Arrow Reports $8.6 million in Q1 2023 Net Income and Grew Deposits by $48.0 Million

About this update from Arrow Financial Corporation

GLENS FALLS, N.Y. , July 24, 2023 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced financial results for the three-month period ended March 31, 2023 . Net income for the first quarter of 2023 was $8.6 million and diluted earnings per share was $0.52 . First-Quarter Highlights and Key Metrics Total assets were $4.1 billion . Total deposits were $3.5 billion . Total loans reached a record high of $3.0 billion as of March 31, 2023 , an increase of $22.1 million from December 31, 2022 . Loan-to-deposit ratio was 85%. Tangible book value per share was $20.55 , an increase of $0.60 , or 3.01% compared to December 31, 2022 . On-balance sheet liquidity of $409 million , or 10%, of total assets; 5% cash and 5% unencumbered readily marketable securities. Additional $1.3 billion of immediately available liquidity with FHLB, FRB and other bank lines. Immediately available liquidity provides in excess of 150% coverage of uninsured deposits. Nonperforming assets decreased to $11.3 million at March 31, 2023 , represented 0.27% of period-end assets. Net charge-offs to average loans for the first quarter of 2023 were 0.10% as compared to 0.09% for the previous quarter. Revenue was $34.8 million . Net income was $8.6 million . Non-interest expenses of $22.3 million included $1.0 million in incremental expenses related to the delayed filing of the Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K"). Net interest margin was 2.96%. Return on average assets (ROA) was 0.87%. Return on average equity (ROE) was 9.66%. "In the face of a challenging banking environment, Arrow continued to add to its deposit base and maintained a strong liquidity position while meeting the credit needs of our customers and communities," said Arrow President and CEO David S. DeMarco . "We remain committed to our long-term strategic initiatives of investing in our technology and our team so we can continue to enhance the customer experience and optimize operations. We look forward to continuing to focus on our customers and communities." Arrow remains dedicated to developing its team and recently celebrated graduates from Arrow Leadership Academy and Upskill University , internal courses designed to support our culture of collaboration and continuous improvement. Our banks are working toward realizing operational efficiencies and customer-facing enhancements made possible by the completion of our core conversion in September 2022 . Our team has returned to our completely renovated downtown Glens Falls, New York headquarters and we look forward to welcoming our customers back to our newly renovated campus. The renovated Glens Falls campus now offers an energy-efficient, flexible and collaborative environment for our team and customers. This investment is important to our team culture, is a key part of the revitalization of downtown Glens Falls , and is a centerpiece of what community banking means to us -- accessible, long-lasting and friendly. Net income for the first quarter of 2023 was $8.6 million , down from $12.6 million for the same period in the prior year. The year-over-year decline was primarily due to an increase in non-interest expense of $3.4 million , a decrease in non-interest income of $1.5 million and an increase in the provision for credit loss of $785 thousand . Please see below for further detail. Income Statement Net Interest Income: Net interest income for the first quarter was $28.1 million , up 1.0% from $27.8 million in the comparable quarter of 2022. Interest and fees on loans were $31.9 million for the first quarter of 2023, an increase of 23.9% from $25.7 million (29.23% excluding Paycheck Protection Program ("PPP") revenue) for the first quarter of 2022 primarily due to loan growth and higher market rates. PPP loans contributed $1.1 million in the first quarter of 2022. The PPP program ended in 2022. Interest expense for the first quarter of 2023 was $8.0 million , an increase of $6.9 million versus the comparable quarter ending March 31, 2022 , primarily due to higher deposit rates and changes in deposit composition. Net Interest Margin: Net interest margin was 2.96% for the quarter, compared to 2.90% for the first quarter of 2022 and 3.08% for the fourth quarter of 2022. The year-over-year increase in net interest margin was primarily due to growth in loan balances with higher yields partially offset with higher costs of interest bearing liabilities. The decrease in net interest margin compared to the fourth quarter of 2022 was primarily the result of the cost of interest bearing liabilities increasing at a faster pace than the yield on average earning assets. Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Interest and Dividend Income $ 36,110 $ 35,904 $ 28,947 Interest Expense 8,016 5,325 1,122 Net Interest Income 28,094 30,579 27,825 Average Earning Assets(1) 3,845,825 3,940,904 3,886,787 Average Interest Bearing Liabilities 2,782,299 2,891,092 2,855,884 Yield on Earning Assets(1) 3.81 % 3.61 % 3.02 % Cost of Interest Bearing Liabilities 1.17 0.73 0.16 Net Interest Spread 2.64 2.88 2.86 Net Interest Margin 2.96 3.08 2.90 Income Earned on PPP Loans included in Net Interest Income $ — $ — $ 1,066 Net Interest Income excluding PPP loans 28,094 30,579 26,759 Net Interest Margin excluding PPP loans 2.96 % 3.08 % 2.81 % (1) Includes Nonaccrual Loans. Provision for Credit Losses: For the first quarter of 2023, the provision for credit losses was $1.6 million , compared to $769 thousand in the prior-year quarter. The key drivers for the increase were higher loan charge-offs and a more challenging economic forecast. Non-Interest Income: Non-interest income for the three months ended March 31, 2023 , was $6.7 million , compared to $8.2 million in the comparable 2022 quarter. Income from fiduciary activities decreased by $321 thousand over the comparable quarter of 2022, driven primarily by market conditions. Fees and other services to customers decreased $200 thousand over the comparable quarter of 2022 driven primarily by lower volume of interchange transactions. Other operating income decreased $691 thousand from the comparable quarter of 2022, primarily due to a decline in the gain on other assets of $463 thousand and a decrease in income earned on bank-owned life insurance of $181 thousand . Non-Interest Expense: Non-interest expense for the first quarter of 2023 was $22.3 million , an increase of 17.7% from $18.9 million for the first quarter of 2022. The increase was primarily due to $1.0 million of additional legal and professional fees associated with the delay in the filing of the 2022 Form 10-K. In addition, other operating expenses included a credit for estimated credit losses on off-balance sheet exposures of $68 thousand for the first quarter of 2023 versus a larger credit of $316 thousand recognized in the first quarter of 2022. Technology and equipment spending increased $638 thousand from the first quarter of 2022, driven primarily by management's commitment to invest in new technology to enhance the customer experience and optimize operations. Salaries and benefits have increased compared to the first quarter of 2022 as a result of pension and other benefit expenses. In the first quarter of 2023, non-interest expenses increased $1.5 million from the fourth quarter of 2022. In addition to the factors described above, there was a charge for estimated credit losses on off-balance sheet exposures of $197 thousand for the fourth quarter. Provision for Income Taxes: The provision for income taxes was $2.4 million for the first quarter of 2023, compared to $3.7 million for the same quarter of 2022, primarily the result of lower pre-tax income. Balance Sheet Total Assets: Total assets were $4.1 billion at March 31, 2023 , a decrease of $41.8 million , or 1.0%, compared to March 31, 2022 . This decrease was primarily driven by lower cash balances as pandemic era excess deposits decreased. Assets increased $145.1 million , or 3.7%, compared to December 31, 2022 driven by an increase in on-balance sheet liquidity as evidenced by our higher cash balances. Investments: Total investments were $745.1 million as of March 31, 2023 , a decrease of $40.3 million , or 5.1%, compared to March 31, 2022 , and a decrease of $5.9 million , or 0.8%, compared to December 31, 2022 . While the rising rate environment led to an increase in unrealized losses within the available-for-sale portfolio versus the same period last year, unrealized losses within the available-for-sale portfolio decreased by $8.2 million versus December 31, 2022 , as interest rates declined in the first quarter of 2023. The decrease in investments in the first quarter, as compared to the same period last year, was primarily driven by Arrow's decision to fund loan growth from cash flows from amortizing and maturing investments. Loans: Total loans reached a record high of $3.0 billion as of March 31, 2023 . Loan growth for the first quarter of 2023 was $22.1 million , as compared to December 31, 2022 , and $268.1 million , or 9.8%, from March 31, 2022 . Residential real estate loan growth for the first quarter of 2023 was $10.0 million , or 0.9%, as compared to December 31, 2022 and $114.0 million , or 11.8%, as compared to March 31, 2022 . The consumer loan portfolio grew by $8.2 million , or 0.8%, in the first quarter, primarily within the indirect automobile lending program. Total outstanding commercial loans increased $4.0 million , or 0.5%, in the first quarter of 2023, driven primarily by commercial real estate loans. Allowance for Credit Losses: The allowance for credit losses was $30.8 million on March 31, 2023 , which represented 1.02% of loans outstanding, as compared to 1.01% at March 31, 2022 . Asset quality remained stable at March 31, 2023 . Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.10% for the quarter ended March 31, 2023 , as compared to 0.09% for the quarter ended December 31, 2022 and 0.06% for the three-month period ended March 31, 2022 . Nonperforming assets of $11.3 million at March 31, 2023 , represented 0.27% of period-end assets, compared to 0.32% at December 31, 2022 . Deposits: At March 31, 2023 , deposit balances were $3.5 billion . Deposits in the first quarter of 2023 increased by $48.0 million from the prior quarter and decreased by $169.0 million , or 4.5%, from the prior-year level as pandemic era excess deposits exited the system and due to competitive pressures from the rising rate environment. Municipal deposits increased $110.5 million in the first quarter, as compared to December 31, 2022 , and decreased $22.1 million from March 31, 2022 . Non-municipal deposits decreased $62.5 million for the quarter and $147.0 million from March 31, 2022 . Non-interest bearing deposits represented 22.2% of total deposits at March 31, 2023 , compared to 23.9% at December 31 ,2022, and 21.9% at March 31, 2022 . At March 31, 2023 , total time deposits were $301.8 million compared to $209.4 million at December 31, 2022 and $177.0 million at March 31, 2022 , as a result of successful campaigns to grow certificate of deposit balances. Capital: Total stockholders' equity was $363.4 million at March 31, 2023 , an increase of $9.8 million , or 2.8%, from the December 31, 2022 level of $353.5 million , and an increase of $6.1 million , or 1.7%, from the prior-year level. The increase in stockholders' equity over the first three months of 2023 principally reflected the following factors: the addition of $8.6 million of net income for the period, gains in other comprehensive income of $5.7 million from favorable mark-to-market activity within the available for sale securities portfolio and issuance of $0.9 million of common stock through employee benefit and dividend reinvestment plans reduced by cash dividends of $4.5 million and repurchases of common stock of $0.8 million . Arrow's regulatory capital ratios remained strong in the first quarter of 2023. As of March 31, 2023 , Arrow's Common Equity Tier 1 Capital Ratio was 13.34% and Total Risk-Based Capital Ratio was 15.15%. The capital ratios of Arrow and both 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. Additional Commentary Leadership Change: Effective May 13, 2023 , Arrow's board of directors appointed David S. DeMarco to serve as President and CEO. Cash and Stock Dividends: On March 15, 2023 and June 15, 2023 , Arrow distributed quarterly cash dividends of $0.27 per share. Industry Recognition: In the first quarter of 2023, both of Arrow's banking subsidiaries earned BauerFinancial, Inc. 5- Star Exceptional Performance Bank rating for the 57th consecutive quarter. 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 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 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: March 31 ,2023 December 31 , 2022 March 31 ,2022 INTEREST AND DIVIDEND INCOME Interest and Fees on Loans $ 31,886 $ 30,719 $ 25,739 Interest on Deposits at Banks 479 1,274 198 Interest and Dividends on Investment Securities : Fully Taxable 2,948 3,121 2,189 Exempt from Federal Taxes 797 790 821 Total Interest and Dividend Income 36,110 35,904 28,947 INTEREST EXPENSE Interest Bearing Checking Accounts 370 344 163 Savings Deposits 5,587 4,101 417 Time Deposits over $250,000 574 226 28 Other Time Deposits 474 234 109 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase — — — Federal Home Loan Bank Advances 793 200 187 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 169 172 169 Interest on Financing Leases 49 48 49 Total Interest Expense 8,016 5,325 1,122 NET INTEREST INCOME 28,094 30,579 27,825 Provision for Credit Losses 1,554 1,409 769 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 26,540 29,170 27,056 NON-INTEREST INCOME Income From Fiduciary Activities 2,275 2,257 2,596 Fees for Other Services to Customers 2,595 2,710 2,795 Insurance Commissions 1,520 1,680 1,511 Net (Loss) Gain on Securities (104) 48 130 Net Gain on Sales of Loans 4 3 52 Other Operating Income 387 467 1,078 Total Non-interest Income 6,677 7,165 8,162 NON-INTEREST EXPENSE Salaries and Employee Benefits 11,947 11,603 11,286 Occupancy Expenses, Net 1,628 1,481 1,598 Technology and Equipment Expense 4,417 4,316 3,779 FDIC Assessments 479 283 307 Other Operating Expense 3,825 3,109 1,975 Total Non-interest Expense 22,296 20,792 18,945 INCOME BEFORE PROVISION FOR INCOME TAXES 10,921 15,543 16,273 Provision for Income Taxes 2,359 3,456 3,698 NET INCOME $ 8,562 $ 12,087 $ 12,575 Average Shares Outstanding 1: Basic 16,552 16,535 16,511 Diluted 16,564 16,589 16,566 Per Common Share: Basic Earnings $ 0.52 $ 0.73 $ 0.76 Diluted Earnings 0.52 0.73 0.76 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) March 31 , 2023 December 31, 2022 March 31 , 2022 ASSETS Cash and Due From Banks $ 25,107 $ 31,886 $ 38,964 Interest Bearing Deposits at Banks 178,365 32,774 448,614 Investment Securities : Available-for-Sale at Fair Value 565,693 573,495 582,428 Held-to-Maturity (Fair Value of $164,439 at March 31, 2023 ; $171,623 at December 31, 2022 ; and $195,862 at March 31 ,2022) 167,347 175,364 196,661 Equity Securities 2,070 2,174 1,877 FHLB and Federal Reserve Bank Stock 10,027 6,064 4,491 Loans 3,005,352 2,983,207 2,737,267 Allowance for Credit Losses (30,784) (29,952) (27,661) Net Loans 2,974,568 2,953,255 2,709,606 Premises and Equipment, Net 58,233 56,491 48,481 Goodwill 21,873 21,873 21,873 Other Intangible Assets, Net 1,400 1,500 1,818 Other Assets 109,947 114,633 101,589 Total Assets $ 4,114,630 $ 3,969,509 $ 4,156,402 LIABILITIES Non-interest Bearing Deposits 788,690 836,871 813,066 Interest Bearing Checking Accounts 958,490 997,694 1,154,068 Savings Deposits 1,497,326 1,454,364 1,571,274 Time Deposits over $250,000 122,827 76,224 48,288 Other Time Deposits 179,016 133,211 128,677 Total Deposits 3,546,349 3,498,364 3,715,373 Federal Home Loan Bank Overnight Advances 35,000 27,000 — Federal Home Loan Bank Term Advances 107,800 27,800 25,000 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 20,000 20,000 Finance Leases 5,106 5,119 5,156 Other Liabilities 37,004 37,688 33,630 Total Liabilities 3,751,259 3,615,971 3,799,159 STOCKHOLDERS' EQUITY Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at March 31, 2023 , December 31, 2022 and March 31, 2022 — — — Common Stock, $1 Par Value; 30,000,000 SharesAuthorized (21,423,992 Shares Issued at March 31,2023 and December 31, 2022 and 20,800,144 Shares Issued at March 31, 2022 ) 21,424 21,424 20,800 Additional Paid-in Capital 400,944 400,270 378,758 Retained Earnings 69,499 65,401 62,328 Accumulated Other Comprehensive Loss (43,983) (49,655) (20,797) Treasury Stock, at Cost (4,870,935 Shares at March 31, 2023 ;4,872,355 Shares at December 31, 2022 and 4,787,183 Shares at March 31, 2022 ) (84,513) (83,902) (83,846) Total Stockholders' Equity 363,371 353,538 357,243 Total Liabilities and Stockholders' Equity $ 4,114,630 $ 3,969,509 $ 4,156,402 Arrow Financial Corporation Selected Quarterly Information (Dollars In Thousands, Except Per Share Amounts - Unaudited) Quarter Ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Net Income $ 8,562 $ 12,087 $ 12,163 $ 11,974 $ 12,575 Transactions in Net Income (Net of Tax): Net Changes in Fair Value of Equity Investments (76) 35 70 114 96 Share and Per Share Data:1 Period End Shares Outstanding 16,553 16,552 16,523 16,503 16,493 Basic Average Shares Outstanding 16,552 16,535 16,512 16,494 16,511 Diluted Average Shares Outstanding 16,564 16,589 16,558 16,535 16,566 Basic Earnings Per Share $ 0.52 $ 0.73 $ 0.74 $ 0.72 $ 0.76 Diluted Earnings Per Share 0.52 0.73 0.74 0.72 0.76 Cash Dividend Per Share 0.270 0.270 0.262 0.262 0.262 Selected Quarterly Average Balances: Interest Bearing Deposits at Banks $ 40,436 $ 143,499 $ 209,001 $ 232,545 $ 410,644 Investment Securities 813,461 845,859 821,052 822,112 797,347 Loans 2,991,928 2,951,547 2,872,066 2,804,180 2,678,796 Deposits 3,480,279 3,614,945 3,598,519 3,569,754 3,582,256 Other Borrowed Funds 100,596 63,304 50,125 50,140 68,596 Shareholders' Equity 359,556 351,402 361,675 357,228 370,264 Total Assets 3,978,851 4,074,028 4,047,738 4,012,999 4,054,943 Return on Average Assets, annualized 0.87 % 1.18 % 1.19 % 1.20 % 1.26 % Return on Average Equity, annualized 9.66 % 13.65 % 13.34 % 13.44 % 13.77 % Return on Average Tangible Equity, annualized 2 10.33 % 14.62 % 14.27 % 14.40 % 14.72 % Average Earning Assets $ 3,845,825 $ 3,940,905 $ 3,902,119 $ 3,858,837 $ 3,886,787 Average Paying Liabilities 2,782,299 2,891,092 2,781,985 2,808,287 2,855,884 Interest Income 36,110 35,904 34,207 30,593 28,947 Tax-Equivalent Adjustment 3 202 279 268 269 270 Interest Income, Tax-Equivalent 3 36,312 36,183 34,475 30,862 29,217 Interest Expense 8,016 5,325 3,306 1,555 1,122 Net Interest Income 28,094 30,579 30,901 29,038 27,825 Net Interest Income, Tax-Equivalent 3 28,296 30,858 31,169 29,307 28,095 Net Interest Margin, annualized 2.96 % 3.08 % 3.14 % 3.02 % 2.90 % Net Interest Margin, Tax-Equivalent, annualized 3 2.98 % 3.11 % 3.17 % 3.05 % 2.93 % Efficiency Ratio Calculation: 4 Non-interest Expense $ 22,296 $ 20,792 $ 21,448 $ 20,345 $ 18,945 Less: Intangible Asset Amortization 45 47 48 48 49 Net Non -interest Expense $ 22,251 $ 20,745 $ 21,400 $ 20,297 $ 18,896 Net Interest Income, Tax-Equivalent $ 28,296 $ 30,858 $ 31,169 $ 29,307 $ 28,095 Non-interest Income 6,677 7,165 7,827 7,744 8,162 Less: Net (Loss) Gain on Securities (104) 48 95 154 130 Net Gross Income $ 35,077 $ 37,975 $ 38,901 $ 36,897 $ 36,127 Efficiency Ratio 63.43 % 54.63 % 55.01 % 55.01 % 52.30 % Period-End Capital Information: Total Stockholders' Equity (i.e. Book Value) $ 363,371 $ 353,538 $ 345,550 $ 356,498 $ 357,243 Book Value per Share 1 21.95 21.36 20.91 21.60 21.66 Goodwill and Other Intangible Assets, net 23,273 23,373 23,477 23,583 23,691 Tangible Book Value per Share 1,2 20.55 19.95 19.49 20.17 20.22 Capital Ratios:5 Tier 1 Leverage Ratio 10.13 % 9.80 % 9.71 % 9.60 % 9.37 % Common Equity Tier 1 Capital Ratio 13.34 % 13.32 % 13.14 % 13.14 % 13.48 % Tier 1 Risk-Based Capital Ratio 14.03 % 14.01 % 13.85 % 13.86 % 14.23 % Total Risk-Based Capital Ratio 15.15 % 15.11 % 14.93 % 14.93 % 15.33 % Assets Under Trust Admin. & Investment Mgmt. $ 1,672,117 $ 1,606,132 $ 1,515,994 $ 1,589,178 $ 1,793,747 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. 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Total Stockholders' Equity (GAAP) $ 363,371 $ 353,538 $ 345,550 $ 356,498 $ 357,243 Less: Goodwill and Other Intangible assets, net 23,273 23,373 23,477 23,583 23,691 Tangible Equity (Non-GAAP) $ 340,098 $ 330,165 $ 322,073 $ 332,915 $ 333,552 Period End Shares Outstanding 16,553 16,552 16,523 16,503 16,493 Tangible Book Value per Share (Non-GAAP) $ 20.55 $ 19.95 $ 19.49 $ 20.17 $ 20.22 Net Income 8,562 12,087 12,163 11,974 12,575 Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized) 10.33 % 14.62 % 14.27 % 14.40 % 14.72 % 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 believesprovides investors with information that is useful in understanding its financial performance. 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Interest Income (GAAP) $ 36,110 $ 35,904 $ 34,207 $ 30,593 $ 28,947 Add: Tax-Equivalent adjustment (Non-GAAP) 202 279 268 269 270 Interest Income - Tax Equivalent (Non-GAAP) $ 36,312 $ 36,183 $ 34,475 $ 30,862 $ 29,217 Net Interest Income (GAAP) $ 28,094 $ 30,579 $ 30,901 $ 29,038 $ 27,825 Add: Tax-Equivalent adjustment (Non-GAAP) 202 279 268 269 270 Net Interest Income - Tax Equivalent (Non-GAAP) $ 28,296 $ 30,858 $ 31,169 $ 29,307 $ 28,095 Average Earning Assets $ 3,845,825 $ 3,940,905 $ 3,902,119 $ 3,858,837 $ 3,886,787 Net Interest Margin (Non-GAAP)* 2.98 % 3.11 % 3.17 % 3.05 % 2.93 % 4. Non-GAAP Financial Measure Reconciliation: Financial Institutions often use the "efficiency ratio", a non-GAAPratio, 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 March 31, 2023 CET1 ratio listed in the tables (i.e., 13.34%)exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%). 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Total Risk Weighted Assets $ 2,909,610 $ 2,883,902 $ 2,856,224 $ 2,790,520 $ 2,661,952 Common Equity Tier 1 Capital 388,228 384,003 375,394 366,798 358,738 Common Equity Tier 1 Ratio 13.34 % 13.32 % 13.14 % 13.14 % 13.48 % * Quarterly ratios have been annualized. Arrow Financial Corporation Average Consolidated Balance Sheets and Net Interest Income Analysis (Dollars in Thousands - Unaudited) Quarter Ended: March 31, 2023 March 31, 2022 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest Bearing Deposits at Banks $ 40,436 $ 479 4.80 % $ 410,644 $ 198 0.20 % Investment Securities : Fully Taxable 652,743 2,948 1.83 618,806 2,189 1.43 Exempt from Federal Taxes 160,718 797 2.01 178,541 821 1.86 Loans 2,991,928 31,886 4.32 2,678,796 25,739 3.90 Total Earning Assets 3,845,825 36,110 3.81 3,886,787 28,947 3.02 Allowance for Credit Losses (29,792) (27,165) Cash and Due From Banks 30,518 37,654 Other Assets 132,300 157,667 Total Assets $ 3,978,851 $ 4,054,943 Deposits: Interest Bearing Checking Accounts $ 964,735 370 0.16 $ 1,027,740 163 0.06 Savings Deposits 1,474,251 5,587 1.54 1,557,855 417 0.11 Time Deposits of $250,000 or More 94,415 574 2.47 70,101 28 0.16 Other Time Deposits 148,302 474 1.30 131,592 109 0.34 Total Interest Bearing Deposits 2,681,703 7,005 1.06 2,787,288 717 0.10 Short-Term Borrowings 40,138 490 4.95 — — FHLBNY Term Advances & Other Long-Term Debt 55,356 472 3.46 63,444 356 2.28 Finance Leases 5,102 49 3.89 5,152 49 3.86 Total Interest Bearing Liabilities 2,782,299 8,016 1.17 2,855,884 1,122 0.16 Non-interest bearing deposits 798,576 794,968 Other Liabilities 38,420 33,827 Total Liabilities 3,619,295 3,684,679 Stockholders' Equity 359,556 370,264 Total Liabilities and Stockholders' Equity $ 3,978,851 $ 4,054,943 Net Interest Income $ 28,094 $ 27,825 Net Interest Spread 2.64 % 2.86 % Net Interest Margin 2.96 % 2.90 % Arrow Financial Corporation Average Consolidated Balance Sheets and Net Interest Income Analysis (Dollars in Thousands - Unaudited) Quarter Ended: March 31, 2023 December 31, 2022 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest Bearing Deposits at Banks $ 40,436 $ 479 4.80 % $ 143,499 $ 1,274 3.52 % Investment Securities : Fully Taxable 652,743 2,948 1.83 679,390 3,121 1.82 Exempt from Federal Taxes 160,718 797 2.01 166,468 790 1.88 Loans 2,991,928 31,886 4.32 2,951,547 30,719 4.13 Total Earning Assets 3,845,825 36,110 3.81 3,940,904 35,904 3.61 Allowance for Credit Losses (29,792) (29,069) Cash and Due From Banks 30,518 30,736 Other Assets 132,300 131,457 Total Assets $ 3,978,851 $ 4,074,028 Deposits: Interest Bearing Checking Accounts $ 964,735 370 0.16 $ 1,082,267 344 0.13 Savings Deposits 1,474,251 5,587 1.54 1,548,293 4,101 1.05 Time Deposits of $250,000 or More 94,415 574 2.47 65,897 226 1.36 Other Time Deposits 148,302 474 1.30 131,331 234 0.71 Total Interest Bearing Deposits 2,681,703 7,005 1.06 2,827,788 4,905 0.69 Short-Term Borrowings 40,138 490 4.95 8,424 92 4.33 FHLBNY Term Advances & Other Long-Term Debt 55,356 472 3.46 49,767 280 2.23 Finance Leases 5,102 49 3.89 5,113 48 3.72 Total Interest Bearing Liabilities 2,782,299 8,016 1.17 2,891,092 5,325 0.73 Non-interest bearing deposits 798,576 787,157 Other Liabilities 38,420 44,377 Total Liabilities 3,619,295 3,722,626 Stockholders' Equity 359,556 351,402 Total Liabilities and Stockholders' Equity $ 3,978,851 $ 4,074,028 Net Interest Income $ 28,094 $ 30,579 Net Interest Spread 2.64 % 2.88 % Net Interest Margin 2.96 % 3.08 % Arrow Financial Corporation Consolidated Financial Information (Dollars in Thousands - Unaudited) Quarter Ended: 3/31/2023 12/31/2022 3/31/2022 Loan Portfolio Commercial Loans $ 135,917 $ 140,293 $ 155,467 Commercial Real Estate Loans 715,357 707,022 638,437 Subtotal Commercial Loan Portfolio 851,274 847,315 793,904 Consumer Loans 1,073,369 1,065,135 976,648 Residential Real Estate Loans 1,080,709 1,070,757 966,715 Total Loans $ 3,005,352 $ 2,983,207 $ 2,737,267 Allowance for Credit Losses Allowance for Credit Losses, Beginning of Quarter $ 29,952 $ 29,232 $ 27,281 Loans Charged-off (1,328) (1,261) (829) Less Recoveries of Loans Previously Charged-off 606 572 440 Net Loans Charged-off (722) (689) (389) Provision for Credit Losses 1,554 1,409 769 Allowance for Credit Losses, End of Quarter $ 30,784 $ 29,952 $ 27,661 Nonperforming Assets Nonaccrual Loans $ 10,852 $ 10,757 $ 9,750 Loans Past Due 90 or More Days and Accruing 241 1,157 55 Loans Restructured and in Compliance with Modified Terms 62 69 74 Total Nonperforming Loans 11,155 11,983 9,879 Repossessed Assets 144 593 180 Other Real Estate Owned — — — Total Nonperforming Assets $ 11,299 $ 12,576 $ 10,059 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Quarter-to-date Annualized 0.10 % 0.09 % 0.06 % Provision for Credit Losses to Average Loans, Quarter-to-date Annualized 0.21 % 0.19 % 0.12 % Allowance for Credit Losses to Period-End Loans 1.02 % 1.00 % 1.01 % Allowance for Credit Losses to Period-End Nonperforming Loans 275.97 % 249.95 % 280.00 % Nonperforming Loans to Period-End Loans 0.37 % 0.40 % 0.36 % Nonperforming Assets to Period-End Assets 0.27 % 0.32 % 0.24 % View original content: https://www.prnewswire.com/news-releases/arrow-reports-8-6-million-in-q1-2023-net-income-and-grew-deposits-by-48-0-million-301883917.html SOURCE Arrow Financial Corporation

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