EX-99.1 2 ex99-earningsq22024.htm EX-99.1 Document

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250 Glen Street
Glens Falls, NY 12801
NASDAQ® Symbol: "AROW"
Website: arrowfinancial.com

Media Contact: Rachael Murray
Tel: (518) 742-6505

Arrow Reports 2nd Quarter Net Income of $8.6 Million, or $0.52 per Share,
Declares Dividend of $0.27 per Share

GLENS FALLS, N.Y. (July 25, 2024) – Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow" or "the Company") announced financial results for the three-month period ended June 30, 2024. Net income for the second quarter of 2024 was $8.6 million and fully diluted earnings per share ("EPS") was $0.52, versus $6.0 million and EPS of $0.35, for the same period in 2023.

The Board of Directors of Arrow declared a quarterly cash dividend of $0.27 per share payable August 23, 2024 to shareholders of record as of August 12, 2024. This is Arrow's 45th consecutive quarterly cash dividend.

This Earnings Release and related commentary should be read in conjunction with the Company's July 25, 2024 Form 8-K and related Second Quarter 2024 Investor Presentation, which can also be found on Arrow's website: arrowfinancial.com/documents/investor-presentations.

Arrow President and CEO David S. DeMarco:

“We are pleased to report another quarter of solid performance, demonstrating the hard work and dedication of our team. We recently expanded our insurance business with the strategic acquisition of the assets of A&B Agency, Inc. We are also looking forward to the close of our branch acquisition in Whitehall, New York scheduled for early August.

In addition, on July 22nd, we received regulatory approval to combine our banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, into a single entity renamed Arrow Bank National Association, or Arrow Bank. This positions us to enhance our strategic growth while ensuring stability with the same dedicated leadership team, staff and branch locations. We are confident these initiatives will further strengthen our market position and drive long-term value for our shareholders.”

Second-Quarter Highlights and Key Metrics
•Gross loans grew $57.6 million1, or 7.1% on an annualized basis.
•Net interest margin improved to 2.67% (2.69% FTE2), up from 2.60% (2.62% FTE) in the prior quarter
•Average loan yields increased to 5.17% for 2Q24, up from 5.02% in the prior quarter
•Deposit balances were $3.7 billion
•Tangible Book Value increased to $21.54
•Return on Average Assets (ROA) improved to 0.82%, up from 0.73% in the previous quarter
•Received regulatory approval to acquire a branch in Whitehall, New York with approximately $35 million in deposits; transaction expected to close in August 2024


1 Excludes both $0.4 million fair value hedge adjustment at June 30, 2024 and $1.2 million fair value hedge adjustment at March 31, 2024
2 FTE Net interest margin is a non-GAAP measure. See reconciliation on Note 3 to the Selected Quarterly Information.
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Income Statement

•Net Income: Net income for the second quarter of 2024 was $8.6 million, increasing from $7.7 million in the first quarter of 2024 and $6.0 million in the second quarter of 2023.
◦As compared to the prior quarter, net income benefited from an increase of $0.7 million in net interest income as well as a decrease in non-interest expense of $0.7 million.
◦As compared to the second quarter of 2023, net interest income increased $1.4 million. Non-interest income increased $1.0 million and non-interest expense decreased $0.8 million.

•Net Interest Income: Net interest income for the second quarter of 2024 was $27.2 million, increasing 2.6% from $26.5 million for the first quarter of 2024 and increasing 5.4% from $25.8 million in the second quarter of 2023.
◦Total interest and dividend income was $48.0 million for the second quarter of 2024, an increase from $46.7 million in the first quarter of 2024 and from $40.0 million for the second quarter of 2023. These increases were primarily driven by loan growth and higher loan rates. Interest expense for the second quarter of 2024 was $20.8 million, an increase from $20.2 million for the first quarter of 2024 and from $14.2 million for the second quarter of 2023. The increases for both comparison periods were driven primarily by higher deposit rates and changes in deposit composition.

•Net Interest Margin: Net interest margin, on an FTE basis, for the second quarter of 2024 was 2.69% compared to 2.62% for the first quarter of 2024 and 2.63% for the second quarter of 2023. The increase in net interest margin compared to the first quarter in 2024 was primarily the result of continued yield expansion on earning assets combined with moderating increase in the cost of interest-bearing liabilities. As compared to the second quarter of 2023, the increase in net interest margin was primarily the result of yield on average earning assets increasing at a faster pace than costs of interest-bearing liabilities. Net interest margin is affected by deposits continuing to migrate to higher costs products, such as money market savings and time deposits.

Three Months Ended
(Dollars in Thousands)
June 30, 2024March 31, 2024June 30, 2023
Interest and Dividend Income$47,972 $46,677 $40,013 
Interest Expense20,820 20,222 14,241 
Net Interest Income27,152 26,455 25,772 
Average Earning Assets(A)
4,083,813 4,085,398 3,953,642 
Average Interest-Bearing Liabilities3,127,417 3,108,093 2,924,743 
Yield on Earning Assets(A)
4.72 %4.60 %4.06 %
Cost of Interest-Bearing Liabilities2.68 2.62 1.95 
Net Interest Spread2.04 1.98 2.11 
Net Interest Margin2.67 2.60 2.61 
Net Interest Margin - FTE2.69 2.62 2.63 
(A) Includes Nonaccrual Loans.

•Provision for Credit Losses: For the second quarter of 2024, the provision for credit losses was $0.8 million compared to $0.6 million in the first quarter of 2024 and $0.9 million in the second quarter of 2023. The key drivers for the provision for credit losses in the second quarter of 2024 were loan growth and replenishment of the allowance for charge-offs, partially offset by changes to the economic forecast factors embedded in the credit loss allowance model.

2

•Non-Interest Income: Non-interest income for the three months ended June 30, 2024, was $7.9 million consistent with the first quarter of 2024 and an increase from $6.9 million in the second quarter of 2023 due to the other investment income and a small gain on a sale leaseback transaction.

•Non-Interest Expense: Non-interest expense for the second quarter of 2024 was $23.3 million, a decrease from $24.0 million in the first quarter of 2024 and from $24.1 million for the second quarter of 2023. The decrease from the prior quarter and year was primarily due to elimination of elevated legal and professional expenses related to the delayed filings in 2023.

•Provision for Income Taxes: The provision for income taxes was 21.2%, or $2.3 million, for the second quarter of 2024, 20.9%, or $2.0 million, for the first quarter of 2024 and 20.9%, or $1.6 million, for the second quarter of 2023.

Balance Sheet

•Total Assets: Total assets were $4.2 billion at June 30, 2024, a decrease of $89.2 million, or 2.1%, as compared to March 31, 2024 and an increase of $140.8 million, or 3.4%, as compared to June 30, 2023. For the second quarter of 2024, overall change in balance sheet was attributable to seasonal changes of cash balances offset by growth in the loan portfolio.

•Investments: Total investments were $556.4 million as of June 30, 2024, a decrease of $63.6 million, or 10.3%, compared to March 31, 2024 and a decrease of $137.6 million, or 19.8%, compared to June 30, 2023. The decrease from March 31, 2024 was driven primarily by paydowns and maturities. The change from June 30, 2023 was also driven by paydowns and maturities as well as the fourth quarter 2023 repositioning of the investment portfolio, reducing the portfolio by approximately $25 million at the time of the transaction. There were no credit quality issues related to the investment portfolio.

•Loans3: Total loans reached $3.3 billion as of June 30, 2024. Loan growth for the second quarter of 2024 was $57.6 million, and $245.3 million since June 30, 2023. Loan growth was spread across all loan products. Please see the loan detail included in the Consolidated Financial Information table on page 12.

•Allowance for Credit Losses: The allowance for credit losses was $31.0 million as of June 30, 2024, which represented 0.94% of loans outstanding, as compared to $31.6 million, or 0.97%, at March 31, 2024 and $31.2 million, or 1.02%, at June 30, 2023. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.16% for the three-month period ended June 30, 20244, as compared to 0.04% for the three-month period ended March 31, 2024 and 0.07% for the three-month period ended June 30, 2023. Nonperforming assets were $21.3 million as of June 30, 2024, representing 0.50% of period-end assets, compared to 0.50% at March 31, 2024 and 0.17% at June 30, 2023. The increase from the second quarter of 2023 was primarily due to one large, well collateralized loan relationship of approximately $15 million, which moved into non-performing status during the fourth quarter of 2023.

•Deposits: At June 30, 2024, deposit balances were $3.7 billion, a decrease of $95.4 million from March 31, 2024 and an increase of $181.4 million from June 30, 2023. The decrease from the first quarter was primarily attributable to the seasonality of municipal deposits, expected to normalize in the third quarter. The increase from June 30, 2023 was partially attributable to $175 million of brokered CDs, primarily used to reduce borrowings by $160 million. Arrow simultaneously entered
3 Excludes both $0.4 million fair value hedge adjustment at June 30, 2024 and $1.2 million fair value hedge adjustment at March 31, 2024
4 Charge-offs for 2Q24 included 0.09% related to a previously specifically reserved amount for overdraft balances relating to one customer relationship
3

into three-year interest rate swaps to strategically manage its asset-liability profile and cost of funds. Please refer to page 7 for further details related to deposits.

•Capital: Total stockholders’ equity was $383.0 million at June 30, 2024, an increase of $5.0 million, or 1.3%, from March 31, 2024 and an increase of $21.6 million, or 6.0%, from the June 30, 2023 level of $361.4 million. The increase in capital from June 30, 2023, was primarily attributable to net income of $32 million, other comprehensive income of $16 million offset by dividends and stock repurchases of $27 million. Arrow's regulatory capital ratios remained strong. As of June 30, 2024, Arrow's Common Equity Tier 1 Capital Ratio was 12.88% and Total Risk-Based Capital Ratio was 14.57%. The capital ratios of Arrow's 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

•Bauer Financial Ratings: Both Glens Falls National Bank and Saratoga National Bank continued to maintain their 5-Star Exceptional Performance ratings from Bauer Financial, for the 68th and 60th quarters, respectively.

•Subsidiary Bank Unification: On July 22 2024, Arrow received approval from the Office of the Comptroller of the Currency to combine its two subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, into one bank that will be known as Arrow Bank National Association. The combination will create operational efficiencies, unify branding and enhance Arrow's ability to pursue its strategic growth objectives. The combination of the entities is anticipated to become effective December 31, 2024.

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 (FTE). 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."

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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 2023 Form 10-K and other filings with the SEC.
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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
 2024202320242023
INTEREST AND DIVIDEND INCOME    
Interest and Fees on Loans$42,141 $34,618 $82,517 $66,504 
Interest on Deposits at Banks2,185 1,674 4,632 2,153 
Interest and Dividends on Investment Securities: 
Fully Taxable3,009 2,951 6,195 5,899 
Exempt from Federal Taxes637 770 1,305 1,567 
Total Interest and Dividend Income47,972 40,013 94,649 76,123 
INTEREST EXPENSE   
Interest-Bearing Checking Accounts1,903 820 3,544 1,190 
Savings Deposits10,571 8,514 20,801 14,101 
Time Deposits over $250,0001,869 1,119 3,842 1,693 
Other Time Deposits5,074 1,196 10,157 1,670 
Borrowings1,186 2,373 2,262 3,166 
Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts		170 171 341 340 
Interest on Financing Leases47 48 95 97 
Total Interest Expense20,820 14,241 41,042 22,257 
NET INTEREST INCOME27,152 25,772 53,607 53,866 
Provision for Credit Losses775 948 1,392 2,502 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES26,377 24,824 52,215 51,364 
NON-INTEREST INCOME   
Income From Fiduciary Activities2,451 2,428 4,908 4,703 
Fees for Other Services to Customers2,706 2,717 5,249 5,312 
Insurance Commissions1,662 1,560 3,344 3,080 
Net Gain (Loss) on Securities
54 (181)71 (285)
Net Gain on Sales of Loans5 — 9 4 
Other Operating Income978 382 2,133 769 
Total Non-Interest Income7,856 6,906 15,714 13,583 
NON-INTEREST EXPENSE   
Salaries and Employee Benefits13,036 12,039 25,929 23,986 
Occupancy Expenses, Net1,774 1,583 3,545 3,211 
Technology and Equipment Expense4,734 4,362 9,554 8,779 
FDIC Assessments698 484 1,413 963 
Other Operating Expense3,076 5,615 6,889 9,440 
Total Non-Interest Expense23,318 24,083 47,330 46,379 
INCOME BEFORE PROVISION FOR INCOME TAXES10,915 7,647 20,599 18,568 
Provision for Income Taxes2,311 1,600 4,335 3,959 
NET INCOME$8,604 $6,047 $16,264 $14,609 
Average Shares Outstanding 1:
    
Basic16,685 17,050 16,764 17,050 
Diluted16,709 17,050 16,789 17,050 
Per Common Share:    
Basic Earnings$0.52 $0.35 $0.97 $0.85 
Diluted Earnings0.52 0.35 0.97 0.85 
1 June 30, 2023 Share and Per Share Amounts have been restated for the September 26, 2023, 3% stock dividend.

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ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts - Unaudited)
 June 30,
2024		December 31, 2023June 30,
2023
ASSETS  
Cash and Due From Banks$30,372 $36,755 $33,803 
Interest-Bearing Deposits at Banks169,826 105,781 139,798 
Investment Securities:
Available-for-Sale at Fair Value450,786 497,769 543,708 
Held-to-Maturity (Fair Value of $96,454 at June 30, 2024; $128,837 at December 31, 2023; and $139,143 at June 30, 2023)
99,348 131,395 143,460 
Equity Securities1,996 1,925 1,889 
Other Investments4,274 5,049 4,932 
Loans3,315,523 3,212,908 3,069,897 
Allowance for Credit Losses(31,009)(31,265)(31,170)
Net Loans3,284,514 3,181,643 3,038,727 
Premises and Equipment, Net59,243 59,642 59,773 
Goodwill21,873 21,873 21,873 
Other Intangible Assets, Net927 1,110 1,302 
Other Assets121,248 126,926 114,388 
Total Assets$4,244,407 $4,169,868 $4,103,653 
LIABILITIES  
Noninterest-Bearing Deposits704,707 758,425 759,495 
Interest-Bearing Checking Accounts856,788 799,785 856,016 
Savings Deposits1,446,821 1,466,280 1,517,937 
Time Deposits over $250,000173,526 179,301 140,694 
Other Time Deposits501,797 483,775 228,082 
Total Deposits3,683,639 3,687,566 3,502,224 
Borrowings106,500 26,500 171,800 
Junior Subordinated Obligations Issued to Unconsolidated
  Subsidiary Trusts		20,000 20,000 20,000 
Finance Leases5,038 5,066 5,093 
Other Liabilities46,212 50,964 43,093 
Total Liabilities3,861,389 3,790,096 3,742,210 
STOCKHOLDERS’ EQUITY
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at June 30, 2024, December 31, 2023 and June 30, 2023
— — — 
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (22,066,559 Shares Issued at June 30, 2024 and December 31, 2023 and 21,423,992 Shares Issued at June 30, 2023)
22,067 22,067 21,424 
Additional Paid-in Capital412,917 412,551 401,069 
Retained Earnings72,980 65,792 71,076 
Accumulated Other Comprehensive Loss(31,632)(33,416)(47,613)
Treasury Stock, at Cost (5,343,295 Shares at June 30, 2024; 5,124,073 Shares at December 31, 2023 and 4,870,934 Shares at June 30, 2023)
(93,314)(87,222)(84,513)
Total Stockholders’ Equity383,018 379,772 361,443 
Total Liabilities and Stockholders’ Equity$4,244,407 $4,169,868 $4,103,653 
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Arrow Financial Corporation
Selected Quarterly Information
(Dollars In Thousands, Except Per Share Amounts - Unaudited)
Quarter Ended6/30/20243/31/202412/31/20239/30/20236/30/2023
Net Income$8,604 $7,660 $7,723 $7,743 $6,047 
     
Net Changes in Fair Value of Equity Investments (Net of Tax)
39 13 90 52 (133)
Share and Per Share Data:1
    
Period End Shares Outstanding16,723 16,710 16,942 17,049 17,050 
Basic Average Shares Outstanding16,685 16,865 17,002 17,050 17,050 
Diluted Average Shares Outstanding16,709 16,867 17,004 17,050 17,050 
Basic Earnings Per Share$0.52 $0.45 $0.46 $0.46 $0.35 
Diluted Earnings Per Share0.52 0.45 0.46 0.46 0.35 
Cash Dividend Per Share0.270 0.270 0.270 0.262 0.262 
Selected Quarterly Average Balances:    
  Interest-Bearing Deposits at Banks$159,336 $178,452 $136,026 $131,814 $130,057 
  Investment Securities644,192 671,105 713,144 745,693 787,175 
  Loans3,280,285 3,235,841 3,170,262 3,096,240 3,036,410 
  Deposits3,678,957 3,693,325 3,593,949 3,491,028 3,460,711 
  Other Borrowed Funds131,537 122,033 149,507 208,527 220,616 
  Stockholders' Equity
378,256 379,446 363,753 362,701 365,070 
  Total Assets4,237,359 4,245,484 4,159,313 4,109,995 4,087,653 
Return on Average Assets, annualized0.82 %0.73 %0.74 %0.75 %0.59 %
Return on Average Equity, annualized9.15 %8.12 %8.42 %8.47 %6.64 %
Return on Average Tangible Equity, annualized 2
9.74 %8.64 %8.99 %9.05 %7.10 %
Average Earning Assets$4,083,813 $4,085,398 $4,019,432 $3,973,747 $3,953,642 
Average Paying Liabilities3,127,417 3,108,093 2,985,717 2,920,518 2,924,743 
Interest Income47,972 46,677 44,324 42,117 40,013 
Tax-Equivalent Adjustment 3
163 176 184 183 196 
Interest Income, Tax-Equivalent 3
48,135 46,853 44,508 42,117 40,013 
Interest Expense20,820 20,222 18,711 16,764 14,241 
Net Interest Income27,152 26,455 25,613 25,353 25,772 
Net Interest Income, Tax-Equivalent 3
27,315 26,631 25,797 25,536 25,968 
Net Interest Margin, annualized2.67 %2.60 %2.53 %2.53 %2.61 %
Net Interest Margin, Tax-Equivalent, annualized 3
2.69 %2.62 %2.55 %2.55 %2.63 %
Efficiency Ratio Calculation: 4
    
Non-Interest Expense$23,318 $24,012 $23,190 $23,479 $24,083 
Less: Intangible Asset Amortization40 41 43 43 44 
Net Non-Interest Expense$23,278 $23,971 $23,147 $23,436 $24,039 
Net Interest Income, Tax-Equivalent$27,315 $26,631 $25,797 $25,536 $25,968 
Non-Interest Income7,856 7,858 7,484 8,050 6,906 
Less: Net Gain (Loss) on Securities54 17 122 71 (181)
Net Gross Income$35,117 $34,472 $33,159 $33,515 $33,055 
Efficiency Ratio66.29 %69.54 %69.81 %69.93 %72.72 %
Period-End Capital Information:     
Total Stockholders' Equity (i.e. Book Value)$383,018 $377,986 $379,772 $360,014 $361,443 
Book Value per Share 1
22.90 22.62 22.42 21.12 21.20 
Goodwill and Other Intangible Assets, net22,800 22,891 22,983 23,078 23,175 
Tangible Book Value per Share 1,2
21.54 21.25 21.06 19.76 19.84 
Capital Ratios:5
  
Tier 1 Leverage Ratio9.74 %9.63 %9.84 %9.94 %9.92 %
Common Equity Tier 1 Capital Ratio
12.88 %12.84 %13.00 %13.17 %13.27 %
Tier 1 Risk-Based Capital Ratio13.53 %13.50 %13.66 %13.84 %13.96 %
Total Risk-Based Capital Ratio14.57 %14.57 %14.74 %14.94 %15.08 %
Assets Under Trust Admin. & Investment Mgmt.$1,848,349 $1,829,266 $1,763,194 $1,627,522 $1,711,460 

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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 provide investors with information that is useful in understanding its financial performance.
6/30/20243/31/202412/31/20239/30/20236/30/2023
Total Stockholders' Equity (GAAP)$383,018 $377,986 $379,772 $360,014 $361,443 
Less: Goodwill and Other Intangible assets, net22,800 22,891 22,983 23,078 23,175 
Tangible Equity (Non-GAAP)$360,218 $355,095 $356,789 $336,936 $338,268 
Period End Shares Outstanding16,723 16,710 16,942 17,049 17,050 
Tangible Book Value per Share (Non-GAAP)$21.54 $21.25 $21.06 $19.76 $19.84 
Net Income8,604 7,660 7,723 7,743 6,047 
Return on Tangible Equity (Net Income/Tangible Equity - Annualized)
9.74 %8.64 %8.99 %9.05 %7.10 %
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.
6/30/20243/31/202412/31/20239/30/20236/30/2023
Interest Income (GAAP)$47,972 $46,677 $44,324 $42,117 $40,013 
Add: Tax-Equivalent adjustment
     (Non-GAAP)		163 176 184 183 196 
Interest Income - Tax Equivalent
     (Non-GAAP)		$48,135 $46,853 $44,508 $42,300 $40,209 
Net Interest Income (GAAP)$27,152 $26,455 $25,613 $25,353 $25,772 
Add: Tax-Equivalent adjustment
     (Non-GAAP)		163 176 184 183 196 
Net Interest Income - Tax Equivalent
     (Non-GAAP)		$27,315 $26,631 $25,797 $25,536 $25,968 
Average Earning Assets$4,083,813 $4,085,398 $4,019,432 $3,973,747 $3,953,642 
Net Interest Margin (Non-GAAP)*2.69 %2.62 %2.55 %2.55 %2.63 %
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, 2024 CET1 ratio listed in the tables (i.e., 12.88%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).
6/30/20243/31/202412/31/20239/30/20236/30/2023
Total Risk Weighted Assets$3,072,922 $3,049,525 $3,032,188 $2,988,438 $2,937,837 
Common Equity Tier 1 Capital395,691 391,706 394,166 393,541 389,966 
Common Equity Tier 1 Ratio12.88 %12.84 %13.00 %13.17 %13.27 %
* Quarterly ratios have been annualized.

9


Arrow Financial Corporation
Average Consolidated Balance Sheets and Net Interest Income Analysis
(Dollars in Thousands - Unaudited)

Quarter Ended:June 30, 2024June 30, 2023
InterestRateInterestRate
AverageIncome/Earned/AverageIncome/Earned/
BalanceExpensePaidBalanceExpensePaid
Interest-Bearing Deposits at Banks$159,336 $2,185 5.52 %$130,057 $1,674 5.16 %
Investment Securities:
Fully Taxable530,869 3,009 2.28 637,018 2,951 1.86 
Exempt from Federal Taxes113,323 637 2.26 150,157 770 2.06 
Loans3,280,285 42,141 5.17 3,036,410 34,618 4.57 
Total Earning Assets4,083,813 47,972 4.72 3,953,642 40,013 4.06 
Allowance for Credit Losses(31,459)(30,577)
Cash and Due From Banks28,611 28,742 
Other Assets156,394 135,846 
Total Assets$4,237,359 $4,087,653 
Deposits:
Interest-Bearing Checking Accounts$832,087 1,903 0.92 $863,892 820 0.38 
Savings Deposits1,487,062 10,571 2.86 1,504,412 8,514 2.27 
Time Deposits of $250,000 or More172,655 1,869 4.35 133,897 1,119 3.35 
Other Time Deposits504,076 5,074 4.05 201,926 1,196 2.38 
Total Interest-Bearing Deposits2,995,880 19,417 2.61 2,704,127 11,649 1.73 
Borrowings106,502 1,186 4.48 195,527 2,373 4.87 
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts20,000 170 3.42 20,000 171 3.43 
Finance Leases5,035 47 3.75 5,089 48 3.78 
Total Interest-Bearing Liabilities3,127,417 20,820 2.68 2,924,743 14,241 1.95 
Noninterest-Bearing Deposits683,077 756,584 
Other Liabilities48,609 41,256 
Total Liabilities3,859,103 3,722,583 
Stockholders’ Equity378,256 365,070 
Total Liabilities and Stockholders’ Equity$4,237,359 $4,087,653 
Net Interest Income$27,152 $25,772 
Net Interest Spread2.04 %2.11 %
Net Interest Margin2.67 %2.61 %







10



Arrow Financial Corporation
Average Consolidated Balance Sheets and Net Interest Income Analysis
(Dollars in Thousands - Unaudited)



Quarter Ended:June 30, 2024March 31, 2024
InterestRateInterestRate
AverageIncome/Earned/AverageIncome/Earned/
BalanceExpensePaidBalanceExpensePaid
Interest-Bearing Deposits at Banks$159,336 $2,185 5.52 %$178,452 $2,447 5.52 %
Investment Securities:
Fully Taxable530,869 3,009 2.28 550,538 3,186 2.33 
Exempt from Federal Taxes113,323 637 2.26 120,567 668 2.23 
Loans3,280,285 42,141 5.17 3,235,841 40,376 5.02 
Total Earning Assets4,083,813 47,972 4.72 4,085,398 46,677 4.60 
Allowance for Credit Losses(31,459)(31,416)
Cash and Due From Banks28,611 29,804 
Other Assets156,394 161,698 
Total Assets$4,237,359 $4,245,484 
Deposits:
Interest-Bearing Checking Accounts$832,087 1,903 0.92 $830,918 1,641 0.79 
Savings Deposits1,487,062 10,571 2.86 1,481,001 10,230 2.78 
Time Deposits of $250,000 or More172,655 1,869 4.35 177,328 1,973 4.47 
Other Time Deposits504,076 5,074 4.05 496,813 5,083 4.11 
Total Interest-Bearing Deposits2,995,880 19,417 2.61 2,986,060 18,927 2.55 
Borrowings106,502 1,186 4.48 96,984 1,076 4.46 
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts20,000 170 3.42 20,000 171 3.44 
Finance Leases5,035 47 3.75 5,049 48 3.82 
Total Interest-Bearing Liabilities3,127,417 20,820 2.68 3,108,093 20,222 2.62 
Noninterest-bearing deposits683,077 707,265 
Other Liabilities48,609 50,680 
Total Liabilities3,859,103 3,866,038 
Stockholders’ Equity378,256 379,446 
Total Liabilities and Stockholders’ Equity$4,237,359 $4,245,484 
Net Interest Income$27,152 $26,455 
Net Interest Spread2.04 %1.98 %
Net Interest Margin2.67 %2.60 %
11


Arrow Financial Corporation
Consolidated Financial Information
(Dollars in Thousands - Unaudited)

Quarter Ended:6/30/202412/31/20236/30/2023
Loan Portfolio  
Commercial Loans$163,832 $156,224 $147,518 
Commercial Real Estate Loans757,478 745,487 723,948 
  Subtotal Commercial Loan Portfolio921,310 901,711 871,466 
Consumer Loans1,138,813 1,111,667 1,087,765 
Residential Real Estate Loans1,255,400 1,199,530 1,110,666 
Total Loans$3,315,523 $3,212,908 $3,069,897 
Allowance for Credit Losses   
Allowance for Credit Losses, Beginning of Quarter$31,561 $31,112 $30,784 
Loans Charged-off(1,850)(1,366)(1,280)
Less Recoveries of Loans Previously Charged-off523 994 718 
Net Loans Charged-off(1,327)(372)(562)
Provision for Credit Losses775 525 948 
Allowance for Credit Losses, End of Quarter$31,009 $31,265 $31,170 
Nonperforming Assets   
Nonaccrual Loans$20,118 $20,645 $5,997 
Loans Past Due 90 or More Days and Accruing915 452 467 
Loans Restructured and in Compliance with Modified Terms36 54 67 
Total Nonperforming Loans21,069 21,151 6,531 
Repossessed Assets239 312 342 
Other Real Estate Owned34 — 182 
Total Nonperforming Assets$21,342 $21,463 $7,055 
Key Asset Quality Ratios   
Net Loans Charged-off to Average Loans,
   Quarter-to-date Annualized		0.16 %0.05 %0.07 %
Provision for Credit Losses to Average Loans,
  Quarter-to-date Annualized		0.10 %0.07 %0.13 %
Allowance for Credit Losses to Period-End Loans0.94 %0.97 %1.02 %
Allowance for Credit Losses to Period-End Nonperforming Loans147.18 %147.82 %477.26 %
Nonperforming Loans to Period-End Loans0.64 %0.66 %0.21 %
Nonperforming Assets to Period-End Assets0.50 %0.51 %0.17 %
Year-to-Date Period Ended:6/30/202412/31/20236/30/2023
Allowance for Credit Losses  
Allowance for Credit Losses, Beginning of Year$31,265 $29,952 $29,952 
Loans Charged-off(3,133)(5,177)(2,608)
Less Recoveries of Loans Previously Charged-off1,485 3,109 1,324 
Net Loans Charged-off(1,648)(2,068)(1,284)
Provision for Credit Losses1,392 3,381 2,502 
Allowance for Credit Losses, End of Period$31,009 $31,265 $31,170 
Key Asset Quality Ratios  
Net Loans Charged-off to Average Loans, Annualized0.10 %0.07 %0.09 %
Provision for Loan Losses to Average Loans, Annualized0.09 %0.11 %0.17 %
12