Arrow Reports 4th Quarter Net Income of $7.7 Million or $0.46 per Share and $30.1 Million or $1.77 per Share for 2023. Declares Cash Dividend of $0.27 per Share, its 43rd Consecutive Quarterly Dividend

About this update from Arrow Financial Corporation

GLENS FALLS, N.Y. , Feb 1, 2024 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow") reported net income of $7.7 million , and fully diluted earnings per share ("EPS") of $0.46 per share for the fourth quarter of 2023, versus $12.1 million and EPS of $0.71 , for the same period in 2022. For the year ended 2023, net income totaled $30.1 million , with EPS of $1.77 , versus $48.8 million , and EPS of $2.86 , for the same period in 2022. The Board of Directors of Arrow declared a quarterly cash dividend of $0.27 per share payable February 23, 2024 to shareholders of record as of February 12, 2024 . This marks the 43rd consecutive quarterly cash dividend declared by Arrow. This Earnings Release and related commentary should be read in conjunction with our February 1, 2024 Form 8-K and related Fourth Quarter 2023 Investor Presentation, which can also be found on our website: arrowfinancial.com/documents/investor-presentations . Arrow President and CEO David S. DeMarco : "As we reflect on a challenging year, I want to thank our employees who continued to diligently serve the needs of our customers, communities and shareholders. Arrow finished the year with robust loan growth, posting record high loan balances while maintaining strong credit, capital and liquidity positions. We also expanded our existing stock repurchase program by $5 million and reinstated our dividend reinvestment program. Our solid finish to the year is directly attributable to the hard work and dedication of our exceptional team." Highlights and Key Metrics Loans reached a record of $3.2 billion , an increase of $224 million (7.5%) for the year and $68 million (9% annualized growth) during the fourth quarter1 Fourth-quarter loan yields increased by 16bps from the prior quarter to 4.86%, while loan rates reached 5.01% at December 31, 2023 Retail deposit balances of $3.5 billion , slightly ahead of year-end 2022 Net interest margin was 2.53% for the quarter, and 2.65% for the full year (2.55% and 2.67% on a full tax equivalent basis, respectively) Sold all 27,771 of Visa Class B shares for a pre-tax gain of $9.3 million ; Recognized a pre-tax loss of $9.2 million on repositioning of investment portfolio (sale of ~$110 million of securities); Reinvestment of proceeds resulted in annual interest income run-rate improvement of over $3 million Net charge-offs remained low at 0.05% for the quarter Tangible Book Value at year-end was $21.06 , an increase from $19.37 from the prior year Nonperforming assets increased to $21.5 million or 0.51% of period-end assets, primarily due to one large loan relationship of approximately $15 million , which is well collateralized 1 Excludes $5.8 million Fair Value hedge adjustment Please see below for further quarter- and year-end detail. Income Statement Net Income: Net income for 2023 was $30.1 million , down from $48.8 million for 2022. The decrease from the prior year was primarily the result of a decrease in net interest income of $13.5 million and an increase of non-interest expense of $11.5 million , partially offset by a $1.4 million decrease in the provision for credit loss and a $6.7 million decrease in the provision for income taxes. Net Interest Income: Net interest income for the year ended December 31, 2023 was $104.8 million , a decrease of $13.5 million , or 11.4%, from the prior year, primarily due to an increase in interest expense. Interest and fees on loans were $142.0 million , an increase of 25.7% from the $113.0 million for the year ended December 31, 2022 . The increase was primarily driven by loan growth and higher loan rates. Interest expense for the year ended December 31, 2023 was $57.7 million . This represents an increase of $46.4 million , or 410.5%, from the $11.3 million in expense for the prior-year period. The increase was driven primarily by higher deposit rates and changes in deposit composition. Net Interest Margin: Net interest margin was 2.65% for the year ended December 31, 2023 , as compared to 3.03% for the year ended December 31, 2022 . In the fourth quarter of 2023, the net interest margin was 2.53%, as compared to 3.08% for the fourth quarter of 2022. The decrease in net interest margin compared to the fourth quarter of 2022 and the full year 2022 was primarily the result of the cost of interest-bearing liabilities increasing at a faster pace than the yield on average earning assets. In addition, deposits have continued to migrate to higher cost products, such as money market savings and time deposits. Twelve Months Ended (dollars in thousands) December 31 , 2023 December 31 , 2022 Interest and Dividend Income $ 162,564 $ 129,651 Interest Expense 57,732 11,308 Net Interest Income 104,832 118,343 Average Earning Assets(1) 3,948,708 3,902,077 Average Interest-Bearing Liabilities 2,903,925 2,834,266 Yield on Earning Assets(1) 4.12 % 3.32 % Cost of Interest-Bearing Liabilities 1.99 0.40 Net Interest Spread 2.13 2.92 Net Interest Margin 2.65 3.03 Income Earned on PPP Loans included in Net Interest Income $ — $ 1,589 Net Interest Income excluding PPP loans 104,832 116,754 Net Interest Margin excluding PPP loans 2.65 % 3.00 % (1) Includes Nonaccrual Loans. Provision for Credit Losses: For 2023, the provision for credit losses related to the loan portfolio was $3.4 million , compared to $4.8 million in 2022. The key drivers for the provision for credit losses in 2023 were loan growth and charge-offs, offset by changes to the economic forecast factors embedded in the credit loss allowance model as well as qualitative factors relating to local and Arrow specific conditions. Noninterest Income: Noninterest income was $29.1 million for the year ended December 31, 2023 , a decrease of 5.8%, as compared to $30.9 million for the year ended December 31, 2022 . Income from fiduciary activities, which includes Wealth Management services, was fairly consistent to the prior year. Fees and other services to customers declined compared to the prior year, primarily due to lower interchange fees. Noninterest Expense: Noninterest expense for the year ended December 31, 2023 increased by $11.4 million , or 14.0%, to $93.0 million , as compared to $81.6 million in 2022. The largest component of noninterest expense is salaries and benefits paid to our employees, which totaled $47.7 million in 2023. Salaries and benefits increased $0.7 million , or 1.4%, from the prior year. The overall increase from the prior year was primarily related to $4.8 million of additional legal and professional fees incurred in 2023 associated with the delay in the filing of the Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K"), and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 , as well as an increase in costs related to technology and Federal Deposit Insurance Corporation insurance. Provision for Income Taxes: The provision for income taxes for 2023 was $7.4 million , compared to $14.1 million for 2022. The effective income tax rates for 2023 and 2022 were 19.8% and 22.4%, respectively. The reduction in the effective tax rate was the result of substantially similar permanent favorable tax benefits in each year while pre-tax income decreased in 2023. Balance Sheet Total Assets: Total assets were $4.17 billion at December 31, 2023 , an increase of $200.4 million , or 5.0%, compared to December 31, 2022 . Cash and Cash Equivalents: Total cash and cash equivalents were $142.5 million at December 31, 2023 , an increase of $77.9 million , or 120.4%, compared to December 31, 2022 . Investments: Total investments were $636.1 million at December 31, 2023 , a decrease of $121.0 million , or 16.0%, compared to December 31, 2022 . The decrease was driven primarily by paydowns and maturities of approximately $119 million and the net decrease from the repositioning of investment portfolio of approximately $25 million , partially offset by an improvement in the mark-to-market adjustments of $23 million . The proceeds were primarily used to fund loan growth and for general corporate purposes. There were no credit quality issues related to the investment portfolio. Balance Sheet Management: In the fourth quarter of 2023, Arrow entered into balance sheet transactions to improve profitability and its asset-liability management position. Arrow sold all 27,771 of its previously held Visa Class B shares for a pre-tax gain of $9.3 million while recognizing a pre-tax loss of $9.2 million on the repositioning of the investment portfolio, resulting in an annual interest income run-rate improvement of over $3 million in pre-tax earnings. Loans 2 : At December 31, 2023 , total loan balances reached $3.2 billion , up $224 million , or 7.5%, from the prior-year level. Loan growth for the fourth quarter was $67.7 million . The consumer loan portfolio grew by $46.5 million , or 4.4%, over the balance at December 31, 2022 . The residential real estate loan portfolio increased $123.0 million , or 11.55%, from the prior year primarily as a result of the continued strength of the housing market within Arrow's service area. Commercial loans, including commercial real estate, increased $54.4 million , or 6.4%, over the balances at December 31, 2022 . Allowance for Credit Losses: The allowance for credit losses was $31.3 million at December 31, 2023 , an increase of $1.3 million from December 31, 2022 . The allowance for credit losses represents 0.97% of loans outstanding, a decrease from 1.00% at year-end 2022. Asset quality remained solid at December 31, 2023 . 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 . As stated above, the increase is primarily due to one large loan relationship of approximately $15 million , which is well collateralized. Deposits: At December 31, 2023 , total deposit balances were $3.7 billion , an increase of $189.2 million , or 5.4%, from the prior-year level. Arrow obtained $175 million of brokered CDs with corresponding three-year swaps as part of a funding hedge to strategically manage its asset-liability profile and cost of funds. Non-municipal deposits, excluding brokered CDs, increased by $45.3 million and municipal deposits decreased by $31.1 million as compared to December 31, 2022 . Noninterest-bearing deposits decreased by $78.4 million , or 9.4%, during 2023, and represented 20.6% of total deposits at year-end, as compared to the prior-year level of 23.9%. At December 31, 2023 , total time deposits, excluding brokered CDs, increased $278.6 million from the prior-year level. The change in composition of deposits was primarily pressure from competitive rate pricing and the migration from low to higher costing products. Capital: Total shareholders' equity was $379.8 million at December 31, 2023 , an increase of $26.2 million , or 7.4%, from the year-end 2022 balance. Arrow's regulatory capital ratios remained strong in 2023. At December 31, 2023 , Arrow's Common Equity Tier 1 Capital Ratio was 13.00% and Total Risk-Based Capital Ratio was 14.74%. The capital ratios of Arrow and both of its subsidiary banks, Glens Falls National Bank and Trust Company ("GFNB") and Saratoga National Bank and Trust Company ("SNB"), continued to significantly exceed the "well capitalized" regulatory standards. 2 Excludes $5.8 million Fair Value hedge adjustment Additional Commentary Industry Recognition: Both GFNB and SNB continue to maintain their Bauer Financial 5-Star "Exceptional Performance" ratings for the 16th and 14th consecutive years, respectively. —————— About Arrow: Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York , serving the financial needs of northeastern New York . Arrow is the parent of GFNB and SNB. Other subsidiaries include North Country Investment Advisers, Inc. and Upstate Agency, LLC . Non-GAAP Financial Measures Reconciliation: In addition to presenting information in conformity with accounting principles generally accepted in the United States of America (GAAP), this news release contains financial information determined by methods other than GAAP (non-GAAP). The following measures used in this release, which are commonly utilized by financial institutions, have not been specifically exempted by the Securities and Exchange Commission (" SEC ") and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules. Certain non-GAAP financial measures include: tangible equity, return on tangible equity, tax-equivalent adjustment and related net interest income, tax-equivalent and the efficiency ratio. Management believes that the non-GAAP financial measures disclosed by Arrow from time to time 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 contained in this news release may contain statements that are not historical in nature but rather are based on management's beliefs, assumptions, expectations, estimates and projections about the future. These statements may be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, involving a degree of uncertainty and attendant risk. In the case of all forward-looking statements, actual outcomes and results may differ materially from what the statements predict or forecast, explicitly or by implication. Arrow undertakes no obligation to revise or update these forward-looking statements to reflect the occurrence of unanticipated events. This News Release should be read in conjunction with Arrow's 2022 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 Twelve Months Ended December 31 , December 31 , 2023 2022 2023 2022 INTEREST AND DIVIDEND INCOME Interest and Fees on Loans $ 38,813 $ 30,719 $ 142,016 $ 112,982 Interest on Deposits at Banks 1,873 1,274 5,831 3,100 Interest and Dividends on Investment Securities : Fully Taxable 2,941 3,121 11,764 10,357 Exempt from Federal Taxes 697 790 2,953 3,212 Total Interest and Dividend Income 44,324 35,904 162,564 129,651 INTEREST EXPENSE Interest-Bearing Checking Accounts 1,317 344 3,663 973 Savings Deposits 10,513 4,101 34,343 7,879 Time Deposits over $250,000 1,807 226 4,966 369 Other Time Deposits 3,406 234 7,127 604 Borrowings 1,447 200 6,756 605 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 173 172 686 685 Interest on Financing Leases 48 48 191 193 Total Interest Expense 18,711 5,325 57,732 11,308 NET INTEREST INCOME 25,613 30,579 104,832 118,343 Provision for Credit Losses 525 1,409 3,381 4,798 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 25,088 29,170 101,451 113,545 NONINTEREST INCOME Income From Fiduciary Activities 2,363 2,257 9,444 9,711 Fees for Other Services to Customers 2,725 2,710 10,798 11,626 Insurance Commissions 1,723 1,680 6,498 6,463 Net Gain (Loss) on Securities 122 48 (92) 427 Net Gain on Sales of Loans 7 3 32 83 Other Operating Income 544 467 2,437 2,588 Total Noninterest Income 7,484 7,165 29,117 30,898 NONINTEREST EXPENSE Salaries and Employee Benefits 11,693 11,603 47,667 47,003 Occupancy Expenses, Net 1,826 1,481 6,554 6,202 Technology and Equipment Expense 4,458 4,316 17,608 16,118 FDIC Assessments 572 283 2,050 1,176 Other Operating Expense 4,641 3,109 19,169 11,031 Total Noninterest Expense 23,190 20,792 93,048 81,530 INCOME BEFORE PROVISION FOR INCOME TAXES 9,382 15,543 37,520 62,913 Provision for Income Taxes 1,659 3,456 7,445 14,114 NET INCOME $ 7,723 $ 12,087 $ 30,075 $ 48,799 Average Shares Outstanding1: Basic 17,002 17,031 17,037 17,008 Diluted 17,004 17,087 17,037 17,059 Per Common Share: Basic Earnings $ 0.46 $ 0.70 $ 1.77 $ 2.86 Diluted Earnings 0.46 0.71 1.77 2.86 1 Share and per share data 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) December 31 , 2023 December 31 , 2022 ASSETS Cash and Due From Banks $ 36,755 $ 31,886 Interest-Bearing Deposits at Banks 105,781 32,774 Investment Securities : Available-for-Sale 497,769 573,495 Held-to-Maturity (Approximate Fair Value of $128,837 at December 31, 2023, and $171,623 at December 31, 2022 ) 131,395 175,364 Equity Securities 1,925 2,174 Other Investments 5,049 6,064 Loans 3,212,908 2,983,207 Allowance for Credit Losses (31,265) (29,952) Net Loans 3,181,643 2,953,255 Premises and Equipment, Net 59,642 56,491 Goodwill 21,873 21,873 Other Intangible Assets, Net 1,110 1,500 Other Assets 126,926 114,633 Total Assets $ 4,169,868 $ 3,969,509 LIABILITIES Noninterest-Bearing Deposits $ 758,425 $ 836,871 Interest-Bearing Checking Accounts 799,785 997,694 Savings Deposits 1,466,280 1,454,364 Time Deposits over $250,000 179,301 76,224 Other Time Deposits 483,775 133,211 Total Deposits 3,687,566 3,498,364 Borrowings 26,500 54,800 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 20,000 Finance Leases 5,066 5,119 Other Liabilities 50,964 37,688 Total Liabilities 3,790,096 3,615,971 STOCKHOLDERS' EQUITY Preferred Stock, $1 Par Value, 1,000,000 Shares Authorized — — Common Stock, $1 Par Value; 30,000,000 Shares Authorized (22,066,559 Shares Issued at December 31, 2023 , and 21,423,992 Shares Issued at December 31, 2022 ) 22,067 21,424 Additional Paid-in Capital 412,551 400,270 Retained Earnings 65,792 65,401 Accumulated Other Comprehensive (Loss) Income (33,416) (49,655) Treasury Stock, at Cost (5,124,073 Shares at December 31, 2023 , and 4,872,355 Shares at December 31, 2022 ) (87,222) (83,902) Total Stockholders' Equity 379,772 353,538 Total Liabilities and Stockholders' Equity $ 4,169,868 $ 3,969,509 Arrow Financial Corporation Selected Quarterly Information (Dollars In Thousands, Except Per Share Amounts - Unaudited) 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 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 Gain (Loss) on Securities 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: Total Stockholders' Equity (i.e. Book Value) $ 379,772 $ 360,014 $ 361,443 $ 363,371 $ 353,538 Book Value per Share 1 22.42 21.12 21.20 21.31 20.74 Goodwill and Other Intangible Assets, net 22,983 23,078 23,175 23,273 23,373 Tangible Book Value per Share 1,2 21.06 19.76 19.84 19.95 19.37 Capital Ratios:5 Tier 1 Leverage Ratio 9.84 % 9.94 % 9.92 % 10.13 % 9.80 % Common Equity Tier 1 Capital Ratio 13.00 % 13.17 % 13.27 % 13.34 % 13.32 % Tier 1 Risk-Based Capital Ratio 13.66 % 13.84 % 13.96 % 14.03 % 14.01 % Total Risk-Based Capital Ratio 14.74 % 14.94 % 15.08 % 15.15 % 15.11 % Assets Under Trust Admin. & Investment Mgmt. $ 1,763,194 $ 1,627,522 $ 1,711,460 $ 1,672,117 $ 1,606,132 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 Average TangibleEquity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measureswhich we believe provide investors with information that is useful in understanding our financial performance. 12/31/2023 9/30/2023 6/30/2023 3/31/2023 12/31/2022 Total Stockholders' Equity (GAAP) $ 379,772 $ 360,014 $ 361,443 $ 363,371 $ 353,538 Less: Goodwill and Other Intangible assets, net 22,983 23,078 23,175 23,273 23,373 Tangible Equity (Non-GAAP) $ 356,789 $ 336,936 $ 338,268 $ 340,098 $ 330,165 Period End Shares Outstanding 16,942 17,049 17,050 17,050 17,048 Tangible Book Value per Share (Non-GAAP) $ 21.06 $ 19.76 $ 19.84 $ 19.95 $ 19.37 Net Income 7,723 7,743 6,047 8,562 12,087 Return on Average Tangible Equity (Net Income/Average Tangible Equity - Annualized) 8.99 % 9.05 % 7.10 % 10.33 % 14.62 % 3. Non-GAAP Financial Measure Reconciliation: Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which we believe providesinvestors with information that is useful in understanding our financial performance. 12/31/2023 9/30/2023 6/30/2023 3/31/2023 12/31/2022 Interest Income (GAAP) $ 44,324 $ 42,117 $ 40,013 $ 36,110 $ 35,904 Add: Tax Equivalent Adjustment (Non-GAAP) 184 183 196 202 279 Interest Income - Tax Equivalent (Non-GAAP) $ 44,508 $ 42,300 $ 40,209 $ 36,312 $ 36,183 Net Interest Income (GAAP) $ 25,613 $ 25,353 $ 25,772 $ 28,094 $ 30,579 Add: Tax-Equivalent adjustment (Non-GAAP) 184 183 196 202 279 Net Interest Income - Tax Equivalent (Non-GAAP) $ 25,797 $ 25,536 $ 25,968 $ 28,296 $ 30,858 Average Earning Assets 4,019,432 3,973,747 3,953,642 3,845,825 3,940,905 Net Interest Margin (Non-GAAP)* 2.55 % 2.55 % 2.63 % 2.98 % 3.11 % 4. Non-GAAP Financial Measure Reconciliation: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. We believe the efficiency ratio provides investors with information that is useful in understanding our financial performance. We define our efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals our tax-equivalent net interest income plusnoninterest income, as adjusted). 5. For the current quarter, all of the regulatory capital ratios in the table above, as well as the Total Risk-Weighted Assets and Common Equity Tier 1 Capital amounts listed in the table below, are estimates based on, and calculated in accordance with bank regulatory capital rules. All prior quarters reflect actual results. The December 31, 2023 CET1 ratio listed in the tables (i.e., 13.00%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%). 12/31/2023 9/30/2023 6/30/2023 3/31/2023 12/31/2022 Total Risk Weighted Assets 3,032,188 2,988,438 2,937,837 2,909,610 2,883,902 Common Equity Tier 1 Capital 394,166 393,541 389,966 388,228 384,003 Common Equity Tier 1 Ratio 13.00 % 13.17 % 13.27 % 13.34 % 13.32 % * Quarterly ratios have been annualized Arrow Financial Corporation Average Consolidated Balance Sheets and Net Interest Income Analysis (Dollars in Thousands - Unaudited) Years Ended December 31 : 2023 2022 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest-Bearing Deposits at Banks $ 109,906 $ 5,831 5.31 % $ 252,835 3,100 1.23 % Investment Securities: Fully Taxable 622,575 11,764 1.89 % 648,540 10,357 1.60 % Exempt from Federal Taxes 141,966 2,953 2.08 % 173,184 3,212 1.85 % Loans 3,074,261 142,016 4.62 % 2,827,518 112,982 4.00 % Total Earning Assets 3,948,708 162,564 4.12 % 3,902,077 129,651 3.32 % Allowance for Credit Losses (30,799) (27,954) Cash and Due From Banks 30,640 30,462 Other Assets 135,970 142,895 Total Assets $ 4,084,519 $ 4,047,480 Deposits: Interest-Bearing Checking Accounts $ 855,931 3,663 0.43 % $ 1,038,751 973 0.09 % Savings Deposits 1,498,749 34,343 2.29 % 1,549,278 7,879 0.51 % Time Deposits of $250,000 or More 137,974 4,966 3.60 % 55,690 369 0.66 % Other Time Deposits 241,218 7,127 2.95 % 132,541 604 0.46 % Total Interest-Bearing Deposits 2,733,872 50,099 1.83 % 2,776,260 9,825 0.35 % Borrowings 144,971 6,756 4.66 % 32,874 605 1.84 % Junior Subordinated Obligations Trusts 20,000 686 3.43 % 20,000 685 3.43 % Finance Leases 5,082 191 3.76 % 5,132 193 3.76 % Total Interest-Bearing Liabilities 2,903,925 57,732 1.99 % 2,834,266 11,308 0.40 % Demand Deposits 772,889 815,218 Other Liabilities 44,924 37,901 Total Liabilities 3,721,738 3,687,385 Stockholders' Equity 362,781 360,095 Total Liabilities and Stockholders' Equity $ 4,084,519 $ 4,047,480 Net Interest Income $ 104,832 118,343 Net Interest Spread 2.13 % 2.92 % Net Interest Margin 2.65 % 3.03 % Arrow Financial Corporation Consolidated Financial Information (Dollars in Thousands - Unaudited) Quarter Ended: 12/31/2023 12/31/2022 Loan Portfolio Commercial Loans $ 156,224 $ 140,293 Commercial Real Estate Loans 745,487 707,022 Subtotal Commercial Loan Portfolio 901,711 847,315 Consumer Loans 1,111,667 1,065,135 Residential Real Estate Loans 1,199,530 1,070,757 Total Loans $ 3,212,908 $ 2,983,207 Allowance for Credit Losses Allowance for Credit Losses, Beginning of Quarter $ 31,112 $ 29,232 Loans Charged-off (1,366) (1,261) Recoveries of Loans Previously Charged-off 994 572 Net Loans Charged-off (372) (689) Provision for Credit Losses 525 1,409 Allowance for Credit Losses, End of Quarter $ 31,265 $ 29,952 Nonperforming Assets Nonaccrual Loans $ 20,645 $ 10,757 Loans Past Due 90 or More Days and Accruing 452 1,157 Loans Restructured and in Compliance with Modified Terms 54 69 Total Nonperforming Loans 21,151 11,983 Repossessed Assets 312 593 Other Real Estate Owned — — Total Nonperforming Assets $ 21,463 $ 12,576 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Quarter-to-date Annualized 0.05 % 0.09 % Provision for Credit Losses to Average Loans, Quarter-to-date Annualized 0.07 % 0.19 % Allowance for Credit Losses to Period-End Loans 0.97 % 1.00 % Allowance for Credit Losses to Period-End Nonperforming Loans 147.82 % 249.95 % Nonperforming Loans to Period-End Loans 0.66 % 0.40 % Nonperforming Assets to Period-End Assets 0.51 % 0.32 % Twelve-Month Period Ended: Allowance for Credit Losses Allowance for Credit Losses, Beginning of Year 29,952 27,281 Loans Charged-off (5,177) (4,143) Recoveries of Loans Previously Charged-off 3,109 2,016 Net Loans Charged-off (2,068) (2,127) Provision for Credit Losses 3,381 4,798 Allowance for Credit Losses, End of Year $ 31,265 $ 29,952 Key Asset Quality Ratios Net Loans Charged-off to Average Loans 0.07 % 0.08 % Provision for Credit Losses to Average Loans 0.11 % 0.17 % View original content to download multimedia: https://www.prnewswire.com/news-releases/arrow-reports-4th-quarter-net-income-of-7-7-million-or-0-46-per-share-and-30-1-million-or-1-77-per-share-for-2023--declares-cash-dividend-of-0-27-per-share-its-43rd-consecutive-quarterly-dividend-302050608.html SOURCE Arrow Financial Corporation

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