Arrow Financial (AROW) - 2022 Q4 - Annual Report

Financial Performance - Net income for the quarter ended December 31, 2022, was $12,087 million, a decrease from $12,163 million in the previous quarter[104] - Basic earnings per share remained stable at $0.73, consistent with the previous quarter's $0.74[104] - Net income for the period was $48,799,000, a decrease from $49,857,000 in the previous period[105] - Basic earnings per share (EPS) was $2.95, down from $3.02 in the prior period[105] - For the year ended December 31, 2022, net income was $48.8 million, down 2.1% from $49.9 million in 2021[115] - Diluted EPS for 2022 was $2.95, a decrease of 2.1% from $3.01 in 2021[115] - Arrow reported a net income of $12.1 million for Q4 2022, an increase of $1.8 million, or 17.2%, from Q4 2021[205] Assets and Equity - Total assets increased to $4,074,028 million from $4,047,738 million in the prior quarter[104] - Total stockholders' equity was $353,538 million, compared to $345,550 million in the previous quarter[104] - Average assets increased to $4,047,480,000 from $3,882,642,000, representing a growth of approximately 4.3%[105] - Total assets were $3.97 billion at December 31, 2022, a decrease of $58.4 million, or 1.5%, from December 31, 2021[115] - Total shareholders' equity was $353.5 million at period-end, a decrease of $17.6 million, or 4.8%, from year-end 2021[117] - Total stockholders' equity decreased by $17.6 million, or 4.8%, to $353.5 million as of December 31, 2022, primarily due to a comprehensive loss of $50.0 million and cash dividends of $17.4 million[195] Income and Expenses - Net interest income for the quarter was $30,579 million, compared to $30,901 million in the previous quarter[104] - Noninterest expense was reported at $20,792 million, an increase from $21,448 million in the prior quarter[104] - Efficiency ratio improved to 54.63%, down from 55.01% in the previous quarter[104] - Net interest income was $118,343,000, compared to $110,355,000 in the previous period, reflecting an increase of about 7.9%[105] - Noninterest expense rose to $81,530,000 from $78,048,000, indicating an increase of approximately 3.2%[105] - Noninterest expenses for 2022 were $81.5 million, an increase of $3.5 million, or 4.5%, from 2021[147] Credit Quality - Nonperforming loans as a percentage of period-end loans were 0.40%, down from 0.44%[105] - The provision for credit losses related to the loan portfolio was $4.8 million, compared to $272 thousand in 2021[115] - Nonperforming assets were $12.6 million at December 31, 2022, representing 0.32% of period-end assets[115] - Provision for credit losses increased significantly to $4.8 million in 2022, up from $0.3 million in 2021[135] - Total nonperforming assets at period-end were $12.576 million, compared to $11.790 million in 2021[137] - Nonaccrual loans represented 0.68% of total loans outstanding as of December 31, 2022, compared to 0.46% in 2021, indicating a deterioration in credit quality[173] Loans and Lending Activities - Total loan balances reached $3.0 billion, up $315 million, or 11.8%, from the prior year[115] - Total loans grew by $315.3 million, or 11.8%, from December 31, 2021, to December 31, 2022[118] - Consumer loans, primarily automobile loans, comprised approximately 35.7% of the total loan portfolio, totaling $1.1 billion[120] - Residential real estate loan originations were $217.5 million in 2022, down from $244.5 million in 2021, indicating a decline in demand due to rising interest rates[160] - The loan portfolio is well diversified, with no concentrations of credit exceeding 10% of the portfolio, ensuring a balanced risk profile[176] Deposits and Funding - Average total deposit balances increased by $171.3 million, or 5.0%, in 2022, primarily driven by growth in demand deposits, checking, and savings deposit categories[182] - The total deposits as of December 31, 2022, amounted to $3.59 billion, with an average interest rate of 0.27%, compared to $3.42 billion and 0.10% in 2021[182] - The cost of deposits increased to 0.54% by December 31, 2022, up from 0.08% at the end of 2021, reflecting the rising Federal Funds rate throughout 2022[187] Capital and Liquidity - Arrow's Tier 1 leverage ratio was 9.8%, and the Common Equity Tier 1 Capital Ratio was 13.3%, both well above the minimum required ratios of 4.0% and 4.5%, respectively[194] - Arrow's basic liquidity ratio, including FHLBNY collateralized borrowing capacity, was 19.6% of total assets, or $619 million in excess of the internally-set minimum target ratio of 4%[191] - The liquidity position includes a securities portfolio valued at $573.5 million, an increase of $14.2 million from the previous year, and interest-bearing cash balances of $32.8 million, down from $430.7 million[191] Governance and Corporate Responsibility - Arrow's governance program adheres to comprehensive standards, ensuring strong corporate governance practices[51] - In 2022, Arrow donated over $675,000 and contributed 9,395 hours to community support initiatives[51] - The company has installed solar panels at its corporate headquarters, contributing approximately 3,000 square feet of green energy[50] - Arrow's incentive compensation policies are designed to avoid excessive risk-taking, aligning with regulatory guidelines established by the FRB, OCC, and FDIC[39] Management Changes - David S. DeMarco has been appointed as President and Chief Executive Officer of Arrow since May 13, 2023[53] - Penko Ivanov became Chief Financial Officer and Chief Accounting Officer effective February 21, 2023[53] - David D. Kaiser has served as Chief Credit Officer since February 2022, with prior experience in various senior roles within the company[53] - Andrew J. Wise has been Chief Operating Officer since February 2022, previously holding senior positions in the company[53]