EX-99.1 2 ex99-earningsq22023.htm EX-99.1

| 250 Glen Street Glens Falls, NY 12801
NASDAQ® Symbol: "AROW" Website: arrowfinancial.com Media Contact: Rachael Murray Tel: (518) 742-6505

Arrow Reports $6.0 million in Q2 2023 Net Income, Loans Reach Record High of $3.1 Billion
GLENS FALLS, N.Y. (August 8, 2023) – Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow") announced financial results for the three-month period ended June 30, 2023. Net income for the second quarter of 2023 was $6.0 million and fully diluted earnings per share was $0.36. Nonperforming assets decreased $4.2 million in the second quarter, with the allowance for credit losses reaching 477% of nonperforming loans.
Arrow President and CEO David S. DeMarco:
"I am pleased to announce that we are back in full compliance with our NASDAQ® filing requirements. While this is an important step, it did not distract us from growing the business to a new record high for loans while maintaining sound credit quality. As always, our team is dedicated to serving our communities and our customers throughout our eight-county footprint. We remain focused on further enhancing the customer experience and optimizing our operations.”
"Now that the Arrow team has returned to our fully renovated headquarters in downtown Glens Falls, New York, we are opening our Main Office branch and lending areas to customers. The renovated campus offers a collaborative and modern space for both customers and our team. This investment is a key part of the revitalization of downtown Glens Falls and represents Arrow's approach to community banking, based on long-lasting and meaningful relationships with our shareholders, customers, communities and employees."
This Earnings Release and related commentary should be read in conjunction with our August 8, 2023 Form 8-K and related Second Quarter 2023 Investor Presentation, which can be found on our website: arrowfinancial.com/investor-presentations.
Second-Quarter Highlights and Key Metrics
•Total loans reached a record high of $3.1 billion as of June 30, 2023, growing at an annualized rate of 8.6%, or $64.5 million, for the quarter.
•Strong on-balance sheet liquidity of $376 million, or 9% of total assets; 4% cash and 5% unencumbered readily marketable securities.
•Additional $1.3 billion of immediately available liquidity with FHLB, FRB and other bank lines.
•Replaced FHLB advances with $150 million of flexible term and lower cost advances from the FRB of NY Bank Term Funding Program (BTFP).
•Immediately available liquidity provides in excess of 200% coverage of uninsured deposits which are less than 30% of total deposits.
•Loan-to-deposit ratio was 88%.
•Nonperforming assets decreased to $7.1 million at June 30, 2023, representing 0.17% of period-end assets.
•Net charge-offs to average loans for the second quarter of 2023 were 0.07% as compared to 0.10% for the previous quarter.
•Allowance for Credit Losses to Nonperforming Loans coverage was 477%.
•Total assets and deposits remained relatively unchanged at $4.1 billion and $3.5 billion respectively.
•Non-interest expenses included $2.0 million in incremental expenses related to the delay in filing the 2022 Form 10-K and the First Quarter Form 10-Q.
•Net interest margin was 2.61%.
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•Return on average assets (ROA) was 0.59%; excluding incremental expenses related to the delayed filings it was 0.75%.
•Return on average equity (ROE) was 6.64%; excluding incremental expense related to the delayed filings it was 8.41%.
Income Statement
•Net Income: Net income for the second quarter of 2023 was $6.0 million, decreasing from $8.6 million and $12.0 million in the first quarter of 2023 and the second quarter of 2022, respectively. The decline from the first quarter of 2023 was primarily due to an increase of $6.2 million in interest expense and an increase in non-interest expense of $1.8 million, partially offset by an increase in interest and dividend income of $3.9 million. The decline from the the same period in the prior year was due to an increase of $12.7 million in interest expense, an increase in non-interest expense of $3.7 million and a decrease in non-interest income of $838 thousand. The decrease was partially offset by an increase in interest and dividend income of $9.4 million.
•Net Interest Income: Net interest income for the second quarter was $25.8 million, decreasing 8.3% from $28.1 million in the first quarter of 2023 and 11.2% from $29.0 million in the comparable quarter of 2022. Interest and fees on loans were $34.6 million for the second quarter of 2023, an increase from $31.9 million in the first quarter of 2023 and from $26.9 million for the quarter ended June 30, 2022. These increases are driven by loan growth and higher loan rates. Interest expense for the second quarter of 2023 was $14.2 million, an increase of $6.2 million versus first quarter of 2023 and $12.7 million from the comparable quarter ended June 30, 2022. The increases for both comparison periods were driven by higher deposit rates and changes in deposit composition.
•Net Interest Margin: Net interest margin was 2.61% for the quarter, compared to 2.96% for the first quarter of 2023 and 3.02% for the second quarter of 2022. The decrease in net interest margin compared to the first quarter in 2023 was the result of the cost of interest-bearing liabilities increasing at a faster pace than the yield on average earning assets.The year-over-year decrease in net interest margin was also impacted by lower cash balances as a result of deposit outflows in the fourth quarter of 2022 that temporarily reduced average earning asset balances year-over- year.

| Three Months Ended |  |  |  |
| (Dollars in Thousands) |  |  |  |
| June 30, 2023 |  | March 31, 2023 |  | June 30, 2022 |  |  |  |
Interest and Dividend Income | $ | 40,013 |  |  | $ | 36,110 |  |  | $ | 30,593 |  |  |  |  |
Interest Expense | 14,241 |  |  | 8,016 |  |  | 1,555 |  |  |  |  |
Net Interest Income | 25,772 |  |  | 28,094 |  |  | 29,038 |  |  |  |  |
Average Earning Assets(1) | 3,953,642 |  |  | 3,845,825 |  |  | 3,858,837 |  |  |  |  |
Average Interest-Bearing Liabilities | 2,924,743 |  |  | 2,782,299 |  |  | 2,808,287 |  |  |  |  |
Yield on Earning Assets(1) | 4.06 | % |  | 3.81 | % |  | 3.18 | % |  |  |  |
Cost of Interest-Bearing Liabilities | 1.95 |  |  | 1.17 |  |  | 0.22 |  |  |  |  |
Net Interest Spread | 2.11 |  |  | 2.88 |  |  | 2.96 |  |  |  |  |
Net Interest Margin | 2.61 |  |  | 2.96 |  |  | 3.02 |  |  |  |  |
Income Earned on PPP Loans included in Net Interest Income | $ | — |  |  | $ | — |  |  | $ | 438 |  |  |  |  |
Net Interest Income excluding PPP loans | 25,772 |  |  | 28,094 |  |  | 28,600 |  |  |  |  |
Net Interest Margin excluding PPP loans | 2.61 | % |  | 2.96 | % |  | 2.98 | % |  |  |  |
(1) Includes Nonaccrual Loans. |  |  |  |  |  |  |  |  |

•Provision for Credit Losses: For the second quarter of 2023, the provision for credit losses was $948 thousand compared to $1.6 million in the first quarter of 2023 and $905 thousand in the prior-year quarter. The key drivers for the provision for credit losses in the second quarter of 2023
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were loan growth and, to a lesser extent, charge-offs. The second quarter 2023 provision for credit losses was not impacted by changes to the economic forecast factors embedded in the allowance model. The provision for the first quarter of 2023 was driven by charge-offs and by changes made to the economic forecast within the model.
•Non-Interest Income: Non-interest income for the three months ended June 30, 2023, was $6.9 million, compared to $6.7 million in the first quarter of 2023 and $7.7 million in the comparable quarter of 2022. Income from fiduciary activities, which includes Wealth Management services, rebounded in the second quarter of 2023 after a downturn in 2022 caused by declining market performance. Fees and other services to customers declined versus the linked quarter and year-over-year driven by lower interchange fees. Other income was consistent with both the first quarter of 2023 and the comparable quarter of 2022.
•Non-Interest Expense: Non-interest expense for the second quarter of 2023 was $24.1 million, an increase from $22.3 million in the first quarter of 2023 and $20.3 million for the second quarter of 2022. The increase was related to $3.0 million of additional legal and professional fees incurred in the first half of 2023 associated with the delay in the filing of the 2022 Form 10-K and the First Quarter Form 10-Q. Salaries and benefits increased $0.5 million year-over-year as a result of pension and other benefit expenses.
•Provision for Income Taxes: The provision for income taxes was $1.6 million for the second quarter of 2023, $2.4 million for the first quarter of 2023 and $3.6 million for the second quarter of 2022. The reduction in the provision for income taxes was the result of lower pre-tax income. The effective tax rate as of June 30, 2023 was 20.9%.
Balance Sheet
•Total Assets: Total assets were $4.1 billion at June 30, 2023, comparable to March 31, 2023 and an increase of $134.1 million, or 3.4%, compared to December 31, 2022. Growth in the balance sheet is in line with growth in the loan portfolio and higher cash balances.
•Investments: Total investments were $694.0 million as of June 30, 2023, a decrease of $51.1 million, or 6.9%, compared to March 31, 2023 and a decrease of $57.0 million compared to December 31, 2022. The decrease for both periods was driven primarily by paydowns and maturities (net of purchases) of $56.7 million and $45.3 million respectively. The proceeds were primarily used to fund loan growth and for general corporate purposes. The rising rate environment led to unrealized losses of $5.2 million within the available-for-sale portfolio in the second quarter of 2023
•Loans: Total loans reached a record high of $3.1 billion as of June 30, 2023. Loan growth for the second quarter of 2023 was $64.5 million, or 2.1%, and $86.7 million, or 2.9%, from December 31, 2022. Loan growth was spread across all segments. Please see the loan detail included in the consolidated financial information table on page 11.
•Allowance for Credit Losses: The allowance for credit losses was $31.2 million on June 30, 2023, which represented 1.02% of loans outstanding, as compared to $30.8 million or 1.02% at March 31, 2023 and $30.0 million or 1.00% at December 31, 2022. Asset quality improved at June 30, 2023. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.07% for the three-month period ended June 30, 2023, as compared to 0.10% for the three-month period ended March 31, 2023 and 0.09% for the three-month period ended December 31, 2022. Nonperforming assets of $7.1 million at June 30, 2023, represented 0.17% of period-end assets, compared to $11.3 million or 0.27% at March 31, 2023 and $12.6 million or 0.32% at December 31, 2022.
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•Deposits: At June 30, 2023, deposit balances were $3.5 billion, relatively unchanged from March 31, 2023 and December 31, 2022. While overall deposit balances have remained stable, the deposit mix has continued to shift from non-interest bearing accounts to higher cost money market and time deposit accounts. Please refer to page 6 for further details related to deposits.
•Capital: Total stockholders’ equity was $361.4 million at June 30, 2023, a decrease of $1.9 million, or 0.5%, from the March 31, 2023 level of $363.4 million, and an increase of $7.9 million, or 2.2%, from December 31, 2022. Arrow's regulatory capital ratios remained strong in the second quarter of 2023. As of June 30, 2023, Arrow's Common Equity Tier 1 Capital Ratio was 13.27% and Total Risk-Based Capital Ratio was 15.08%. The capital ratios of Arrow and both its subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, continued to exceed the “well capitalized” regulatory standards.
Additional Commentary
•Cash and Stock Dividends: On June 15, 2023, Arrow distributed a cash dividend of $0.27 per share. On July 28, 2023, Arrow declared a cash dividend of $.27 per share, payable on September 15, 2023, to shareholders of record as of September 1, 2023. This marks the 41st consecutive quarterly cash dividend.
About Arrow
Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York. Arrow is the parent of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company. Other subsidiaries include Upstate Agency, LLC and North Country Investment Advisers, Inc.
Non-GAAP Financial Measures Reconciliation
In addition to presenting information in conformity with accounting principles generally accepted in the United States of America (GAAP), this news release contains financial information determined by methods other than GAAP (non-GAAP). Some measures used in this release, which are commonly utilized by financial institutions, have not been specifically exempted by the Securities and Exchange Commission ("SEC") and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules. These non-GAAP financial measures include: tangible equity, return on tangible equity, tax-equivalent adjustment and related net interest income, tax-equivalent, the efficiency ratio and net interest margin. Management believes that the non-GAAP financial measures disclosed by Arrow are useful in evaluating Arrow's performance and that such information should be considered as supplemental in nature and not as a substitute for, or superior to, the related financial information prepared in accordance with GAAP. Non-GAAP financial measures may differ from similar measures presented by other companies. See the reconciliation of GAAP to non-GAAP measures in the section "Selected Quarterly Information."
Safe Harbor Statement
The information in this document may contain statements based on management’s beliefs, assumptions, expectations, estimates and projections about the future. Such "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, as amended, involve a degree of uncertainty and attendant risk. Actual outcomes and results may differ, explicitly or by implication. We are not obliged to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with Arrow's Annual Report on Form 10-K for the year ended December 31, 2022 and other filings with the SEC.
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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,
|  | 2023 |  |  |  | 2022 |  | 2023 |  | 2022
INTEREST AND DIVIDEND INCOME |  |  |  |  |  |  |  |  |  |
Interest and Fees on Loans |  | $ | 34,618 |  |  |  |  | $ | 26,906 |  |  | $ | 66,504 |  |  | $ | 52,645 |
Interest on Deposits at Banks |  | 1,674 |  |  |  |  | 427 |  |  | 2,153 |  |  | 625 |
Interest and Dividends on Investment Securities: |  |  |  |  |  |  |  |  |  |
Fully Taxable |  | 2,951 |  |  |  |  | 2,444 |  |  | 5,899 |  |  | 4,633 |
Exempt from Federal Taxes |  | 770 |  |  |  |  | 816 |  |  | 1,567 |  |  | 1,637 |
Total Interest and Dividend Income |  | 40,013 |  |  |  |  | 30,593 |  |  | 76,123 |  |  | 59,540 |
INTEREST EXPENSE |  |  |  |  |  |  |  |  |  |
Interest-Bearing Checking Accounts |  | 820 |  |  |  |  | 199 |  |  | 1,190 |  |  | 362 |
Savings Deposits |  | 8,514 |  |  |  |  | 892 |  |  | 14,101 |  |  | 1,309 |
Time Deposits over $250,000 |  | 1,119 |  |  |  |  | 26 |  |  | 1,693 |  |  | 54 |
Other Time Deposits |  | 1,196 |  |  |  |  | 111 |  |  | 1,670 |  |  | 220 |
Borrowings |  | 2,373 |  |  |  |  | 108 |  |  | 3,166 |  |  | 295 |
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts |  | 171 |  |  |  |  | 171 |  |  | 340 |  |  | 340 |
Interest on Financing Leases |  | 48 |  |  |  |  | 48 |  |  | 97 |  |  | 97 |
Total Interest Expense |  | 14,241 |  |  |  |  | 1,555 |  |  | 22,257 |  |  | 2,677 |
NET INTEREST INCOME |  | 25,772 |  |  |  |  | 29,038 |  |  | 53,866 |  |  | 56,863 |
Provision for Credit Losses |  | 948 |  |  |  |  | 905 |  |  | 2,502 |  |  | 1,674 |
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES |  | 24,824 |  |  |  |  | 28,133 |  |  | 51,364 |  |  | 55,189 |
NON-INTEREST INCOME |  |  |  |  |  |  |  |  |  |
Income From Fiduciary Activities |  | 2,428 |  |  |  |  | 2,517 |  |  | 4,703 |  |  | 5,113 |
Fees for Other Services to Customers |  | 2,717 |  |  |  |  | 3,050 |  |  | 5,312 |  |  | 5,845 |
Insurance Commissions |  | 1,560 |  |  |  |  | 1,622 |  |  | 3,080 |  |  | 3,133 |
Net (Loss) Gain on Securities |  | (181) |  |  |  |  | 154 |  |  | (285) |  |  | 284 |
Net Gain on Sales of Loans |  | — |  |  |  |  | 10 |  |  | 4 |  |  | 62 |
Other Operating Income |  | 382 |  |  |  |  | 391 |  |  | 769 |  |  | 1,469 |
Total Non-Interest Income |  | 6,906 |  |  |  |  | 7,744 |  |  | 13,583 |  |  | 15,906 |
NON-INTEREST EXPENSE |  |  |  |  |  |  |  |  |  |
Salaries and Employee Benefits |  | 12,039 |  |  |  |  | 11,687 |  |  | 23,986 |  |  | 22,973 |
Occupancy Expenses, Net |  | 1,583 |  |  |  |  | 1,602 |  |  | 3,211 |  |  | 3,200 |
Technology and Equipment Expense |  | 4,362 |  |  |  |  | 3,974 |  |  | 8,779 |  |  | 7,753 |
FDIC Assessments |  | 484 |  |  |  |  | 291 |  |  | 963 |  |  | 598 |
Other Operating Expense |  | 5,615 |  |  |  |  | 2,791 |  |  | 9,440 |  |  | 4,766 |
Total Non-Interest Expense |  | 24,083 |  |  |  |  | 20,345 |  |  | 46,379 |  |  | 39,290 |
INCOME BEFORE PROVISION FOR INCOME TAXES |  | 7,647 |  |  |  |  | 15,532 |  |  | 18,568 |  |  | 31,805 |
Provision for Income Taxes |  | 1,600 |  |  |  |  | 3,558 |  |  | 3,959 |  |  | 7,256 |
NET INCOME |  | $ | 6,047 |  |  |  |  | $ | 11,974 |  |  | $ | 14,609 |  |  | $ | 24,549 |
Average Shares Outstanding 1: |  |  |  |  |  |  |  |  |  |
Basic |  | 16,553 |  |  |  |  | 16,494 |  |  | 16,552 |  |  | 16,503 |
Diluted |  | 16,553 |  |  |  |  | 16,535 |  |  | 16,552 |  |  | 16,551 |
Per Common Share: |  |  |  |  |  |  |  |  |  |
Basic Earnings |  | $ | 0.36 |  |  |  |  | $ | 0.72 |  |  | $ | 0.88 |  |  | $ | 1.48 |
Diluted Earnings |  | 0.36 |  |  |  |  | 0.72 |  |  | 0.88 |  |  | 1.48 |
1 2022 Share and Per Share Amounts have been restated for the September 23, 2022, 3% stock dividend.

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ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts - Unaudited)

| June 30, 2023 |  | December 31, 2022 |  | June 30, 2022
ASSETS |  |  |  |  |
Cash and Due From Banks | $ | 33,803 |  |  | $ | 31,886 |  |  | $ | 51,549 |
Interest-Bearing Deposits at Banks | 139,798 |  |  | 32,774 |  |  | 165,705 |
Investment Securities: |  |  |  |  |
Available-for-Sale at Fair Value | 543,708 |  |  | 573,495 |  |  | 582,741 |
Held-to-Maturity (Fair Value of $139,143 at June 30, 2023; $171,623 at December 31, 2022; and $180,511 at June 30, 2022) | 143,460 |  |  | 175,364 |  |  | 182,096 |
Equity Securities | 1,889 |  |  | 2,174 |  |  | 2,031 |
FHLB and Federal Reserve Bank Stock | 4,932 |  |  | 6,064 |  |  | 4,718 |
Loans | 3,069,897 |  |  | 2,983,207 |  |  | 2,844,802 |
Allowance for Credit Losses | (31,170) |  |  | (29,952) |  |  | (28,090) |
Net Loans | 3,038,727 |  |  | 2,953,255 |  |  | 2,816,712 |
Premises and Equipment, Net | 59,773 |  |  | 56,491 |  |  | 50,141 |
Goodwill | 21,873 |  |  | 21,873 |  |  | 21,873 |
Other Intangible Assets, Net | 1,302 |  |  | 1,500 |  |  | 1,710 |
Other Assets | 114,388 |  |  | 114,633 |  |  | 111,929 |
Total Assets | $ | 4,103,653 |  |  | $ | 3,969,509 |  |  | $ | 3,991,205 |
LIABILITIES |  |  |  |  |
Noninterest-Bearing Deposits | 759,495 |  |  | 836,871 |  |  | 824,842 |
Interest-Bearing Checking Accounts | 856,016 |  |  | 997,694 |  |  | 1,046,570 |
Savings Deposits | 1,517,937 |  |  | 1,454,364 |  |  | 1,504,791 |
Time Deposits over $250,000 | 140,694 |  |  | 76,224 |  |  | 40,021 |
Other Time Deposits | 228,082 |  |  | 133,211 |  |  | 129,436 |
Total Deposits | 3,502,224 |  |  | 3,498,364 |  |  | 3,545,660 |
Borrowings | 171,800 |  |  | 54,800 |  |  | 25,000 |
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 |  |  | 20,000 |  |  | 20,000 |
Finance Leases | 5,093 |  |  | 5,119 |  |  | 5,144 |
Other Liabilities | 43,093 |  |  | 37,688 |  |  | 38,903 |
Total Liabilities | 3,742,210 |  |  | 3,615,971 |  |  | 3,634,707 |
STOCKHOLDERS’ EQUITY |  |  |  |  |
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at June 30, 2023, December 31, 2022 and June 30, 2022 | — |  |  | — |  |  | — |
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (21,423,992 Shares Issued at June 30, 2023 and December 31, 2022 and 20,800,144 Shares Issued at June 30, 2022) | 21,424 |  |  | 21,424 |  |  | 20,800 |
Additional Paid-in Capital | 401,069 |  |  | 400,270 |  |  | 379,423 |
Retained Earnings | 71,076 |  |  | 65,401 |  |  | 69,980 |
Accumulated Other Comprehensive Loss | (47,613) |  |  | (49,655) |  |  | (29,564) |
Treasury Stock, at Cost (4,870,934 Shares at June 30, 2023; 4,872,355 Shares at December 31, 2022 and 4,777,605 Shares at June 30, 2022) | (84,513) |  |  | (83,902) |  |  | (84,141) |
Total Stockholders’ Equity | 361,443 |  |  | 353,538 |  |  | 356,498 |
Total Liabilities and Stockholders’ Equity | $ | 4,103,653 |  |  | $ | 3,969,509 |  |  | $ | 3,991,205 |

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Arrow Financial Corporation
Selected Quarterly Information
(Dollars In Thousands, Except Per Share Amounts - Unaudited)

Quarter Ended | 6/30/2023 |  | 3/31/2023 |  | 12/31/2022 |  | 9/30/2022 |  | 6/30/2022
Net Income | $ | 6,047 |  |  | $ | 8,562 |  |  | $ | 12,087 |  |  | $ | 12,163 |  |  | $ | 11,974 |
Transactions in Net Income (Net of Tax): |  |  |  |  |  |  |  |  |
Net Changes in Fair Value of Equity Investments | (133) |  |  | (76) |  |  | 35 |  |  | 70 |  |  | 114 |
Share and Per Share Data:1 |  |  |  |  |  |  |  |  |
Period End Shares Outstanding | 16,553 |  |  | 16,553 |  |  | 16,552 |  |  | 16,523 |  |  | 16,503 |
Basic Average Shares Outstanding | 16,553 |  |  | 16,552 |  |  | 16,535 |  |  | 16,512 |  |  | 16,494 |
Diluted Average Shares Outstanding | 16,553 |  |  | 16,564 |  |  | 16,589 |  |  | 16,558 |  |  | 16,535 |
Basic Earnings Per Share | $ | 0.36 |  |  | $ | 0.52 |  |  | $ | 0.73 |  |  | $ | 0.74 |  |  | $ | 0.72 |
Diluted Earnings Per Share | 0.36 |  |  | 0.52 |  |  | 0.73 |  |  | 0.74 |  |  | 0.72 |
Cash Dividend Per Share | 0.270 |  |  | 0.270 |  |  | 0.270 |  |  | 0.262 |  |  | 0.262 |
Selected Quarterly Average Balances: |  |  |  |  |  |  |  |  |
Interest-Bearing Deposits at Banks | $ | 130,057 |  |  | $ | 40,436 |  |  | $ | 143,499 |  |  | $ | 209,001 |  |  | $ | 232,545 |
Investment Securities | 787,175 |  |  | 813,461 |  |  | 845,859 |  |  | 821,052 |  |  | 822,112 |
Loans | 3,036,410 |  |  | 2,991,928 |  |  | 2,951,547 |  |  | 2,872,066 |  |  | 2,804,180 |
Deposits | 3,460,711 |  |  | 3,480,279 |  |  | 3,614,945 |  |  | 3,598,519 |  |  | 3,569,754 |
Other Borrowed Funds | 220,616 |  |  | 100,596 |  |  | 63,304 |  |  | 50,125 |  |  | 50,140 |
Shareholders' Equity | 365,070 |  |  | 359,556 |  |  | 351,402 |  |  | 361,675 |  |  | 357,228 |
Total Assets | 4,087,653 |  |  | 3,978,851 |  |  | 4,074,028 |  |  | 4,047,738 |  |  | 4,012,999 |
Return on Average Assets, annualized | 0.59 | % |  | 0.87 | % |  | 1.18 | % |  | 1.19 | % |  | 1.20 | %
Return on Average Equity, annualized | 6.64 | % |  | 9.66 | % |  | 13.65 | % |  | 13.34 | % |  | 13.44 | %
Return on Average Tangible Equity, annualized 2 | 7.10 | % |  | 10.33 | % |  | 14.62 | % |  | 14.27 | % |  | 14.40 | %
Average Earning Assets | $ | 3,953,642 |  |  | $ | 3,845,825 |  |  | $ | 3,940,905 |  |  | $ | 3,902,119 |  |  | $ | 3,858,837 |
Average Paying Liabilities | 2,924,743 |  |  | 2,782,299 |  |  | 2,891,092 |  |  | 2,781,985 |  |  | 2,808,287 |
Interest Income | 40,013 |  |  | 36,110 |  |  | 35,904 |  |  | 34,207 |  |  | 30,593 |
Tax-Equivalent Adjustment 3 | 196 |  |  | 202 |  |  | 279 |  |  | 268 |  |  | 269 |
Interest Income, Tax-Equivalent 3 | 40,209 |  |  | 36,312 |  |  | 36,183 |  |  | 34,475 |  |  | 30,862 |
Interest Expense | 14,241 |  |  | 8,016 |  |  | 5,325 |  |  | 3,306 |  |  | 1,555 |
Net Interest Income | 25,772 |  |  | 28,094 |  |  | 30,579 |  |  | 30,901 |  |  | 29,038 |
Net Interest Income, Tax-Equivalent 3 | 25,968 |  |  | 28,296 |  |  | 30,858 |  |  | 31,169 |  |  | 29,307 |
Net Interest Margin, annualized | 2.61 | % |  | 2.96 | % |  | 3.08 | % |  | 3.14 | % |  | 3.02 | %
Net Interest Margin, Tax-Equivalent, annualized 3 | 2.63 | % |  | 2.98 | % |  | 3.11 | % |  | 3.17 | % |  | 3.05 | %
Efficiency Ratio Calculation: 4 |  |  |  |  |  |  |  |  |
Non-Interest Expense | $ | 24,083 |  |  | $ | 22,296 |  |  | $ | 20,792 |  |  | $ | 21,448 |  |  | $ | 20,345 |
Less: Intangible Asset Amortization | 44 |  |  | 45 |  |  | 47 |  |  | 48 |  |  | 48 |
Net Non-Interest Expense | $ | 24,039 |  |  | $ | 22,251 |  |  | $ | 20,745 |  |  | $ | 21,400 |  |  | $ | 20,297 |
Net Interest Income, Tax-Equivalent | $ | 25,968 |  |  | $ | 28,296 |  |  | $ | 30,858 |  |  | $ | 31,169 |  |  | $ | 29,307 |
Non-Interest Income | 6,906 |  |  | 6,677 |  |  | 7,165 |  |  | 7,827 |  |  | 7,744 |
Less: Net (Loss) Gain on Securities | (181) |  |  | (104) |  |  | 48 |  |  | 95 |  |  | 154 |
Net Gross Income | $ | 33,055 |  |  | $ | 35,077 |  |  | $ | 37,975 |  |  | $ | 38,901 |  |  | $ | 36,897 |
Efficiency Ratio | 72.72 | % |  | 63.43 | % |  | 54.63 | % |  | 55.01 | % |  | 55.01 | %
Period-End Capital Information: |  |  |  |  |  |  |  |  |
Total Stockholders' Equity (i.e. Book Value) | $ | 361,443 |  |  | $ | 363,371 |  |  | $ | 353,538 |  |  | $ | 345,550 |  |  | $ | 356,498 |
Book Value per Share 1 | 21.84 |  |  | 21.95 |  |  | 21.36 |  |  | 20.91 |  |  | 21.60 |
Goodwill and Other Intangible Assets, net | 23,175 |  |  | 23,273 |  |  | 23,373 |  |  | 23,477 |  |  | 23,583 |
Tangible Book Value per Share 1,2 | 20.44 |  |  | 20.55 |  |  | 19.95 |  |  | 19.49 |  |  | 20.17 |
Capital Ratios:5 |  |  |  |  |  |  |  |  |
Tier 1 Leverage Ratio | 9.92 | % |  | 10.13 | % |  | 9.80 | % |  | 9.71 | % |  | 9.60 | %
Common Equity Tier 1 Capital Ratio | 13.27 | % |  | 13.34 | % |  | 13.32 | % |  | 13.14 | % |  | 13.14 | %
Tier 1 Risk-Based Capital Ratio | 13.96 | % |  | 14.03 | % |  | 14.01 | % |  | 13.85 | % |  | 13.86 | %
Total Risk-Based Capital Ratio | 15.08 | % |  | 15.15 | % |  | 15.11 | % |  | 14.93 | % |  | 14.93 | %
Assets Under Trust Admin. & Investment Mgmt. | $ | 1,711,460 |  |  | $ | 1,672,117 |  |  | $ | 1,606,132 |  |  | $ | 1,515,994 |  |  | $ | 1,589,178 |

7

Arrow Financial Corporation
Selected Quarterly Information - Continued
(Dollars In Thousands, Except Per Share Amounts - Unaudited)

Footnotes: |  |  |  |  |  |  |  |
1. | Share and Per Share Data have been restated for the September 23, 2022, 3% stock dividend.
2. | Non-GAAP Financial Measure Reconciliation: Tangible Book Value, Tangible Equity, and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which Arrow believes provides investors with information that is useful in understanding its financial performance.
|  | 6/30/2023 |  | 3/31/2023 |  | 12/31/2022 |  | 9/30/2022 |  | 6/30/2022
| Total Stockholders' Equity (GAAP) | $ | 361,443 |  |  | $ | 363,371 |  |  | $ | 353,538 |  |  | $ | 345,550 |  |  | $ | 356,498 |
| Less: Goodwill and Other Intangible assets, net | 23,175 |  |  | 23,273 |  |  | 23,373 |  |  | 23,477 |  |  | 23,583 |
| Tangible Equity (Non-GAAP) | $ | 338,268 |  |  | $ | 340,098 |  |  | $ | 330,165 |  |  | $ | 322,073 |  |  | $ | 332,915 |
| Period End Shares Outstanding | 16,553 |  |  | 16,553 |  |  | 16,552 |  |  | 16,523 |  |  | 16,503 |
| Tangible Book Value per Share (Non-GAAP) | $ | 20.44 |  |  | $ | 20.55 |  |  | $ | 19.95 |  |  | $ | 19.49 |  |  | $ | 20.17 |
| Net Income | 6,047 |  |  | 8,562 |  |  | 12,087 |  |  | 12,163 |  |  | 11,974 |
| Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized) | 7.10 | % |  | 10.33 | % |  | 14.62 | % |  | 14.27 | % |  | 14.40 | %
3. | Non-GAAP Financial Measure Reconciliation: Net Interest Margin is the ratio of annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which Arrow believes provides investors with information that is useful in understanding its financial performance.
|  | 6/30/2023 |  | 3/31/2023 |  | 12/31/2022 |  | 9/30/2022 |  | 6/30/2022
| Interest Income (GAAP) | $ | 40,013 |  |  | $ | 36,110 |  |  | $ | 35,904 |  |  | $ | 34,207 |  |  | $ | 30,593 |
| Add: Tax-Equivalent adjustment (Non-GAAP) | 196 |  |  | 202 |  |  | 279 |  |  | 268 |  |  | 269 |
| Interest Income - Tax Equivalent (Non-GAAP) | $ | 40,209 |  |  | $ | 36,312 |  |  | $ | 36,183 |  |  | $ | 34,475 |  |  | $ | 30,862 |
| Net Interest Income (GAAP) | $ | 25,772 |  |  | $ | 28,094 |  |  | $ | 30,579 |  |  | $ | 30,901 |  |  | $ | 29,038 |
| Add: Tax-Equivalent adjustment (Non-GAAP) | 196 |  |  | 202 |  |  | 279 |  |  | 268 |  |  | 269 |
| Net Interest Income - Tax Equivalent (Non-GAAP) | $ | 25,968 |  |  | $ | 28,296 |  |  | $ | 30,858 |  |  | $ | 31,169 |  |  | $ | 29,307 |
| Average Earning Assets | $ | 3,953,642 |  |  | $ | 3,845,825 |  |  | $ | 3,940,905 |  |  | $ | 3,902,119 |  |  | $ | 3,858,837 |
| Net Interest Margin (Non-GAAP)* | 2.63 | % |  | 2.98 | % |  | 3.11 | % |  | 3.17 | % |  | 3.05 | %
4. | Non-GAAP Financial Measure Reconciliation: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. Arrow believes the efficiency ratio provides investors with information that is useful in understanding its financial performance. Arrow defines efficiency ratio as the ratio of non-interest expense to net gross income (which equals tax-equivalent net interest income plus non-interest income, as adjusted).
5. | For the current quarter, all of the regulatory capital ratios as well as the Total Risk-Weighted Assets are calculated in accordance with bank regulatory capital rules. The June 30, 2023 CET1 ratio listed in the tables (i.e., 13.27%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).
|  | 6/30/2023 |  | 3/31/2023 |  | 12/31/2022 |  | 9/30/2022 |  | 6/30/2022
| Total Risk Weighted Assets | $ | 2,937,837 |  |  | $ | 2,909,610 |  |  | $ | 2,883,902 |  |  | $ | 2,856,224 |  |  | $ | 2,790,520 |
| Common Equity Tier 1 Capital | 389,966 |  |  | 388,228 |  |  | 384,003 |  |  | 375,394 |  |  | 366,798 |
| Common Equity Tier 1 Ratio | 13.27 | % |  | 13.34 | % |  | 13.32 | % |  | 13.14 | % |  | 13.14 | %
* Quarterly ratios have been annualized. |  |  |  |  |  |  |  |  |

8

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

Quarter Ended: | June 30, 2023 |  | June 30, 2022
|  |  | Interest |  | Rate |  |  |  | Interest |  | Rate
| Average |  | Income/ |  | Earned/ |  | Average |  | Income/ |  | Earned/
| Balance |  | Expense |  | Paid |  | Balance |  | Expense |  | Paid
Interest-Bearing Deposits at Banks | $ | 130,057 |  |  | $ | 1,674 |  |  | 5.16 | % |  | $ | 232,545 |  |  | $ | 427 |  |  | 0.74 | %
Investment Securities: |  |  |  |  |  |  |  |  |  |  |
Fully Taxable | 637,018 |  |  | 2,951 |  |  | 1.86 |  |  | 644,443 |  |  | 2,444 |  |  | 1.52 |
Exempt from Federal Taxes | 150,157 |  |  | 770 |  |  | 2.06 |  |  | 177,669 |  |  | 816 |  |  | 1.84 |
Loans | 3,036,410 |  |  | 34,618 |  |  | 4.57 |  |  | 2,804,180 |  |  | 26,906 |  |  | 3.85 |
Total Earning Assets | 3,953,642 |  |  | 40,013 |  |  | 4.06 |  |  | 3,858,837 |  |  | 30,593 |  |  | 3.18 |
Allowance for Credit Losses | (30,577) |  |  |  |  |  |  | (27,558) |  |  |  |  |
Cash and Due From Banks | 28,742 |  |  |  |  |  |  | 40,105 |  |  |  |  |
Other Assets | 135,846 |  |  |  |  |  |  | 141,615 |  |  |  |  |
Total Assets | $ | 4,087,653 |  |  |  |  |  |  | $ | 4,012,999 |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |
Interest-Bearing Checking Accounts | $ | 863,892 |  |  | 820 |  |  | 0.38 |  |  | $ | 1,048,752 |  |  | 199 |  |  | 0.08 |
Savings Deposits | 1,504,412 |  |  | 8,514 |  |  | 2.27 |  |  | 1,541,616 |  |  | 892 |  |  | 0.23 |
Time Deposits of $250,000 or More | 133,897 |  |  | 1,119 |  |  | 3.35 |  |  | 37,418 |  |  | 26 |  |  | 0.28 |
Other Time Deposits | 201,926 |  |  | 1,196 |  |  | 2.38 |  |  | 130,361 |  |  | 111 |  |  | 0.34 |
Total Interest-Bearing Deposits | 2,704,127 |  |  | 11,649 |  |  | 1.73 |  |  | 2,758,147 |  |  | 1,228 |  |  | 0.18 |
Borrowings | 195,527 |  |  | 2,373 |  |  | 4.87 |  |  | 25,000 |  |  | 108 |  |  | 1.73 |
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 |  |  | 171 |  |  | 3.43 |  |  | 20,000 |  |  | 171 |  |  | 3.43 |
Finance Leases | 5,089 |  |  | 48 |  |  | 3.78 |  |  | 5,140 |  |  | 48 |  |  | 3.75 |
Total Interest-Bearing Liabilities | 2,924,743 |  |  | 14,241 |  |  | 1.95 |  |  | 2,808,287 |  |  | 1,555 |  |  | 0.22 |
Noninterest-Bearing Deposits | 756,584 |  |  |  |  |  |  | 811,607 |  |  |  |  |
Other Liabilities | 41,256 |  |  |  |  |  |  | 35,877 |  |  |  |  |
Total Liabilities | 3,722,583 |  |  |  |  |  |  | 3,655,771 |  |  |  |  |
Stockholders’ Equity | 365,070 |  |  |  |  |  |  | 357,228 |  |  |  |  |
Total Liabilities and Stockholders’ Equity | $ | 4,087,653 |  |  |  |  |  |  | $ | 4,012,999 |  |  |  |  |
Net Interest Income |  |  | $ | 25,772 |  |  |  |  |  |  | $ | 29,038 |  |  |
Net Interest Spread |  |  |  |  | 2.11 | % |  |  |  |  |  | 2.96 | %
Net Interest Margin |  |  |  |  | 2.61 | % |  |  |  |  |  | 3.02 | %

9

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

Quarter Ended: | June 30, 2023 |  | March, 31, 2023
|  |  | Interest |  | Rate |  |  |  | Interest |  | Rate
| Average |  | Income/ |  | Earned/ |  | Average |  | Income/ |  | Earned/
| Balance |  | Expense |  | Paid |  | Balance |  | Expense |  | Paid
Interest-Bearing Deposits at Banks | $ | 130,057 |  |  | $ | 1,674 |  |  | 5.16 | % |  | $ | 40,436 |  |  | $ | 479 |  |  | 4.80 | %
Investment Securities: |  |  |  |  |  |  |  |  |  |  |
Fully Taxable | 637,018 |  |  | 2,951 |  |  | 1.86 |  |  | 652,743 |  |  | 2,948 |  |  | 1.83 |
Exempt from Federal Taxes | 150,157 |  |  | 770 |  |  | 2.06 |  |  | 160,718 |  |  | 797 |  |  | 2.01 |
Loans | 3,036,410 |  |  | 34,618 |  |  | 4.57 |  |  | 2,991,928 |  |  | 31,886 |  |  | 4.32 |
Total Earning Assets | 3,953,642 |  |  | 40,013 |  |  | 4.06 |  |  | 3,845,825 |  |  | 36,110 |  |  | 3.81 |
Allowance for Credit Losses | (30,577) |  |  |  |  |  |  | (29,792) |  |  |  |  |
Cash and Due From Banks | 28,742 |  |  |  |  |  |  | 30,518 |  |  |  |  |
Other Assets | 135,846 |  |  |  |  |  |  | 132,300 |  |  |  |  |
Total Assets | $ | 4,087,653 |  |  |  |  |  |  | $ | 3,978,851 |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |
Interest-Bearing Checking Accounts | $ | 863,892 |  |  | 820 |  |  | 0.38 |  |  | $ | 964,735 |  |  | 370 |  |  | 0.16 |
Savings Deposits | 1,504,412 |  |  | 8,514 |  |  | 2.27 |  |  | 1,474,251 |  |  | 5,587 |  |  | 1.54 |
Time Deposits of $250,000 or More | 133,897 |  |  | 1,119 |  |  | 3.35 |  |  | 94,415 |  |  | 574 |  |  | 2.47 |
Other Time Deposits | 201,926 |  |  | 1,196 |  |  | 2.38 |  |  | 148,302 |  |  | 474 |  |  | 1.30 |
Total Interest-Bearing Deposits | 2,704,127 |  |  | 11,649 |  |  | 1.73 |  |  | 2,681,703 |  |  | 7,005 |  |  | 1.06 |
Borrowings | 195,527 |  |  | 2,373 |  |  | 4.87 |  |  | 75,494 |  |  | 793 |  |  | 4.26 |
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 |  |  | 171 |  |  | 3.43 |  |  | 20,000 |  |  | 169 |  |  | 3.43 |
Finance Leases | 5,089 |  |  | 48 |  |  | 3.78 |  |  | 5,102 |  |  | 49 |  |  | 3.89 |
Total Interest-Bearing Liabilities | 2,924,743 |  |  | 14,241 |  |  | 1.95 |  |  | 2,782,299 |  |  | 8,016 |  |  | 1.17 |
Noninterest-bearing deposits | 756,584 |  |  |  |  |  |  | 798,576 |  |  |  |  |
Other Liabilities | 41,256 |  |  |  |  |  |  | 38,420 |  |  |  |  |
Total Liabilities | 3,722,583 |  |  |  |  |  |  | 3,619,295 |  |  |  |  |
Stockholders’ Equity | 365,070 |  |  |  |  |  |  | 359,556 |  |  |  |  |
Total Liabilities and Stockholders’ Equity | $ | 4,087,653 |  |  |  |  |  |  | $ | 3,978,851 |  |  |  |  |
Net Interest Income |  |  | $ | 25,772 |  |  |  |  |  |  | $ | 28,094 |  |  |
Net Interest Spread |  |  |  |  | 2.11 | % |  |  |  |  |  | 2.64 | %
Net Interest Margin |  |  |  |  | 2.61 | % |  |  |  |  |  | 2.96 | %

10

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

Quarter Ended: | 6/30/2023 |  | 12/31/2022 |  | 6/30/2022
Loan Portfolio |  |  |  |  |
Commercial Loans | $ | 147,518 |  |  | $ | 140,293 |  |  | $ | 138,675 |
Commercial Real Estate Loans | 723,948 |  |  | 707,022 |  |  | 663,234 |
Subtotal Commercial Loan Portfolio | 871,466 |  |  | 847,315 |  |  | 801,909 |
Consumer Loans | 1,087,765 |  |  | 1,065,135 |  |  | 1,031,111 |
Residential Real Estate Loans | 1,110,666 |  |  | 1,070,757 |  |  | 1,011,782 |
Total Loans | $ | 3,069,897 |  |  | $ | 2,983,207 |  |  | $ | 2,844,802 |
Allowance for Credit Losses |  |  |  |  |
Allowance for Credit Losses, Beginning of Quarter | $ | 30,784 |  |  | $ | 29,232 |  |  | $ | 27,661 |
Loans Charged-off | (1,280) |  |  | (1,261) |  |  | (907) |
Less Recoveries of Loans Previously Charged-off | 718 |  |  | 572 |  |  | 431 |
Net Loans Charged-off | (562) |  |  | (689) |  |  | (476) |
Provision for Credit Losses | 948 |  |  | 1,409 |  |  | 905 |
Allowance for Credit Losses, End of Quarter | $ | 31,170 |  |  | $ | 29,952 |  |  | $ | 28,090 |
Nonperforming Assets |  |  |  |  |
Nonaccrual Loans | $ | 5,997 |  |  | $ | 10,757 |  |  | $ | 7,999 |
Loans Past Due 90 or More Days and Accruing | 467 |  |  | 1,157 |  |  | 1,641 |
Loans Restructured and in Compliance with Modified Terms | 67 |  |  | 69 |  |  | 77 |
Total Nonperforming Loans | 6,531 |  |  | 11,983 |  |  | 9,717 |
Repossessed Assets | 342 |  |  | 593 |  |  | 297 |
Other Real Estate Owned | 182 |  |  | — |  |  | — |
Total Nonperforming Assets | $ | 7,055 |  |  | $ | 12,576 |  |  | $ | 10,014 |
Key Asset Quality Ratios |  |  |  |  |
Net Loans Charged-off to Average Loans, Quarter-to-date Annualized | 0.07 | % |  | 0.09 | % |  | 0.07 | %
Provision for Credit Losses to Average Loans, Quarter-to-date Annualized | 0.13 | % |  | 0.19 | % |  | 0.13 | %
Allowance for Credit Losses to Period-End Loans | 1.02 | % |  | 1.00 | % |  | 0.99 | %
Allowance for Credit Losses to Period-End Nonperforming Loans | 477.26 | % |  | 249.95 | % |  | 289.08 | %
Nonperforming Loans to Period-End Loans | 0.21 | % |  | 0.40 | % |  | 0.34 | %
Nonperforming Assets to Period-End Assets | 0.17 | % |  | 0.32 | % |  | 0.25 | %
Year-to-Date Period Ended: | 6/30/2023 |  | 12/31/2022 |  | 6/30/2022
Allowance for Credit Losses |  |  |  |  |
Allowance for Credit Losses, Beginning of Year | $ | 29,952 |  |  | $ | 27,281 |  |  | $ | 27,281 |
Loans Charged-off | (2,608) |  |  | (4,143) |  |  | (1,736) |
Less Recoveries of Loans Previously Charged-off | 1,324 |  |  | 2,016 |  |  | 871 |
Net Loans Charged-off | (1,284) |  |  | (2,127) |  |  | (865) |
Provision for Credit Losses | 2,502 |  |  | 4,798 |  |  | 1,674 |
Allowance for Credit Losses, End of Period | $ | 31,170 |  |  | $ | 29,952 |  |  | $ | 28,090 |
Key Asset Quality Ratios |  |  |  |  |
Net Loans Charged-off to Average Loans, Annualized | 0.09 | % |  | 0.08 | % |  | 0.06 | %
Provision for Loan Losses to Average Loans, Annualized | 0.17 | % |  | 0.17 | % |  | 0.12 | %

11