Arrow Reports $6.0 million in Q2 2023 Net Income, Loans Reach Record High of $3.1 Billion

About this update from Arrow Financial Corporation

GLENS FALLS, N.Y. , Aug. 8, 2023 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow") announced financial results for the three-month period ended June 30, 2023 . Net income for the second quarter of 2023 was $6.0 million and fully diluted earnings per share was $0.36 . Nonperforming assets decreased $4.2 million in the second quarter, with the allowance for credit losses reaching 477% of nonperforming loans. Arrow President and CEO David S. DeMarco : "I am pleased to announce that we are back in full compliance with our NASDAQ® filing requirements. While this is an important step, it did not distract us from growing the business to a new record high for loans while maintaining sound credit quality. As always, our team is dedicated to serving our communities and our customers throughout our eight-county footprint. We remain focused on further enhancing the customer experience and optimizing our operations." "Now that the Arrow team has returned to our fully renovated headquarters in downtown Glens Falls, New York , we are opening our Main Office branch and lending areas to customers. The renovated campus offers a collaborative and modern space for both customers and our team. This investment is a key part of the revitalization of downtown Glens Falls and represents Arrow's approach to community banking, based on long-lasting and meaningful relationships with our shareholders, customers, communities and employees." This Earnings Release and related commentary should be read in conjunction with our August 8, 2023 Form 8-K and related Second Quarter 2023 Investor Presentation, which can be found on our website: arrowfinancial.com/investor-presentations . Second-Quarter Highlights and Key Metrics Total loans reached a record high of $3.1 billion as of June 30, 2023 , growing at an annualized rate of 8.6%, or $64.5 million , for the quarter. Strong on-balance sheet liquidity of $376 million , or 9% of total assets; 4% cash and 5% unencumbered readily marketable securities. Additional $1.3 billion of immediately available liquidity with FHLB, FRB and other bank lines. Replaced FHLB advances with $150 million of flexible term and lower cost advances from the FRB of NY Bank Term Funding Program (BTFP). Immediately available liquidity provides in excess of 200% coverage of uninsured deposits which are less than 30% of total deposits. Loan-to-deposit ratio was 88%. Nonperforming assets decreased to $7.1 million at June 30, 2023 , representing 0.17% of period-end assets. Net charge-offs to average loans for the second quarter of 2023 were 0.07% as compared to 0.10% for the previous quarter. Allowance for Credit Losses to Nonperforming Loans coverage was 477%. Total assets and deposits remained relatively unchanged at $4.1 billion and $3.5 billion respectively. Non-interest expenses included $2.0 million in incremental expenses related to the delay in filing the 2022 Form 10-K and the First Quarter Form 10-Q. Net interest margin was 2.61%. Return on average assets (ROA) was 0.59%; excluding incremental expenses related to the delayed filings it was 0.75%. Return on average equity (ROE) was 6.64%; excluding incremental expense related to the delayed filings it was 8.41%. Income Statement Net Income: Net income for the second quarter of 2023 was $6.0 million , decreasing from $8.6 million and $12.0 million in the first quarter of 2023 and the second quarter of 2022, respectively. The decline from the first quarter of 2023 was primarily due to an increase of $6.2 million in interest expense and an increase in non-interest expense of $1.8 million , partially offset by an increase in interest and dividend income of $3.9 million . The decline from the the same period in the prior year was due to an increase of $12.7 million in interest expense, an increase in non-interest expense of $3.7 million and a decrease in non-interest income of $838 thousand . The decrease was partially offset by an increase in interest and dividend income of $9.4 million . Net Interest Income: Net interest income for the second quarter was $25.8 million , decreasing 8.3% from $28.1 million in the first quarter of 2023 and 11.2% from $29.0 million in the comparable quarter of 2022. Interest and fees on loans were $34.6 million for the second quarter of 2023, an increase from $31.9 million in the first quarter of 2023 and from $26.9 million for the quarter ended June 30, 2022 . These increases are driven by loan growth and higher loan rates. Interest expense for the second quarter of 2023 was $14.2 million , an increase of $6.2 million versus first quarter of 2023 and $12.7 million from the comparable quarter ended June 30, 2022 . The increases for both comparison periods were driven by higher deposit rates and changes in deposit composition. Net Interest Margin: Net interest margin was 2.61% for the quarter, compared to 2.96% for the first quarter of 2023 and 3.02% for the second quarter of 2022. The decrease in net interest margin compared to the first quarter in 2023 was the result of the cost of interest-bearing liabilities increasing at a faster pace than the yield on average earning assets.The year-over-year decrease in net interest margin was also impacted by lower cash balances as a result of deposit outflows in the fourth quarter of 2022 that temporarily reduced average earning asset balances year-over- year. Three Months Ended (Dollars in Thousands) June 30, 2023 March 31, 2023 June 30, 2022 Interest and Dividend Income $ 40,013 $ 36,110 $ 30,593 Interest Expense 14,241 8,016 1,555 Net Interest Income 25,772 28,094 29,038 Average Earning Assets(1) 3,953,642 3,845,825 3,858,837 Average Interest-Bearing Liabilities 2,924,743 2,782,299 2,808,287 Yield on Earning Assets(1) 4.06 % 3.81 % 3.18 % Cost of Interest-Bearing Liabilities 1.95 1.17 0.22 Net Interest Spread 2.11 2.88 2.96 Net Interest Margin 2.61 2.96 3.02 Income Earned on PPP Loans included in Net Interest Income $ — $ — $ 438 Net Interest Income excluding PPP loans 25,772 28,094 28,600 Net Interest Margin excluding PPP loans 2.61 % 2.96 % 2.98 % (1) Includes Nonaccrual Loans. Provision for Credit Losses: For the second quarter of 2023, the provision for credit losses was $948 thousand compared to $1.6 million in the first quarter of 2023 and $905 thousand in the prior-year quarter. The key drivers for the provision for credit losses in the second quarter of 2023 were loan growth and, to a lesser extent, charge-offs. The second quarter 2023 provision for credit losses was not impacted by changes to the economic forecast factors embedded in the allowance model. The provision for the first quarter of 2023 was driven by charge-offs and by changes made to the economic forecast within the model. Non-Interest Income: Non-interest income for the three months ended June 30, 2023 , was $6.9 million , compared to $6.7 million in the first quarter of 2023 and $7.7 million in the comparable quarter of 2022. Income from fiduciary activities, which includes Wealth Management services, rebounded in the second quarter of 2023 after a downturn in 2022 caused by declining market performance. Fees and other services to customers declined versus the linked quarter and year-over-year driven by lower interchange fees. Other income was consistent with both the first quarter of 2023 and the comparable quarter of 2022. Non-Interest Expense: Non-interest expense for the second quarter of 2023 was $24.1 million , an increase from $22.3 million in the first quarter of 2023 and $20.3 million for the second quarter of 2022. The increase was related to $3.0 million of additional legal and professional fees incurred in the first half of 2023 associated with the delay in the filing of the 2022 Form 10-K and the First Quarter Form 10-Q. Salaries and benefits increased $0.5 million year-over-year as a result of pension and other benefit expenses. Provision for Income Taxes: The provision for income taxes was $1.6 million for the second quarter of 2023, $2.4 million for the first quarter of 2023 and $3.6 million for the second quarter of 2022. The reduction in the provision for income taxes was the result of lower pre-tax income. The effective tax rate as of June 30, 2023 was 20.9%. Balance Sheet Total Assets: Total assets were $4.1 billion at June 30, 2023 , comparable to March 31, 2023 and an increase of $134.1 million , or 3.4%, compared to December 31, 2022 . Growth in the balance sheet is in line with growth in the loan portfolio and higher cash balances. Investments: Total investments were $694.0 million as of June 30, 2023 , a decrease of $51.1 million , or 6.9%, compared to March 31, 2023 and a decrease of $57.0 million compared to December 31, 2022 . The decrease for both periods was driven primarily by paydowns and maturities (net of purchases) of $56.7 million and $45.3 million respectively. The proceeds were primarily used to fund loan growth and for general corporate purposes. The rising rate environment led to unrealized losses of $5.2 million within the available-for-sale portfolio in the second quarter of 2023 Loans: Total loans reached a record high of $3.1 billion as of June 30, 2023 . Loan growth for the second quarter of 2023 was $64.5 million , or 2.1%, and $86.7 million , or 2.9%, from December 31, 2022 . Loan growth was spread across all segments. Please see the loan detail included in the consolidated financial information table on page 11. Allowance for Credit Losses: The allowance for credit losses was $31.2 million on June 30, 2023 , which represented 1.02% of loans outstanding, as compared to $30.8 million or 1.02% at March 31, 2023 and $30.0 million or 1.00% at December 31, 2022 . Asset quality improved at June 30, 2023 . Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.07% for the three-month period ended June 30, 2023 , as compared to 0.10% for the three-month period ended March 31, 2023 and 0.09% for the three-month period ended December 31, 2022 . Nonperforming assets of $7.1 million at June 30, 2023 , represented 0.17% of period-end assets, compared to $11.3 million or 0.27% at March 31, 2023 and $12.6 million or 0.32% at December 31, 2022 . Deposits: At June 30, 2023 , deposit balances were $3.5 billion , relatively unchanged from March 31, 2023 and December 31, 2022 . While overall deposit balances have remained stable, the deposit mix has continued to shift from non-interest bearing accounts to higher cost money market and time deposit accounts. Please refer to page 6 for further details related to deposits. Capital: Total stockholders' equity was $361.4 million at June 30, 2023 , a decrease of $1.9 million , or 0.5%, from the March 31, 2023 level of $363.4 million , and an increase of $7.9 million , or 2.2%, from December 31, 2022 . Arrow's regulatory capital ratios remained strong in the second quarter of 2023. As of June 30, 2023 , Arrow's Common Equity Tier 1 Capital Ratio was 13.27% and Total Risk-Based Capital Ratio was 15.08%. 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, 2023 , Arrow distributed a cash dividend of $0.27 per share. On July 28, 2023 , Arrow declared a cash dividend of $.27 per share, payable on September 15, 2023 , to shareholders of record as of September 1, 2023 . This marks the 41st consecutive quarterly cash dividend. 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. 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, 2022 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 , 2023 2022 2023 2022 INTEREST AND DIVIDEND INCOME Interest and Fees on Loans $ 34,618 $ 26,906 $ 66,504 $ 52,645 Interest on Deposits at Banks 1,674 427 2,153 625 Interest and Dividends on Investment Securities : Fully Taxable 2,951 2,444 5,899 4,633 Exempt from Federal Taxes 770 816 1,567 1,637 Total Interest and Dividend Income 40,013 30,593 76,123 59,540 INTEREST EXPENSE Interest-Bearing Checking Accounts 820 199 1,190 362 Savings Deposits 8,514 892 14,101 1,309 Time Deposits over $250,000 1,119 26 1,693 54 Other Time Deposits 1,196 111 1,670 220 Borrowings 2,373 108 3,166 295 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 171 171 340 340 Interest on Financing Leases 48 48 97 97 Total Interest Expense 14,241 1,555 22,257 2,677 NET INTEREST INCOME 25,772 29,038 53,866 56,863 Provision for Credit Losses 948 905 2,502 1,674 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 24,824 28,133 51,364 55,189 NON-INTEREST INCOME Income From Fiduciary Activities 2,428 2,517 4,703 5,113 Fees for Other Services to Customers 2,717 3,050 5,312 5,845 Insurance Commissions 1,560 1,622 3,080 3,133 Net (Loss) Gain on Securities (181) 154 (285) 284 Net Gain on Sales of Loans — 10 4 62 Other Operating Income 382 391 769 1,469 Total Non-Interest Income 6,906 7,744 13,583 15,906 NON-INTEREST EXPENSE Salaries and Employee Benefits 12,039 11,687 23,986 22,973 Occupancy Expenses, Net 1,583 1,602 3,211 3,200 Technology and Equipment Expense 4,362 3,974 8,779 7,753 FDIC Assessments 484 291 963 598 Other Operating Expense 5,615 2,791 9,440 4,766 Total Non-Interest Expense 24,083 20,345 46,379 39,290 INCOME BEFORE PROVISION FOR INCOME TAXES 7,647 15,532 18,568 31,805 Provision for Income Taxes 1,600 3,558 3,959 7,256 NET INCOME $ 6,047 $ 11,974 $ 14,609 $ 24,549 Average Shares Outstanding 1: Basic 16,553 16,494 16,552 16,503 Diluted 16,553 16,535 16,552 16,551 Per Common Share: Basic Earnings $ 0.36 $ 0.72 $ 0.88 $ 1.48 Diluted Earnings 0.36 0.72 0.88 1.48 1 2022 Share and Per Share Amounts have been restated for the September 23, 2022 , 3% stock dividend. ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts - Unaudited) June 30 , 2023 December 31 ,2022 June 30 , 2022 ASSETS Cash and Due From Banks $ 33,803 $ 31,886 $ 51,549 Interest-Bearing Deposits at Banks 139,798 32,774 165,705 Investment Securities : Available-for-Sale at Fair Value 543,708 573,495 582,741 Held-to-Maturity (Fair Value of $139,143 at June 30, 2023 ; $171,623 at December 31, 2022 ; and $180,511 at June 30, 2022 ) 143,460 175,364 182,096 Equity Securities 1,889 2,174 2,031 FHLB and Federal Reserve Bank Stock 4,932 6,064 4,718 Loans 3,069,897 2,983,207 2,844,802 Allowance for Credit Losses (31,170) (29,952) (28,090) Net Loans 3,038,727 2,953,255 2,816,712 Premises and Equipment, Net 59,773 56,491 50,141 Goodwill 21,873 21,873 21,873 Other Intangible Assets, Net 1,302 1,500 1,710 Other Assets 114,388 114,633 111,929 Total Assets $ 4,103,653 $ 3,969,509 $ 3,991,205 LIABILITIES Noninterest-Bearing Deposits 759,495 836,871 824,842 Interest-Bearing Checking Accounts 856,016 997,694 1,046,570 Savings Deposits 1,517,937 1,454,364 1,504,791 Time Deposits over $250,000 140,694 76,224 40,021 Other Time Deposits 228,082 133,211 129,436 Total Deposits 3,502,224 3,498,364 3,545,660 Borrowings 171,800 54,800 25,000 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 20,000 20,000 Finance Leases 5,093 5,119 5,144 Other Liabilities 43,093 37,688 38,903 Total Liabilities 3,742,210 3,615,971 3,634,707 STOCKHOLDERS' EQUITY Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at June 30, 2023 , December 31, 2022 and June 30, 2022 — — — Common Stock, $1 Par Value; 30,000,000 Shares Authorized (21,423,992 Shares Issued at June 30, 2023 and December 31, 2022 and 20,800,144 Shares Issued at June 30, 2022 ) 21,424 21,424 20,800 Additional Paid-in Capital 401,069 400,270 379,423 Retained Earnings 71,076 65,401 69,980 Accumulated Other Comprehensive Loss (47,613) (49,655) (29,564) Treasury Stock, at Cost (4,870,934 Shares at June 30, 2023 ; 4,872,355 Shares at December 31, 2022 and 4,777,605 Shares at June 30, 2022 ) (84,513) (83,902) (84,141) Total Stockholders' Equity 361,443 353,538 356,498 Total Liabilities and Stockholders' Equity $ 4,103,653 $ 3,969,509 $ 3,991,205 Arrow Financial Corporation Selected Quarterly Information (Dollars In Thousands, Except Per Share Amounts - Unaudited) Quarter Ended 6/30/2023 3/31/2023 12/31/2022 9/30/2022 6/30/2022 Net Income $ 6,047 $ 8,562 $ 12,087 $ 12,163 $ 11,974 Transactions in Net Income (Net of Tax): Net Changes in Fair Value of Equity Investments (133) (76) 35 70 114 Share and Per Share Data:1 Period End Shares Outstanding 16,553 16,553 16,552 16,523 16,503 Basic Average Shares Outstanding 16,553 16,552 16,535 16,512 16,494 Diluted Average Shares Outstanding 16,553 16,564 16,589 16,558 16,535 Basic Earnings Per Share $ 0.36 $ 0.52 $ 0.73 $ 0.74 $ 0.72 Diluted Earnings Per Share 0.36 0.52 0.73 0.74 0.72 Cash Dividend Per Share 0.270 0.270 0.270 0.262 0.262 Selected Quarterly Average Balances: Interest-Bearing Deposits at Banks $ 130,057 $ 40,436 $ 143,499 $ 209,001 $ 232,545 Investment Securities 787,175 813,461 845,859 821,052 822,112 Loans 3,036,410 2,991,928 2,951,547 2,872,066 2,804,180 Deposits 3,460,711 3,480,279 3,614,945 3,598,519 3,569,754 Other Borrowed Funds 220,616 100,596 63,304 50,125 50,140 Shareholders' Equity 365,070 359,556 351,402 361,675 357,228 Total Assets 4,087,653 3,978,851 4,074,028 4,047,738 4,012,999 Return on Average Assets, annualized 0.59 % 0.87 % 1.18 % 1.19 % 1.20 % Return on Average Equity, annualized 6.64 % 9.66 % 13.65 % 13.34 % 13.44 % Return on Average Tangible Equity, annualized 2 7.10 % 10.33 % 14.62 % 14.27 % 14.40 % Average Earning Assets $ 3,953,642 $ 3,845,825 $ 3,940,905 $ 3,902,119 $ 3,858,837 Average Paying Liabilities 2,924,743 2,782,299 2,891,092 2,781,985 2,808,287 Interest Income 40,013 36,110 35,904 34,207 30,593 Tax-Equivalent Adjustment 3 196 202 279 268 269 Interest Income, Tax-Equivalent 3 40,209 36,312 36,183 34,475 30,862 Interest Expense 14,241 8,016 5,325 3,306 1,555 Net Interest Income 25,772 28,094 30,579 30,901 29,038 Net Interest Income, Tax-Equivalent 3 25,968 28,296 30,858 31,169 29,307 Net Interest Margin, annualized 2.61 % 2.96 % 3.08 % 3.14 % 3.02 % Net Interest Margin, Tax-Equivalent, annualized 3 2.63 % 2.98 % 3.11 % 3.17 % 3.05 % Efficiency Ratio Calculation: 4 Non-Interest Expense $ 24,083 $ 22,296 $ 20,792 $ 21,448 $ 20,345 Less: Intangible Asset Amortization 44 45 47 48 48 Net Non-Interest Expense $ 24,039 $ 22,251 $ 20,745 $ 21,400 $ 20,297 Net Interest Income, Tax-Equivalent $ 25,968 $ 28,296 $ 30,858 $ 31,169 $ 29,307 Non-Interest Income 6,906 6,677 7,165 7,827 7,744 Less: Net (Loss) Gain on Securities (181) (104) 48 95 154 Net Gross Income $ 33,055 $ 35,077 $ 37,975 $ 38,901 $ 36,897 Efficiency Ratio 72.72 % 63.43 % 54.63 % 55.01 % 55.01 % Period-End Capital Information: Total Stockholders' Equity (i.e. Book Value) $ 361,443 $ 363,371 $ 353,538 $ 345,550 $ 356,498 Book Value per Share 1 21.84 21.95 21.36 20.91 21.60 Goodwill and Other Intangible Assets, net 23,175 23,273 23,373 23,477 23,583 Tangible Book Value per Share 1,2 20.44 20.55 19.95 19.49 20.17 Capital Ratios:5 Tier 1 Leverage Ratio 9.92 % 10.13 % 9.80 % 9.71 % 9.60 % Common Equity Tier 1 Capital Ratio 13.27 % 13.34 % 13.32 % 13.14 % 13.14 % Tier 1 Risk-Based Capital Ratio 13.96 % 14.03 % 14.01 % 13.85 % 13.86 % Total Risk-Based Capital Ratio 15.08 % 15.15 % 15.11 % 14.93 % 14.93 % Assets Under Trust Admin. & Investment Mgmt. $ 1,711,460 $ 1,672,117 $ 1,606,132 $ 1,515,994 $ 1,589,178 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 23, 2022 , 3% stock dividend. 2. Non-GAAP Financial Measure Reconciliation: Tangible Book Value, Tangible Equity, and Return on 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. 6/30/2023 3/31/2023 12/31/2022 9/30/2022 6/30/2022 Total Stockholders' Equity (GAAP) $ 361,443 $ 363,371 $ 353,538 $ 345,550 $ 356,498 Less: Goodwill and Other Intangible assets, net 23,175 23,273 23,373 23,477 23,583 Tangible Equity (Non-GAAP) $ 338,268 $ 340,098 $ 330,165 $ 322,073 $ 332,915 Period End Shares Outstanding 16,553 16,553 16,552 16,523 16,503 Tangible Book Value per Share (Non-GAAP) $ 20.44 $ 20.55 $ 19.95 $ 19.49 $ 20.17 Net Income 6,047 8,562 12,087 12,163 11,974 Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized) 7.10 % 10.33 % 14.62 % 14.27 % 14.40 % 3. Non-GAAP Financial Measure Reconciliation: Net Interest Margin is the ratio of 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. 6/30/2023 3/31/2023 12/31/2022 9/30/2022 6/30/2022 Interest Income (GAAP) $ 40,013 $ 36,110 $ 35,904 $ 34,207 $ 30,593 Add: Tax-Equivalent adjustment (Non-GAAP) 196 202 279 268 269 Interest Income - Tax Equivalent (Non-GAAP) $ 40,209 $ 36,312 $ 36,183 $ 34,475 $ 30,862 Net Interest Income (GAAP) $ 25,772 $ 28,094 $ 30,579 $ 30,901 $ 29,038 Add: Tax-Equivalent adjustment (Non-GAAP) 196 202 279 268 269 Net Interest Income - Tax Equivalent (Non-GAAP) $ 25,968 $ 28,296 $ 30,858 $ 31,169 $ 29,307 Average Earning Assets $ 3,953,642 $ 3,845,825 $ 3,940,905 $ 3,902,119 $ 3,858,837 Net Interest Margin (Non-GAAP)* 2.63 % 2.98 % 3.11 % 3.17 % 3.05 % 4. Non-GAAP Financial Measure Reconciliation: 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 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, 2023 CET1 ratio listed in the tables (i.e., 13.27%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%). 6/30/2023 3/31/2023 12/31/2022 9/30/2022 6/30/2022 Total Risk Weighted Assets $ 2,937,837 $ 2,909,610 $ 2,883,902 $ 2,856,224 $ 2,790,520 Common Equity Tier 1 Capital 389,966 388,228 384,003 375,394 366,798 Common Equity Tier 1 Ratio 13.27 % 13.34 % 13.32 % 13.14 % 13.14 % * 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, 2023 June 30, 2022 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest-Bearing Deposits at Banks $ 130,057 $ 1,674 5.16 % $ 232,545 $ 427 0.74 % Investment Securities : Fully Taxable 637,018 2,951 1.86 644,443 2,444 1.52 Exempt from Federal Taxes 150,157 770 2.06 177,669 816 1.84 Loans 3,036,410 34,618 4.57 2,804,180 26,906 3.85 Total Earning Assets 3,953,642 40,013 4.06 3,858,837 30,593 3.18 Allowance for Credit Losses (30,577) (27,558) Cash and Due From Banks 28,742 40,105 Other Assets 135,846 141,615 Total Assets $ 4,087,653 $ 4,012,999 Deposits: Interest-Bearing Checking Accounts $ 863,892 820 0.38 $ 1,048,752 199 0.08 Savings Deposits 1,504,412 8,514 2.27 1,541,616 892 0.23 Time Deposits of $250,000 or More 133,897 1,119 3.35 37,418 26 0.28 Other Time Deposits 201,926 1,196 2.38 130,361 111 0.34 Total Interest-Bearing Deposits 2,704,127 11,649 1.73 2,758,147 1,228 0.18 Borrowings 195,527 2,373 4.87 25,000 108 1.73 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 171 3.43 20,000 171 3.43 Finance Leases 5,089 48 3.78 5,140 48 3.75 Total Interest-Bearing Liabilities 2,924,743 14,241 1.95 2,808,287 1,555 0.22 Noninterest-Bearing Deposits 756,584 811,607 Other Liabilities 41,256 35,877 Total Liabilities 3,722,583 3,655,771 Stockholders' Equity 365,070 357,228 Total Liabilities and Stockholders' Equity $ 4,087,653 $ 4,012,999 Net Interest Income $ 25,772 $ 29,038 Net Interest Spread 2.11 % 2.96 % Net Interest Margin 2.61 % 3.02 % Arrow Financial Corporation Average Consolidated Balance Sheets and Net Interest Income Analysis (Dollars in Thousands - Unaudited) Quarter Ended: June 30, 2023 March 31, 2023 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest-Bearing Deposits at Banks $ 130,057 $ 1,674 5.16 % $ 40,436 $ 479 4.80 % Investment Securities : Fully Taxable 637,018 2,951 1.86 652,743 2,948 1.83 Exempt from Federal Taxes 150,157 770 2.06 160,718 797 2.01 Loans 3,036,410 34,618 4.57 2,991,928 31,886 4.32 Total Earning Assets 3,953,642 40,013 4.06 3,845,825 36,110 3.81 Allowance for Credit Losses (30,577) (29,792) Cash and Due From Banks 28,742 30,518 Other Assets 135,846 132,300 Total Assets $ 4,087,653 $ 3,978,851 Deposits: Interest-Bearing Checking Accounts $ 863,892 820 0.38 $ 964,735 370 0.16 Savings Deposits 1,504,412 8,514 2.27 1,474,251 5,587 1.54 Time Deposits of $250,000 or More 133,897 1,119 3.35 94,415 574 2.47 Other Time Deposits 201,926 1,196 2.38 148,302 474 1.30 Total Interest-Bearing Deposits 2,704,127 11,649 1.73 2,681,703 7,005 1.06 Borrowings 195,527 2,373 4.87 75,494 793 4.26 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 171 3.43 20,000 169 3.43 Finance Leases 5,089 48 3.78 5,102 49 3.89 Total Interest-Bearing Liabilities 2,924,743 14,241 1.95 2,782,299 8,016 1.17 Noninterest-bearing deposits 756,584 798,576 Other Liabilities 41,256 38,420 Total Liabilities 3,722,583 3,619,295 Stockholders' Equity 365,070 359,556 Total Liabilities and Stockholders' Equity $ 4,087,653 $ 3,978,851 Net Interest Income $ 25,772 $ 28,094 Net Interest Spread 2.11 % 2.64 % Net Interest Margin 2.61 % 2.96 % Arrow Financial Corporation Consolidated Financial Information (Dollars in Thousands - Unaudited) Quarter Ended: 6/30/2023 12/31/2022 6/30/2022 Loan Portfolio Commercial Loans $ 147,518 $ 140,293 $ 138,675 Commercial Real Estate Loans 723,948 707,022 663,234 Subtotal Commercial Loan Portfolio 871,466 847,315 801,909 Consumer Loans 1,087,765 1,065,135 1,031,111 Residential Real Estate Loans 1,110,666 1,070,757 1,011,782 Total Loans $ 3,069,897 $ 2,983,207 $ 2,844,802 Allowance for Credit Losses Allowance for Credit Losses, Beginning of Quarter $ 30,784 $ 29,232 $ 27,661 Loans Charged-off (1,280) (1,261) (907) Less Recoveries of Loans Previously Charged-off 718 572 431 Net Loans Charged-off (562) (689) (476) Provision for Credit Losses 948 1,409 905 Allowance for Credit Losses, End of Quarter $ 31,170 $ 29,952 $ 28,090 Nonperforming Assets Nonaccrual Loans $ 5,997 $ 10,757 $ 7,999 Loans Past Due 90 or More Days and Accruing 467 1,157 1,641 Loans Restructured and in Compliance with Modified Terms 67 69 77 Total Nonperforming Loans 6,531 11,983 9,717 Repossessed Assets 342 593 297 Other Real Estate Owned 182 — — Total Nonperforming Assets $ 7,055 $ 12,576 $ 10,014 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Quarter-to-date Annualized 0.07 % 0.09 % 0.07 % Provision for Credit Losses to Average Loans, Quarter-to-date Annualized 0.13 % 0.19 % 0.13 % Allowance for Credit Losses to Period-End Loans 1.02 % 1.00 % 0.99 % Allowance for Credit Losses to Period-End Nonperforming Loans 477.26 % 249.95 % 289.08 % Nonperforming Loans to Period-End Loans 0.21 % 0.40 % 0.34 % Nonperforming Assets to Period-End Assets 0.17 % 0.32 % 0.25 % Year-to-Date Period Ended: 6/30/2023 12/31/2022 6/30/2022 Allowance for Credit Losses Allowance for Credit Losses, Beginning of Year $ 29,952 $ 27,281 $ 27,281 Loans Charged-off (2,608) (4,143) (1,736) Less Recoveries of Loans Previously Charged-off 1,324 2,016 871 Net Loans Charged-off (1,284) (2,127) (865) Provision for Credit Losses 2,502 4,798 1,674 Allowance for Credit Losses, End of Period $ 31,170 $ 29,952 $ 28,090 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Annualized 0.09 % 0.08 % 0.06 % Provision for Loan Losses to Average Loans, Annualized 0.17 % 0.17 % 0.12 % View original content: https://www.prnewswire.com/news-releases/arrow-reports-6-0-million-in-q2-2023-net-income-loans-reach-record-high-of-3-1-billion-301895613.html SOURCE Arrow Financial Corporation

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