Arrow Reports 2nd Quarter Net Income of $8.6 Million, or $0.52 per Share, Declares Dividend of $0.27 per Share

About this update from Arrow Financial Corporation

GLENS FALLS, N.Y. , July 25, 2024 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow" or "the Company") announced financial results for the three-month period ended June 30, 2024 . Net income for the second quarter of 2024 was $8.6 million and fully diluted earnings per share ("EPS") was $0.52 , versus $6.0 million and EPS of $0.35 , for the same period in 2023. The Board of Directors of Arrow declared a quarterly cash dividend of $0.27 per share payable August 23, 2024 to shareholders of record as of August 12, 2024 . This is Arrow's 45th consecutive quarterly cash dividend. This Earnings Release and related commentary should be read in conjunction with the Company's July 25, 2024 Form 8-K and related Second Quarter 2024 Investor Presentation, which can also be found on Arrow's website: arrowfinancial.com/documents/investor-presentations . Arrow President and CEO David S. DeMarco : "We are pleased to report another quarter of solid performance, demonstrating the hard work and dedication of our team. We recently expanded our insurance business with the strategic acquisition of the assets of A&B Agency, Inc. We are also looking forward to the close of our branch acquisition in Whitehall, New York scheduled for early August. In addition, on July 22nd , we received regulatory approval to combine our banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company , into a single entity renamed Arrow Bank National Association , or Arrow Bank . This positions us to enhance our strategic growth while ensuring stability with the same dedicated leadership team, staff and branch locations. We are confident these initiatives will further strengthen our market position and drive long-term value for our shareholders." Second-Quarter Highlights and Key Metrics Gross loans grew $57.6 million 1, or 7.1% on an annualized basis. Net interest margin improved to 2.67% (2.69% FTE2), up from 2.60% (2.62% FTE) in the prior quarter Average loan yields increased to 5.17% for 2Q24, up from 5.02% in the prior quarter Deposit balances were $3.7 billion Tangible Book Value increased to $21.54 Return on Average Assets (ROA) improved to 0.82%, up from 0.73% in the previous quarter Received regulatory approval to acquire a branch in Whitehall, New York with approximately $35 million in deposits; transaction expected to close in August 2024 ____________________________________ 1 Excludes both $0.4 million fair value hedge adjustment at June 30, 2024 and $1.2 million fair value hedge adjustment at March 31, 2024 2 FTE Net interest margin is a non-GAAP measure. See reconciliation on Note 3 to the Selected Quarterly Information. Income Statement Net Income: Net income for the second quarter of 2024 was $8.6 million , increasing from $7.7 million in the first quarter of 2024 and $6.0 million in the second quarter of 2023. As compared to the prior quarter, net income benefited from an increase of $0.7 million in net interest income as well as a decrease in non-interest expense of $0.7 million . As compared to the second quarter of 2023, net interest income increased $1.4 million . Non-interest income increased $1.0 million and non-interest expense decreased $0.8 million . Net Interest Income: Net interest income for the second quarter of 2024 was $27.2 million , increasing 2.6% from $26.5 million for the first quarter of 2024 and increasing 5.4% from $25.8 million in the second quarter of 2023. Total interest and dividend income was $48.0 million for the second quarter of 2024, an increase from $46.7 million in the first quarter of 2024 and from $40.0 million for the second quarter of 2023. These increases were primarily driven by loan growth and higher loan rates. Interest expense for the second quarter of 2024 was $20.8 million , an increase from $20.2 million for the first quarter of 2024 and from $14.2 million for the second quarter of 2023. The increases for both comparison periods were driven primarily by higher deposit rates and changes in deposit composition. Net Interest Margin: Net interest margin, on an FTE basis, for the second quarter of 2024 was 2.69% compared to 2.62% for the first quarter of 2024 and 2.63% for the second quarter of 2023. The increase in net interest margin compared to the first quarter in 2024 was primarily the result of continued yield expansion on earning assets combined with moderating increase in the cost of interest-bearing liabilities. As compared to the second quarter of 2023, the increase in net interest margin was primarily the result of yield on average earning assets increasing at a faster pace than costs of interest-bearing liabilities. Net interest margin is affected by deposits continuing to migrate to higher costs products, such as money market savings and time deposits. Three Months Ended (Dollars in Thousands) June 30, 2024 March 31, 2024 June 30, 2023 Interest and Dividend Income $ 47,972 $ 46,677 $ 40,013 Interest Expense 20,820 20,222 14,241 Net Interest Income 27,152 26,455 25,772 Average Earning Assets(A) 4,083,813 4,085,398 3,953,642 Average Interest-Bearing Liabilities 3,127,417 3,108,093 2,924,743 Yield on Earning Assets(A) 4.72 % 4.60 % 4.06 % Cost of Interest-Bearing Liabilities 2.68 2.62 1.95 Net Interest Spread 2.04 1.98 2.11 Net Interest Margin 2.67 2.60 2.61 Net Interest Margin - FTE 2.69 2.62 2.63 (A) Includes Nonaccrual Loans. Provision for Credit Losses: For the second quarter of 2024, the provision for credit losses was $0.8 million compared to $0.6 million in the first quarter of 2024 and $0.9 million in the second quarter of 2023. The key drivers for the provision for credit losses in the second quarter of 2024 were loan growth and replenishment of the allowance for charge-offs, partially offset by changes to the economic forecast factors embedded in the credit loss allowance model. Non-Interest Income: Non-interest income for the three months ended June 30, 2024 , was $7.9 million consistent with the first quarter of 2024 and an increase from $6.9 million in the second quarter of 2023 due to the other investment income and a small gain on a sale leaseback transaction. Non-Interest Expense: Non-interest expense for the second quarter of 2024 was $23.3 million , a decrease from $24.0 million in the first quarter of 2024 and from $24.1 million for the second quarter of 2023. The decrease from the prior quarter and year was primarily due to elimination of elevated legal and professional expenses related to the delayed filings in 2023. Provision for Income Taxes: The provision for income taxes was 21.2%, or $2.3 million , for the second quarter of 2024, 20.9%, or $2.0 million , for the first quarter of 2024 and 20.9%, or $1.6 million , for the second quarter of 2023. Balance Sheet Total Assets: Total assets were $4.2 billion at June 30, 2024 , a decrease of $89.2 million , or 2.1%, as compared to March 31, 2024 and an increase of $140.8 million , or 3.4%, as compared to June 30, 2023 . For the second quarter of 2024, overall change in balance sheet was attributable to seasonal changes of cash balances offset by growth in the loan portfolio. Investments: Total investments were $556.4 million as of June 30, 2024 , a decrease of $63.6 million , or 10.3%, compared to March 31, 2024 and a decrease of $137.6 million , or 19.8%, compared to June 30, 2023 . The decrease from March 31, 2024 was driven primarily by paydowns and maturities. The change from June 30, 2023 was also driven by paydowns and maturities as well as the fourth quarter 2023 repositioning of the investment portfolio, reducing the portfolio by approximately $25 million at the time of the transaction. There were no credit quality issues related to the investment portfolio. Loans 3 : Total loans reached $3.3 billion as of June 30, 2024 . Loan growth for the second quarter of 2024 was $57.6 million , and $245.3 million since June 30, 2023 . Loan growth was spread across all loan products. Please see the loan detail included in the Consolidated Financial Information table on page 12. Allowance for Credit Losses: The allowance for credit losses was $31.0 million as of June 30, 2024 , which represented 0.94% of loans outstanding, as compared to $31.6 million , or 0.97%, at March 31, 2024 and $31.2 million , or 1.02%, at June 30, 2023 . Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.16% for the three-month period ended June 30, 2024 4, as compared to 0.04% for the three-month period ended March 31, 2024 and 0.07% for the three-month period ended June 30, 2023 . Nonperforming assets were $21.3 million as of June 30, 2024 , representing 0.50% of period-end assets, compared to 0.50% at March 31, 2024 and 0.17% at June 30, 2023 . The increase from the second quarter of 2023 was primarily due to one large, well collateralized loan relationship of approximately $15 million , which moved into non-performing status during the fourth quarter of 2023. Deposits: At June 30, 2024 , deposit balances were $3.7 billion , a decrease of $95.4 million from March 31, 2024 and an increase of $181.4 million from June 30, 2023 . The decrease from the first quarter was primarily attributable to the seasonality of municipal deposits, expected to normalize in the third quarter. The increase from June 30, 2023 was partially attributable to $175 million of brokered CDs, primarily used to reduce borrowings by $160 million . Arrow simultaneously entered into three-year interest rate swaps to strategically manage its asset-liability profile and cost of funds. Please refer to page 7 for further details related to deposits. Capital: Total stockholders' equity was $383.0 million at June 30, 2024 , an increase of $5.0 million , or 1.3%, from March 31, 2024 and an increase of $21.6 million , or 6.0%, from the June 30, 2023 level of $361.4 million . The increase in capital from June 30, 2023 , was primarily attributable to net income of $32 million , other comprehensive income of $16 million offset by dividends and stock repurchases of $27 million . Arrow's regulatory capital ratios remained strong. As of June 30, 2024 , Arrow's Common Equity Tier 1 Capital Ratio was 12.88% and Total Risk-Based Capital Ratio was 14.57%. The capital ratios of Arrow's subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company , continued to exceed the "well capitalized" regulatory standards. Additional Commentary Bauer Financial Ratings : Both Glens Falls National Bank and Saratoga National Bank continued to maintain their 5-Star Exceptional Performance ratings from Bauer Financial, for the 68th and 60th quarters, respectively. Subsidiary Bank Unification : On July 22 2024 , Arrow received approval from the Office of the Comptroller of the Currency to combine its two subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company , into one bank that will be known as Arrow Bank National Association . The combination will create operational efficiencies, unify branding and enhance Arrow's ability to pursue its strategic growth objectives. The combination of the entities is anticipated to become effective December 31, 2024 . ___________________________________________3 Excludes both $0.4 million fair value hedge adjustment at June 30, 2024 and $1.2 million fair value hedge adjustment at March 31, 2024 4 Charge-offs for 2Q24 included 0.09% related to a previously specifically reserved amount for overdraft balances relating to one customer relationship About Arrow Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York , serving the financial needs of northeastern New York . Arrow is the parent of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company . Other subsidiaries include Upstate Agency, LLC and North Country Investment Advisers, Inc. Non-GAAP Financial Measures Reconciliation In addition to presenting information in conformity with accounting principles generally accepted in the United States of America (GAAP), this news release contains financial information determined by methods other than GAAP (non-GAAP). Some measures used in this release, which are commonly utilized by financial institutions, have not been specifically exempted by the Securities and Exchange Commission (" SEC ") and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules. These non-GAAP financial measures include: tangible equity, return on tangible equity, tax-equivalent adjustment and related net interest income, tax-equivalent, the efficiency ratio and net interest margin (FTE). Management believes that the non-GAAP financial measures disclosed by Arrow are useful in evaluating Arrow's performance and that such information should be considered as supplemental in nature and not as a substitute for, or superior to, the related financial information prepared in accordance with GAAP. Non-GAAP financial measures may differ from similar measures presented by other companies. See the reconciliation of GAAP to non-GAAP measures in the section "Selected Quarterly Information." Safe Harbor Statement The information in this document may contain statements based on management's beliefs, assumptions, expectations, estimates and projections about the future. Such "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, as amended, involve a degree of uncertainty and attendant risk. Actual outcomes and results may differ, explicitly or by implication. We are not obligated to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with Arrow's 2023 Form 10-K and other filings with the SEC . ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts - Unaudited) Three Months Ended June 30 Six Months Ended June 30 2024 2023 2024 2023 INTEREST AND DIVIDEND INCOME Interest and Fees on Loans $ 42,141 $ 34,618 $ 82,517 $ 66,504 Interest on Deposits at Banks 2,185 1,674 4,632 2,153 Interest and Dividends on Investment Securities : Fully Taxable 3,009 2,951 6,195 5,899 Exempt from Federal Taxes 637 770 1,305 1,567 Total Interest and Dividend Income 47,972 40,013 94,649 76,123 INTEREST EXPENSE Interest-Bearing Checking Accounts 1,903 820 3,544 1,190 Savings Deposits 10,571 8,514 20,801 14,101 Time Deposits over $250,000 1,869 1,119 3,842 1,693 Other Time Deposits 5,074 1,196 10,157 1,670 Borrowings 1,186 2,373 2,262 3,166 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 170 171 341 340 Interest on Financing Leases 47 48 95 97 Total Interest Expense 20,820 14,241 41,042 22,257 NET INTEREST INCOME 27,152 25,772 53,607 53,866 Provision for Credit Losses 775 948 1,392 2,502 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 26,377 24,824 52,215 51,364 NON-INTEREST INCOME Income From Fiduciary Activities 2,451 2,428 4,908 4,703 Fees for Other Services to Customers 2,706 2,717 5,249 5,312 Insurance Commissions 1,662 1,560 3,344 3,080 Net Gain (Loss) on Securities 54 (181) 71 (285) Net Gain on Sales of Loans 5 — 9 4 Other Operating Income 978 382 2,133 769 Total Non-Interest Income 7,856 6,906 15,714 13,583 NON-INTEREST EXPENSE Salaries and Employee Benefits 13,036 12,039 25,929 23,986 Occupancy Expenses, Net 1,774 1,583 3,545 3,211 Technology and Equipment Expense 4,734 4,362 9,554 8,779 FDIC Assessments 698 484 1,413 963 Other Operating Expense 3,076 5,615 6,889 9,440 Total Non-Interest Expense 23,318 24,083 47,330 46,379 INCOME BEFORE PROVISION FOR INCOME TAXES 10,915 7,647 20,599 18,568 Provision for Income Taxes 2,311 1,600 4,335 3,959 NET INCOME $ 8,604 $ 6,047 $ 16,264 $ 14,609 Average Shares Outstanding 1 : Basic 16,685 17,050 16,764 17,050 Diluted 16,709 17,050 16,789 17,050 Per Common Share: Basic Earnings $ 0.52 $ 0.35 $ 0.97 $ 0.85 Diluted Earnings 0.52 0.35 0.97 0.85 1 June 30, 2023 Share and Per Share Amounts have been restated for the September 26, 2023 , 3% stock dividend. ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts - Unaudited) June 30 ,2024 December 31 , 2023 June 30 ,2023 ASSETS Cash and Due From Banks $ 30,372 $ 36,755 $ 33,803 Interest-Bearing Deposits at Banks 169,826 105,781 139,798 Investment Securities : Available-for-Sale at Fair Value 450,786 497,769 543,708 Held-to-Maturity (Fair Value of $96,454 at June 30, 2024 ; $128,837 at December 31, 2023 ; and $139,143 at June 30 ,2023) 99,348 131,395 143,460 Equity Securities 1,996 1,925 1,889 Other Investments 4,274 5,049 4,932 Loans 3,315,523 3,212,908 3,069,897 Allowance for Credit Losses (31,009) (31,265) (31,170) Net Loans 3,284,514 3,181,643 3,038,727 Premises and Equipment, Net 59,243 59,642 59,773 Goodwill 21,873 21,873 21,873 Other Intangible Assets, Net 927 1,110 1,302 Other Assets 121,248 126,926 114,388 Total Assets $ 4,244,407 $ 4,169,868 $ 4,103,653 LIABILITIES Noninterest-Bearing Deposits 704,707 758,425 759,495 Interest-Bearing Checking Accounts 856,788 799,785 856,016 Savings Deposits 1,446,821 1,466,280 1,517,937 Time Deposits over $250,000 173,526 179,301 140,694 Other Time Deposits 501,797 483,775 228,082 Total Deposits 3,683,639 3,687,566 3,502,224 Borrowings 106,500 26,500 171,800 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 20,000 20,000 Finance Leases 5,038 5,066 5,093 Other Liabilities 46,212 50,964 43,093 Total Liabilities 3,861,389 3,790,096 3,742,210 STOCKHOLDERS' EQUITY Preferred Stock, $1 Par Value and 1,000,000 SharesAuthorized at June 30, 2024 , December 31, 2023 and June 30, 2023 — — — Common Stock, $1 Par Value; 30,000,000 Shares Authorized (22,066,559 Shares Issued at June 30, 2024 and December 31, 2023 and 21,423,992 Shares Issued at June 30, 2023 ) 22,067 22,067 21,424 Additional Paid-in Capital 412,917 412,551 401,069 Retained Earnings 72,980 65,792 71,076 Accumulated Other Comprehensive Loss (31,632) (33,416) (47,613) Treasury Stock, at Cost (5,343,295 Shares at June 30, 2024 ; 5,124,073 Shares at December 31, 2023 and 4,870,934Shares at June 30, 2023 ) (93,314) (87,222) (84,513) Total Stockholders' Equity 383,018 379,772 361,443 Total Liabilities and Stockholders' Equity $ 4,244,407 $ 4,169,868 $ 4,103,653 Arrow Financial Corporation Selected Quarterly Information (Dollars In Thousands, Except Per Share Amounts - Unaudited) Quarter Ended 6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023 Net Income $ 8,604 $ 7,660 $ 7,723 $ 7,743 $ 6,047 Net Changes in Fair Value of Equity Investments (Net of Tax) 39 13 90 52 (133) Share and Per Share Data: 1 Period End Shares Outstanding 16,723 16,710 16,942 17,049 17,050 Basic Average Shares Outstanding 16,685 16,865 17,002 17,050 17,050 Diluted Average Shares Outstanding 16,709 16,867 17,004 17,050 17,050 Basic Earnings Per Share $ 0.52 $ 0.45 $ 0.46 $ 0.46 $ 0.35 Diluted Earnings Per Share 0.52 0.45 0.46 0.46 0.35 Cash Dividend Per Share 0.270 0.270 0.270 0.262 0.262 Selected Quarterly Average Balances: Interest-Bearing Deposits at Banks $ 159,336 $ 178,452 $ 136,026 $ 131,814 $ 130,057 Investment Securities 644,192 671,105 713,144 745,693 787,175 Loans 3,280,285 3,235,841 3,170,262 3,096,240 3,036,410 Deposits 3,678,957 3,693,325 3,593,949 3,491,028 3,460,711 Other Borrowed Funds 131,537 122,033 149,507 208,527 220,616 Stockholders' Equity 378,256 379,446 363,753 362,701 365,070 Total Assets 4,237,359 4,245,484 4,159,313 4,109,995 4,087,653 Return on Average Assets, annualized 0.82 % 0.73 % 0.74 % 0.75 % 0.59 % Return on Average Equity, annualized 9.15 % 8.12 % 8.42 % 8.47 % 6.64 % Return on Average Tangible Equity, annualized 2 9.74 % 8.64 % 8.99 % 9.05 % 7.10 % Average Earning Assets $ 4,083,813 $ 4,085,398 $ 4,019,432 $ 3,973,747 $ 3,953,642 Average Paying Liabilities 3,127,417 3,108,093 2,985,717 2,920,518 2,924,743 Interest Income 47,972 46,677 44,324 42,117 40,013 Tax-Equivalent Adjustment 3 163 176 184 183 196 Interest Income, Tax-Equivalent 3 48,135 46,853 44,508 42,117 40,013 Interest Expense 20,820 20,222 18,711 16,764 14,241 Net Interest Income 27,152 26,455 25,613 25,353 25,772 Net Interest Income, Tax-Equivalent 3 27,315 26,631 25,797 25,536 25,968 Net Interest Margin, annualized 2.67 % 2.60 % 2.53 % 2.53 % 2.61 % Net Interest Margin, Tax-Equivalent, annualized 3 2.69 % 2.62 % 2.55 % 2.55 % 2.63 % Efficiency Ratio Calculation: 4 Non-Interest Expense $ 23,318 $ 24,012 $ 23,190 $ 23,479 $ 24,083 Less: Intangible Asset Amortization 40 41 43 43 44 Net Non-Interest Expense $ 23,278 $ 23,971 $ 23,147 $ 23,436 $ 24,039 Net Interest Income, Tax-Equivalent $ 27,315 $ 26,631 $ 25,797 $ 25,536 $ 25,968 Non-Interest Income 7,856 7,858 7,484 8,050 6,906 Less: Net Gain (Loss) on Securities 54 17 122 71 (181) Net Gross Income $ 35,117 $ 34,472 $ 33,159 $ 33,515 $ 33,055 Efficiency Ratio 66.29 % 69.54 % 69.81 % 69.93 % 72.72 % Period-End Capital Information: Total Stockholders' Equity (i.e. Book Value) $ 383,018 $ 377,986 $ 379,772 $ 360,014 $ 361,443 Book Value per Share 1 22.90 22.62 22.42 21.12 21.20 Goodwill and Other Intangible Assets, net 22,800 22,891 22,983 23,078 23,175 Tangible Book Value per Share 1,2 21.54 21.25 21.06 19.76 19.84 Capital Ratios: 5 Tier 1 Leverage Ratio 9.74 % 9.63 % 9.84 % 9.94 % 9.92 % Common Equity Tier 1 Capital Ratio 12.88 % 12.84 % 13.00 % 13.17 % 13.27 % Tier 1 Risk-Based Capital Ratio 13.53 % 13.50 % 13.66 % 13.84 % 13.96 % Total Risk-Based Capital Ratio 14.57 % 14.57 % 14.74 % 14.94 % 15.08 % Assets Under Trust Admin. & Investment Mgmt. $ 1,848,349 $ 1,829,266 $ 1,763,194 $ 1,627,522 $ 1,711,460 Arrow Financial Corporation Selected Quarterly Information - Continued (Dollars In Thousands, Except Per Share Amounts - Unaudited) Footnotes: 1. Share and per share data have been restated for the September 26, 2023 , 3% stock dividend. 2. Non-GAAP Financial Measure Reconciliation: Tangible Book Value, Tangible Equity, and Return on Tangible Equity exclude goodwilland other intangible assets, net from total equity. These are non-GAAP financial measures which Arrow believes provide investorswith information that is useful in understanding its financial performance. 6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023 Total Stockholders' Equity (GAAP) $ 383,018 $ 377,986 $ 379,772 $ 360,014 $ 361,443 Less: Goodwill and Other Intangible assets, net 22,800 22,891 22,983 23,078 23,175 Tangible Equity (Non-GAAP) $ 360,218 $ 355,095 $ 356,789 $ 336,936 $ 338,268 Period End Shares Outstanding 16,723 16,710 16,942 17,049 17,050 Tangible Book Value per Share (Non-GAAP) $ 21.54 $ 21.25 $ 21.06 $ 19.76 $ 19.84 Net Income 8,604 7,660 7,723 7,743 6,047 Return on Tangible Equity (Net Income/Tangible Equity - Annualized) 9.74 % 8.64 % 8.99 % 9.05 % 7.10 % 3. Non-GAAP Financial Measure Reconciliation: Net Interest Margin is the ratio of annualized tax-equivalent netinterest income to average earning assets. This is also a non-GAAP financial measure which Arrow believes provides investors with information that is useful in understanding its financial performance. 6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023 Interest Income (GAAP) $ 47,972 $ 46,677 $ 44,324 $ 42,117 $ 40,013 Add: Tax-Equivalent adjustment (Non-GAAP) 163 176 184 183 196 Interest Income - Tax Equivalent (Non-GAAP) $ 48,135 $ 46,853 $ 44,508 $ 42,300 $ 40,209 Net Interest Income (GAAP) $ 27,152 $ 26,455 $ 25,613 $ 25,353 $ 25,772 Add: Tax-Equivalent adjustment (Non-GAAP) 163 176 184 183 196 Net Interest Income - Tax Equivalent (Non-GAAP) $ 27,315 $ 26,631 $ 25,797 $ 25,536 $ 25,968 Average Earning Assets $ 4,083,813 $ 4,085,398 $ 4,019,432 $ 3,973,747 $ 3,953,642 Net Interest Margin (Non-GAAP)* 2.69 % 2.62 % 2.55 % 2.55 % 2.63 % 4. Non-GAAP Financial Measure Reconciliation: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measureof expense control. Arrow believes the efficiency ratio provides investors with information that is useful in understanding its financialperformance. Arrow defines efficiency ratio as the ratio of non-interest expense to net gross income (which equals tax-equivalent net interest income plus non-interest income, as adjusted). 5. For the current quarter, all of the regulatory capital ratios as well as the Total Risk-Weighted Assets are calculated in accordance with bank regulatory capital rules. The June 30, 2024 CET1 ratio listed in the tables (i.e., 12.88%) exceeds the sum of the required minimumCET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%). 6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023 Total Risk Weighted Assets $ 3,072,922 $ 3,049,525 $ 3,032,188 $ 2,988,438 $ 2,937,837 Common Equity Tier 1 Capital 395,691 391,706 394,166 393,541 389,966 Common Equity Tier 1 Ratio 12.88 % 12.84 % 13.00 % 13.17 % 13.27 % * Quarterly ratios have been annualized. Arrow Financial Corporation Average Consolidated Balance Sheets and Net Interest Income Analysis (Dollars in Thousands - Unaudited) Quarter Ended: June 30, 2024 June 30, 2023 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest-Bearing Deposits at Banks $ 159,336 $ 2,185 5.52 % $ 130,057 $ 1,674 5.16 % Investment Securities : Fully Taxable 530,869 3,009 2.28 637,018 2,951 1.86 Exempt from Federal Taxes 113,323 637 2.26 150,157 770 2.06 Loans 3,280,285 42,141 5.17 3,036,410 34,618 4.57 Total Earning Assets 4,083,813 47,972 4.72 3,953,642 40,013 4.06 Allowance for Credit Losses (31,459) (30,577) Cash and Due From Banks 28,611 28,742 Other Assets 156,394 135,846 Total Assets $ 4,237,359 $ 4,087,653 Deposits: Interest-Bearing Checking Accounts $ 832,087 1,903 0.92 $ 863,892 820 0.38 Savings Deposits 1,487,062 10,571 2.86 1,504,412 8,514 2.27 Time Deposits of $250,000 or More 172,655 1,869 4.35 133,897 1,119 3.35 Other Time Deposits 504,076 5,074 4.05 201,926 1,196 2.38 Total Interest-Bearing Deposits 2,995,880 19,417 2.61 2,704,127 11,649 1.73 Borrowings 106,502 1,186 4.48 195,527 2,373 4.87 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 170 3.42 20,000 171 3.43 Finance Leases 5,035 47 3.75 5,089 48 3.78 Total Interest-Bearing Liabilities 3,127,417 20,820 2.68 2,924,743 14,241 1.95 Noninterest-Bearing Deposits 683,077 756,584 Other Liabilities 48,609 41,256 Total Liabilities 3,859,103 3,722,583 Stockholders' Equity 378,256 365,070 Total Liabilities and Stockholders' Equity $ 4,237,359 $ 4,087,653 Net Interest Income $ 27,152 $ 25,772 Net Interest Spread 2.04 % 2.11 % Net Interest Margin 2.67 % 2.61 % Arrow Financial Corporation Average Consolidated Balance Sheets and Net Interest Income Analysis (Dollars in Thousands - Unaudited) Quarter Ended: June 30, 2024 March 31, 2024 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest-Bearing Deposits at Banks $ 159,336 $ 2,185 5.52 % $ 178,452 $ 2,447 5.52 % Investment Securities : Fully Taxable 530,869 3,009 2.28 550,538 3,186 2.33 Exempt from Federal Taxes 113,323 637 2.26 120,567 668 2.23 Loans 3,280,285 42,141 5.17 3,235,841 40,376 5.02 Total Earning Assets 4,083,813 47,972 4.72 4,085,398 46,677 4.60 Allowance for Credit Losses (31,459) (31,416) Cash and Due From Banks 28,611 29,804 Other Assets 156,394 161,698 Total Assets $ 4,237,359 $ 4,245,484 Deposits: Interest-Bearing Checking Accounts $ 832,087 1,903 0.92 $ 830,918 1,641 0.79 Savings Deposits 1,487,062 10,571 2.86 1,481,001 10,230 2.78 Time Deposits of $250,000 or More 172,655 1,869 4.35 177,328 1,973 4.47 Other Time Deposits 504,076 5,074 4.05 496,813 5,083 4.11 Total Interest-Bearing Deposits 2,995,880 19,417 2.61 2,986,060 18,927 2.55 Borrowings 106,502 1,186 4.48 96,984 1,076 4.46 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 170 3.42 20,000 171 3.44 Finance Leases 5,035 47 3.75 5,049 48 3.82 Total Interest-Bearing Liabilities 3,127,417 20,820 2.68 3,108,093 20,222 2.62 Noninterest-bearing deposits 683,077 707,265 Other Liabilities 48,609 50,680 Total Liabilities 3,859,103 3,866,038 Stockholders' Equity 378,256 379,446 Total Liabilities and Stockholders' Equity $ 4,237,359 $ 4,245,484 Net Interest Income $ 27,152 $ 26,455 Net Interest Spread 2.04 % 1.98 % Net Interest Margin 2.67 % 2.60 % Arrow Financial Corporation Consolidated Financial Information (Dollars in Thousands - Unaudited) Quarter Ended: 6/30/2024 12/31/2023 6/30/2023 Loan Portfolio Commercial Loans $ 163,832 $ 156,224 $ 147,518 Commercial Real Estate Loans 757,478 745,487 723,948 Subtotal Commercial Loan Portfolio 921,310 901,711 871,466 Consumer Loans 1,138,813 1,111,667 1,087,765 Residential Real Estate Loans 1,255,400 1,199,530 1,110,666 Total Loans $ 3,315,523 $ 3,212,908 $ 3,069,897 Allowance for Credit Losses Allowance for Credit Losses, Beginning of Quarter $ 31,561 $ 31,112 $ 30,784 Loans Charged-off (1,850) (1,366) (1,280) Less Recoveries of Loans Previously Charged-off 523 994 718 Net Loans Charged-off (1,327) (372) (562) Provision for Credit Losses 775 525 948 Allowance for Credit Losses, End of Quarter $ 31,009 $ 31,265 $ 31,170 Nonperforming Assets Nonaccrual Loans $ 20,118 $ 20,645 $ 5,997 Loans Past Due 90 or More Days and Accruing 915 452 467 Loans Restructured and in Compliance with Modified Terms 36 54 67 Total Nonperforming Loans 21,069 21,151 6,531 Repossessed Assets 239 312 342 Other Real Estate Owned 34 — 182 Total Nonperforming Assets $ 21,342 $ 21,463 $ 7,055 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Quarter-to-date Annualized 0.16 % 0.05 % 0.07 % Provision for Credit Losses to Average Loans, Quarter-to-date Annualized 0.10 % 0.07 % 0.13 % Allowance for Credit Losses to Period-End Loans 0.94 % 0.97 % 1.02 % Allowance for Credit Losses to Period-End Nonperforming Loans 147.18 % 147.82 % 477.26 % Nonperforming Loans to Period-End Loans 0.64 % 0.66 % 0.21 % Nonperforming Assets to Period-End Assets 0.50 % 0.51 % 0.17 % Year-to-Date Period Ended: 6/30/2024 12/31/2023 6/30/2023 Allowance for Credit Losses Allowance for Credit Losses, Beginning of Year $ 31,265 $ 29,952 $ 29,952 Loans Charged-off (3,133) (5,177) (2,608) Less Recoveries of Loans Previously Charged-off 1,485 3,109 1,324 Net Loans Charged-off (1,648) (2,068) (1,284) Provision for Credit Losses 1,392 3,381 2,502 Allowance for Credit Losses, End of Period $ 31,009 $ 31,265 $ 31,170 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Annualized 0.10 % 0.07 % 0.09 % Provision for Loan Losses to Average Loans, Annualized 0.09 % 0.11 % 0.17 % View original content to download multimedia: https://www.prnewswire.com/news-releases/arrow-reports-2nd-quarter-net-income-of-8-6-million-or-0-52-per-share-declares-dividend-of-0-27-per-share-302206063.html SOURCE Arrow Financial Corporation

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