure and other possible damages, loss or liability. Such costs or losses could exceed the amount of available insurance coverage, if any, and would adversely affect Arrow's earnings.
Any breach of Arrow's system security could result in disruption of its operations, unauthorized access to confidential customer information, significant regulatory costs, litigation exposure and other possible damages, loss or liability. Such costs or losses could exceed the amount of available insurance coverage, if any, and 17 would adversely affect Arrow's earnings.
Dodd-Frank also imposed new requirements related to mortgage lending, including prohibitions against payment of steering incentives and provisions relating to underwriting standards, 9 disclosures, appraisals and escrows. The Volcker Rule prohibited banks and their affiliates from engaging in proprietary trading and investing in certain unregistered investment companies.
Dodd-Frank also imposed new requirements related to mortgage lending, including prohibitions against payment of steering incentives and provisions relating to underwriting standards, disclosures, appraisals and escrows. The Volcker Rule prohibited banks and their affiliates from engaging in proprietary trading and investing in certain unregistered investment companies.
Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans and leases, identification of additional problem loans and other factors, both within and outside of Arrow's control. Additions to the allowance could have a negative impact on Arrow's results of operations.
Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans and leases, identification of 18 additional problem loans and other factors, both within and outside of Arrow's control. Additions to the allowance could have a negative impact on Arrow's results of operations.
Furthermore, under the FRA, a bank may engage in certain transactions, including loans and purchases of assets, with a non-bank affiliate, only if certain special conditions, including collateral requirements for loans, are met and if the other terms and conditions of the transaction, including interest rates and credit standards, are substantially the same as, or at least as favorable to the bank as, those prevailing at the time for comparable transactions by the bank with non-affiliated companies or, in the absence of comparable transactions, on terms and conditions that would be offered by the bank to non-affiliated companies. 6 Regulatory Capital Standards An important area of banking regulation is the federal banking system's promulgation and enforcement of minimum capitalization standards for banks and bank holding companies.
Furthermore, under the FRA, a bank may engage in certain transactions, including loans and purchases of assets, with a non-bank affiliate, only if certain special conditions, including collateral requirements for loans, are met and if the other terms and conditions of the transaction, including interest rates and credit standards, are substantially the same as, or at least as favorable to the bank as, those prevailing at the time for comparable transactions by the bank with non-affiliated companies or, in the absence of comparable transactions, on terms and conditions that would be offered by the bank to non-affiliated companies. 7 Regulatory Capital Standards An important area of banking regulation is the federal banking system's promulgation and enforcement of minimum capitalization standards for banks and bank holding companies.
In the ordinary course of business, Arrow 15 relies on electronic communications and information systems to conduct its operations and to store sensitive data. Arrow employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls.
In the ordinary course of business, Arrow relies on electronic communications and information systems to conduct its operations and to store sensitive data. Arrow employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of 8 cyber-attack.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.
In addition, over $350 billion has been allocated to state, local and tribal governments to bridge budget shortfalls. Other Legislative Initiatives From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory authorities.
In addition, over $350 billion has been allocated to state, local and tribal governments to bridge budget shortfalls. 11 Other Legislative Initiatives From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory authorities.
With the increased frequency and magnitude of cybersecurity incidents, the SEC stated that it is critical that public companies take all required actions to inform investors about material cybersecurity risks and incidents in a timely fashion.
With the increased frequency and magnitude of cybersecurity incidents, the SEC stated that it is critical that public companies take all required 9 actions to inform investors about material cybersecurity risks and incidents in a timely fashion.
The following table presents the Capital Rules applicable to Arrow and its subsidiary banks: Year, as of January 1 2022 Minimum CET1 Ratio 4.500 % Capital Conservation Buffer ("Buffer") 2.500 % Minimum CET1 Ratio Plus Buffer 7.000 % Minimum Tier 1 Risk-Based Capital Ratio 6.000 % Minimum Tier 1 Risk-Based Capital Ratio Plus Buffer 8.500 % Minimum Total Risk-Based Capital Ratio 8.000 % Minimum Total Risk-Based Capital Ratio Plus Buffer 10.500 % Minimum Leverage Ratio 4.000 % At December 31, 2022, Arrow and its two subsidiary banks exceeded, by a substantial amount, each of the applicable minimum capital ratios established under the revised Capital Rules, including the minimum CET1 Ratio, the minimum Tier 1 Risk-Based Capital Ratio, the minimum Total Risk-Based Capital Ratio, and the minimum Leverage Ratio, and including in the case of each risk-based ratio, the phased-in portion of the capital buffer.
The following table presents the Capital Rules applicable to Arrow and its subsidiary banks: Year, as of January 1 2023 Minimum CET1 Ratio 4.500 % Capital Conservation Buffer ("Buffer") 2.500 % Minimum CET1 Ratio Plus Buffer 7.000 % Minimum Tier 1 Risk-Based Capital Ratio 6.000 % Minimum Tier 1 Risk-Based Capital Ratio Plus Buffer 8.500 % Minimum Total Risk-Based Capital Ratio 8.000 % Minimum Total Risk-Based Capital Ratio Plus Buffer 10.500 % Minimum Leverage Ratio 4.000 % At December 31, 2023, Arrow and its two subsidiary banks exceeded, by a substantial amount, each of the applicable minimum capital ratios established under the revised Capital Rules, including the minimum CET1 Ratio, the minimum Tier 1 Risk-Based Capital Ratio, the minimum Total Risk-Based Capital Ratio, and the minimum Leverage Ratio, and including in the case of each risk-based ratio, the phased-in portion of the capital buffer.
Additional Tier 1 Capital: Equals the sum of noncumulative perpetual preferred stock, tier 1 minority interests, grandfathered TRUPs, and Troubled Asset Relief Program instruments, minus applicable regulatory adjustments and deductions. 7 Tier 2 Capital: Equals the sum of subordinated debt and preferred stock, total capital minority interests not included in Tier 1, and allowance for loan and lease losses (not exceeding 1.25% of risk-weighted assets) minus applicable regulatory adjustments and deductions.
Additional Tier 1 Capital: Equals the sum of noncumulative perpetual preferred stock, tier 1 minority interests, grandfathered TRUPs, and Troubled Asset Relief Program instruments, minus applicable regulatory adjustments and deductions. 8 Tier 2 Capital: Equals the sum of subordinated debt and preferred stock, total capital minority interests not included in Tier 1, and allowance for loan and lease losses (not exceeding 1.25% of risk-weighted assets) minus applicable regulatory adjustments and deductions.
See Note 20, Regulatory Matters , to the Consolidated Financial Statements for a presentation of Arrow's period-end ratios for 2022 and 2021. Regulatory Capital Classifications. Under applicable banking law, federal banking regulators are required to take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements.
See Note 20, Regulatory Matters , to the Consolidated Financial Statements for a presentation of Arrow's period-end ratios for 2023 and 2022. Regulatory Capital Classifications. Under applicable banking law, federal banking regulators are required to take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements.
The Company has adopted a financial code of ethics that applies to Arrow’s chief executive officer, chief financial officer and principal accounting officer and a business code of ethics that applies to all directors, officers and employees of the holding company and its subsidiaries. Both of these can be found at: https://www.arrowfinancial.com/Corporate/Governance. 13 Item 1A .
The Company has adopted a financial code of ethics that applies to Arrow’s chief executive officer, chief financial officer and principal accounting officer and a business code of ethics that applies to all directors, officers and employees of the holding company and its subsidiaries. Both of these can be found at: https://www.arrowfinancial.com/Corporate/Governance. 15 Item 1A .
Potential complications with the implementation of our new core banking system could adversely impact our business and operations . Arrow relies extensively on information systems and technology to manage the Company's business and summarize operating results. During September 2022, Arrow completed the implementation of a new core banking system which replaced the prior system.
Potential continuing complications with the implementation of our core banking system in September 2022 could adversely impact our business and operations . Arrow relies extensively on information systems and technology to manage the Company's business and summarize operating results. During September 2022, Arrow completed the implementation of a new core banking system which replaced the prior system.
As rates continue to rise, the value of our investment securities, particularly those with longer maturities, would likely decrease (although this effect may be mitigated for floating rate instruments). Further, inflation increases the cost of operational expenses which increases our noninterest expenses.
Should rates continue to rise, the value of our investment securities, particularly those with longer maturities, would likely decrease (although this effect may be mitigated for floating rate instruments). Further, inflation increases the cost of operational expenses which increases our noninterest expenses.
Commercial and commercial real estate loans are evaluated on a loan-by-loan basis and are placed on nonaccrual status when 90 days past due if the full collection of principal and interest is uncertain (See Part II, Item 7.C.II.c.
Commercial and commercial real estate loans are evaluated on a loan-by-loan basis and are placed on nonaccrual status when 90 days past due if the full collection of principal and interest is uncertain (See Part II, Item 7.C.II.c. "Risk Elements").
The Capital Rules which remain applicable to Arrow consist of two basic types of capital measures, a leverage ratio and a set of risk-based capital measures. Within these two broad types of rules, however, significant changes were made in the revised Capital Rules, as discussed as follows. Leverage Ratio .
The Capital Rules which remain applicable to Arrow consist of two basic types of capital measures, a leverage ratio and a set of risk-based capital measures. Within these two broad types of rules, however, significant changes were made in the revised Capital Rules, as discussed below. Leverage Ratio .
An active indirect lending program is maintained through Arrow's sponsorship of automobile dealer programs under which consumer auto loans, primarily from dealers that meet pre-established specifications are purchased.
An active indirect lending program is maintained through Arrow's sponsorship of automobile dealer programs under which consumer auto loans, primarily from dealers that meet pre-established specifications are sourced.
As a community bank, Arrow is less able than larger regional competitors to spread the risk of unfavorable local economic conditions over a larger market area. Further, if the overall U.S. economy deteriorates, then Arrow's business, results of operations, financial condition and prospects could be adversely affected.
Arrow is less able than larger regional competitors to spread the risk of unfavorable local economic conditions over a larger market area. Further, if the overall U.S. economy deteriorates, then Arrow's business, results of operations, financial condition and prospects could be adversely affected.
The Company targets lending activities to consumers and small- and mid-sized companies in Arrow's regional geographic area. In addition, through an indirect lending program Arrow acquires consumer loans from an extensive network of automobile dealers that operate in New York and Vermont.
The Company targets lending activities to consumers and small- and mid-sized companies in Arrow's regional geographic area. In addition, through an indirect lending program Arrow sources consumer loans from an extensive network of automobile dealers that operate in upstate New York and Vermont.
Arrow has taken steps to mitigate the risk of harm to its employees and customers and to its operations from the COVID-19 pandemic or other events through its business continuity plan. There are a number of uncertainties related to the potential effects of a pandemic that may not be able to be addressed by this effort.
Arrow has taken steps to mitigate the risk of harm to its employees and customers and to its operations from health emergencies, such as the COVID-19 pandemic, or other events through its business continuity plan. There are a number of uncertainties related to the potential effects of a pandemic that may not be able to be addressed by this effort.
The American Rescue Plan Act of 2021 On March 11, 2021, the American Rescue Plan Act of 2021 ("American Rescue Plan") was signed into law to speed up the recovery from the economic and health effects of the COVID-19 pandemic and the ongoing recession.
RECENT LEGISLATIVE DEVELOPMENTS The American Rescue Plan Act of 2021 On March 11, 2021, the American Rescue Plan Act of 2021 ("American Rescue Plan") was signed into law to speed up the recovery from the economic and health effects of the COVID-19 pandemic and the ongoing recession.
COVID-19 or other health emergencies may adversely affect Arrow’s business activities, financial condition and results of operations. The business of Arrow and its subsidiary banks depends on the willingness and ability of its customers to conduct financial transactions. COVID-19 or other health emergencies could disrupt the business, activities, and operations of Arrow’s customers, as well as Arrow's business and operations.
Pandemic or other health emergencies may adversely affect Arrow’s business activities, financial condition and results of operations. The business of Arrow and its subsidiary banks depends on the willingness and ability of its customers to conduct financial transactions. Pandemics or other health emergencies could disrupt the business, activities, and operations of Arrow’s customers, as well as Arrow's business and operations.
MACROECONOMIC AND INDUSTRY RISKS Market conditions could present significant challenges to the U.S. commercial banking industry and its core business of making and servicing loans and any substantial downturn in the regional markets in which Arrow operates or in the U.S. economy generally could adversely affect Arrow's ability to maintain steady growth in the loan portfolio and earnings.
MACROECONOMIC AND INDUSTRY RISKS Market conditions could present significant challenges to the U.S. commercial banking industry and its core business of making and servicing loans. Any substantial downturn in the regional markets in which Arrow operates or in the U.S. economy generally could adversely affect Arrow's ability to maintain and/or grow earnings.
There were 502 full-time equivalent employees, including 34 employees within Arrow's insurance agency subsidiary, at December 31, 2022. See the discussion of our human capital resources in Section G ("HUMAN CAPITAL") of this Item 1. Arrow offers a broad range of commercial and consumer banking and financial products. The deposit base consists of deposits derived principally from the communities served.
There were 537 full-time equivalent employees, including 38 employees within Arrow's insurance agency subsidiary, at December 31, 2023. See the discussion of our human capital resources in Section G ("HUMAN CAPITAL") of this Item 1. Arrow offers a broad range of commercial and consumer banking and financial products. The deposit base consists of deposits derived principally from the communities served.
One example is through the 11 creation of Arrow University, we are investing in our people by bringing employee learning and development to the forefront. We offer opportunities to employees at all levels for personal and professional growth, technical training, and career exploration and enhancement. At December 31, 2022, Arrow had 502 full-time equivalent employees. H.
One example is through the creation of Arrow University, we are investing in our people by bringing employee learning and development to the forefront. We offer opportunities to employees at all levels for personal and professional growth, technical training, and career exploration and enhancement. At December 31, 2023, Arrow had 537 full-time equivalent employees. 12 H.
Changes in monetary policy, including changes in interest rates, could influence not only the interest received on loans and securities and the amount of interest paid on deposits and borrowings, but also (1) Arrow's ability to originate loans and obtain deposits, (2) the fair value of financial assets and liabilities, and (3) the average duration of mortgage-backed securities portfolio.
Changes in monetary policy, including changes in interest rates, could influence not only the interest received on loans and securities and the amount of interest paid on deposits and borrowings, but also (i) Arrow's ability to originate loans and obtain deposits, (ii) the fair value of financial assets and liabilities, and (iii) the average duration of mortgage-backed securities portfolio.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on Arrow's business, financial condition and results of operations.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on Arrow's business, financial condition and results of operations. Item 1B. Unresolved Staff Comments - None
As of December 31, 2022, Arrow and its two subsidiary banks qualified as "well-capitalized" under the revised capital classification scheme. Regulatory Reporting.
As of December 31, 2023, Arrow and its two subsidiary banks qualified as "well-capitalized" under the revised capital classification scheme.
The bank holding company does not have significant operations of its own. The ability of the subsidiaries, including bank and insurance subsidiaries, to pay dividends is limited by various statutes and regulations.
Arrow is a bank holding company, a separate legal entity from its subsidiaries. The bank holding company does not have significant operations of its own. The ability of the subsidiaries, including bank and insurance subsidiaries, to pay dividends is limited by various statutes and regulations.
OPERATIONAL RISKS Any future economic or financial downturn, including any significant correction in the equity markets, may negatively affect the volume of income attributable to, and demand for, fee-based services of banks such as Arrow, including the Company's fiduciary business, which could negatively impact Arrow's financial condition and results of operations .
There is no assurance that any such losses would not materially and adversely affect results of operations. 16 OPERATIONAL RISKS Any future economic or financial downturn, including any significant correction in the equity markets, may negatively affect the volume of income attributable to, and demand for, fee-based services of banks such as Arrow, including the Company's fiduciary business, which could negatively impact Arrow's financial condition and results of operations .
Arrow lends primarily to borrowers within the normal retail service area in northeastern New York State, with the exception of the indirect consumer lending line of business, where Arrow acquires retail paper from an extensive network of automobile dealers that operate in a larger area of New York and Vermont.
Arrow lends primarily to borrowers within the normal retail service area in upstate New York, with the exception of the indirect consumer lending line of business, where Arrow makes loans through an extensive network of automobile dealers that operate in a larger area of New York and Vermont.
The Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003, regulates use of credit reports, providing of information to credit reporting agencies and sharing of customer information with affiliates, and sets identity theft prevention standards. Anti-Money Laundering, the U.S.
Certain state laws may impose additional privacy and confidentiality restrictions. The Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003, regulates use of credit reports, providing of information to credit reporting agencies and sharing of customer information with affiliates, and sets identity theft prevention standards. Anti-Money Laundering, the U.S.
Arrow's depositor/customer awareness of the changing regulatory environment is particularly true of the set of laws and regulations under Dodd-Frank, which were passed in the aftermath of the 2008-09 financial crisis and in large part were intended to better protect bank customers (and to some degree, banks) against a wide variety of lending products and aggressive lending practices that pre-dated the crisis and are seen as having contributed to its severity.
These laws and regulations generally are not, however, aimed at protecting or enhancing the returns on investment enjoyed by bank shareholders. 19 Arrow's depositor/customer awareness of the changing regulatory environment is particularly true of the set of laws and regulations under Dodd-Frank, which were passed in the aftermath of the 2008-09 financial crisis and in large part were intended to better protect bank customers (and to some degree, banks) against a wide variety of lending products and aggressive lending practices that pre-dated the crisis and are seen as having contributed to its severity.
Subsidiary Banks (dollars in thousands and data is as of December. 31, 2022) Glens Falls National Saratoga National Total Assets at Year-End $ 3,125,180 $ 895,584 Trust Assets Under Administration and Investment Management at Year-End (Not Included in Total Assets) $ 1,486,327 $ 119,805 Date Organized 1851 1988 Employees (full-time equivalent) 454 48 Offices 26 11 Counties of Operation Warren, Washington, Saratoga, Essex & Clinton Saratoga, Albany, Rensselaer, & Schenectady Main Office 250 Glen Street Glens Falls, NY 171 So.
Subsidiary Banks (dollars in thousands and data is as of December 31, 2023) Glens Falls National Saratoga National Total Assets at Year-End $ 3,274,507 $ 1,062,118 Trust Assets Under Administration and Investment Management at Year-End (Not Included in Total Assets) $ 1,625,139 $ 138,055 Date Organized 1851 1988 Employees (full-time equivalent) 480 57 Offices 26 11 Counties of Operation Warren, Washington, Saratoga, Essex & Clinton Saratoga, Albany, Rensselaer, & Schenectady Main Office 250 Glen Street Glens Falls, NY 171 So.
Banking laws and regulations are intended primarily to protect bank depositors’ funds (and indirectly the Federal Deposit Insurance Fund) as well as bank retail customers, who may lack the sophistication to understand or appreciate bank products and services. These laws and regulations generally are not, however, aimed at protecting or enhancing the returns on investment enjoyed by bank shareholders.
Banking laws and regulations are intended primarily to protect bank depositors’ funds (and indirectly the Federal Deposit Insurance Fund) as well as bank retail customers, who may lack the sophistication to understand or appreciate bank products and services.
The Gramm-Leach-Bliley Act requires financial institutions to adopt privacy policies, to restrict the sharing of nonpublic customer information with nonaffiliated parties upon the request of the customer, and to implement data security measures to protect customer information. Certain state laws may impose additional privacy and confidentiality restrictions.
Cybersecurity . Privacy and Confidentiality Laws Arrow and its subsidiaries are subject to a variety of laws that regulate customer privacy and confidentiality. The Gramm-Leach-Bliley Act requires financial institutions to adopt privacy policies, to restrict the sharing of nonpublic customer information with nonaffiliated parties upon the request of the customer, and to implement data security measures to protect customer information.
In addition, credit risk may be exacerbated when the collateral held by Arrow cannot be liquidated or only may be liquidated at prices not sufficient to recover the full amount due Arrow under the underlying financial instrument, held by Arrow. There is no assurance that any such losses would not materially and adversely affect results of operations.
In addition, credit risk may be exacerbated when the collateral held by Arrow cannot be liquidated or only may be liquidated at prices not sufficient to recover the full amount due Arrow under the underlying financial instrument, held by Arrow.
RISKS RELATED TO OWNING OUR COMMON STOCK The Company relies on the operations of its banking subsidiaries to provide liquidity, which, if limited, could impact Arrow's ability to pay dividends to its shareholders or to repurchase its common stock. Arrow is a bank holding company, a separate legal entity from its subsidiaries.
For additional discussion, see Part II, Item 9A, Controls and Procedures. RISKS RELATED TO OWNING OUR COMMON STOCK The Company relies on the operations of its banking subsidiaries to provide liquidity, which, if limited, could impact Arrow's ability to pay dividends to its shareholders or to repurchase its common stock.
In March 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent to free up liquidity in the banking industry to support lending to households and businesses. D. RECENT LEGISLATIVE DEVELOPMENTS The CARES Act and other COVID-19 Responses In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020.
In March 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent to free up liquidity in the banking industry to support lending to households and businesses. D.
Arrow is also working on many ways to demonstrate the value of differences, particularly around diversity, equity, inclusion and belonging (“DEIB”).
We are dedicated to providing professional development and holistic support to our team and are working on many ways to demonstrate the value of differences, particularly around diversity, equity, inclusion and belonging (“DEIB”).
Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. Changes in interest rates, whether they are increases or decreases, can also trigger repricing and changes in the pace of payments for both assets and liabilities.
SUPERVISION AND REGULATION The following generally describes the laws and regulations to which Arrow is subject. Bank holding companies, banks and their affiliates are extensively regulated under both federal and state law.
Subsequent cash payments on loans classified as nonaccrual may be applied entirely to principal, although income in some cases may be recognized on a cash basis. 6 C. SUPERVISION AND REGULATION The following generally describes the laws and regulations to which Arrow is subject. Bank holding companies, banks and their affiliates are extensively regulated under both federal and state law.
Higher interest rates could have a negative impact on results of operations by reducing the ability of borrowers to repay their current loan obligations.
Beginning and continuing throughout early 2023, the Federal Reserve raised benchmark interest rates, partially in response to increasing inflation. In 2024, rates may stabilize and/or decrease. Continued higher interest rates could have a negative impact on results of operations by reducing the ability of borrowers to repay their current loan obligations.
Although Arrow established and maintained a system of internal controls to provide management with information on a timely basis and allow for the monitoring of compliance with operational standards, we have identified material weaknesses in our system of internal controls.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) and as further discussed in Part II, Item 9A, Controls and Procedures of this Annual Report on Form 10-K, we have identified material weaknesses in the system of internal controls we maintain to provide management with information on a timely basis and allow for the monitoring of compliance with operational standards.
The loan portfolio does not include any foreign loans or any other significant risk concentrations. Arrow does not generally participate in loan syndications, either as originator or as a participant. However, from time to time, Arrow buys and offers participations in individual loans, typically commercial loans, in New York and adjacent states.
The loan portfolio does not include any foreign loans or any other significant risk concentrations. From time to time, Arrow buys and offers participations in individual commercial loans, primarily in upstate New York. In recent periods, the total dollar amount of such participations has fluctuated, but generally represents less than 20% of commercial loans outstanding.
Normally, the Company retains the servicing rights on mortgage loans originated and sold into the secondary markets, subject to periodic determinations on the continuing profitability of such activity. Generally, Arrow continues to implement lending strategies and policies that are intended to protect the quality of the loan portfolio, including strong underwriting and collateral control procedures and credit review systems.
The majority of the portfolio is collateralized, and most commercial loans are further supported by personal guarantees. Generally, Arrow continues to implement lending strategies and policies that are intended to protect the quality of the loan portfolio, including strong underwriting and collateral control procedures and credit review systems.
Arrow adheres to a comprehensive governance program, which is described in further detail in its annual Proxy Statement. 12 I. EXECUTIVE OFFICERS OF THE REGISTRANT The names and ages of the executive officers of Arrow and positions held by each are presented in the following table: Name Age Positions Held and Years from Which Held David S.
EXECUTIVE OFFICERS OF THE REGISTRANT The names and ages of the executive officers of Arrow and positions held by each are presented in the following table: Name Age Positions Held and Years from Which Held David S. DeMarco 62 President and Chief Executive Officer of Arrow, GFNB and SNB since May 13, 2023. Mr.
Andrew J. Wise 56 Senior Executive Vice President and Chief Operating Officer of Arrow, GFNB and SNB since February 2022.
Kaiser 63 Senior Executive Vice President and Chief Credit Officer of Arrow, GFNB and SNB since February 2022. Mr. Kaiser joined the Company in 2001 as Vice President and Commercial Loan Officer.
However, the material weaknesses could result in a misstatement of certain account balances or disclosures that could result in a material misstatement to the annual or interim financial statements which would not be prevented or detected in a timely manner. Losses from operational risks may still occur, however, including losses from the effects of operational errors.
Additionally, it is possible that inadequate remediation could result in a material misstatement to the annual or interim financial statements which would not be prevented or detected in a timely manner. These or other material weaknesses discovered in the future may adversely affect our reputation, our business and the market price of shares of our common stock.
As of December 31, 2022, there were no PPP loans outstanding. See the discussion of the CARES Act in Section D ("RECENT LEGISLATIVE DEVELOPMENTS") of this Item 1. Arrow does not engage in subprime mortgage lending as a business line and does not extend or purchase so-called "Alt A," "negative amortization," "option ARM's" or "negative equity" mortgage loans. C.
Normally, the Company retains the servicing rights on mortgage loans originated and sold into the secondary markets, subject to periodic determinations on the continuing profitability of such activity. Arrow does not engage in subprime mortgage lending as a business line and does not extend or purchase so-called "Alt A," "negative amortization," "option ARMs" or "negative equity" mortgage loans.
Removed
"Risk Elements") Subsequent cash payments on loans classified as nonaccrual may be applied entirely to principal, although income in some cases may be recognized on a cash basis.
Added
Certain Arrow subsidiaries are also subject to certain New York State cybersecurity regulations. In July 2023, the SEC adopted amendments intended to enhance and standardize disclosures related to cybersecurity. The amendments were effective December 18, 2023 and require timely disclosure of material cybersecurity incidents and annual disclosures related to cybersecurity risk management, strategy, and governance.
Removed
In recent periods, the total dollar amount of such participations has fluctuated, but generally represents less than 20% of commercial loans outstanding. The majority of the portfolio is properly collateralized, and most commercial loans are further supported by personal guarantees.
Added
Under the new rules, a material cybersecurity incident is required to be disclosed on a Form 8-K within four business days after the learning of a material incident.
Removed
Arrow also participated as a lender in the Paycheck Protection 5 Program ("PPP") administered by the Small Business Administration ("SBA") under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Arrow originated over $91.5 million in loans under the PPP in 2021 and approximately $234.2 million over the life of the PPP program.
Added
The SEC has defined a cybersecurity incident to mean “an unauthorized occurrence, or a series of related unauthorized occurrences, on or conducted through a registrant’s information systems that jeopardizes the confidentiality, integrity, or availability of a registrant’s information systems or any information residing therein.” Arrow has undertaken and implemented a number of procedures and control steps to comply with these expanded cybersecurity reporting requirements as outlined below under Item 1C.
Removed
Arrow's recent failure to timely file this Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 has resulted in a failure to timely file certain other regulatory reports, which rely in whole or in part upon the information contained in such 10-K and 10-Q Reports.
Added
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) We believe that meeting the evolving needs of our customers and being good stewards of our communities is critical. We are committed to operating in a manner that provides and maintains safe and healthy working conditions. We operate in compliance with applicable laws and regulations and are firmly committed to responsibly conducting business.
Removed
Any such required reports will be promptly filed upon the filing of this Annual Report on Form 10-K and the Quarterly Report on Form 10-Q.
Added
Arrow remains committed to strengthening financial lives within our communities through the power of care, capability, commitment and collaboration. Through our partnership, we aim to deliver meaningful engagement that translates into long‐term value for our team, our customers and our investors.
Removed
Certain Arrow subsidiaries are subject to certain New York State cybersecurity regulations. Privacy and Confidentiality Laws Arrow and its subsidiaries are subject to a variety of laws that regulate customer privacy and confidentiality.
Added
Employees • Annual engagement with a diversity and inclusion consultant to assess diversity within our employee base and support for setting and tracking goals to encourage the advancement of minorities, women, veterans and persons with disabilities • Learning and professional development through the Employee Experience Department • Wellness and mental health services to our employees through outside Employee Assistance Program (EAP) contracted services • Ongoing outreach to measure employee engagement • Incorporated inclusion and belonging into our human resources policies, practices and learning and development programs • Encouraged and facilitated employee giving including through payroll deduction, dress-down days, and a fundraising campaign that totaled more than $103,000 out of their own pockets, a true reflection of our culture of giving.
Removed
The CARES Act is a $2.2 trillion economic stimulus bill that was enacted to provide relief in the wake of the COVID-19 pandemic. Several provisions within the CARES Act directly impacted financial institutions and led to action from the bank regulatory agencies.
Added
Arrow is proud of our many contributions to our customers and communities, including our commitment to complying with environmental regulations, meeting the financial needs of the low- to moderate-income population and giving back in dollars and volunteer hours.
Removed
Section 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. Arrow participated in the PPP as a lender, originating over $234.2 million in loans in 2020 and 2021.
Added
Arrow adheres to a comprehensive governance program, including: Shareholders and Corporate Governance • Longstanding dedication to diversity on Arrow’s Board of Directors, exceeding NASDAQ requirements • Both Glens Falls National Bank and Saratoga National Bank have maintained their Bauer Financial 5-Star "Exceptional Performance" ratings for the 16th and 14th consecutive years, respectively • Developed ESG Investment Models for our socially conscious clients • Strong cybersecurity protections and training • Strong dedication to information security and data privacy I.
Removed
These loans were eligible to be forgiven if certain conditions were satisfied and were fully guaranteed by the SBA. As of December 31, 2022, there were no PPP loans outstanding in Arrow's loan portfolio.
Added
DeMarco joined the Company in 1987 as a commercial lender and since that time has served in positions of increasing responsibility within the organization. In 2012, he was named President and CEO of SNB. In May 2023, he was named President and CEO of Arrow Financial Corporation and GFNB.
Removed
On March 22, 2020, a statement was issued by the Board of Governors of the Federal Reserve Bank, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the office of the Comptroller of the Currency and the Consumer 10 Financial Protection Bureau, titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19.
Added
He holds a bachelor’s degree in finance from the University of Texas at Austin. Mr. DeMarco is a graduate of the Adirondack Regional Chamber of Commerce’s Leadership Program and the Stonier Graduate School of Banking.
Removed
Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt from classification as a troubled debt restructuring ("TDR") as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates.
Added
He serves as a Director of the Company and its subsidiary banks and sits on the boards of various non-profits dedicated to healthcare and economic development. Penko Ivanov 55 Chief Financial Officer, Treasurer and Chief Accounting Officer effective February 21, 2023 and Senior Executive Vice President of Arrow, GFNB and SNB since February 1, 2024. Mr.
Removed
Section 541 of the CAA extended this relief to the earlier of January 1, 2022, or 60 days after the national emergency termination date.
Added
Ivanov joined the Company in 2023 with more than 30 years of experience in Financial Planning & Analysis, Controllership, Financial Reporting, Treasury and compliance with Sarbanes-Oxley Act of 2002. Mr. Ivanov previously served as CFO for Bankwell Financial Group, helping it almost double in size over six-plus years to $3.3 billion in total consolidated assets.
Removed
The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the federal banking regulators’ views on consumer protection considerations. In accordance with such guidance, Arrow offered short-term modifications in response to COVID-19 to qualified borrowers.
Added
He has held CFO positions at Darien Rowayton Bank and for Doral Bank’s U.S. Operations. He began his career with Ernst & Young and held accounting/ finance positions at PepsiCo, GE Capital and Bridgewater Associates. Mr. Ivanov holds an MBA and bachelor’s degree in accounting and finance from the University of South Florida.
Removed
As of January 1, 2022, all COVID related deferrals had ended. On May 11, 2023, the COVID-19 national emergency and public health emergency declarations ended.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−1 removed2 unchanged
Biggest changeArrow's investment in its downtown campus dates back to 2012 with the construction of our 20 South Street Building and has continued with phased improvements to other adjacent properties. After the 240 and 250 Glen Street work is completed, some smaller-scale enhancements remain after which Arrow will have renovated and improved the entire Main Campus in Glens Falls, New York.
Biggest changeThe renovations provide added energy efficiency, productivity, and more collaborative work space. This project provides for a renovated and more functional Main Office branch and lending space for 20 customers. Arrow's investment in its downtown campus dates back to 2012 with the construction of our 20 South Street Building and has continued with phased improvements to other adjacent properties.
The main office of the other banking subsidiary, Saratoga National, is in Saratoga Springs, New York. Arrow owns 26 branch banking offices, leases 11 branch banking offices, leases two residential loan origination offices and a business development office, all at market rates. Arrow's insurance agency is co-located in eight bank-owned branches, as well as two leased insurance offices.
The main office of the other banking subsidiary, Saratoga National, is in Saratoga Springs, New York. Arrow owns 26 branch banking offices, leases 11 branch banking offices, leases two residential loan origination offices and a business development office, all at market rates. Arrow's insurance agency is co-located in seven bank-owned branches, as well as two leased insurance offices.
Item 2. Properties Arrow's main office is at 250 Glen Street, Glens Falls, New York. The building is owned by Glens Falls National and serves as the main office for Arrow and Glens Falls National. Arrow is nearing completion of a multi-year renovation project to enhance and improve the downtown Glens Falls Main Campus.
Item 2. Properties Arrow's main office is at 250 Glen Street, Glens Falls, New York. The building is owned by Glens Falls National and serves as the main office for Arrow and Glens Falls National. Arrow recently completed a multi-year renovation project to enhance and improve the downtown Glens Falls Main Campus.
Removed
Current efforts are focused on 240 and 250 Glen Street, where Arrow is nearing completion of a two-year reconstruction that will provide added energy efficiency, productivity, and more collaborative work space. This phase of the project will also provide for a renovated and more functional Main Office branch and lending space for customers.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

4 edited+9 added−4 removed2 unchanged
Biggest changeIn addition to the Company, the complaint names as defendants Thomas J. Murphy, the Company’s former CEO and from September 30, 2022 to February 20, 2023, its interim CFO, Edward J. Campanella, the Company’s former CFO, and Penko Ivanov, the Company’s current CFO (“Individual Defendants” and, together with the Company, the "Defendants").
Biggest changeAshe filed a putative class action complaint (the "Ashe Lawsuit") against the Company in the United States District Court for the Northern District of New York. In addition to the Company, the complaint names as defendants Thomas J. Murphy, the Company’s former CEO and from September 30, 2022 to February 20, 2023, its interim CFO, Edward J.
The complaint alleges that the Defendants made materially false and misleading statements regarding the Company’s business, operations and compliance policies in the Company’s public filings between March 12, 2022 and May 12, 2023. The complaint further alleges that the Individual Defendants are liable for these materially false and misleading statements as "controlling persons" of the Company.
Campanella, the Company’s former CFO, and Penko Ivanov, the Company’s current CFO (“Individual Defendants” and, together with the Company, the "Defendants"). The complaint alleges that the Defendants made materially false and misleading statements regarding the Company’s business, operations and compliance policies in the Company’s public filings between March 12, 2022 and May 12, 2023.
Based on these allegations, the complaint brings two claims for violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and of Section 20(a) of the Exchange Act. Mr. Ashe, on behalf of a purported class of shareholders, seeks compensatory damages as well as recovery of the costs and fees associated with the litigation.
Ashe, on behalf of a purported class of shareholders, seeks compensatory damages as well as recovery of the costs and fees associated with the litigation. .
Except as noted below, the various pending legal claims against Arrow will not, in the opinion of management based upon consultation with counsel, result in any material liability. On July 1, 2020, Daphne Richard, a customer of Glens Falls National Bank and Trust Company (“GFNB”), filed a putative class action complaint against GFNB.
The various pending legal claims against Arrow will not, in the opinion of management based upon consultation with counsel, result in any material liability. Legal expenses incurred in connection with loss contingencies are expensed as incurred. On June 23, 2023, Robert C.
Removed
The complaint alleged that GFNB assessed overdraft fees on certain transactions drawn on Ms. Richard’s checking account without having sufficiently disclosed its overdraft-fee practices in its account agreement. Ms. Richard, on behalf of two purported classes, sought compensatory damages, disgorgement of profits, statutory damages, treble damages, enjoinment of the conduct complained of, and costs and fees.
Added
The complaint further alleges that the Individual Defendants are liable for these materially false and misleading statements as "controlling persons" of the Company. Based on these allegations, the complaint brings two claims for violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and of Section 20(a) of the Exchange Act. Mr.
Removed
The complaint was similar to complaints filed against other financial institutions pertaining to overdraft fees. The Court granted final approval of a settlement on July 22, 2022. The settlement, which includes and releases Arrow, GFNB, and SNB (collectively, “Defendants”), required the Defendants to establish a $1.475 million settlement fund, among other terms.
Added
On December 5, 2023, plaintiff Ashe filed an amended complaint that changed the putative class period to the period from August 5, 2022 through May 12, 2023, but challenged substantially the same statements on the same basis. On February 9, 2024, the Company moved to dismiss the action in its entirety.
Removed
The case has been closed, and the settlement funds have been substantially distributed to the class. The Company became aware that on June 23, 2023, Robert C. Ashe filed a putative class action complaint against the Company in the United States District Court for the Northern District of New York.
Added
That motion is scheduled to be fully briefed on May 6, 2024. All discovery in the action is stayed pending a decision on that motion. The Company continues to believe the lawsuit to be without merit and expressly denies any wrongdoing in connection with the matters claimed in the complaint and intends to vigorously defend the lawsuit.
Removed
The Company believes the lawsuit to be without merit and expressly denies any wrongdoing in connection with the matters claimed in the complaint and intends to vigorously defend the lawsuit. As of the date of filing of this Form 10-K, the Company has not been served with the complaint. Item 4. Mine Safety Disclosures - None 19 PART II
Added
On December 12, 2023 the Company become aware that Stephen Bull filed a complaint (Shareholder Derivative Complaint or Derivative Case) on behalf of Arrow against the three individual defendants in the Ashe Lawsuit as well as against all members of Arrow’s board of directors during the class period in Ashe.
Added
The Company is named solely as a nominal defendant in the action and would be the beneficiary of any recovery.
Added
The Shareholder Derivative Complaint alleges breaches of fiduciary duty (i) by the Ashe individual defendants based on substantially the same allegedly misleading statements pleaded in the Ashe complaint; and (ii) the director defendants by failing adequately to oversee the individual defendants and maintain internal and disclosure controls.
Added
Plaintiffs seek (i) unspecified damages (which would be payable to the Company) for costs incurred as a result of the alleged misstatements, including costs of investigation, remediation, and litigation, (ii) repayment of the director defendants’ compensation on an unjust enrichment theory, and (iii) an order directing the Company to take all necessary actions to reform and improve its corporate governance, and (iv) the recovery of costs and fees associated with the litigation.
Added
The Shareholder Derivative Complaint also asserts various federal securities claims based on the same alleged misrepresentations as set forth in the Ashe Lawsuit. On March 5, 2024, the parties filed a stipulation under which the defendants accepted service and the case will be stayed pending disposition of the motion to dismiss the Ashe action.
Added
The Company intends to vigorously defend itself against the class action and derivative claims

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+3 added−5 removed3 unchanged
Biggest changeUnregistered Sales of Equity Securities None. 22 Issuer Purchases of Equity Securities The following table presents information about repurchases by Arrow during the three months ended December 31, 2022 of Arrow's common stock (the only class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934): Fourth Quarter 2022 Calendar Month (a) Total Number of Shares Purchased 1 (b) Average Price Paid Per Share 1 (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 2 (d) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs 2 October 1,668 $ 30.58 — $ 2,535,669 November 4,998 35.45 — 2,535,669 December 14,686 34.23 — 2,535,669 Total 21,352 34.23 — 1 The total number of shares purchased and the average price paid per share listed in columns (a) and (b) consist of (i) any shares purchased in such periods in open market or private transactions under the Arrow Financial Corporation Automatic Dividend Reinvestment Plan (the "DRIP") by the administrator of the DRIP, and (ii) shares surrendered or deemed surrendered to Arrow in such periods by holders of options to acquire Arrow common stock received by them under Arrow's long-term incentive plans ("LTIPs") in connection with their stock-for-stock exercise of such options, and shares repurchased by Arrow pursuant to its publicly-announced stock repurchase program.
Biggest changeUnregistered Sales of Equity Securities None. 24 Issuer Purchases of Equity Securities The following table presents information about repurchases by Arrow during the three months ended December 31, 2023 of Arrow's common stock (the only class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934): Fourth Quarter 2023 Calendar Month (a) Total Number of Shares Purchased 1 (b) Average Price Paid Per Share 1 (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 2 (d) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs 2 October — $ — — $ 9,152,132 November 99,223 24.23 99,223 6,748,038 December 14,347 24.92 14,347 6,390,538 Total 113,570 24.32 113,570 1 The total number of shares purchased and the average price paid per share listed in columns (a) and (b) consist solely of shares repurchased by Arrow pursuant to its publicly-announced stock repurchase program.
Arrow's only publicly announced stock repurchase program in effect for 2022 was the 2022 Repurchase Program approved by the Board of Directors and announced in October 2021, under which the Board authorized management, in its discretion,to repurchase from time to time over calendar year 2022, in the open market or in privately negotiated transactions, up to $5 million of Arrow common stock subject to certain exceptions.
Arrow's only publicly announced stock repurchase program in effect for 2023 was the 2023 Repurchase Program approved by the Board of Directors and announced in October 2022, under which the Board authorized management, in its discretion, in 2023 to repurchase from time to time, in the open market or in privately negotiated transactions, up to $5 million of Arrow common stock subject to certain exceptions.
These equity compensation plans were (i) the 2022 Long-Term Incentive Plan ("LTIP") and its predecessors; (ii) the Amended and Restated 2011 Employee Stock Purchase Plan ("ESPP"); and (iii) the 2020 Directors' Stock Plan ("DSP"). All of these plans have been approved by Arrow's shareholders.
These equity compensation plans were (i) the 2022 Long-Term Incentive Plan ("LTIP") and its predecessors; (ii) the Amended and Restated 2011 Employee Stock Purchase Plan ("ESPP") and its predecessors; and (iii) the 2023 Directors' Stock Plan ("DSP") and its predecessors. The LTIP, the DSP and the ESPP have been approved by Arrow's shareholders.
Based on information received from Arrow's transfer agent and various brokers, custodians and agents, Arrow estimates there were approximately 9,700 beneficial owners of Arrow’s common stock at December 31, 2022. Arrow has no other class of stock outstanding. Equity Compensation Plan Information The following table sets forth certain information regarding Arrow's equity compensation plans as of December 31, 2022.
Based on information received from Arrow's transfer agent and various brokers, custodians and agents, Arrow estimates there were approximately 12,000 beneficial owners of Arrow’s common stock at December 31, 2023. Arrow has no other class of stock outstanding. Equity Compensation Plan Information The following table sets forth certain information regarding Arrow's equity compensation plans as of December 31, 2023.
Used with permission. All rights reserved. Copyright 1980-2023.
Used with permission. All rights reserved. Copyright 1980-2024.
The first graph presents comparative stock performance for the five-year period from December 31, 2017 to December 31, 2022 and the second graph presents comparative stock performance for the fifteen-year period from December 31, 2007 to December 31, 2022.
The first graph presents comparative stock performance for the five-year period from December 31, 2018 to December 31, 2023 and the second graph presents comparative stock performance for the fifteen-year period from December 31, 2008 to December 31, 2023.
Plan Category (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Restricted Stock Units, Warrants and Rights (b) Weighted-Average Exercise Price of Outstanding Options, Restricted Stock Units, Warrants and Rights (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) Equity Compensation Plans Approved by Security Holders (1)(2) 300,761 $ 27.29 735,737 Equity Compensation Plans Not Approved by Security Holders — — Total 300,761 735,737 (1) The total of 300,761 shares listed in column (a) includes 279,050 which are issuable pursuant to outstanding stock options and 21,711 which are issuable pursuant to restricted stock units all granted under the LTIP or its predecessor plans.
Plan Category (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Restricted Stock Units, Warrants and Rights (b) Weighted-Average Exercise Price of Outstanding Options, Restricted Stock Units, Warrants and Rights (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) Equity Compensation Plans Approved by Security Holders (1)(2) 305,308 $ 28.96 740,062 Equity Compensation Plans Not Approved by Security Holders (pending approval at next Annual Meeting) (2) — 300,000 Total 305,308 1,040,062 (1) The total of 305,308 shares listed in column (a) includes shares which are issuable pursuant to outstanding stock options granted under the LTIP or its predecessor plans.
The historical information in the graphs and accompanying tables may not be indicative of future performance of Arrow stock on the various stock indices. 20 TOTAL RETURN PERFORMANCE Period Ending Index 2017 2018 2019 2020 2021 2022 Arrow Financial Corporation 100.00 99.95 125.32 105.75 132.15 135.21 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 ABA NASDAQ Community Bank TR 100.00 85.10 104.92 92.80 125.74 116.95 Zacks $1B - $5B Bank Assets Index 100.00 91.08 107.31 87.54 119.93 117.09 Source: Prepared by Zacks Investment Research, Inc.
The historical information in the graphs and accompanying tables may not be indicative of future performance of Arrow stock on the various stock indices. 22 TOTAL RETURN PERFORMANCE Period Ending Index 2018 2019 2020 2021 2022 2023 Arrow Financial Corporation 100.00 125.39 105.80 132.22 135.28 120.71 Russell 2000 Index 100.00 125.52 150.58 172.90 137.56 160.85 ABA NASDAQ Community Bank TR 100.00 123.30 109.05 147.76 137.43 134.58 Zacks $1B - $5B Bank Assets Index 100.00 117.34 95.01 130.61 127.10 126.09 Source: Prepared by Zacks Investment Research, Inc.
(2) The total of 735,737 shares listed in column (c) includes (i) 463,500 shares of common stock available for future award grants under the LTIP, (ii) 247,077 shares of common stock available for future issuance under the ESPP, and (iii) 25,160 shares of common stock available for future issuance under the DSP.
(2) The total of 1,040,062 shares listed in column (c) includes (i) 414,561 shares of common stock available for future award grants under the LTIP, (ii) 250,501 shares of common stock available for future issuance under the ESPP, (iii) 300,000 shares of common stock available for future issuance under the 2023 ESPP which is pending shareholder approval at the next Annual Meeting and (iii) 75,000 shares of common stock available for future issuance under the DSP.
Copyright 1980-2023. 21 TOTAL RETURN PERFORMANCE Period Ending Index 2007 2008 2009 2010 2011 2012 2013 2014 Arrow Financial Corporation 100.00 122.38 130.63 154.46 141.58 160.07 180.61 197.93 Russell 2000 Index 100.00 66.21 84.20 106.81 102.34 119.08 165.30 173.38 ABA NASDAQ Community Bank TR 100.00 82.95 67.03 74.71 69.83 82.20 116.47 121.89 Zacks $1B - $5B Bank Assets Index 100.00 84.84 70.34 75.77 70.60 84.44 106.87 116.78 TOTAL RETURN PERFORMANCE (Cont'd.) Period Ending Index 2015 2016 2017 2018 2019 2020 2021 2022 Arrow Financial Corporation 206.94 327.92 291.54 291.38 365.37 308.29 385.27 394.20 Russell 2000 Index 165.74 201.06 230.51 205.13 257.49 308.89 354.66 282.18 ABA NASDAQ Community Bank TR 133.53 185.30 190.06 161.73 199.42 176.38 238.98 222.27 Zacks $1B - $5B Bank Assets Index 128.83 178.65 197.52 179.90 211.95 172.90 236.87 231.26 Source: Prepared by Zacks Investment Research, Inc.
Copyright 1980-2024. 23 TOTAL RETURN PERFORMANCE Period Ending Index 2008 2009 2010 2011 2012 2013 2014 2015 Arrow Financial Corporation 100.00 106.74 126.21 115.69 130.80 147.59 161.74 169.10 Russell 2000 Index 100.00 127.17 161.32 154.57 179.84 249.66 261.87 250.32 ABA NASDAQ Community Bank TR 100.00 80.80 90.06 84.18 99.10 140.40 146.94 160.97 Zacks $1B - $5B Bank Assets Index 100.00 83.14 91.29 86.56 101.88 128.00 140.15 152.44 TOTAL RETURN PERFORMANCE (Cont'd.) Period Ending Index 2016 2017 2018 2019 2020 2021 2022 2023 Arrow Financial Corporation 267.96 238.23 238.10 298.56 251.91 314.82 322.12 287.41 Russell 2000 Index 303.66 348.15 309.82 388.90 466.53 535.66 426.19 498.34 ABA NASDAQ Community Bank TR 223.37 229.11 194.97 240.40 212.62 288.09 267.94 262.39 Zacks $1B - $5B Bank Assets Index 212.71 234.10 214.34 251.50 203.63 279.96 272.42 270.26 Source: Prepared by Zacks Investment Research, Inc.
Removed
In the months indicated, the listed number of shares purchased included the following numbers of shares purchased by Arrow through such methods: October - DRIP purchases (1,668 shares); November - DRIP purchases (747 shares), stock-for-stock option exercises (4,251 shares); and December - DRIP purchases (14,686 shares).
Added
In October 2023, the Board of Directors approved the adoption of a new qualified ESPP that is intended to satisfy the requirements of Section 423 of the Internal Revenue Code, which was effective January 1, 2024 (the "2023 ESPP"). The 2023 ESPP will be presented for approval at the upcoming Annual Meeting to be held June 5, 2024.
Removed
W e have suspended the operation of the DRIP as a result of the delayed filing of this Form 10-K and the related effects under applicable securities laws.
Added
Arrow resumed its DRIP effective with the cash dividend which was paid in December 2023. All shares under the DRIP are being sourced from the open market through an independent Plan Adminstrator, no shares will be sourced from Arrow treasury. 2 Includes only those shares acquired by Arrow pursuant to its publicly-announced stock repurchase programs.
Removed
Currently, we do not expect to resume operation of the DRIP for at least 12 months from the date we have filed the outstanding reports, but we cannot provide any assurance on when or if we will resume operation of the DRIP, although we expect this suspension is temporary. 2 Includes only those shares acquired by Arrow pursuant to its publicly-announced stock repurchase programs.
Added
In October 2023, the Board of Directors expanded the 2023 Repurchase Program by $5 million, bringing the total availability under the repurchase program to $9.1 million, and removed the expiration date previously incorporated into the existing repurchase program. Item 6. Reserved 25
Removed
In October 2022, the Board of Directors of Arrow approved a new stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to $5 million of the Company’s common stock over the 2023 calendar year, in open-market or negotiated transactions.
Removed
This new repurchase program replaced the prior $5 million repurchase program authorized on October 27, 2021, which expired December 31, 2022. Item 6. Reserved 23

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations Selected Quarterly Information Dollars in thousands, except per share amounts Share and per share amounts have been restated for the September 2022 3% stock dividend 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 Recorded 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 Changes in Fair Value of Equity Investments 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: 5 Total Stockholders’ Equity (i.e.
Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations Selected Quarterly Information Dollars in thousands, except per share amounts Share and per share amounts have been restated for the September 2023 3% stock dividend Quarter Ended 12/31/2023 9/30/2023 6/30/2023 3/31/2023 12/31/2022 Net Income $ 7,723 $ 7,743 $ 6,047 $ 8,562 $ 12,087 Transactions Recorded in Net Income (Net of Tax): Net Changes in Fair Value of Equity Investments 90 52 (133) (76) 35 Share and Per Share Data: 1 Period End Shares Outstanding 16,942 17,049 17,050 17,050 17,048 Basic Average Shares Outstanding 17,002 17,050 17,050 17,048 17,031 Diluted Average Shares Outstanding 17,004 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 Share 0.46 0.46 0.35 $ 0.50 $ 0.71 Cash Dividend Per Share 0.270 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 Securities 713,144 745,693 787,175 813,461 845,859 Loans 3,170,262 3,096,240 3,036,410 2,991,928 2,951,547 Deposits 3,593,949 3,491,028 3,460,711 3,480,279 3,614,945 Other Borrowed Funds 149,507 208,527 220,616 100,596 63,304 Shareholders’ Equity 363,753 362,701 365,070 359,556 351,402 Total Assets 4,159,313 4,109,995 4,087,653 3,978,851 4,074,028 Return on Average Assets, annualized 0.74 % 0.75 % 0.59 % 0.87 % 1.18 % Return on Average Equity, annualized 8.42 % 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 Assets $ 4,019,432 $ 3,973,747 $ 3,953,642 $ 3,845,825 $ 3,940,905 Average Paying Liabilities 2,985,717 2,920,518 2,924,743 2,782,299 2,891,092 Interest Income 44,324 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 Expense 18,711 16,764 14,241 8,016 5,325 Net Interest Income 25,613 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, annualized 2.53 % 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 Amortization 43 43 44 45 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 Income 7,484 8,050 6,906 6,677 7,165 Less: Net Changes in Fair Value of Equity Investments 158 71 (181) (104) 48 Net Gross Income $ 33,123 $ 33,515 $ 33,055 $ 35,077 $ 37,975 Efficiency Ratio 69.88 % 69.93 % 72.72 % 63.43 % 54.63 % Period-End Capital Information: 5 Total Stockholders’ Equity (i.e.
A qualifying community banking organization that opts into the CBLR framework and meets all the requirements under the CBLR framework will be considered to have met the well-capitalized ratio requirements under the “prompt corrective action” regulations and will not be required to report or calculate risk-based capital ratios.
A qualifying community banking organization that opts into the CBLR framework and meets all the requirements under the CBLR framework will be considered to have met the well-capitalized ratio requirements under the “prompt corrective action” regulations and will not be required to report or calculate risk-based capital ratios.
The CBLR final rule became effective as of January 1, 2020, and Arrow and both subsidiary banks have opted out of utilizing the CBLR framework. Therefore, the Capital Rules promulgated under Dodd-Frank will remain applicable to Arrow and both subsidiary banks.
The CBLR final rule became effective as of January 1, 2020, and Arrow and both subsidiary banks have opted out of utilizing the CBLR framework. Therefore, the Capital Rules promulgated under Dodd-Frank will remain applicable to Arrow and both subsidiary banks.
Arrow's practice has been to purchase pass-through securities and CMOs that are issued or guaranteed by U.S. federal agencies or GSEs, and the tranches of CMOs purchased are generally those having shorter average lives and/or 38 durations. Lower market interest rates and/or payment deferrals on underlying loans that make up mortgage-backed security collateral may impact cashflows.
Arrow's practice has been to purchase pass-through securities and CMOs that are issued or guaranteed by U.S. federal agencies or GSEs, and the tranches of CMOs purchased are generally those having shorter average lives and/or durations. Lower market interest rates and/or payment deferrals on underlying loans that make up mortgage-backed security collateral may impact cashflows.
The rate at which mortgage loan originations are sold in future periods will depend on various circumstances, including prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions. Therefore, Arrow is unable to predict what the retention rate of such loans in future periods may be.
The rate at which mortgage loan originations may be sold in future periods will depend on various circumstances, including prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions. Therefore, Arrow is unable to predict what the retention rate of such loans in future periods may be.
In December 2022, FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848)" which deferred the sunset date of Topic 848 to December 31, 2024, to allow for a transition period after the sunset of LIBOR. Arrow does not expect it will have a material impact on the consolidated financial statements.
In December 2022, FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848)" which deferred the sunset date of Topic 848 to December 31, 2024, to allow for a transition period after the sunset of LIBOR. Arrow does not expect it will have a material impact on the consolidated financial statements. I.
Arrow establishes allowances for OREO losses, which are determined and monitored on a property-by-property basis and reflect the ongoing estimate of the property's estimated fair value less costs to sell. All Repossessed Assets for each of the five years in the table below consist of motor vehicles.
Arrow establishes allowances for OREO losses, which are determined and monitored on a property-by-property basis and reflect the ongoing estimate of the property's estimated fair value less costs to sell. All Repossessed Assets for each of the years in the table below consist of motor vehicles.
The efficiency ratio (a ratio where lower is better), as defined by Arrow, is the ratio of operating noninterest expense (excluding intangible asset amortization) to net interest income (on a tax-equivalent basis) plus operating noninterest income (excluding net securities gains or losses).
The efficiency ratio (a ratio where lower is better), as defined by Arrow, is the ratio of operating noninterest expense (excluding intangible asset amortization) to net 38 interest income (on a tax-equivalent basis) plus operating noninterest income (excluding net securities gains or losses).
OFF-BALANCE SHEET ARRANGEMENTS In the normal course of operations, Arrow may engage in a variety of financial transactions or arrangements, including derivative transactions or arrangements, that in accordance with GAAP are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts.
F. OFF-BALANCE SHEET ARRANGEMENTS In the normal course of operations, Arrow may engage in a variety of financial transactions or arrangements, including derivative transactions or arrangements, that in accordance with GAAP are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts.
CMOs are pools of mortgage-backed securities, the repayments on which have generally been separated into two or more components (tranches), where each tranche has a separate estimated life and yield.
CMOs are pools of mortgage-backed securities, the repayments on 40 which have generally been separated into two or more components (tranches), where each tranche has a separate estimated life and yield.
Foreign Outstandings - None 4. Loan Concentrations The loan portfolio is well diversified. There are no concentrations of credit that exceed 10% of the portfolio, other than the general categories reported in the preceding Section C.II.a. of this Item 7, beginning on page 40. For further discussion, see Note 1, Risks and Uncertainties , to the Consolidated Financial Statements. 5.
Foreign Outstandings - None 4. Loan Concentrations The loan portfolio is well diversified. There are no concentrations of credit that exceed 10% of the portfolio, other than the general categories reported in the preceding Section C.II.a. of this Item 7, beginning on page 42. For further discussion, see Note 1, Risks and Uncertainties , to the Consolidated Financial Statements. 5.
The table below sets forth the various capital ratios achieved by Arrow and its subsidiary banks, Glens Falls National and Saratoga National, as of December 31, 2022, as determined under the bank regulatory capital standards in effect on that date, as well as the minimum levels for such capital ratios that bank holding companies and banks are required to maintain under the Capital Rules (not including the "capital conservation buffer").
The table below sets forth the various capital ratios achieved by Arrow and its subsidiary banks, Glens Falls National and Saratoga National, as of December 31, 2023, as determined under the bank regulatory capital standards in effect on that date, as well as the minimum levels for such capital ratios that bank holding companies and banks are required to maintain under the Capital Rules (not including the "capital conservation buffer").
The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: Management has a reasonable expectation at the reporting date that a troubled debt restructuring (TDR) will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by Arrow.
The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: Management has a reasonable expectation at the reporting date that a debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by Arrow.
Nonaccrual, Past Due and Restructured Loans The amounts of nonaccrual, past due and restructured loans at year-end for each of the past two years are presented in the table on page 33 under the heading "Summary of the Allowance and Provision for Credit Losses." Loans are placed on nonaccrual status either due to the delinquency status of principal and/or interest or a judgment by Management that the full repayment of principal and interest is unlikely.
Nonaccrual, Past Due and Restructured Loans The amounts of nonaccrual, past due and restructured loans at year-end for each of the past two years are presented in the table on page 35 under the heading "Summary of the Allowance and Provision for Credit Losses." Loans are placed on nonaccrual status either due to the delinquency status of principal and/or interest or a judgment by Management that the full repayment of principal and interest is unlikely.
Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings. Arrow's policies on the allowance for credit losses, pension accounting and provision for income taxes are disclosed in Note 2 to the consolidated financial statements of this Form 10-K. 27 A.
Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings. Arrow's policies on the allowance for credit losses, pension accounting and provision for income taxes are disclosed in Note 2 to the consolidated financial statements of this Form 10-K. 29 A.
The following tables reflect the components of net interest income for years ended December 31, 2022, 2021 and 2020: (i) average balances of assets, liabilities and stockholders' equity, (ii) interest and dividend income earned on earning assets and interest expense incurred on interest-bearing liabilities, (iii) average yields earned on earning assets and average rates paid on interest-bearing liabilities, (iv) the net interest spread (average yield less average cost) and (v) the net interest margin (yield) on earning assets.
The following tables reflect the components of net interest income for the years ended December 31, 2023, 2022 and 2021: (i) average balances of assets, liabilities and stockholders' equity, (ii) interest and dividend income earned on earning assets and interest expense incurred on interest-bearing liabilities, (iii) average yields on earning assets and average rates paid on interest-bearing liabilities, (iv) the net interest spread (average yield less average cost) and (v) the net interest margin (yield) on earning assets.
The analysis may include, but may not solely rely upon credit analysis conducted by external credit rating agencies. Arrow determined that the expected credit loss on its held to maturity debt portfolio was immaterial and, therefore, no allowance for credit loss was recorded as of December 31, 2022.
The analysis may include, but may not solely rely upon credit analysis conducted by external credit rating agencies. Arrow determined that the expected credit loss on its held to maturity debt portfolio was immaterial and, therefore, no allowance for credit loss was recorded as of December 31, 2023.
The federal funds lines of credit are with two correspondent banks totaling $52 million which were not drawn on in 2022. To support the borrowing relationship with the FHLBNY, Arrow has pledged collateral, including residential mortgage, home equity and commercial real estate loans.
The federal funds lines of credit are with two correspondent banks totaling $52 million which were not drawn on in 2023. To support the borrowing relationship with the FHLBNY, Arrow has pledged collateral, including residential mortgage, home equity and commercial real estate loans.
RESULTS OF OPERATIONS The following analysis of net interest income, the provision for credit losses, noninterest income, noninterest expense and income taxes, highlights the factors that had the greatest impact on the results of operations for December 31, 2022 and the prior two years. For a comparison of the years ended December 31, 2020 and 2021, see Part II.
RESULTS OF OPERATIONS The following analysis of net interest income, the provision for credit losses, noninterest income, noninterest expense and income taxes, highlights the factors that had the greatest impact on the results of operations for December 31, 2023 and the prior two years. For a comparison of the years ended December 31, 2021 and 2022, see Part II.
The table below presents the changes in the period-end balances for available-for-sale, held-to-maturity and equity securities from December 31, 2021 to December 31, 2022 (in thousands): (Dollars in Thousands) Fair Value at Period-End Net Unrealized (Losses) Gains For Period Ended 12/31/2022 12/31/2021 Change 12/31/2022 12/31/2021 Change Securities Available-for-Sale: U.S.
The table below presents the changes in the period-end balances for available-for-sale, held-to-maturity and equity securities from December 31, 2022 to December 31, 2023 (in thousands): (Dollars in Thousands) Fair Value at Period-End Net Unrealized (Losses) Gains For Period Ended 12/31/2023 12/31/2022 Change 12/31/2023 12/31/2022 Change Securities Available-for-Sale: U.S.
Arrow had no material commitments to lend additional funds on outstanding nonaccrual loans at December 31, 2022. Loans past due 90 days or more and still accruing interest are those loans which were contractually past due 90 days or more but because of expected repayments, were still accruing interest.
Arrow had no material commitments to lend additional funds on outstanding nonaccrual loans at December 31, 2023. Loans past due 90 days or more and still accruing interest are those loans which were contractually past due 90 days or more but because of expected repayments, were still accruing interest.
(See Item 46 1, Section C, under "Regulatory Capital Standards" and Item 8, Note 19 in the Notes to Consolidated Financial Statements, for information regarding the "capital conservation buffer.") In addition, on December 31, 2022, Arrow and each of the banks qualified as "well-capitalized", the highest capital classification category under the revised capital classification scheme recently established by the federal bank regulators, that was in effect on that date.
(See Item 1, Section C, under "Regulatory Capital Standards" and Item 8, Note 19 in the Notes to Consolidated Financial Statements, for information regarding the "capital conservation buffer.") In addition, on December 31, 2023, Arrow and each of the banks qualified as "well-capitalized", the highest capital classification category under the revised capital classification scheme recently established by the federal bank regulators, that was in effect on that date.
Consumer Loans: At December 31, 2022, consumer loans (primarily automobile loans originated through dealerships located in New York and Vermont) continue to be a significant component of Arrow's business, comprising approximately one third of the total loan portfolio.
Consumer Loans: At December 31, 2023, consumer loans (primarily automobile loans originated through dealerships located in New York and Vermont) continue to be a significant component of Arrow's business, comprising approximately one third of the total loan portfolio.
IV. DEPOSITS The following table sets forth the average balances of and average rates paid on deposits for the periods indicated.
DEPOSITS The following table sets forth the average balances of and average rates paid on deposits for the periods indicated.
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the year ended December 31, 2021. 30 I. NET INTEREST INCOME Net interest income represents the difference between interest, dividends and fees earned on loans, securities and other earning assets and interest paid on deposits and other sources of funds.
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the year ended December 31, 2022. I. NET INTEREST INCOME Net interest income represents the difference between interest, dividends and fees earned on loans, securities and other earning assets and interest paid on deposits and other sources of funds.
The yields on other debt securities shown in the table above are calculated by dividing annual interest, including accretion of discounts and amortization of premiums, by the amortized cost of the securities at December 31, 2022.
The yields on other debt securities shown in the table above are calculated by dividing annual interest, including accretion of discounts and amortization of premiums, by the amortized cost of the securities at December 31, 2023.
Historical credit loss experience for both Arrow and segment-specific peers provides the basis for the estimation of expected credit losses. Arrow utilized regression analyses of peer data, of which Arrow is included, where observed credit losses and selected economic factors were utilized to determine suitable loss drivers for modeling lifetime probability of default (PD) rates.
Historical credit loss experience for both Arrow and segment-specific peers provides the basis for the estimation of expected credit losses. Arrow utilizes regression analyses of peer data, of which Arrow is included, where observed credit losses and selected economic factors are utilized to determine suitable loss drivers for modeling lifetime probability of default (PD) rates.
OVERVIEW The following discussion and analysis focuses on and reviews Arrow's results of operations for each of the years in the three-year period ended December 31, 2022 and the financial condition as of December 31, 2022 and 2021.
OVERVIEW The following discussion and analysis focuses on and reviews Arrow's results of operations for each of the years in the three-year period ended December 31, 2023 and the financial condition as of December 31, 2023 and 2022.
Other Real Estate Owned and Repossessed Assets Other real estate owned ("OREO") primarily consists of real property acquired in foreclosure. OREO is carried at fair value less estimated cost to sell.
Other Real Estate Owned and Repossessed Assets Other real estate owned ("OREO") primarily consists of real property acquired in foreclosure. When held, OREO is carried at fair value less estimated cost to sell.
The rate at which mortgage loan originations are sold in future periods will depend on a variety of factors, including demand for residential mortgages in our operating markets, market conditions for mortgage sales and strategic balance sheet and interest-rate risk management decisions.
The rate at which mortgage loan originations may be sold in future periods will depend on a variety of factors, including demand for residential mortgages in our operating markets, market conditions for mortgage sales and strategic balance sheet and interest-rate risk management decisions.
Historically, Arrow has principally relied on asset-based liquidity (i.e., funds in overnight investments and cash flow from maturing investments and loans) with liability-based liquidity as a secondary source of funds (the main liability-based sources are an overnight borrowing arrangement with correspondent banks, an arrangement for overnight borrowing and term credit advances from the FHLBNY, and an additional arrangement for short-term advances at the Federal Reserve Bank discount window).
Arrow has principally relied on asset-based liquidity (i.e., funds in overnight investments and cash flow from maturing investments and loans) with liability-based liquidity as a secondary source of funds (the main liability-based sources are an overnight borrowing arrangement with correspondent banks, an arrangement for overnight borrowing and term credit advances from the FHLBNY, and an additional arrangement for short-term advances at the Federal Reserve Bank discount window as well as the Bank Term Funding Program).
H. RECENTLY ISSUED ACCOUNTING STANDARDS The following accounting standard has been issued and becomes effective for Arrow at a future date: In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
H. RECENTLY ISSUED ACCOUNTING STANDARDS The following accounting standard has been issued and becomes effective for Arrow at a future date: In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
The changes in net income, net interest income and net interest margin between the current and prior year are discussed in detail under the heading "Results of Operations," beginning on page 30.
The changes in net income, net interest income and net interest margin between the current and prior year are discussed in detail under the heading "Results of Operations," beginning on page 33.
At December 31, 2022, the amount available under this facility was approximately $649 million in the aggregate, and there were no advances then outstanding. Arrow performs regular liquidity stress tests and tests of the contingent liquidity plan to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity events.
At December 31, 2023, the amount available under this facility was approximately $739 million in the aggregate, and there were no advances then outstanding. Arrow performs regular liquidity stress tests and tests of the contingent liquidity plan to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity events.
Commercial lines, generally issued for a period of one year, are usually extended to provide for the working capital requirements of the borrower. At December 31, 2022, outstanding unfunded loan commitments in the aggregate amount were approximately $424.2 million compared to $402.3 million at December 31, 2021. c. Risk Elements 1.
Commercial lines, generally issued for a period of one year, are usually extended to provide for the working capital requirements of the borrower. At December 31, 2023, outstanding unfunded loan commitments in the aggregate amount were approximately $444.3 million compared to $424.2 million at December 31, 2022. c. Risk Elements 1.
Capital Ratios : Arrow GFNB SNB Minimum Required Ratio Tier 1 Leverage Ratio 9.8% 9.0% 10.5% 4.0% Common Equity Tier 1 Capital Ratio 13.3% 13.2% 14.3% 4.5% Tier 1 Risk-Based Capital Ratio 14.0% 13.2% 14.3% 6.0% Total Risk-Based Capital Ratio 15.1% 14.3% 15.5% 8.0% Federal bank regulators introduced an optional simplified measure of capital adequacy for qualifying community banking organizations (CBLR).
Capital Ratios : Arrow GFNB SNB Minimum Required Ratio Tier 1 Leverage Ratio 9.8% 9.2% 9.6% 4.0% Common Equity Tier 1 Capital Ratio 13.0% 13.2% 12.5% 4.5% Tier 1 Risk-Based Capital Ratio 13.7% 13.2% 12.5% 6.0% Total Risk-Based Capital Ratio 14.7% 14.3% 13.7% 8.0% Federal bank regulators introduced an optional simplified measure of capital adequacy for qualifying community banking organizations (CBLR).
Dividends: The source of funds for the payment by Arrow of cash dividends to stockholders consists primarily of dividends declared and paid to it by its bank subsidiaries.
Dividends: The source of funds for the payment by Arrow of cash dividends to shareholders consists primarily of dividends declared and paid to it by its bank subsidiaries.
Consumer automobile loans at December 31, 2022, were $1.1 billion, or 99.6% of this portfolio segment. The vast majority of automobile loans are initiated through the purchase of vehicles by consumers with automobile 29 dealers.
Consumer automobile loans at December 31, 2023, were $1.1 billion, or 99.6% of this portfolio segment. The vast majority of automobile loans are initiated through the purchase of vehicles by consumers with automobile dealers.
The maturity distribution below reflects the final maturity of the permanent financing. b. Maturities and Sensitivities of Loans to Changes in Interest Rates (Dollars in Thousands) The table below shows the maturity of loans outstanding as of December 31, 2022.
The maturity distribution below reflects the final maturity of the permanent financing. 43 b. Maturities and Sensitivities of Loans to Changes in Interest Rates (Dollars in Thousands) The table below shows the maturity of loans outstanding as of December 31, 2023.
Distribution of OREO and Repossessed Assets (Dollars In Thousands) December 31, 2022 2021 2020 Other Real Estate Owned — — — Repossessed Assets 593 126 155 Total OREO and Repossessed Assets $ 593 $ 126 $ 155 The following table summarizes changes in the net carrying amount of OREO and the number of properties for each of the periods presented.
Distribution of OREO and Repossessed Assets (Dollars In Thousands) December 31, 2023 2022 2021 Other Real Estate Owned — — — Repossessed Assets 312 593 126 Total OREO and Repossessed Assets $ 312 $ 593 $ 126 The following table summarizes changes in the net carrying amount of OREO and the number of properties for each of the periods presented.
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.
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 Tangible Equity exclude goodwill and other intangible assets, net from total equity.
As of December 31, 2022, under the statutory limitations in national banking law, the maximum amount that could have been paid by the bank subsidiaries to Arrow, without special regulatory approval, was approximately $88.8 million The ability of Arrow and its banks to pay dividends in the future is and will continue to be influenced by regulatory policies, capital guidelines and applicable laws.
As of December 31, 2023, under the statutory limitations in national banking law, the maximum amount that could have been paid by the bank subsidiaries to Arrow, without special regulatory approval, was approximately $73.6 million The ability of Arrow and its banks to pay dividends in the future is and will continue to be influenced by regulatory policies, capital guidelines and applicable laws.
The rate at which mortgage loan originations are sold in future periods will depend on various circumstances, including prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions. Liquidity and access to credit markets: Arrow did not experience any liquidity problems or special concerns in recent years or in 2022.
The rate at which mortgage loan originations are sold in future periods will depend on various circumstances, including prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions. Liquidity and access to credit markets: Arrow did not experience any liquidity issues in recent years or in 2023.
The system upgrade reflects the 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 Arrow continues to work toward fully leveraging the capabilities of the new bank core system.
In 2022, Arrow upgraded its core banking system. The system upgrade reflects the 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 Arrow continues to work toward fully leveraging the capabilities of the new bank core system.
Regulatory Capital and Decrease in Stockholders' Equity: As of December 31, 2022, Arrow continued to exceed all required minimum capital ratios under the current bank regulatory capital rules as implemented under Dodd-Frank (the "Capital Rules") at both the holding company and bank levels.
Regulatory Capital and Stockholders' Equity: As of December 31, 2023, Arrow continued to exceed all required minimum capital ratios under the current bank regulatory capital rules as implemented under Dodd-Frank (the "Capital Rules") at both the holding company and bank levels.
Therefore, Arrow carried no allowance for credit loss at December 31, 2022 and there was no credit loss expense recognized by Arrow with respect to the securities portfolio during the year ended December 31, 2022. At December 31, 2022 and 2021, the weighted average maturity was 4.2 and 4.0 years, respectively, for debt securities in the available-for-sale portfolio.
Arrow carried no allowance for credit loss at December 31, 2023 and there was no credit loss expense recognized by Arrow with respect to the securities portfolio during the year ended December 31, 2023. At December 31, 2023 and 2022, the weighted average maturity was 3.4 and 4.2 years, respectively, for debt securities in the available-for-sale portfolio.
The Board of Directors declared and Arrow paid a cash dividend of $0.262 per share for the first three quarters of 2022, as adjusted for a 3% stock dividend distributed September 23, 2022, a cash dividend of $0.27 per share for the fourth quarter of 2022, and declared a $0.27 per share cash dividend for the first quarter of 2023.
The Board of Directors declared and Arrow paid a cash dividend of $0.262 per share for the first three quarters of 2023, as adjusted for a 3% stock dividend distributed September 26, 2023, a cash dividend of $0.27 per share for the fourth quarter of 2023, and a $0.27 per share cash dividend for the first quarter of 2024.
SUMMARY OF CREDIT LOSS EXPERIENCE The information required in this section is presented in the discussion of the "Provision for Credit Losses and Allowance for Credit Losses" in Part II Item 7, Section B.II. beginning on page 33 of this Report, including: • Charge-offs and Recoveries by loan type • Factors that led to the amount of the Provision for Credit Losses • Allocation of the Allowance for Credit Losses by loan type 43 The percent of loans in each loan category is presented in the table of loan types in the preceding section on page 40 of this Report.
SUMMARY OF CREDIT LOSS EXPERIENCE The information required in this section is presented in the discussion of the "Provision for Credit Losses and Allowance for Credit Losses" in Part II Item 7, Section B.II. beginning on page 35 of this Report, including: • Charge-offs and Recoveries by loan type • Factors that led to the amount of the Provision for Credit Losses • Allocation of the Allowance for Credit Losses by loan type The percent of loans in each loan category is presented in the table of loan types in the preceding section on page 42 of this Report. 45 IV.
In return, reciprocal amounts are transferred to Arrow in equal amounts of deposits from the participant banks. The balances of reciprocal deposits were $520.6 million and $529.8 million at December 31, 2022 and 2021, respectively. The following tables presents the quarterly average balance by deposit type for each of the most recent five quarters.
In return, reciprocal amounts are transferred to Arrow in equal amounts of deposits from the participant banks. The balances of reciprocal deposits were $600.3 million and $520.6 million at December 31, 2023 and 2022, respectively. The following tables presents the quarterly average balance by deposit type for each of the most recent five quarters.
Arrow determined that at December 31, 2022, gross unrealized losses, $65.6 million, were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. In 2022, the rising interest rate environment resulted in an increase in unrealized losses versus the comparable prior period.
Arrow determined that at December 31, 2023, gross unrealized losses, $42.4 million, were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. In 2023, the rising interest rate environment resulted in an increase in unrealized losses versus the comparable prior period.
Under ASU 2017-07 (Compensation-Retirement Benefits), interest cost, expected return on plan assets, amortization of prior service cost and amortization of net loss are required to be reclassified out of salaries and employee benefits. The reclassification was $1.7 million in 2021. Salaries and benefits were also impacted by increased benefit costs and incentive payments.
Under Accounting Standards Update ("ASU") 2017-07 (Compensation-Retirement Benefits), interest cost, expected return on plan assets, amortization of prior service cost and amortization of net loss are required to be reclassified out of salaries and employee benefits. The reclassification was $1.5 million in 2022. Salaries and benefits were also impacted by increased benefit costs and incentive payments.
Arrow originated nearly all of the residential real estate loans currently held in the loan portfolio and applies conservative underwriting standards to loan originations. Arrow typically sells a portion of residential real estate mortgage originations into the secondary market.
Arrow originated nearly all of the residential real estate loans currently held in the loan portfolio and applies conservative underwriting standards to loan originations. Arrow has historically sold a portion of the residential real estate mortgage originations into the secondary market.
This is in comparison with the increase of $11.2 million, or 11.2%, from 2020 to 2021. Factors contributing to the year-to-year changes in net interest income over the three-year period are discussed in the following portions of this Section B.I.
This is in comparison with the increase of $8.0 million, or 7.2%, from 2021 to 2022. Factors contributing to the year-to-year changes in net interest income over the three-year period are discussed in the following portions of this Section B.I.
INCOME TAXES AND EFFECTIVE RATES (Dollars In Thousands) Years Ended December 31, Change From Prior Year 2021 to 2022 2020 to 2021 2022 2021 2020 Amount % Amount % Provision for Income Taxes $ 14,114 $ 14,547 $ 11,036 $ (433) (3.0) % $ 3,511 31.8 % Effective Tax Rate 22.4 % 22.6 % 21.3 % (0.2) % (0.9) % 1.3 % 6.1 % The provisions for federal and state income taxes amounted to $14.1 million for 2022, $14.5 million for 2021, and $11.0 million for 2020.
INCOME TAXES AND EFFECTIVE RATES (Dollars In Thousands) Years Ended December 31, Change From Prior Year 2022 to 2023 2021 to 2022 2023 2022 2021 Amount % Amount % Provision for Income Taxes $ 7,445 $ 14,114 $ 14,547 $ (6,669) (47.3) % $ (433) (3.0) % Effective Tax Rate 19.8 % 22.4 % 22.6 % (2.6) % (11.6) % (0.2) % (0.9) % The provisions for federal and state income taxes amounted to $7.4 million for 2023, $14.1 million for 2022, and $14.5 million for 2021.
Technology expenses increased $1.2 million, or 8.4%, from 2021 due to the investment in upgrading the core banking system. The expense reflects the strategic focus on a strong technology foundation and paves the way for customer-facing enhancements and more efficient and improved internal operations. Other operating expense decreased $476 thousand, or 4.2%, from 2021.
Technology expenses increased $1.5 million, or 9.2%, from 2022 due to the investment in upgrading the core banking system. The expense reflects the strategic focus on a strong technology foundation and paves the way for customer-facing enhancements and more efficient and improved internal operations. Other operating expense increased $8.2 million, or 75.2%, from 2022.
The provision for credit losses for 2022 was $4.8 million, compared to the $0.3 million provision for 2021.
The provision for credit losses for 2023 was $3.4 million, compared to the $4.8 million provision for 2022.
At December 31, 2022, Arrow had outstanding collateralized obligations with the FHLBNY of $45 million; as of that date, the unused borrowing capacity at the FHLBNY was approximately $608 million. Brokered deposits have also been identified as an available source of funding accessible in a relatively short time period. At December 31, 2022, there were no outstanding brokered deposits.
At December 31, 2023, Arrow had outstanding collateralized obligations with the FHLBNY of $27 million; as of that date, the unused borrowing capacity at the FHLBNY was approximately $550 million. Brokered deposits have also been identified as an available source of funding accessible in a relatively short time period.
The ratio of the sales of originations to total originations tends to fluctuate from period to period based on market conditions and other factors. Since the second half 2021, sales have decreased as a result of the strategic decision to grow the residential loan portfolio.
The ratio of the sales of originations to total originations tends to fluctuate from period to period based on market conditions and other factors. In recent periods, sales have decreased as a result of the strategic decision to grow the residential loan portfolio.
See the discussion of the efficiency ratio in this Report under the heading “Use of Non-GAAP Financial Measures.” Salaries and employee benefits expense increased $2.2 million or 4.9%, from 2021. Included within salaries and benefits was a $1.5 million reclassification between salaries and employee benefits and other operating expenses.
See the discussion of the efficiency ratio in this Report under the heading “Use of Non-GAAP Financial Measures.” Salaries and employee benefits expense increased $0.7 million or 1.4%, from 2022. Included within salaries and benefits was a $606 thousand reclassification between salaries and employee benefits and other operating expenses.
As of December 31, 2022, the total contingent liability for standby letters of credit amounted to $3.6 million.
As of December 31, 2023, the total contingent liability for standby letters of credit amounted to $3.8 million.
The balance of loans 30-89 days past due and still accruing interest totaled $20.4 million at December 31, 2022 and represented 0.68% of loans outstanding at that date, as compared to approximately $12.2 million, or 0.46% of loans outstanding at December 31, 2021.
The balance of loans 30-89 days past due and still accruing interest totaled $24.3 million at December 31, 2023 and represented 0.76% of loans outstanding at that date, as compared to approximately $20.4 million, or 0.68% of loans outstanding at December 31, 2022.
For 2022, the efficiency ratio was 54.26%. This ratio, which is a commonly used non-GAAP financial measure in the banking industry, is a comparative measure of a financial institution's operating efficiency.
For 2023, the efficiency ratio was 68.89%. This ratio, which is a commonly used non-GAAP financial measure in the banking industry, is a comparative measure of a financial institution's operating efficiency.
Operating collateralized lines of credit are established and available through the FHLBNY and FRB, totaling $1.3 billion. The terms of Arrow's lines of credit have not changed significantly in recent periods (see the general liquidity discussion on page 46).
Arrow has collateralized lines of credit established and available through the FHLBNY and FRB, totaling $1.4 billion. The terms of Arrow's lines of credit have not changed significantly in recent periods (see the general liquidity discussion on page 47).
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.
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.
Arrow also held interest-bearing cash balances at December 31, 2022 of $32.8 million compared to $430.7 million at December 31, 2021.
Arrow also held interest-bearing cash balances at December 31, 2023 of $105.8 million compared to $32.8 million at December 31, 2022.
As of December 31, 2022, Arrow's closing stock price was $33.90, resulting in a trading multiple of 1.70 to Arrow's tangible book value.
As of December 31, 2023, Arrow's closing stock price was $27.94, resulting in a trading multiple of 1.33 to Arrow's tangible book value.
Although previous supply chain constraints have lessened, inflation and higher rates may limit the potential growth in this category. ◦ Residential Real Estate Loans: These loans, including home equity loans, made up 35.9% of the total loan portfolio at period-end. Demand for residential real estate has continued but weakened as interest rates have increased.
Although previous supply chain constraints have lessened, inflation and higher rates may limit the potential growth in this category. ◦ Residential Real Estate Loans: These loans, including home equity loans, made up 37.3% of the total loan portfolio at period-end. Demand for residential real estate has continued to remain strong.
In addition, Arrow's two bank subsidiaries have each established a borrowing facility with the Federal Reserve Bank of New York, pledging certain consumer loans as collateral for potential "discount window" advances, which are maintained for contingency liquidity purposes.
At December 31, 2023, there were $175 million in brokered CD deposits. In addition, Arrow's two bank subsidiaries have each established a borrowing facility with the Federal Reserve Bank of New York, pledging certain consumer loans as collateral for potential "discount window" advances, which are maintained for contingency liquidity purposes.
SHORT-TERM BORROWINGS (Dollars in Thousands) 12/31/2022 12/31/2021 12/31/2020 Overnight Advances from the FHLBNY, Federal Funds Purchased and Securities Sold Under Agreements to Repurchase: Balance at December 31 $ 27,000 $ — $ 17,486 Maximum Month-End Balance 27,000 15,798 73,949 Average Balance During the Year 2,124 4,768 57,929 Average Rate During the Year 4.34 % 0.06 % 0.43 % Rate at December 31 4.61 % N/A 0.07 % D.
SHORT-TERM BORROWINGS (Dollars in Thousands) 12/31/2023 12/31/2022 12/31/2021 Overnight Advances from the FHLBNY, Federal Funds Purchased and Securities Sold Under Agreements to Repurchase: Balance at December 31 $ 20,000 $ 27,000 $ — Maximum Month-End Balance 112,000 27,000 15,798 Average Balance During the Year 39,659 2,124 4,768 Average Rate During the Year 5.25 % 4.34 % 0.06 % Rate at December 31 5.64 % 4.61 % N/A D.
Interest-earning assets and funding sources are managed, including noninterest and interest-bearing liabilities, in order to maximize this margin. 2022 Compared to 2021: Net interest income increased $8.0 million, or 7.2%, to $118.3 million for the year ended December 31, 2022 from $110.4 million for the year ended December 31, 2021.
Interest-earning assets and funding sources are managed, including noninterest and interest-bearing liabilities, in order to maximize this margin. 2023 Compared to 2022: Net interest income decreased $13.5 million, or 11.4%, to $104.8 million for the year ended December 31, 2023 from $118.3 million for the year ended December 31, 2022.
Schedule of Changes in OREO (Dollars In Thousands) 2022 2021 2020 Balance at Beginning of Year $ — $ — $ 1,122 Properties Acquired Through Foreclosure — 99 — Gain of Sale of OREO properties — — 192 Subsequent Write-downs to Fair Value — (19) — Sales — (80) (1,314) Balance at End of Year $ — $ — $ — Number of Properties, Beginning of Year — — 3 Properties Acquired During the Year — 1 — Properties Sold During the Year — (1) (3) Number of Properties, End of Year — — — I II.
Schedule of Changes in OREO (Dollars In Thousands) 2023 2022 2021 Balance at Beginning of Year $ — $ — $ — Properties Acquired Through Foreclosure 182 — 99 Gain of Sale of OREO properties — — — Subsequent Write-downs to Fair Value 5 — (19) Sales (187) — (80) Balance at End of Year $ — $ — $ — Number of Properties, Beginning of Year — — — Properties Acquired During the Year 1 — 1 Properties Sold During the Year (1) — (1) Number of Properties, End of Year — — — III.
Account balances tend to increase throughout the fall and into early winter from tax deposits, flatten out after the beginning of the ensuing calendar year, and increase again at the end of March from the electronic deposit of NYS Aid payments to school districts.
Account balances tend to increase throughout the fall and into early winter from tax deposits, flatten out after the beginning of the ensuing calendar year, and increase again at the end of March from the electronic deposit of NYS Aid payments to school districts. 46 The total quarterly average balances as a percentage of total deposits are illustrated in the table below.
The net decrease in total stockholders' equity during 2022 principally reflected the following factors: (i) $48.8 million of net income for the year, plus (ii) $2.0 million of equity related to various stock-based compensation plans, plus (iii) $1.9 million of equity resulting from the dividend reinvestment plan, reduced by (iv) other comprehensive loss of $50.0 million, (v) cash dividends of $17.4 million and (vi) repurchases of common stock of $2.9 million.
The net increase in total stockholders' equity during 2023 principally reflected 48 the following factors: (i) $30.1 million of net income for the year, (ii) other comprehensive income of $16.2 million, (iii) $1.0 million of equity related to various stock-based compensation plans and (iv) $0.5 million of equity resulting from the dividend reinvestment plan, reduced by (v) cash dividends of $18.0 million and (vi) repurchases of common stock of $3.6 million.
Appraisals on nonperforming and watched CRE loan properties are updated as deemed necessary, usually when the loan is downgraded or when there has been significant market deterioration since the last appraisal. ◦ Consumer Loans: These loans (primarily automobile loans) comprised approximately 35.7% of the total loan portfolio at period-end.
Commercial property values in Arrow's region have largely remained stable. 31 Appraisals on nonperforming and watched CRE loan properties are updated as deemed necessary, usually when the loan is downgraded or when there has been significant market deterioration since the last appraisal. ◦ Consumer Loans: These loans (primarily automobile loans) comprised approximately 34.6% of the total loan portfolio at period-end.
The Federal Funds rate increased throughout 2022 and is anticipated to continue into 2023. Arrow believes it is well positioned for a variety of rate environments. The maturities of time deposits of $250,000 or more at December 31, 2022 are presented below.
The Federal Funds rate is anticipated to decrease in 2024, the timing and magnitude of the reductions are unknown. Arrow believes it is well positioned for a variety of rate environments. The maturities of time deposits of $250,000 or more at December 31, 2023 are presented below.
The securities available-for-sale portfolio was $573.5 million at year-end 2022, an increase of $14.2 million from the year-end 2021 level. Due to the potential for volatility in market values, Arrow may not always be able to sell securities on short notice at their carrying value, even to provide needed liquidity.
The securities available-for-sale portfolio was $497.8 million at year-end 2023, a decrease of $75.7 million from the 47 year-end 2022 level. Due to the potential for volatility in market values, Arrow may not always be able to sell securities on short notice at their carrying value, even to provide needed liquidity.
The net decrease in total stockholders' equity during 2022 principally reflected the following factors: (i) $48.8 million of net income for the year, plus (ii) $2.0 million of equity related to various stock-based compensation plans, plus (iii) $1.9 million of equity resulting from the dividend reinvestment plan, reduced by (iv) other comprehensive loss of $50.0 million, (v) cash dividends of $17.4 million and (vi) repurchases of common stock of $2.9 million.
The net increase in total stockholders' equity during 2023 principally reflected the following factors: (i) $30.1 million of net income for the year, (ii) other comprehensive income of $16.2 million, (iii) $1.0 million of equity related to various stock-based compensation plans and (iv) $0.5 million of equity resulting from the dividend reinvestment plan, reduced by (v) cash dividends of $18.0 million and (vi) repurchases of common stock of $3.6 million.
Summary of 2022 Financial Results: For the year ended December 31, 2022, net income was $48.8 million, down 2.1% from $49.9 million for 2021.
Summary of 2023 Financial Results: For the year ended December 31, 2023, net income was $30.1 million, down 38.4% from $48.8 million for 2022.
Book Value) $ 353,538 $ 371,186 $ 334,392 Book Value per Share 21.36 22.47 20.31 Intangible Assets 23,373 23,791 23,823 Tangible Book Value per Share 2 19.95 21.03 18.87 Asset Quality Information: Net Loans Charged-off as a Percentage of Average Loans 0.08 % 0.03 % 0.05 % Provision for Credit Losses as a Percentage of Average Loans 0.17 % 0.01 % 0.37 % Allowance for Credit Losses as a Percentage of Period-End Loans 1.00 % 1.02 % 1.13 % Allowance for Credit Losses as a Percentage of Nonperforming Loans 249.95 % 233.89 % 456.32 % Nonperforming Loans as a Percentage of Period-End Loans 0.40 % 0.44 % 0.25 % Nonperforming Assets as a Percentage of Total Assets 0.32 % 0.29 % 0.18 % *See "Use of Non-GAAP Financial Measures" on page 4. 25 Arrow Financial Corporation Reconciliation of Non-GAAP Financial Information (Dollars In Thousands, Except Per Share Amounts ) Footnotes: 1.
Book Value) $ 379,772 $ 353,538 $ 371,186 Book Value per Share 22.42 20.74 21.81 Intangible Assets 22,983 23,373 23,791 Tangible Book Value per Share 2 21.06 19.37 20.41 Asset Quality Information: Net Loans Charged-off as a Percentage of Average Loans 0.07 % 0.08 % 0.03 % Provision for Credit Losses as a Percentage of Average Loans 0.11 % 0.17 % 0.01 % Allowance for Credit Losses as a Percentage of Period-End Loans 0.97 % 1.00 % 1.02 % Allowance for Credit Losses as a Percentage of Nonperforming Loans 147.82 % 249.95 % 233.89 % Nonperforming Loans as a Percentage of Period-End Loans 0.66 % 0.40 % 0.44 % Nonperforming Assets as a Percentage of Total Assets 0.51 % 0.32 % 0.29 % *See "Use of Non-GAAP Financial Measures" on page 5. 27 Arrow Financial Corporation Reconciliation of Non-GAAP Financial Information (Dollars In Thousands, Except Per Share Amounts ) Footnotes: 1.
The net change in earnings between the two quarters was primarily due to the following: (a) a $3.4 million increase in net interest income, (b) a $424 thousand decrease in noninterest income, (c) a $851 thousand increase in the provision for credit losses, (d) a $68 thousand decrease in noninterest expense, and (e) a $390 thousand increase in the provision for income taxes.
The net change in earnings between the two quarters was primarily due to the following: (a) a $5.0 million decrease in net interest income, (b) a $2.4 million increase in noninterest expense offset by (c) a $319 thousand increase in noninterest income, (d) a $884 thousand decrease in the provision for credit losses, and (e) a $1.8 million decrease in the provision for income taxes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed12 unchanged
Biggest changeAs of December 31, 2022: Change in Interest Rate Policy Limit + 200 basis points - 100 basis points Calculated change in Net Interest Income - Year 1 (2.47)% 0.39% (10.00)% Calculated change in Net Interest Income - Year 2 10.11% 10.45% (15.00)% The balance sheet shows an inverse relationship between changes in prevailing rates and the Company's net interest income in the near term, suggesting that liabilities and sources of funds generally reprice more quickly than earning assets.
Biggest changeThese results are well within the ALCO policy limits as shown: As of December 31, 2023: Change in Interest Rate + 200 basis points - 100 basis points Calculated change in Net Interest Income - Year 1 (4.2)% 1.3% Calculated change in Net Interest Income - Year 2 15.2% 13.5% The balance sheet shows an inverse relationship between changes in prevailing rates and Arrow's net interest income in the near term, suggesting that liabilities and sources of funds generally reprice more quickly than earning assets.
The results are presented for each of the first two years of the simulation period for the 200 basis point increase in interest rate scenario and the 100 basis point decrease in interest rate scenario. These results are well within the ALCO policy limits as shown.
The results are presented for each of the first two years of the simulation period for the 200 basis point increase in interest rate scenario and the 100 basis point decrease in interest rate scenario.