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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-12507

ARROW FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)
New York22-2448962
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

250 Glen StreetGlens FallsNew York12801
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:518 745-1000

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, Par Value $1.00 per shareAROWNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes    ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding as of October 31, 2022
Common Stock, par value $1.00 per share16,528,659



ARROW FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS

2


PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
 September 30,
2022
December 31,
2021
September 30,
2021
ASSETS  
Cash and Due From Banks$44,872 $26,978 $49,430 
Interest-Bearing Deposits at Banks328,557 430,718 548,936 
Investment Securities: 
Available-for-Sale at Fair Value575,054 559,316 486,900 
Held-to-Maturity (Fair Value of $175,800 at September 30, 2022; $201,292 at December 31, 2021; and $203,936 at September 30, 2021)
182,178 196,566 198,337 
Equity Securities2,126 1,747 1,886 
FHLB and Federal Reserve Bank Stock4,720 5,380 5,380 
Loans2,924,794 2,667,941 2,654,751 
Allowance for Credit Losses(29,232)(27,281)(26,956)
Net Loans2,895,562 2,640,660 2,627,795 
Premises and Equipment, Net54,015 46,217 44,003 
Goodwill21,873 21,873 21,873 
Other Intangible Assets, Net1,604 1,918 2,006 
Other Assets122,217 96,579 84,558 
Total Assets$4,232,778 $4,027,952 $4,071,104 
LIABILITIES  
Noninterest-Bearing Deposits$910,221 $810,274 $841,910 
Interest-Bearing Checking Accounts1,113,850 994,391 1,035,358 
Savings Deposits1,584,373 1,531,287 1,515,692 
Time Deposits over $250,00059,059 82,811 73,889 
Other Time Deposits127,602 131,734 138,714 
Total Deposits3,795,105 3,550,497 3,605,563 
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase  2,426 
Federal Home Loan Bank Term Advances25,000 45,000 45,000 
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts20,000 20,000 20,000 
Finance Leases5,131 5,169 5,181 
Other Liabilities41,992 36,100 32,763 
Total Liabilities3,887,228 3,656,766 3,710,933 
STOCKHOLDERS’ EQUITY  
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at September 30, 2022, December 31, 2021 and September 30, 2021
   
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (21,423,992 Shares Issued at September 30, 2022 and 20,800,144 at December 31, 2021 and September 30, 2021)
21,424 20,800 20,800 
Additional Paid-in Capital399,461 377,996 377,349 
Retained Earnings57,778 54,078 47,936 
Accumulated Other Comprehensive (Loss) Income(49,070)347 (3,719)
Treasury Stock, at Cost (4,900,975 Shares at September 30, 2022; 4,759,414 Shares at December 31, 2021 and 4,780,496 Shares at September 30, 2021)
(84,043)(82,035)(82,195)
Total Stockholders’ Equity345,550 371,186 360,171 
Total Liabilities and Stockholders’ Equity$4,232,778 $4,027,952 $4,071,104 
    See Notes to Unaudited Interim Consolidated Financial Statements.
3



ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
INTEREST AND DIVIDEND INCOME  
Interest and Fees on Loans$29,618 $27,157 $82,263 $79,354 
Interest on Deposits at Banks1,201 163 1,826 351 
Interest and Dividends on Investment Securities:
Fully Taxable2,603 1,632 7,236 4,809 
Exempt from Federal Taxes785 855 2,422 2,682 
Total Interest and Dividend Income34,207 29,807 93,747 87,196 
INTEREST EXPENSE  
Interest-Bearing Checking Accounts267 155 629 566 
Savings Deposits2,469 424 3,778 1,490 
Time Deposits over $250,00089 39 143 228 
Other Time Deposits150 133 370 511 
Federal Funds Purchased and
  Securities Sold Under Agreements to Repurchase
   3 
Federal Home Loan Bank Advances110 197 405 586 
Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts
173 173 513 513 
Interest on Financing Leases48 48 145 146 
Total Interest Expense3,306 1,169 5,983 4,043 
NET INTEREST INCOME30,901 28,638 87,764 83,153 
Provision for Credit Losses1,715 99 3,389 (286)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES29,186 28,539 84,375 83,439 
NONINTEREST INCOME  
Income From Fiduciary Activities2,341 2,571 7,454 7,538 
Fees for Other Services to Customers3,071 2,966 8,916 8,494 
Insurance Commissions1,650 1,576 4,783 4,842 
Net Gain (Loss) on Securities95 (106)379 250 
Net Gain on Sales of Loans18 211 80 2,251 
Other Operating Income652 476 2,121 1,405 
Total Noninterest Income7,827 7,694 23,733 24,780 
NONINTEREST EXPENSE  
Salaries and Employee Benefits12,427 11,377 35,400 33,360 
Occupancy Expenses, Net1,521 1,403 4,721 4,480 
Technology and Equipment Expense4,049 3,833 11,802 11,002 
FDIC Assessments295 249 893 764 
Other Operating Expense3,156 2,561 7,922 7,582 
Total Noninterest Expense21,448 19,423 60,738 57,188 
INCOME BEFORE PROVISION FOR INCOME TAXES15,565 16,810 47,370 51,031 
Provision for Income Taxes3,402 3,821 10,658 11,483 
NET INCOME$12,163 $12,989 $36,712 $39,548 
Average Shares Outstanding 1:
  
Basic16,512 16,508 16,506 16,495 
Diluted16,558 16,568 16,553 16,554 
Per Common Share:  
Basic Earnings$0.74 $0.79 $2.22 $2.40 
Diluted Earnings0.74 0.78 2.22 2.39 

    1 Share and Per Share Amounts have been restated for the September 23, 2022 3% stock dividend.
See Notes to Unaudited Interim Consolidated Financial Statements.
4



ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In Thousands)
(Unaudited)
Three Months Ended September 30Nine Months Ended September 30
2022202120222021
Net Income$12,163 $12,989 $36,712 39,548 
Other Comprehensive (Loss) Income, Net of Tax:
  Net Unrealized Securities Holding Loss
  Arising During the Period
(20,801)(1,279)(52,808)(3,969)
  Net Unrealized Gain on Cash Flow Hedge
  Agreements
778 183 2,781 954 
  Reclassification of Net Unrealized Gain on Cash
  Flow Hedge Agreements to Interest Expense
55 (25)42 (68)
  Amortization of Net Retirement Plan Actuarial Loss420 17 441 51 
  Amortization of Net Retirement Plan Prior Service Cost 42 43 127 129 
Other Comprehensive Loss(19,506)(1,061)(49,417)(2,903)
  Comprehensive (Loss) Income $(7,343)$11,928 $(12,705)$36,645 

    See Notes to Unaudited Interim Consolidated Financial Statements.

5


ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
Nine Month Period Ended September 30, 2022
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumu-lated
Other Com-
prehensive
Income (Loss)
Treasury
Stock
Total
Balance at December 31, 2021
$20,800 $377,996 $54,078 $347 $(82,035)$371,186 
Net Income— — 36,712 — — 36,712 
Other Comprehensive Loss— — — (49,417)— (49,417)
3% Stock Dividend (623,848 Shares)
624 19,408 (20,032)— —  
Cash Dividends Paid, $.786 per Share 1
— — (12,980)— — (12,980)
Stock Options Exercised, Net  (17,284 Shares)
— 215 — — 151 366 
Shares Issued Under the Directors’ Stock
  Plan  (8,693 Shares)
— 210 — — 75 285 
Shares Issued Under the Employee Stock
  Purchase Plan  (11,416 Shares)
— 261 — — 100 361 
Shares Issued for Dividend
  Reinvestment Plans (43,673 Shares)
— 1,033 — — 387 1,420 
Stock-Based Compensation Expense— 338 — — — 338 
Purchase of Treasury Stock
  (79,881 Shares)
— — — — (2,721)(2,721)
Balance at September 30, 2022
$21,424 $399,461 $57,778 $(49,070)$(84,043)$345,550 
Three Month Period Ended September 30, 2022
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumu-lated
Other Com-
prehensive
Loss
Treasury
Stock
Total
Balance at June 30 , 2022$20,800 $379,423 $69,980 $(29,564)$(84,141)$356,498 
Net Income— — 12,163 — — 12,163 
Other Comprehensive Loss— — — (19,506)— (19,506)
3% Stock Dividend (623,848 Shares)
624 19,408 (20,032)— —  
Cash Dividends Paid, $.262 per Share 1
— — (4,333)— — (4,333)
Stock Options Exercised, Net  (1,406 Shares)
— 27 — — 13 40 
Shares Issued Under the Directors’ Stock
  Plan  (2,923 Shares)
— 67 — — 25 92 
Shares Issued Under the Employee Stock
  Purchase Plan  (3,855 Shares)
— 85 — — 34 119 
Shares Issued for Dividend
  Reinvestment Plans (14,521 Shares)
— 337 — — 134 471 
Stock-Based Compensation Expense— 114 — — — 114 
Purchase of Treasury Stock
  (3,329 Shares)
— — — — (108)(108)
Balance at September 30, 2022
$21,424 $399,461 $57,778 $(49,070)$(84,043)$345,550 
6


Nine Month Period Ended September 30, 2021
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumu-lated
Other Com-
prehensive
Loss
Treasury
Stock
Total
Balance at December 31, 2020
$20,194 353,662 41,899 $(816)$(80,547)$334,392 
Cumulative impact of adoption of ASU 2016-13120120 
Balance at January 1, 2021 as adjusted for impact of adoption of ASU 2016-1320,194 353,662 42,019 (816)(80,547)334,512 
Net Income— — 39,548 — — 39,548 
Other Comprehensive Loss— — — (2,903)— (2,903)
3% Stock Dividend (605,670 Shares)
606 20,896 (21,502)— —  
Cash Dividends Paid, $.735 per Share 1
— — (12,129)— — (12,129)
Stock Options Exercised, Net (52,610 Shares)
— 983 — — 470 1,453 
Shares Issued Under the Directors’ Stock
  Plan  (8,471 Shares)
— 208 — — 76 284 
Shares Issued Under the Employee Stock
  Purchase Plan  (11,304 Shares)
— 262 — — 101 363 
Shares Issued for Dividend
  Reinvestment Plans (37,841 Shares)
— 1,028 — — 338 1,366 
Stock-Based Compensation Expense— 310 — — — 310 
Purchase of Treasury Stock
 (72,750 Shares)
— — — — (2,633)(2,633)
Balance at September 30, 2021
$20,800 $377,349 $47,936 $(3,719)$(82,195)$360,171 
Three Month Period Ended September 30, 2021
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumu-lated
Other Com-
prehensive
Loss
Treasury
Stock
Total
Balance at June 30, 2021$20,194 $355,195 $60,494 $(2,658)$(80,192)$353,033 
Net Income— — 12,989 — — 12,989 
Other Comprehensive Income— — — (1,061)— (1,061)
3% Stock Dividend (605,670 Shares)
606 20,896 (21,502)— —  
Cash Dividends Paid, $.245 per Share 1
— — (4,045)— — (4,045)
Stock Options Exercised, Net (30,346 Shares)
— 657 — — 271 928 
Shares Issued Under the Directors’ Stock
  Plan  (2,627 Shares)
— 71 — — 24 95 
Shares Issued Under the Employee Stock
  Purchase Plan  (3,387 Shares)
— 87 — — 30 117 
Shares Issued for Dividend
  Reinvestment Plans (12,826 Shares)
— 340 — — 115 455 
Stock-Based Compensation Expense— 103 — — — 103 
Purchase of Treasury Stock
 (67,649 Shares)
— — — — (2,443)(2,443)
Balance at September 30, 2021
$20,800 $377,349 $47,936 $(3,719)$(82,195)$360,171 



1 Cash dividends paid per share have been adjusted for the September 23, 2022 3% stock dividend.
See Notes to Unaudited Interim Consolidated Financial Statements.



7


ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Nine Months Ended September 30,
Cash Flows from Operating Activities:20222021
Net Income$36,712 $39,548 
Provision for Credit Losses3,389 (286)
Depreciation and Amortization5,845 5,894 
Net Gain on Securities Transactions(379)(250)
Loans Originated and Held-for-Sale(626)(45,930)
Proceeds from the Sale of Loans Held-for-Sale1,377 57,097 
Net Gain on the Sale of Loans(80)(2,251)
Net Loss on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets136 68 
Contributions to Retirement Benefit Plans(478)(441)
Deferred Income Tax Benefit(670)(35)
Shares Issued Under the Directors’ Stock Plan285 284 
Stock-Based Compensation Expense338 310 
Tax Benefit from Exercise of Stock Options22 69 
Net Increase in Other Assets(1,076)(92)
Net Increase in Other Liabilities3,415 1,727 
Net Cash Provided By Operating Activities48,210 55,712 
Cash Flows from Investing Activities:
Proceeds from the Maturities and Calls of Securities Available-for-Sale61,620 93,332 
Purchases of Securities Available-for-Sale(149,674)(222,089)
Proceeds from the Maturities and Calls of Securities Held-to-Maturity24,231 24,266 
Purchases of Securities Held-to-Maturity(10,293)(4,695)
Net Increase in Loans(260,179)(70,393)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets1,055 1,054 
Purchase of Premises and Equipment(10,913)(3,942)
Net Decrease (Increase) in FHLB and Federal Reserve Bank Stock660 (31)
Net Cash Used By Investing Activities(343,493)(182,498)
Cash Flows from Financing Activities:
Net Increase in Deposits244,608 370,837 
Net Decrease in Short-Term Borrowings (15,060)
Finance Lease Payments(38)(36)
Repayments of Federal Home Loan Bank Term Advances(20,000) 
Purchase of Treasury Stock(2,721)(2,633)
Stock Options Exercised, Net366 1,453 
Shares Issued Under the Employee Stock Purchase Plan361 363 
Shares Issued for Dividend Reinvestment Plans1,420 1,366 
Cash Dividends Paid(12,980)(12,129)
Net Cash Provided By Financing Activities211,016 344,161 
Net (Decrease) Increase in Cash and Cash Equivalents(84,267)217,375 
Cash and Cash Equivalents at Beginning of Period457,696 380,991 
Cash and Cash Equivalents at End of Period$373,429 $598,366 
Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings$5,911 $4,224 
Income Taxes8,918 11,060 
Transfer of Loans to Other Real Estate Owned and Repossessed Assets1,217 1,066 

See Notes to Unaudited Interim Consolidated Financial Statements.
8


NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.     ACCOUNTING POLICIES

In the opinion of the management of Arrow Financial Corporation (Arrow, the Company, we, or us), the accompanying unaudited interim consolidated financial statements contain all of the adjustments necessary to present fairly the financial position as of September 30, 2022, December 31, 2021 and September 30, 2021; the results of operations for the nine month periods ended September 30, 2022 and 2021; the consolidated statements of comprehensive income for the nine month periods ended September 30, 2022 and 2021; the changes in stockholders' equity for the nine month periods ended September 30, 2022 and 2021; and the cash flows for the nine month periods ended September 30, 2022 and 2021. All such adjustments are of a normal recurring nature. The unaudited interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements of Arrow for the year ended December 31, 2021 included in Arrow's Annual Report on Form 10-K for the year ended December 31, 2021.

Management’s Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.  Management utilized estimates and assumptions in its evaluation of potential impairment of Arrow's right-of-use lease assets, goodwill and intangible assets. Our most significant estimate is the allowance for credit losses. Other estimates include the fair value of financial statements, evaluation of pension and other post-retirement liabilities, an analysis of a need for a valuation allowance for deferred tax assets and a reserve for unfunded loan commitments recorded as an other liability. Actual results could differ from those estimates.
A material estimate that is particularly susceptible to significant change in the near term is the allowance for credit losses.  In connection with the determination of the allowance for credit losses management obtains economic forecasts from reliable sources and appraisals for properties.  The allowance for credit losses is management’s best estimate of the life of loan losses as of the balance sheet date.  While management uses available information to recognize losses on loans, future adjustments to the allowance for credit losses may be necessary based on changes in economic conditions.

Allowance for Credit Losses – Loans - Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) approach requ