Arrow Reports $12.0 million in Q2 Net Income, Loan Growth of $108 Million

About this update from Arrow Financial Corporation

GLENS FALLS, N.Y. , July 27, 2022 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced financial results for the three-month period ended June 30, 2022 . Net income for the second quarter of 2022 was $12.0 million and diluted earnings per share was $0.75 . Loan growth was strong in the second quarter of 2022, with gross loans increasing by $108 million . Excluding Paycheck Protection Program (PPP) loans, which decreased by $17 million , loans grew by $125 million in the quarter. "Arrow had a strong second quarter with total loan balances at June 30, 2022 reaching a record high," said Arrow President and CEO Thomas J. Murphy . "I commend the Arrow Team for their outstanding efforts and strong work ethic. While economic challenges are expected this year, I am confident in our direction as a Company and our ability to deliver strong results for our shareholders, our customers and our communities." For the second quarter of 2022, net income was $12.0 million compared to $13.3 million for the second quarter of 2021. The year-over-year decline in second quarter net income was primarily due to: An increase in the provision expense for credit losses to $905 thousand for the second quarter of 2022, as compared to $263 thousand in the second quarter of 2021. Net gain on sale of loans was lower by $615 thousand when comparing year-over-year quarters. A decrease of $2.6 million in income earned on PPP loans included as part of net interest income in the second quarter of 2022 compared to the second quarter of 2021. Second Quarter Highlights Earnings: Net income was $12.0 million . Net interest margin was 3.02%. Return on average assets (ROA) was 1.20%. Return on average equity (ROE) was 13.44%. Diluted earnings per share (EPS) was $0.75 for the second quarter. Second-quarter revenue was consistent to the prior-year comparative quarter. Net charge-offs for the second quarter of 2022 were $476 thousand as compared to $93 thousand for the comparable 2021 quarter. Balance Sheet: Total assets were $4.0 billion as of June 30, 2022 . Total loans were $2.8 billion as of June 30, 2022 , a record high for Arrow. Total deposits were $3.5 billion as of June 30, 2022 . Loans to deposits ratio as of June 30, 2022 was 80.2% Additional Items: $17 million of PPP loans were forgiven in the second quarter of 2022. $1.5 million of PPP loans remained outstanding as of June 30, 2022 . Book value per share was $22.25 , up by 1.1% over the prior-year level. Nonperforming assets of $10.0 million at June 30, 2022 represented 0.25% of period-end assets, up from 0.20% at June 30, 2021 . A core system upgrade is scheduled for the third quarter of 2022, with the first customer communications expected in early August. Income Statement Net Interest Income: Net interest income for the second quarter was $29.0 million , up 2.4% from $28.4 million in the comparable quarter of 2021. Interest and fees on loans were $26.9 million for the second quarter of 2022, a decrease of 0.4% from $27.0 million for the quarter ending June 30, 2021 . Interest and fees related to PPP loans, included in the $26.9 million total, were $439 thousand in the second quarter of 2022, a decrease from $3.1 million for the second quarter of 2021. Interest expense for the second quarter of 2022 was $1.6 million , an increase of $0.2 million , or 16.5%, from $1.3 million in expense for the comparable quarter ending June 30, 2021 . Net Interest Margin: Net interest margin was 3.02% for the quarter, compared to 3.08% for the second quarter of 2021. The decrease in net interest margin from the prior year was primarily due to the decrease in the amount of PPP loan interest and related fees recognized in the second quarter of 2022 as compared to the comparable quarter of 2021. Net interest margin, excluding PPP income, increased from the comparable prior year quarter from 2.86% to 2.98% The cost of interest-bearing liabilities increased slightly primarily due to the repricing of municipal deposits. Three Months Ended June 30, 2022 June 30, 2021 Interest and Dividend Income $ 30,593 $ 29,695 Interest Expense 1,555 1,335 Net Interest Income 29,038 28,360 Average Earning Assets (1) 3,858,837 3,688,572 Average Interest-Bearing Liabilities 2,808,287 2,721,961 Yield on Earning Assets (1) 3.18 % 3.23 % Cost of Interest-Bearing Liabilities 0.22 0.20 Net Interest Spread 2.96 3.03 Net Interest Margin 3.02 3.08 Income Earned on PPP Loans included in Net Interest Income $ 438 $ 3,086 Net Interest Income excluding PPP loans 28,600 25,274 Net Interest Margin excluding PPP loans 2.98 % 2.86 % (1) Includes Nonaccrual Loans. Provision for Credit Losses: For the second quarter of 2022, the provision for credit losses was $905 thousand compared to $263 thousand in provision expense in the second quarter of 2021. The key drivers for the increase were strong loan growth and a slight deterioration in forecasted economic conditions in the second quarter of 2022. Noninterest Income: Noninterest income for the three months ended June 30, 2022 was $7.7 million , compared to $8.5 million in the comparable 2021 quarter. Income from fiduciary activities for the three months ended June 30, 2022 , decreased by $72 thousand over the comparable quarter of 2021. Fees and other services to customers increased $131 thousand over the comparable quarter of 2021. Gain on sales of loans decreased $615 thousand from the second quarter of 2021 as a result of a strategic decision to retain more newly originated real estate loans. Other operating income decreased $132 thousand from the comparable quarter of 2021 due to a variety of factors, including, among others, a $99 thousand loss on the disposal of a building. Noninterest Expense: Noninterest expense for the second quarter of 2022 was $20.3 million , an increase from $19.1 million for the second quarter of 2021. The largest component of noninterest expense was salaries and benefits paid to our employees, which totaled $11.7 million for the second quarter of 2022. The expense for estimated credit losses on off-balance sheet credit exposures included in other expenses was $110 thousand . Provision for Income Taxes: The provision for income taxes was $3.6 million for the second quarter of 2022, compared to $4.2 million for the same quarter of 2021. Balance Sheet Total Assets: Total assets were $4.0 billion at June 30, 2022 an increase of $95.0 million , or 2.4%, compared to June 30, 2021 and a decrease of $165.2 million , or 4.0%, compared to March 31, 2022 . Investments: Total investments were $766.9 million as of June 30, 2022 an increase of $122.5 million , or 19.0%, compared to June 30, 2021 and a decrease of $14.1 million , or 1.8%, compared to March 31, 2022 . Loans: Total loans were $2.8 billion as of June 30, 2022 . Loan growth for the second quarter of 2022 was $107.5 million and increased $200.7 million , or 7.6%, from June 30, 2021 . In the second quarter, total outstanding commercial loans increased $8.0 million , or 1.0%. PPP loans, which are included in the commercial portfolio, decreased $17.2 million in the second quarter as a result of the continued loan forgiveness processed by the Small Business Administration . The consumer loan portfolio grew by $54.5 million , or 5.6% in the second quarter, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased $45.1 million , or 4.7%, for the second quarter of 2022. Allowance for Credit Losses: The allowance for credit losses was $28.1 million on June 30, 2022 , which represented 0.99% of loans outstanding, as compared to 1.02% at June 30, 2021 . Asset quality remained solid at June 30, 2022 . Net loan losses, expressed as an annualized percentage of average loans outstanding, were 0.07% for the three-month period ended June 30, 2022 , as compared to 0.01% for the three-month period ended June 30, 2021 . Nonperforming assets of $10.0 million at June 30, 2022 represented 0.25% of period-end assets, compared to 0.20% at June 30, 2021 . Deposits: At June 30, 2022 , deposit balances were $3.5 billion . Deposits decreased in the second quarter of 2022 by $169.7 million and increased by $107.6 million , or 3.1%, from the prior-year level. Municipal deposits decreased $112.1 million in the second quarter and increased $4.8 million , or 0.6% from June 30, 2021 . Non-municipal deposits decreased $57.6 million for the quarter and increased $102.8 million , or 4.0%, from June 30, 2021 . Noninterest-bearing deposits represented 23.3% of total deposits at June 30, 2022 , compared to 22.2% of total deposits at June 30, 2021 . At June 30, 2022 , total time deposits were $169.5 million , a decrease of $57.0 million , or 25.2%, compared to the prior year. Capital: Total stockholders' equity was $356.5 million on June 30, 2022 , up $3.5 million , or 1.0%, from June 30, 2021 . Arrow's regulatory capital ratios remained strong in the second quarter of 2022. As of June 30, 2022 , Arrow's Common Equity Tier 1 Capital Ratio was 13.14% and Total Risk-Based Capital Ratio was 14.93%. The capital ratios of Arrow and both its 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 Cash and Stock Dividends: On June 15, 2022 , Arrow distributed a cash dividend of $0.27 per share. The cash dividend was 7% higher than the cash dividend paid by Arrow in the second quarter of 2021 due to a one cent increase in the cash dividend rate and after adjusting for the 3% stock dividend distributed on September 24, 2021 . Industry Recognition: In the second quarter of 2022, both of Arrow's banking subsidiaries once again earned BauerFinancial, Inc. 5- Star Exceptional Performance Bank ratings. 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, and the efficiency ratio. 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 obliged to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with Arrow's Annual Report on Form 10-K for the year ended December 31, 2021 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 , 2022 2021 2022 2021 INTEREST AND DIVIDEND INCOME Interest and Fees on Loans $ 26,906 $ 27,014 $ 52,645 $ 52,197 Interest on Deposits at Banks 427 103 625 188 Interest and Dividends on Investment Securities : Fully Taxable 2,444 1,671 4,633 3,177 Exempt from Federal Taxes 816 907 1,637 1,827 Total Interest and Dividend Income 30,593 29,695 59,540 57,389 INTEREST EXPENSE Interest-Bearing Checking Accounts 199 192 362 411 Savings Deposits 892 501 1,309 1,066 Time Deposits over $250,000 26 69 54 189 Other Time Deposits 111 156 220 378 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase — 1 — 3 Federal Home Loan Bank Advances 108 196 295 389 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 171 171 340 340 Interest on Financing Leases 48 49 97 98 Total Interest Expense 1,555 1,335 2,677 2,874 NET INTEREST INCOME 29,038 28,360 56,863 54,515 Provision for Credit Losses 905 263 1,674 (385) NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 28,133 28,097 55,189 54,900 NONINTEREST INCOME Income From Fiduciary Activities 2,517 2,589 5,113 4,967 Fees for Other Services to Customers 3,050 2,919 5,845 5,528 Insurance Commissions 1,622 1,626 3,133 3,266 Net Gain on Securities 154 196 284 356 Net Gain on Sales of Loans 10 625 62 2,040 Other Operating Income 391 523 1,469 929 Total Noninterest Income 7,744 8,478 15,906 17,086 NONINTEREST EXPENSE Salaries and Employee Benefits 11,687 10,845 22,973 21,983 Occupancy Expenses, Net 1,602 1,484 3,200 3,077 Technology and Equipment Expense 3,974 3,710 7,753 7,169 FDIC Assessments 291 245 598 515 Other Operating Expense 2,791 2,803 4,766 5,021 Total Noninterest Expense 20,345 19,087 39,290 37,765 INCOME BEFORE PROVISION FOR INCOME TAXES 15,532 17,488 31,805 34,221 Provision for Income Taxes 3,558 4,209 7,256 7,662 NET INCOME $ 11,974 $ 13,279 $ 24,549 $ 26,559 Average Shares Outstanding 1 : Basic 16,014 16,024 16,022 16,009 Diluted 16,054 16,085 16,069 16,056 Per Common Share: Basic Earnings $ 0.75 $ 0.83 $ 1.53 $ 1.66 Diluted Earnings 0.75 0.83 1.53 1.65 1 2021 Share and Per Share Amounts have been restated for the September 24, 2021 , 3% stock dividend. ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts - Unaudited) June 30 ,2022 December 31 , 2021 June 30 ,2021 ASSETS Cash and Due From Banks $ 51,549 $ 26,978 $ 44,760 Interest-Bearing Deposits at Banks 165,705 430,718 433,468 Investment Securities : Available-for-Sale at Fair Value 582,741 559,316 437,868 Held-to-Maturity (Fair Value of $180,511 at June 30, 2022 ; $201,292 at December 31, 2021 ; and $210,916 at June 30, 2021 ) 182,096 196,566 204,490 Equity Securities 2,031 1,747 1,992 FHLB and Federal Reserve Bank Stock 4,718 5,380 5,380 Loans 2,844,802 2,667,941 2,644,082 Allowance for Credit Losses (28,090) (27,281) (27,010) Net Loans 2,816,712 2,640,660 2,617,072 Premises and Equipment, Net 50,141 46,217 43,268 Goodwill 21,873 21,873 21,873 Other Intangible Assets, Net 1,710 1,918 2,082 Other Assets 111,929 96,579 83,938 Total Assets $ 3,991,205 $ 4,027,952 $ 3,896,191 LIABILITIES Noninterest-Bearing Deposits 824,842 810,274 761,991 Interest-Bearing Checking Accounts 1,046,570 994,391 977,955 Savings Deposits 1,504,791 1,531,287 1,471,591 Time Deposits over $250,000 40,021 82,811 84,357 Other Time Deposits 129,436 131,734 142,139 Total Deposits 3,545,660 3,550,497 3,438,033 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase — — 3,092 Federal Home Loan Bank Term Advances 25,000 45,000 45,000 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 20,000 20,000 Finance Leases 5,144 5,169 5,193 Other Liabilities 38,903 36,100 31,840 Total Liabilities 3,634,707 3,656,766 3,543,158 STOCKHOLDERS' EQUITY Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at June 30, 2022 , December 31, 2021 and June 30, 2021 — — — Common Stock, $1 Par Value; 30,000,000 Shares Authorized (20,800,144 Shares Issued at June 30, 2022 and December 31, 2021 and 20,194,474 at June 30, 2021 ) 20,800 20,800 20,194 Additional Paid-in Capital 379,423 377,996 355,195 Retained Earnings 69,980 54,078 60,494 Accumulated Other Comprehensive (Loss) Income (29,564) 347 (2,658) Treasury Stock, at Cost (4,777,605 Shares at June 30, 2022 ; 4,759,414 Shares at December 31, 2021 and 4,622,797 Shares at June 30, 2021 ) (84,141) (82,035) (80,192) Total Stockholders' Equity 356,498 371,186 353,033 Total Liabilities and Stockholders' Equity $ 3,991,205 $ 4,027,952 $ 3,896,191 Arrow Financial Corporation Selected Quarterly Information (Dollars In Thousands, Except Per Share Amounts - Unaudited) Quarter Ended 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 Net Income $ 11,974 $ 12,575 $ 10,309 $ 12,989 $ 13,279 Transactions in Net Income (Net of Tax): Net Changes in Fair Value of Equity Investments 114 96 (104) (79) 145 Share and Per Share Data: 1 Period End Shares Outstanding 16,023 16,013 16,041 16,020 16,039 Basic Average Shares Outstanding 16,014 16,030 16,028 16,027 16,024 Diluted Average Shares Outstanding 16,054 16,083 16,091 16,085 16,085 Basic Earnings Per Share $ 0.75 $ 0.78 $ 0.64 $ 0.81 $ 0.83 Diluted Earnings Per Share 0.75 0.78 0.63 0.81 0.83 Cash Dividend Per Share 0.270 0.270 0.260 0.252 0.252 Selected Quarterly Average Balances: Interest-Bearing Deposits at Banks $ 232,545 $ 410,644 $ 551,890 $ 416,500 $ 369,034 Investment Securities 822,112 797,347 681,732 675,980 668,089 Loans 2,804,180 2,678,796 2,660,665 2,641,726 2,651,449 Deposits 3,569,754 3,582,256 3,590,766 3,435,933 3,395,271 Other Borrowed Funds 50,140 68,596 70,162 72,187 74,957 Shareholders' Equity 357,228 370,264 364,409 359,384 350,203 Total Assets 4,012,999 4,054,943 4,060,540 3,902,041 3,851,921 Return on Average Assets, annualized 1.20 % 1.26 % 1.01 % 1.32 % 1.38 % Return on Average Equity, annualized 13.44 % 13.77 % 11.22 % 14.34 % 15.21 % Return on Average Tangible Equity, annualized 2 14.40 % 14.72 % 12.01 % 15.36 % 16.32 % Average Earning Assets $ 3,858,837 $ 3,886,787 $ 3,894,287 $ 3,734,206 $ 3,688,572 Average Paying Liabilities 2,808,287 2,855,884 2,841,304 2,705,283 2,721,961 Interest Income 30,593 28,947 28,354 29,807 29,695 Tax-Equivalent Adjustment 3 269 270 285 292 293 Interest Income, Tax-Equivalent 3 30,862 29,217 28,639 30,099 29,988 Interest Expense 1,555 1,122 1,152 1,169 1,335 Net Interest Income 29,038 27,825 27,202 28,638 28,360 Net Interest Income, Tax-Equivalent 3 29,307 28,095 27,487 28,930 28,653 Net Interest Margin, annualized 3.02 % 2.90 % 2.77 % 3.04 % 3.08 % Net Interest Margin, Tax-Equivalent, annualized 3 3.05 % 2.93 % 2.80 % 3.07 % 3.12 % Efficiency Ratio Calculation: 4 Noninterest Expense $ 20,345 $ 18,945 $ 20,860 $ 19,423 $ 19,087 Less: Intangible Asset Amortization 48 49 52 51 53 Net Noninterest Expense $ 20,297 $ 18,896 $ 20,808 $ 19,372 $ 19,034 Net Interest Income, Tax-Equivalent $ 29,307 $ 28,095 $ 27,487 $ 28,930 $ 28,653 Noninterest Income 7,744 8,162 7,589 7,694 8,478 Less: Net (Loss) Gain on Securities 154 130 (139) (106) 196 Net Gross Income $ 36,897 $ 36,127 $ 35,215 $ 36,730 $ 36,935 Efficiency Ratio 55.01 % 52.30 % 59.09 % 52.74 % 51.53 % Period-End Capital Information: Total Stockholders' Equity (i.e. Book Value) $ 356,498 $ 357,243 $ 371,186 $ 360,171 $ 353,033 Book Value per Share 1 22.25 22.31 23.14 22.48 22.01 Goodwill and Other Intangible Assets, net 23,583 23,691 23,791 23,879 23,955 Tangible Book Value per Share 1,2 20.78 20.83 21.66 20.99 20.52 Capital Ratios: 5 Tier 1 Leverage Ratio 9.60 % 9.37 % 9.20 % 9.39 % 9.29 % Common Equity Tier 1 Capital Ratio 13.14 % 13.48 % 13.77 % 13.71 % 13.79 % Tier 1 Risk-Based Capital Ratio 13.86 % 14.23 % 14.55 % 14.51 % 14.61 % Total Risk-Based Capital Ratio 14.93 % 15.33 % 15.69 % 15.66 % 15.78 % Assets Under Trust Admin. & Investment Mgmt. $ 1,589,178 $ 1,793,747 $ 1,851,101 $ 1,778,659 $ 1,804,854 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 24, 2021 , 3% stock dividend. 2. Non-GAAP Financial Measures Reconciliation: Tangible Book Value and Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which Arrow believes provides investors with information that is useful in understanding its financial performance. 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 Total Stockholders' Equity (GAAP) $ 356,498 $ 357,243 $ 371,186 $ 360,171 $ 353,033 Less: Goodwill and Other Intangible assets, net 23,583 23,691 23,791 23,879 23,955 Tangible Equity (Non-GAAP) $ 332,915 $ 333,552 $ 347,395 $ 336,292 $ 329,078 Period End Shares Outstanding 16,023 16,013 16,041 16,020 16,039 Tangible Book Value per Share (Non-GAAP) $ 20.78 $ 20.83 $ 21.66 $ 20.99 $ 20.52 Net Income 11,974 12,575 10,309 12,989 13,279 Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized) 14.40 % 14.72 % 12.01 % 15.36 % 16.32 % 3. Non-GAAP Financial Measures Reconciliation: Net Interest Margin, Tax-Equivalent is the ratio of our annualized tax-equivalent net interest 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. 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 Interest Income (GAAP) $ 30,593 $ 28,947 $ 28,354 $ 29,807 $ 29,695 Add: Tax-Equivalent adjustment (Non-GAAP) 269 270 285 292 293 Interest Income - Tax Equivalent (Non-GAAP) $ 30,862 $ 29,217 $ 28,639 $ 30,099 $ 29,988 Net Interest Income (GAAP) $ 29,038 $ 27,825 $ 27,202 $ 28,638 $ 28,360 Add: Tax-Equivalent adjustment (Non-GAAP) 269 270 285 292 293 Net Interest Income - Tax Equivalent (Non-GAAP) $ 29,307 $ 28,095 $ 27,487 $ 28,930 $ 28,653 Average Earning Assets $ 3,858,837 $ 3,886,787 $ 3,894,287 $ 3,734,206 $ 3,688,572 Net Interest Margin (Non-GAAP)* 3.05 % 2.93 % 2.80 % 3.07 % 3.12 % 4. Non-GAAP Financial Measures: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. Arrow believes the efficiency ratio provides investors with information that is useful in understanding its financial performance. Arrow defines efficiency ratio as the ratio of noninterest expense to net gross income (which equals tax-equivalent net interest income plus noninterest 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 CET1 ratio at June 30, 2022 listed in the tables (i.e., 13.14%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%). 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 Total Risk Weighted Assets $ 2,790,520 $ 2,661,952 $ 2,552,812 $ 2,511,910 $ 2,438,445 Common Equity Tier 1 Capital 366,798 358,738 351,497 344,507 336,265 Common Equity Tier 1 Ratio 13.14 % 13.48 % 13.77 % 13.71 % 13.79 % * 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 : 2022 2021 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest-Bearing Deposits at Banks $ 232,545 $ 427 0.74 % $ 369,034 $ 103 0.11 % Investment Securities : Fully Taxable 644,443 2,444 1.52 479,365 1,671 1.40 Exempt from Federal Taxes 177,669 816 1.84 188,724 907 1.93 Loans 2,804,180 26,906 3.85 2,651,449 27,014 4.09 Total Earning Assets 3,858,837 30,593 3.18 3,688,572 29,695 3.23 Allowance for Credit Losses (27,558) (26,862) Cash and Due From Banks 40,105 34,976 Other Assets 141,615 155,235 Total Assets $ 4,012,999 $ 3,851,921 Deposits: Interest-Bearing Checking Accounts $ 1,048,752 199 0.08 $ 924,651 192 0.08 Savings Deposits 1,541,616 892 0.23 1,481,232 501 0.14 Time Deposits of $250,000 or More 37,418 26 0.28 95,673 69 0.29 Other Time Deposits 130,361 111 0.34 145,448 156 0.43 Total Interest-Bearing Deposits 2,758,147 1,228 0.18 2,647,004 918 0.14 Short-Term Borrowings — — 4,770 1 0.08 FHLBNY Term Advances & Other Long-Term Debt 45,000 279 2.49 65,000 367 2.26 Finance Leases 5,140 48 3.75 5,187 49 3.79 Total Interest-Bearing Liabilities 2,808,287 1,555 0.22 2,721,961 1,335 0.20 Noninterest-bearing deposits 811,607 748,267 Other Liabilities 35,877 31,490 Total Liabilities 3,655,771 3,501,718 Stockholders' Equity 357,228 350,203 Total Liabilities and Stockholders' Equity $ 4,012,999 $ 3,851,921 Net Interest Income $ 29,038 $ 28,360 Net Interest Spread 2.96 % 3.03 % Net Interest Margin 3.02 % 3.08 % Arrow Financial Corporation Consolidated Financial Information (Dollars in Thousands - Unaudited) Quarter Ended: 6/30/2022 12/31/2021 6/30/2021 Loan Portfolio Commercial Loans $ 138,675 $ 172,518 $ 242,790 Commercial Real Estate Loans 663,234 628,929 598,241 Subtotal Commercial Loan Portfolio 801,909 801,447 841,031 Consumer Loans 1,031,111 920,556 892,549 Residential Real Estate Loans 1,011,782 945,938 910,502 Total Loans $ 2,844,802 $ 2,667,941 $ 2,644,082 Allowance for Credit Losses Allowance for Credit Losses, Beginning of Quarter $ 27,661 $ 26,956 $ 26,840 Loans Charged-off (907) (719) (443) Less Recoveries of Loans Previously Charged-off 431 486 350 Net Loans Charged-off (476) (233) (93) Provision for Credit Losses 905 558 263 Allowance for Credit Losses, End of Quarter $ 28,090 $ 27,281 $ 27,010 Nonperforming Assets Nonaccrual Loans $ 7,999 $ 10,764 $ 7,102 Loans Past Due 90 or More Days and Accruing 1,641 823 595 Loans Restructured and in Compliance with Modified Terms 77 77 78 Total Nonperforming Loans 9,717 11,664 7,775 Repossessed Assets 297 126 99 Other Real Estate Owned — — 99 Total Nonperforming Assets $ 10,014 $ 11,790 $ 7,973 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Quarter-to-date Annualized 0.07 % 0.03 % 0.01 % Provision for Credit Losses to Average Loans, Quarter-to-date Annualized 0.13 % 0.08 % 0.04 % Allowance for Credit Losses to Period-End Loans 0.99 % 1.02 % 1.02 % Allowance for Credit Losses to Period-End Nonperforming Loans 289.08 % 233.89 % 347.40 % Nonperforming Loans to Period-End Loans 0.34 % 0.44 % 0.29 % Nonperforming Assets to Period-End Assets 0.25 % 0.29 % 0.20 % Six Month Period Ended: Allowance for Loan Losses Allowance for Loan Losses, Beginning of Year $ 27,281 $ 29,232 Impact of the Adoption of ASU 2016-13 — (1,300) Loans Charged-off (1,736) (1,076) Less Recoveries of Loans Previously Charged-off 871 539 Net Loans Charged-off (865) (537) Provision for Loan Losses 1,674 (385) Allowance for Loan Losses, End of Period $ 28,090 $ 27,010 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Annualized 0.06 % 0.04 % Provision for Loan Losses to Average Loans, Annualized 0.12 % (0.03) % View original content: https://www.prnewswire.com/news-releases/arrow-reports-12-0-million-in-q2-net-income-loan-growth-of-108-million-301594285.html SOURCE Arrow Financial Corporation

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