Arrow Reports Q3 2023 Net Income of $7.7 Million and Earnings per Share of $0.46, Loans of $3.1 Billion on 9% Annualized Loan Growth

About this update from Arrow Financial Corporation

GLENS FALLS, N.Y. , Oct. 24, 2023 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow") announced financial results for the three-month period ended September 30, 2023 . Net income for the third quarter of 2023 was $7.7 million and fully diluted earnings per share was $0.46 . Nonperforming assets decreased $0.2 million in the third quarter to 0.16% of assets, with the allowance for credit losses reaching 491% of nonperforming loans. Arrow President and CEO David S. DeMarco : "This quarter, we continued to experience substantial loan growth with asset and deposit balances at or near record highs. We also continued our pattern of issuing cash and stock dividends, underscoring our dedication to creating value for our shareholders. As we move ahead, Arrow expects to restart our Dividend Reinvestment Plan. We were proud to officially open our renovated downtown Glens Falls campus and Main Office branch this summer. Glens Falls has been our home for much of our 172-year history, and we are excited about the positive impact this will have on all our stakeholders. As always, we are focused on enhancing the customer experience and optimizing our operations while supporting our exceptional team." This Earnings Release and related commentary should be read in conjunction with our October 24, 2023 Form 8-K and related Third Quarter 2023 Investor Presentation, which can also be found on our website: arrowfinancial.com/investor-presentations . Third-Quarter Highlights and Key Metrics Record high loans of $3.1 billion , growing at an annualized rate of 9%, or $68.7 million Nonperforming assets decreased to $6.9 million , representing 0.16% of period-end assets Net charge-offs to average loans were 0.05% as compared to 0.07% for the previous quarter Allowance for credit losses to nonperforming loans coverage of 491% Deposit balances increased to $3.7 billion , growing $164.3 million , or 4.7% Loan-to-deposit ratio was 86% Net interest margin was 2.53% Arrow entered into two pay-fixed portfolio layer method fair value swaps, with total notional amounts of $250 million and $50 million , respectively. The transactions are accretive to net interest income, adding more than $2 million annually in the current "higher for longer" rate environment Strong on-balance sheet liquidity of $334 million , or 8% of total assets Liquidity and available borrowing capacity provide two times coverage of uninsured deposits Non-interest expenses included $1.1 million in incremental expenses related to the delay in filing the 2022 Form 10-K and the first quarter Form 10-Q Return on average assets (ROA) was 0.75%; incremental expenses related to the delayed filings depressed ROA by 9 basis points Return on average equity (ROE) was 8.47%; incremental expenses related to the delayed filings impacted ROE by almost 100 basis points Income Statement Net Income: Net income for the third quarter of 2023 was $7.7 million , increasing from $6.0 million in the second quarter of 2023, and decreasing from $12.2 million in the third quarter of 2022. The increase from the second quarter of 2023 was primarily due to an increase in interest and dividend income of $2.1 million , an increase of $1.1 million in non-interest income and a decrease in non-interest expense of $0.6 million , partially offset by an increase of $2.5 million in interest expense. The decline from the same period in the prior year was primarily due to an increase of $13.5 million in interest expense partially offset by an increase in interest and dividend income of $7.9 million . Net Interest Income: Net interest income for the third quarter of 2023 was $25.4 million , decreasing 1.6% from $25.8 million in the second quarter of 2023 and 18.0% from $30.9 million in the comparable quarter of 2022. Total interest and dividend income was $42.1 million for the third quarter of 2023, an increase from $40.0 million in the second quarter of 2023 and from $34.2 million for the third quarter of 2022. These increases were primarily driven by loan growth and higher loan rates. Interest expense for the third quarter of 2023 was $16.8 million , an increase from $14.2 million for the second quarter of 2023 and from $3.3 million for the comparable quarter ended 2022. The increases for both comparison periods were driven primarily by higher deposit rates and changes in deposit composition. Net Interest Margin: Net interest margin was 2.53% for the third quarter of 2023, compared to 2.61% for the second quarter of 2023 and 3.14% for the third quarter of 2022. The decrease in net interest margin compared to the second quarter in 2023 as well as the third 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. In addition, deposits have continued to migrate to higher costs products, such as money market savings and time deposits. Three Months Ended (Dollars in Thousands) September 30 , 2023 June 30 , 2023 September 30 , 2022 Interest and Dividend Income $ 42,117 $ 40,013 $ 34,207 Interest Expense 16,764 14,241 3,306 Net Interest Income 25,353 25,772 30,901 Average Earning Assets(1) 3,973,747 3,953,642 3,902,119 Average Interest-Bearing Liabilities 2,920,518 2,924,743 2,781,985 Yield on Earning Assets(1) 4.20 % 4.06 % 3.48 % Cost of Interest-Bearing Liabilities 2.28 1.95 0.47 Net Interest Spread 1.92 2.11 3.01 Net Interest Margin 2.53 2.61 3.14 Income Earned on PPP Loans included in Net Interest Income $ — $ — $ 70 Net Interest Income excluding PPP loans 25,353 25,772 30,831 Net Interest Margin excluding PPP loans 2.53 % 2.61 % 3.14 % (1) Includes Nonaccrual Loans. Provision for Credit Losses: For the third quarter of 2023, the provision for credit losses was $354 thousand compared to $948 thousand in the second quarter of 2023 and $1.7 million in the prior-year quarter. The key drivers for the provision for credit losses in the third quarter of 2023 were loan growth and charge-offs, partially offset by changes to the economic forecast factors embedded in the credit loss allowance model. The provision was favorably impacted by the qualitative factors related to the residential loan portfolio, which continue to indicate local market conditions performing well above the Case-Shiller U.S. National Home Price Index, which is utilized in the economic forecast. Non-Interest Income: Non-interest income for the three months ended September 30, 2023 , was $8.1 million , compared to $6.9 million in the second quarter of 2023 and $7.8 million in the third quarter of 2022. Income from fiduciary activities, which includes Wealth Management services, was fairly consistent to the comparable prior-year quarter. Fees and other services to customers were consistent with the linked quarter, however declined compared to the third quarter of 2022, primarily due to lower interchange fees. Other income increased from both the second quarter and the previous year, primarily as a result of bank-owned life insurance proceeds. Non-Interest Expense: Non-interest expense for the third quarter of 2023 was $23.5 million , a decrease from $24.1 million in the second quarter of 2023 and an increase from $21.4 million for the third quarter of 2022. The increase from the prior year was in large part related to $1.1 million of additional legal and professional fees incurred in the third quarter of 2023 associated with the delay in the filing of the 2022 Form 10-K and the First Quarter Form 10-Q, as well as an increase in costs related to technology and FDIC insurance. Total year-to-date expenses related to the delayed filings were $4.1 million . Provision for Income Taxes: The provision for income taxes was $1.8 million for the third quarter of 2023, $1.6 million for the second quarter of 2023 and $3.4 million for the third quarter of 2022. The year-to-date effective tax rate as of September 30, 2023 was 20.6%. Balance Sheet Total Assets: Total assets were $4.3 billion at September 30, 2023 , an increase of $169.3 million , or 4.1%. as compared to June 30, 2023 and an increase of $303.4 million , or 7.6%, as compared to December 31, 2022 . For the third quarter 2023, overall balance sheet growth is in line with growth in the loan portfolio and higher cash balances. Investments: Total investments were $666.9 million as of September 30, 2023 , a decrease of $27.1 million , or 3.9%, compared to June 30, 2023 and a decrease of $90.2 million , or 11.9%, compared to December 31, 2022 . The decrease for both periods was driven primarily by paydowns and maturities (net of purchases) of $19.0 million and $83.9 million , respectively. 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. The rising rate environment led to unrealized losses of $7.8 million within the available-for-sale portfolio in the third quarter of 2023. Loans: Total loans reached a record high of $3.1 billion as of September 30, 2023 . Loan growth for the third quarter of 2023 was $68.7 million , and was $155.4 million year-to-date. Loan growth was spread across all segments. Please see the loan detail included in the consolidated financial information table on page 11. Balance Sheet Management: In September 2023 , Arrow entered into two pay-fixed portfolio layer method fair value swaps, with total notional amounts of $250 million and $50 million, respectively. The transactions are accretive to interest income, adding more than $2 million annually. Going forward, rising interest rates will increase the net interest income benefit, while falling rates will reduce the net interest income benefit. Allowance for Credit Losses: The allowance for credit losses was $31.1 million as of September 30, 2023 , which represented 0.99% of loans outstanding, as compared to $31.2 million , or 1.02%, at June 30, 2023 and $30.0 million , or 1.00%, at December 31, 2022 . Asset quality improved at September 30, 2023 . Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.05% for the three-month period ended September 30, 2023 , as compared to 0.07% for the three-month period ended June 30, 2023 and 0.09% for the three-month period ended December 31, 2022 . Nonperforming assets decreased to $6.9 million as of September 30, 2023 , representing 0.16% of period-end assets, compared to $7.1 million , or 0.17%, at June 30, 2023 and $12.6 million , or 0.32%, at December 31, 2022 . Deposits: At September 30, 2023 , deposit balances were $3.7 billion , an increase of $164.3 million from June 30, 2023 and $168.1 million from December 31, 2022 . Overall in 2023, the deposit mix has continued to shift from non-interest bearing accounts to higher cost money market and time deposit accounts. Seasonal municipal deposits helped drive an increase in demand deposits of $38.9 million in the third quarter. Please refer to page 6 for further details related to deposits. Capital: Total stockholders' equity was $360.0 million at September 30, 2023 , a decrease of $1.4 million , or 0.4%, from the June 30, 2023 level of $361.4 million , and an increase of $6.5 million , or 1.8%, from December 31, 2022 . Arrow's regulatory capital ratios remained strong. As of September 30, 2023 , Arrow's Common Equity Tier 1 Capital Ratio was 13.17% and Total Risk-Based Capital Ratio was 14.94%. 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 September 15, 2023 , Arrow distributed a cash dividend of $0.27 per share. Additionally, on September 26, 2023 , Arrow distributed a 3% stock dividend. This is the 15th consecutive year Arrow has declared a stock dividend. Bauer Financial Ratings : Both Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company continued to maintain their 5-Star Exceptional Performance ratings from Bauer Financial, for the 66th and 58th quarters, 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 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 obligated 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 September 30 , Nine Months Ended September 30 , 2023 2022 2023 2022 INTEREST AND DIVIDEND INCOME Interest and Fees on Loans $ 36,699 $ 29,618 $ 103,203 $ 82,263 Interest on Deposits at Banks 1,805 1,201 3,958 1,826 Interest and Dividends on Investment Securities : Fully Taxable 2,924 2,603 8,823 7,236 Exempt from Federal Taxes 689 785 2,256 2,422 Total Interest and Dividend Income 42,117 34,207 118,240 93,747 INTEREST EXPENSE Interest-Bearing Checking Accounts 1,156 267 2,346 629 Savings Deposits 9,729 2,469 23,830 3,778 Time Deposits over $250,000 1,466 89 3,159 143 Other Time Deposits 2,051 150 3,721 370 Borrowings 2,143 110 5,309 405 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 173 173 513 513 Interest on Financing Leases 46 48 143 145 Total Interest Expense 16,764 3,306 39,021 5,983 NET INTEREST INCOME 25,353 30,901 79,219 87,764 Provision for Credit Losses 354 1,715 2,856 3,389 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 24,999 29,186 76,363 84,375 NON-INTEREST INCOME Income From Fiduciary Activities 2,378 2,341 7,081 7,454 Fees for Other Services to Customers 2,761 3,071 8,073 8,916 Insurance Commissions 1,695 1,650 4,775 4,783 Net Gain (Loss) on Securities 71 95 (214) 379 Net Gain on Sales of Loans 21 18 25 80 Other Operating Income 1,124 652 1,893 2,121 Total Non-Interest Income 8,050 7,827 21,633 23,733 NON-INTEREST EXPENSE Salaries and Employee Benefits 11,988 12,427 35,974 35,400 Occupancy Expenses, Net 1,517 1,521 4,728 4,721 Technology and Equipment Expense 4,371 4,049 13,150 11,802 FDIC Assessments 515 295 1,478 893 Other Operating Expense 5,088 3,156 14,528 7,922 Total Non-Interest Expense 23,479 21,448 69,858 60,738 INCOME BEFORE PROVISION FOR INCOME TAXES 9,570 15,565 28,138 47,370 Provision for Income Taxes 1,827 3,402 5,786 10,658 NET INCOME $ 7,743 $ 12,163 $ 22,352 $ 36,712 Average Shares Outstanding 1: Basic 17,050 17,007 17,049 17,001 Diluted 17,050 17,054 17,049 17,050 Per Common Share: Basic Earnings $ 0.46 $ 0.72 $ 1.31 $ 2.16 Diluted Earnings 0.46 0.72 1.31 2.15 1 Share and Per Share Amounts have been restated for the September 26, 2023 , 3% stock dividend. ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts - Unaudited) September 30 , 2023 December 31 , 2022 September 30 , 2022 ASSETS Cash and Due From Banks $ 39,778 $ 31,886 $ 44,872 Interest-Bearing Deposits at Banks 254,961 32,774 328,557 Investment Securities : Available-for-Sale at Fair Value 519,240 573,495 575,054 Held-to-Maturity (Fair Value of $134,811 at September 30 ,2023; $171,623 at December 31, 2022 ; and $175,800 at September 30, 2022 ) 140,577 175,364 182,178 Equity Securities 1,960 2,174 2,126 FHLB and Federal Reserve Bank Stock 5,110 6,064 4,720 Loans 3,138,617 2,983,207 2,924,794 Allowance for Credit Losses (31,112) (29,952) (29,232) Net Loans 3,107,505 2,953,255 2,895,562 Premises and Equipment, Net 60,311 56,491 54,015 Goodwill 21,873 21,873 21,873 Other Intangible Assets, Net 1,205 1,500 1,604 Other Assets 120,391 114,633 122,217 Total Assets $ 4,272,911 $ 3,969,509 $ 4,232,778 LIABILITIES Noninterest-Bearing Deposits 798,392 836,871 910,221 Interest-Bearing Checking Accounts 920,250 997,694 1,113,850 Savings Deposits 1,496,193 1,454,364 1,584,373 Time Deposits over $250,000 167,614 76,224 59,059 Other Time Deposits 284,036 133,211 127,602 Total Deposits 3,666,485 3,498,364 3,795,105 Borrowings 174,300 54,800 25,000 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 20,000 20,000 Finance Leases 5,080 5,119 5,131 Other Liabilities 47,032 37,688 41,992 Total Liabilities 3,912,897 3,615,971 3,887,228 STOCKHOLDERS' EQUITY Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at September 30, 2023 , December 31 , 2022 and September 30, 2022 — — — Common Stock, $1 Par Value; 30,000,000 Shares Authorized (22,066,559 Shares Issued at September 30, 2023 and 21,423,992 Shares Issued at December 31, 2022 and September 30, 2022 ) 22,067 21,424 21,424 Additional Paid-in Capital 412,397 400,270 399,461 Retained Earnings 62,647 65,401 57,778 Accumulated Other Comprehensive Loss (52,584) (49,655) (49,070) Treasury Stock, at Cost (5,017,063 Shares at September 30 , 2023; 4,872,355 Shares at December 31, 2022 and 4,900,975Shares at September 30, 2022 ) (84,513) (83,902) (84,043) Total Stockholders' Equity 360,014 353,538 345,550 Total Liabilities and Stockholders' Equity $ 4,272,911 $ 3,969,509 $ 4,232,778 Arrow Financial Corporation Selected Quarterly Information (Dollars In Thousands, Except Per Share Amounts - Unaudited) Quarter Ended 9/30/2023 6/30/2023 3/31/2023 12/31/2022 9/30/2022 Net Income $ 7,743 $ 6,047 $ 8,562 $ 12,087 $ 12,163 Transactions in Net Income (Net of Tax): Net Changes in Fair Value of Equity Investments 52 (133) (76) 35 70 Share and Per Share Data:1 Period End Shares Outstanding 17,049 17,050 17,050 17,048 17,019 Basic Average Shares Outstanding 17,050 17,050 17,048 17,031 17,007 Diluted Average Shares Outstanding 17,050 17,050 17,060 17,087 17,054 Basic Earnings Per Share $ 0.46 $ 0.35 $ 0.50 $ 0.71 $ 0.72 Diluted Earnings Per Share 0.46 0.35 0.50 0.71 0.72 Cash Dividend Per Share 0.262 0.262 0.262 0.262 0.255 Selected Quarterly Average Balances: Interest-Bearing Deposits at Banks $ 131,814 $ 130,057 $ 40,436 $ 143,499 $ 209,001 Investment Securities 745,693 787,175 813,461 845,859 821,052 Loans 3,096,240 3,036,410 2,991,928 2,951,547 2,872,066 Deposits 3,491,028 3,460,711 3,480,279 3,614,945 3,598,519 Other Borrowed Funds 208,527 220,616 100,596 63,304 50,125 Shareholders' Equity 362,701 365,070 359,556 351,402 361,675 Total Assets 4,109,995 4,087,653 3,978,851 4,074,028 4,047,738 Return on Average Assets, annualized 0.75 % 0.59 % 0.87 % 1.18 % 1.19 % Return on Average Equity, annualized 8.47 % 6.64 % 9.66 % 13.65 % 13.34 % Return on Average Tangible Equity, annualized 2 9.05 % 7.10 % 10.33 % 14.62 % 14.27 % Average Earning Assets $ 3,973,747 $ 3,953,642 $ 3,845,825 $ 3,940,905 $ 3,902,119 Average Paying Liabilities 2,920,518 2,924,743 2,782,299 2,891,092 2,781,985 Interest Income 42,117 40,013 36,110 35,904 34,207 Tax-Equivalent Adjustment 3 183 196 202 279 268 Interest Income, Tax-Equivalent 3 42,300 40,209 36,312 36,183 34,475 Interest Expense 16,764 14,241 8,016 5,325 3,306 Net Interest Income 25,353 25,772 28,094 30,579 30,901 Net Interest Income, Tax-Equivalent 3 25,536 25,968 28,296 30,858 31,169 Net Interest Margin, annualized 2.53 % 2.61 % 2.96 % 3.08 % 3.14 % Net Interest Margin, Tax-Equivalent, annualized 3 2.55 % 2.63 % 2.98 % 3.11 % 3.17 % Efficiency Ratio Calculation: 4 Non-Interest Expense $ 23,479 $ 24,083 $ 22,296 $ 20,792 $ 21,448 Less: Intangible Asset Amortization 43 44 45 47 48 Net Non-Interest Expense $ 23,436 $ 24,039 $ 22,251 $ 20,745 $ 21,400 Net Interest Income, Tax-Equivalent $ 25,536 $ 25,968 $ 28,296 $ 30,858 $ 31,169 Non-Interest Income 8,050 6,906 6,677 7,165 7,827 Less: Net Gain (Loss) on Securities 71 (181) (104) 48 95 Net Gross Income $ 33,515 $ 33,055 $ 35,077 $ 37,975 $ 38,901 Efficiency Ratio 69.93 % 72.72 % 63.43 % 54.63 % 55.01 % Period-End Capital Information: Total Stockholders' Equity (i.e. Book Value) $ 360,014 $ 361,443 $ 363,371 $ 353,538 $ 345,550 Book Value per Share 1 21.12 21.20 21.31 20.74 20.30 Goodwill and Other Intangible Assets, net 23,078 23,175 23,273 23,373 23,477 Tangible Book Value per Share 1,2 19.76 19.84 19.95 19.37 18.92 Capital Ratios:5 Tier 1 Leverage Ratio 9.94 % 9.92 % 10.13 % 9.80 % 9.71 % Common Equity Tier 1 Capital Ratio 13.17 % 13.27 % 13.34 % 13.32 % 13.14 % Tier 1 Risk-Based Capital Ratio 13.84 % 13.96 % 14.03 % 14.01 % 13.85 % Total Risk-Based Capital Ratio 14.94 % 15.08 % 15.15 % 15.11 % 14.93 % Assets Under Trust Admin. & Investment Mgmt. $ 1,627,522 $ 1,711,460 $ 1,672,117 $ 1,606,132 $ 1,515,994 Arrow Financial Corporation Selected Quarterly Information - Continued (Dollars In Thousands, Except Per Share Amounts - Unaudited) Footnotes: 1. Share and Per Share Data have been restated for the September 26, 2023 , 3% stock dividend. 2. Non-GAAP Financial Measure Reconciliation: Tangible Book Value, Tangible Equity, and Return on Tangible Equity exclude 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. 9/30/2023 6/30/2023 3/31/2023 12/31/2022 9/30/2022 Total Stockholders' Equity (GAAP) $ 360,014 $ 361,443 $ 363,371 $ 353,538 $ 345,550 Less: Goodwill and Other Intangible assets, net 23,078 23,175 23,273 23,373 23,477 Tangible Equity (Non-GAAP) $ 336,936 $ 338,268 $ 340,098 $ 330,165 $ 322,073 Period End Shares Outstanding 17,049 17,050 17,050 17,048 17,019 Tangible Book Value per Share (Non-GAAP) $ 19.76 $ 19.84 $ 19.95 $ 19.37 $ 18.92 Net Income 7,743 6,047 8,562 12,087 12,163 Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized) 9.05 % 7.10 % 10.33 % 14.62 % 14.27 % 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. 9/30/2023 6/30/2023 3/31/2023 12/31/2022 9/30/2022 Interest Income (GAAP) $ 42,117 $ 40,013 $ 36,110 $ 35,904 $ 34,207 Add: Tax-Equivalent adjustment (Non-GAAP) 183 196 202 279 268 Interest Income - Tax Equivalent (Non-GAAP) $ 42,300 $ 40,209 $ 36,312 $ 36,183 $ 34,475 Net Interest Income (GAAP) $ 25,353 $ 25,772 $ 28,094 $ 30,579 $ 30,901 Add: Tax-Equivalent adjustment (Non-GAAP) 183 196 202 279 268 Net Interest Income - Tax Equivalent (Non-GAAP) $ 25,536 $ 25,968 $ 28,296 $ 30,858 $ 31,169 Average Earning Assets $ 3,973,747 $ 3,953,642 $ 3,845,825 $ 3,940,905 $ 3,902,119 Net Interest Margin (Non-GAAP)* 2.55 % 2.63 % 2.98 % 3.11 % 3.17 % 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 informationthat 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 calculatedin accordance with bank regulatory capital rules. The September 30, 2023 CET1 ratio listed in the tables (i.e., 13.17%)exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%). 9/30/2023 6/30/2023 3/31/2023 12/31/2022 9/30/2022 Total Risk Weighted Assets $ 2,988,438 $ 2,937,837 $ 2,909,610 $ 2,883,902 $ 2,856,224 Common Equity Tier 1 Capital 393,541 389,966 388,228 384,003 375,394 Common Equity Tier 1 Ratio 13.17 % 13.27 % 13.34 % 13.32 % 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: September 30, 2023 September 30, 2022 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest-Bearing Deposits at Banks $ 131,814 $ 1,805 5.43 % $ 209,001 $ 1,201 2.28 % Investment Securities : Fully Taxable 616,020 2,924 1.88 651,899 2,603 1.58 Exempt from Federal Taxes 129,673 689 2.11 169,153 785 1.84 Loans 3,096,240 36,699 4.70 2,872,066 29,618 4.09 Total Earning Assets 3,973,747 42,117 4.20 3,902,119 34,207 3.48 Allowance for Credit Losses (31,386) (28,006) Cash and Due From Banks 32,874 32,475 Other Assets 134,760 141,150 Total Assets $ 4,109,995 $ 4,047,738 Deposits: Interest-Bearing Checking Accounts $ 795,627 1,156 0.58 $ 996,116 267 0.11 Savings Deposits 1,505,916 9,729 2.56 1,549,451 2,469 0.63 Time Deposits of $250,000 or More 152,738 1,466 3.81 49,459 89 0.71 Other Time Deposits 257,710 2,051 3.16 136,834 150 0.43 Total Interest-Bearing Deposits 2,711,991 14,402 2.11 2,731,860 2,975 0.43 Borrowings 183,452 2,143 4.63 — — Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 173 3.43 45,000 283 2.50 Finance Leases 5,075 46 3.60 5,125 48 3.72 Total Interest-Bearing Liabilities 2,920,518 16,764 2.28 2,781,985 3,306 0.47 Noninterest-Bearing Deposits 779,037 866,659 Other Liabilities 47,739 37,419 Total Liabilities 3,747,294 3,686,063 Stockholders' Equity 362,701 361,675 Total Liabilities and Stockholders' Equity $ 4,109,995 $ 4,047,738 Net Interest Income $ 25,353 $ 30,901 Net Interest Spread 1.92 % 3.01 % Net Interest Margin 2.53 % 3.14 % Arrow Financial Corporation Average Consolidated Balance Sheets and Net Interest Income Analysis (Dollars in Thousands - Unaudited) Quarter Ended: September 30, 2023 June 30, 2023 Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Interest-Bearing Deposits at Banks $ 131,814 $ 1,805 5.43 % $ 130,057 $ 1,674 5.16 % Investment Securities : Fully Taxable 616,020 2,924 1.88 637,018 2,951 1.86 Exempt from Federal Taxes 129,673 689 2.11 150,157 770 2.06 Loans 3,096,240 36,699 4.70 3,036,410 34,618 4.57 Total Earning Assets 3,973,747 42,117 4.20 3,953,642 40,013 4.06 Allowance for Credit Losses (31,386) (30,577) Cash and Due From Banks 32,874 28,742 Other Assets 134,760 135,846 Total Assets $ 4,109,995 $ 4,087,653 Deposits: Interest-Bearing Checking Accounts $ 795,627 1,156 0.58 $ 863,892 820 0.38 Savings Deposits 1,505,916 9,729 2.56 1,504,412 8,514 2.27 Time Deposits of $250,000 or More 152,738 1,466 3.81 133,897 1,119 3.35 Other Time Deposits 257,710 2,051 3.16 201,926 1,196 2.38 Total Interest-Bearing Deposits 2,711,991 14,402 2.11 2,704,127 11,649 1.73 Borrowings 183,452 2,143 4.63 195,527 2,373 4.87 Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 173 3.43 20,000 171 3.43 Finance Leases 5,075 46 3.60 5,089 48 3.78 Total Interest-Bearing Liabilities 2,920,518 16,764 2.28 2,924,743 14,241 1.95 Noninterest-bearing deposits 779,037 756,584 Other Liabilities 47,739 41,256 Total Liabilities 3,747,294 3,722,583 Stockholders' Equity 362,701 365,070 Total Liabilities and Stockholders' Equity $ 4,109,995 $ 4,087,653 Net Interest Income $ 25,353 $ 25,772 Net Interest Spread 1.92 % 2.11 % Net Interest Margin 2.53 % 2.61 % Arrow Financial Corporation Consolidated Financial Information (Dollars in Thousands - Unaudited) Quarter Ended: 9/30/2023 12/31/2022 9/30/2022 Loan Portfolio Commercial Loans $ 148,066 $ 140,293 $ 138,973 Commercial Real Estate Loans 734,604 707,022 679,217 Subtotal Commercial Loan Portfolio 882,670 847,315 818,190 Consumer Loans 1,107,638 1,065,135 1,055,585 Residential Real Estate Loans 1,148,309 1,070,757 1,051,019 Total Loans $ 3,138,617 $ 2,983,207 $ 2,924,794 Allowance for Credit Losses Allowance for Credit Losses, Beginning of Quarter $ 31,170 $ 29,232 $ 28,090 Loans Charged-off (1,204) (1,261) (1,147) Less Recoveries of Loans Previously Charged-off 792 572 574 Net Loans Charged-off (412) (689) (573) Provision for Credit Losses 354 1,409 1,715 Allowance for Credit Losses, End of Quarter $ 31,112 $ 29,952 $ 29,232 Nonperforming Assets Nonaccrual Loans $ 6,023 $ 10,757 $ 8,812 Loans Past Due 90 or More Days and Accruing 251 1,157 514 Loans Restructured and in Compliance with Modified Terms 60 69 82 Total Nonperforming Loans 6,334 11,983 9,408 Repossessed Assets 344 593 604 Other Real Estate Owned 182 — — Total Nonperforming Assets $ 6,860 $ 12,576 $ 10,012 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Quarter-to-date Annualized 0.05 % 0.09 % 0.08 % Provision for Credit Losses to Average Loans, Quarter-to-date Annualized 0.05 % 0.19 % 0.24 % Allowance for Credit Losses to Period-End Loans 0.99 % 1.00 % 1.00 % Allowance for Credit Losses to Period-End Nonperforming Loans 491.19 % 249.95 % 310.71 % Nonperforming Loans to Period-End Loans 0.20 % 0.40 % 0.32 % Nonperforming Assets to Period-End Assets 0.16 % 0.32 % 0.24 % Year-to-Date Period Ended: 9/30/2023 12/31/2022 9/30/2022 Allowance for Credit Losses Allowance for Credit Losses, Beginning of Year $ 29,952 $ 27,281 $ 27,281 Loans Charged-off (3,812) (4,143) (2,883) Less Recoveries of Loans Previously Charged-off 2,116 2,016 1,445 Net Loans Charged-off (1,696) (2,127) (1,438) Provision for Credit Losses 2,856 4,798 3,389 Allowance for Credit Losses, End of Period $ 31,112 $ 29,952 $ 29,232 Key Asset Quality Ratios Net Loans Charged-off to Average Loans, Annualized 0.07 % 0.08 % 0.07 % Provision for Loan Losses to Average Loans, Annualized 0.13 % 0.17 % 0.16 % View original content: https://www.prnewswire.com/news-releases/arrow-reports-q3-2023-net-income-of-7-7-million-and-earnings-per-share-of-0-46--loans-of-3-1-billion-on-9-annualized-loan-growth-301965769.html SOURCE Arrow Financial Corporation

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