0000717538FALSE00007175382023-10-242023-10-24


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report: October 24, 2023
(Date of earliest event reported)

ARROW FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
New York0-1250722-2448962
(State or other jurisdiction of incorporation)(Commission File Number)(IRS Employer Identification No.)
250 Glen StreetGlens FallsNew York12801
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:518 745-1000

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of each exchange on which registered
Common Stock, Par Value $1.00 per shareAROWNASDAQ Global Select Market
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act☐






Item 2.02.     Results of Operations and Financial Condition.

On October 24, 2023, Arrow Financial Corporation (the "Company") issued a press release containing unaudited financial information and accompanying discussion for the quarter and year-to-date period ended September 30, 2023.  A copy of this press release is furnished as Exhibit 99 .1 to this report on Form 8-K.

Item 7.01.     Regulation FD Disclosure.

On October 24, 2023, the Company made available certain presentation material (the "Third Quarter 2023 Investor Presentation"), which includes among other things, a review of financial results and trends through the period ended September 30, 2023. The furnished Third Quarter 2023 Investor Presentation should be read in conjunction with our Earnings Release for the quarter ended September 30, 2023.
A copy of the presentation material is included as Exhibit 99.2 to this current report on Form 8-K and is incorporated herein by reference.

The information furnished under this Report, including Exhibits 99.1 and 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or subject to the liabilities of that section. The information shall not be deemed incorporated by reference into any other filing with the Securities and Exchange Commission made by the Company, regardless of any general incorporation language in such filing.
    
Item 9.01.    Financial Statements and Exhibits.

Exhibits:

Exhibit No. Description
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
    



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.




ARROW FINANCIAL CORPORATION
                       Registrant
Date:October 24, 2023/s/ Penko Ivanov
 Penko Ivanov
Chief Financial Officer



afcnewsreleaselogorgba14a.jpg
250 Glen Street
Glens Falls, NY 12801
NASDAQ® Symbol: "AROW"
Website: arrowfinancial.com

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

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

GLENS FALLS, N.Y. (October 24, 2023) – 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
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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 $34,207 
Interest Expense16,764 14,241 3,306 
Net Interest Income25,353 25,772 30,901 
Average Earning Assets(1)
3,973,747 3,953,642 3,902,119 
Average Interest-Bearing Liabilities2,920,518 2,924,743 2,781,985 
Yield on Earning Assets(1)
4.20 %4.06 %3.48 %
Cost of Interest-Bearing Liabilities2.28 1.95 0.47 
Net Interest Spread1.92 2.11 3.01 
Net Interest Margin2.53 2.61 3.14 
Income Earned on PPP Loans included in Net Interest Income$— $— $70 
Net Interest Income excluding PPP loans25,353 25,772 30,831 
Net Interest Margin excluding PPP loans2.53 %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
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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
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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."
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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 2022 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 September 30,Nine Months Ended September 30,
 2023202220232022
INTEREST AND DIVIDEND INCOME    
Interest and Fees on Loans$36,699 $29,618 $103,203 $82,263 
Interest on Deposits at Banks1,805 1,201 3,958 1,826 
Interest and Dividends on Investment Securities: 
Fully Taxable2,924 2,603 8,823 7,236 
Exempt from Federal Taxes689 785 2,256 2,422 
Total Interest and Dividend Income42,117 34,207 118,240 93,747 
INTEREST EXPENSE   
Interest-Bearing Checking Accounts1,156 267 2,346 629 
Savings Deposits9,729 2,469 23,830 3,778 
Time Deposits over $250,0001,466 89 3,159 143 
Other Time Deposits2,051 150 3,721 370 
Borrowings2,143 110 5,309 405 
Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts		173 173 513 513 
Interest on Financing Leases46 48 143 145 
Total Interest Expense16,764 3,306 39,021 5,983 
NET INTEREST INCOME25,353 30,901 79,219 87,764 
Provision for Credit Losses354 1,715 2,856 3,389 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES24,999 29,186 76,363 84,375 
NON-INTEREST INCOME   
Income From Fiduciary Activities2,378 2,341 7,081 7,454 
Fees for Other Services to Customers2,761 3,071 8,073 8,916 
Insurance Commissions1,695 1,650 4,775 4,783 
Net Gain (Loss) on Securities
71 95 (214)379 
Net Gain on Sales of Loans21 18 25 80 
Other Operating Income1,124 652 1,893 2,121 
Total Non-Interest Income8,050 7,827 21,633 23,733 
NON-INTEREST EXPENSE   
Salaries and Employee Benefits11,988 12,427 35,974 35,400 
Occupancy Expenses, Net1,517 1,521 4,728 4,721 
Technology and Equipment Expense4,371 4,049 13,150 11,802 
FDIC Assessments515 295 1,478 893 
Other Operating Expense5,088 3,156 14,528 7,922 
Total Non-Interest Expense23,479 21,448 69,858 60,738 
INCOME BEFORE PROVISION FOR INCOME TAXES9,570 15,565 28,138 47,370 
Provision for Income Taxes1,827 3,402 5,786 10,658 
NET INCOME$7,743 $12,163 $22,352 $36,712 
Average Shares Outstanding 1:
    
Basic17,050 17,007 17,049 17,001 
Diluted17,050 17,054 17,049 17,050 
Per Common Share:    
Basic Earnings$0.46 $0.72 $1.31 $2.16 
Diluted Earnings0.46 0.72 1.31 2.15 
1 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)
 September 30,
2023		December 31, 2022September 30,
2022
ASSETS  
Cash and Due From Banks$39,778 $31,886 $44,872 
Interest-Bearing Deposits at Banks254,961 32,774 328,557 
Investment Securities:
Available-for-Sale at Fair Value519,240 573,495 575,054 
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 Securities1,960 2,174 2,126 
FHLB and Federal Reserve Bank Stock5,110 6,064 4,720 
Loans3,138,617 2,983,207 2,924,794 
Allowance for Credit Losses(31,112)(29,952)(29,232)
Net Loans3,107,505 2,953,255 2,895,562 
Premises and Equipment, Net60,311 56,491 54,015 
Goodwill21,873 21,873 21,873 
Other Intangible Assets, Net1,205 1,500 1,604 
Other Assets120,391 114,633 122,217 
Total Assets$4,272,911 $3,969,509 $4,232,778 
LIABILITIES  
Noninterest-Bearing Deposits798,392 836,871 910,221 
Interest-Bearing Checking Accounts920,250 997,694 1,113,850 
Savings Deposits1,496,193 1,454,364 1,584,373 
Time Deposits over $250,000167,614 76,224 59,059 
Other Time Deposits284,036 133,211 127,602 
Total Deposits3,666,485 3,498,364 3,795,105 
Borrowings174,300 54,800 25,000 
Junior Subordinated Obligations Issued to Unconsolidated
  Subsidiary Trusts		20,000 20,000 20,000 
Finance Leases5,080 5,119 5,131 
Other Liabilities47,032 37,688 41,992 
Total Liabilities3,912,897 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 Capital412,397 400,270 399,461 
Retained Earnings62,647 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 4,900,975 Shares at September 30, 2022)
(84,513)(83,902)(84,043)
Total Stockholders’ Equity360,014 353,538 345,550 
Total Liabilities and Stockholders’ Equity$4,272,911 $3,969,509 $4,232,778 
7


Arrow Financial Corporation
Selected Quarterly Information
(Dollars In Thousands, Except Per Share Amounts - Unaudited)
Quarter Ended9/30/20236/30/20233/31/202312/31/20229/30/2022
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 Investments52 (133)(76)35 70 
Share and Per Share Data:1
    
Period End Shares Outstanding17,049 17,050 17,050 17,048 17,019 
Basic Average Shares Outstanding17,050 17,050 17,048 17,031 17,007 
Diluted Average Shares Outstanding17,050 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 Share0.46 0.35 0.50 0.71 0.72 
Cash Dividend Per Share0.262 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 Securities745,693 787,175 813,461 845,859 821,052 
  Loans3,096,240 3,036,410 2,991,928 2,951,547 2,872,066 
  Deposits3,491,028 3,460,711 3,480,279 3,614,945 3,598,519 
  Other Borrowed Funds208,527 220,616 100,596 63,304 50,125 
  Shareholders' Equity362,701 365,070 359,556 351,402 361,675 
  Total Assets4,109,995 4,087,653 3,978,851 4,074,028 4,047,738 
Return on Average Assets, annualized0.75 %0.59 %0.87 %1.18 %1.19 %
Return on Average Equity, annualized8.47 %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 Liabilities2,920,518 2,924,743 2,782,299 2,891,092 2,781,985 
Interest Income42,117 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 Expense16,764 14,241 8,016 5,325 3,306 
Net Interest Income25,353 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, annualized2.53 %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 Amortization43 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 Income8,050 6,906 6,677 7,165 7,827 
Less: Net Gain (Loss) on Securities71 (181)(104)48 95 
Net Gross Income$33,515 $33,055 $35,077 $37,975 $38,901 
Efficiency Ratio69.93 %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, net23,078 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 Ratio9.94 %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 Ratio13.84 %13.96 %14.03 %14.01 %13.85 %
Total Risk-Based Capital Ratio14.94 %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 

8



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.
9/30/20236/30/20233/31/202312/31/20229/30/2022
Total Stockholders' Equity (GAAP)$360,014 $361,443 $363,371 $353,538 $345,550 
Less: Goodwill and Other Intangible assets, net23,078 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 Outstanding17,049 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 Income7,743 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.
9/30/20236/30/20233/31/202312/31/20229/30/2022
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 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 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%).
9/30/20236/30/20233/31/202312/31/20229/30/2022
Total Risk Weighted Assets$2,988,438 $2,937,837 $2,909,610 $2,883,902 $2,856,224 
Common Equity Tier 1 Capital393,541 389,966 388,228 384,003 375,394 
Common Equity Tier 1 Ratio13.17 %13.27 %13.34 %13.32 %13.14 %
* Quarterly ratios have been annualized.

9


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

Quarter Ended:September 30, 2023September 30, 2022
InterestRateInterestRate
AverageIncome/Earned/AverageIncome/Earned/
BalanceExpensePaidBalanceExpensePaid
Interest-Bearing Deposits at Banks$131,814 $1,805 5.43 %$209,001 $1,201 2.28 %
Investment Securities:
Fully Taxable616,020 2,924 1.88 651,899 2,603 1.58 
Exempt from Federal Taxes129,673 689 2.11 169,153 785 1.84 
Loans3,096,240 36,699 4.70 2,872,066 29,618 4.09 
Total Earning Assets3,973,747 42,117 4.20 3,902,119 34,207 3.48 
Allowance for Credit Losses(31,386)(28,006)
Cash and Due From Banks32,874 32,475 
Other Assets134,760 141,150 
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 Deposits1,505,916 9,729 2.56 1,549,451 2,469 0.63 
Time Deposits of $250,000 or More152,738 1,466 3.81 49,459 89 0.71 
Other Time Deposits257,710 2,051 3.16 136,834 150 0.43 
Total Interest-Bearing Deposits2,711,991 14,402 2.11 2,731,860 2,975 0.43 
Borrowings183,452 2,143 4.63 — — 
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts20,000 173 3.43 45,000 283 2.50 
Finance Leases5,075 46 3.60 5,125 48 3.72 
Total Interest-Bearing Liabilities2,920,518 16,764 2.28 2,781,985 3,306 0.47 
Noninterest-Bearing Deposits779,037 866,659 
Other Liabilities47,739 37,419 
Total Liabilities3,747,294 3,686,063 
Stockholders’ Equity362,701 361,675 
Total Liabilities and Stockholders’ Equity$4,109,995 $4,047,738 
Net Interest Income$25,353 $30,901 
Net Interest Spread1.92 %3.01 %
Net Interest Margin2.53 %3.14 %







10



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



Quarter Ended:September 30, 2023June 30, 2023
InterestRateInterestRate
AverageIncome/Earned/AverageIncome/Earned/
BalanceExpensePaidBalanceExpensePaid
Interest-Bearing Deposits at Banks$131,814 $1,805 5.43 %$130,057 $1,674 5.16 %
Investment Securities:
Fully Taxable616,020 2,924 1.88 637,018 2,951 1.86 
Exempt from Federal Taxes129,673 689 2.11 150,157 770 2.06 
Loans3,096,240 36,699 4.70 3,036,410 34,618 4.57 
Total Earning Assets3,973,747 42,117 4.20 3,953,642 40,013 4.06 
Allowance for Credit Losses(31,386)(30,577)
Cash and Due From Banks32,874 28,742 
Other Assets134,760 135,846 
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 Deposits1,505,916 9,729 2.56 1,504,412 8,514 2.27 
Time Deposits of $250,000 or More152,738 1,466 3.81 133,897 1,119 3.35 
Other Time Deposits257,710 2,051 3.16 201,926 1,196 2.38 
Total Interest-Bearing Deposits2,711,991 14,402 2.11 2,704,127 11,649 1.73 
Borrowings183,452 2,143 4.63 195,527 2,373 4.87 
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts20,000 173 3.43 20,000 171 3.43 
Finance Leases5,075 46 3.60 5,089 48 3.78 
Total Interest-Bearing Liabilities2,920,518 16,764 2.28 2,924,743 14,241 1.95 
Noninterest-bearing deposits779,037 756,584 
Other Liabilities47,739 41,256 
Total Liabilities3,747,294 3,722,583 
Stockholders’ Equity362,701 365,070 
Total Liabilities and Stockholders’ Equity$4,109,995 $4,087,653 
Net Interest Income$25,353 $25,772 
Net Interest Spread1.92 %2.11 %
Net Interest Margin2.53 %2.61 %
11


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

Quarter Ended:9/30/202312/31/20229/30/2022
Loan Portfolio  
Commercial Loans$148,066 $140,293 $138,973 
Commercial Real Estate Loans734,604 707,022 679,217 
  Subtotal Commercial Loan Portfolio882,670 847,315 818,190 
Consumer Loans1,107,638 1,065,135 1,055,585 
Residential Real Estate Loans1,148,309 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-off792 572 574 
Net Loans Charged-off(412)(689)(573)
Provision for Credit Losses354 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 Accruing251 1,157 514 
Loans Restructured and in Compliance with Modified Terms60 69 82 
Total Nonperforming Loans6,334 11,983 9,408 
Repossessed Assets344 593 604 
Other Real Estate Owned182 — — 
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 Loans0.99 %1.00 %1.00 %
Allowance for Credit Losses to Period-End Nonperforming Loans491.19 %249.95 %310.71 %
Nonperforming Loans to Period-End Loans0.20 %0.40 %0.32 %
Nonperforming Assets to Period-End Assets0.16 %0.32 %0.24 %
Year-to-Date Period Ended:9/30/202312/31/20229/30/2022
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-off2,116 2,016 1,445 
Net Loans Charged-off(1,696)(2,127)(1,438)
Provision for Credit Losses2,856 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, Annualized0.07 %0.08 %0.07 %
Provision for Loan Losses to Average Loans, Annualized0.13 %0.17 %0.16 %
12
3Q 2023 Investor Presentation October 24, 2023

 
2 Safe Harbor This presentation may contain certain forward-looking statements about Arrow Financial Corporation (“Arrow” or the “Company”). Forward-looking statements, as defined in Section 21E of the Securities Exchange Act of 1934, as amended, include statements regarding anticipated future events and can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believe,” “expect,” “would,” “should,” “could,” or “may.” Forward-looking statements, by their nature, are subject to risks and uncertainties. Certain factors that could cause actual results to differ materially from expected results include increased competitive pressures, changes in the interest rate environment, general economic conditions or conditions within the banking industry or securities markets, and legislative and regulatory changes that could adversely affect the business in which the Company and its subsidiaries are engaged. We are not obligated to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 10-K”), other filings with the SEC, and the third quarter 2023 earnings release issued October 24, 2023.

 
3 Table of Contents • Arrow History and Overview • 3Q 2023 Results and Performance Metrics • Funding Sources, Investments and Liquidity • Non-Interest Income • Loans • Credit Quality • Capital

 
History and Overview 4

 
5 Our History 1851 Glens Falls Bank opened for business in a newly constructed building on Ridge Street. 1932 1912 > 1949 Changed name to Glens Falls National Bank and Trust Company. Broke ground at 250 Glen Street — our current headquarters. > 1965 addition 1981 Glens Falls National Bank (GFNB) went public on NASDAQ as GFAL. 1983 Formed Arrow Bank Corporation (now Arrow Financial Corporation) and trading began on NASDAQ as AROW.

 
6 Our History 1988 Formed Saratoga National Bank and Trust Company (SNB) and expanded footprint 1999 Surpassed $1 billion in assets 2004 2021 Bought its first insurance agency Topped $4 billion in assets. 2018 Consolidated our insurance business into the Upstate Agency brand. 2012 Reached $2 billion in assets. 2001 Added to the Russell 2000 Index

 
7 Our Profile Insurance Offices Bank Branches 937 • Multi-Bank Holding company • Glens Falls National Bank and Trust Company • Saratoga National Bank and Trust Company • Upstate Agency, LLC • Wealth Management Services • $4.3 billion in assets • 500 plus employees • Primary service area population of more than 1.1 million

 
8 Experienced Leadership Team David S. DeMarco, President and CEO 35+ Years Experience Mr. DeMarco joined the Company in 1987 as a commercial lender and since that time has served in positions of increasing responsibility within the organization. In 2012, he was named President and CEO of Saratoga National Bank. In May 2023, he was named President and CEO of Arrow Financial Corporation and Glens Falls National Bank. He holds a bachelor’s degree in finance from the University of Texas at Austin. Mr. DeMarco is a graduate of the Adirondack Regional Chamber of Commerce’s Leadership Program and the Stonier Graduate School of Banking. He serves as a Director of the Company and its subsidiary banks and sits on the boards of various non-profits dedicated to healthcare and economic development. David D. Kaiser, Senior Executive Vice President and CCO 35+ Years Experience Mr. Kaiser joined the Company in 2001 as Vice President and Commercial Loan Officer. He served as Corporate Banking Manager and was later promoted to Senior Vice President, before being named Chief Credit Officer in 2011, followed by promotions to Executive Vice President and Senior Executive Vice President. Prior to joining the Company, he spent 15 years in the Capital Region as a Commercial Loan Officer. Mr. Kaiser has a bachelor’s degree in business administration from Siena College. Mr. Kaiser actively serves on boards of numerous community organizations. Andrew J. Wise, Senior Executive Vice President and COO 30+ Years Experience Mr. Wise joined the Company in 2016 as Senior Vice President of Administration for Glens Falls National Bank. He has since been promoted to Senior Executive Vice President and Chief Operating Officer of the Company. He has more than 30 years of experience building and leading both community banks and bank-owned insurance agencies. Mr. Wise previously served as Vice President and CISO for The Adirondack Trust Company and acted as Executive Vice President, COO for Wise Insurance Brokers, Inc. He has extensive experience in designing, implementing and managing workflows and delivering operational efficiency. He holds a bachelor’s degree from Boston University’s School of Management.

 
9 Experienced Leadership Team Penko Ivanov, Senior Executive Vice President, CFO, Treasurer and CAO 30+ Years Experience Mr. Ivanov joined the Company in 2023 with more than 30 years of experience in Financial Planning & Analysis, Controllership, SOX, Financial Reporting and Treasury. Mr. Ivanov previously served as CFO for Bankwell Financial Group, helping it almost double in size over six-plus years to $3.3 billion. He has held CFO positions at Darien Rowayton Bank and for Doral Bank’s U.S. Operations. He began his career with Ernst & Young and held accounting/finance positions at PepsiCo, GE Capital and Bridgewater Associates. Mr. Ivanov holds an MBA and bachelor’s degree in accounting and finance from the University of South Florida. He is also Six Sigma Black Belt certified. Marc Yrsha, Executive Vice President, Chief Banking Officer 20+ Years Experience Mr. Yrsha joined the Company in 2015. He currently is the Chief Banking Officer and oversees the strategic direction of the Retail Banking unit, which includes retail deposits and lending, business development, consumer payments, business services, municipal banking, as well as small business and retail lending. Prior to joining our Company, Mr. Yrsha spent time in retail leadership, retail and commercial lending at large regional and community banks within the Arrow footprint. Mr. Yrsha is active in the community serving in leadership roles on a variety of boards. He is a graduate of Castleton University in Vermont and the Adirondack Regional Chamber of Commerce’s Leadership Adirondack Program. Michael Jacobs, Executive Vice President, Chief Information Officer 30+ Years Experience Mr. Jacobs joined Glens Falls National Bank in 2003 as Information Systems Manager. He was later promoted to Senior Vice President and then Executive Vice President. As Chief Information Officer, Mr. Jacobs guides the Company’s strategic technology plans. He has more than 30 years of experience in the community banking industry, having previously served as Operations Manager at Cohoes Savings Bank and Item Processing Manager at Hudson River Bank and Trust. Mr. Jacobs holds a bachelor’s degree in finance from Siena College and an associate degree in business administration from Hudson Valley Community College.

 
3Q 2023 Results 10

 
11 3Q 2023 Summary • Net income of $7.7 million; Fully diluted earnings per share (EPS) of $0.46 • Deposit balances of $3.7 billion; an increase of $164 million during 3Q23 • Cost of deposits averaged 1.64%, ending the quarter at 1.71% • Loans reached a record of $3.14 billion, an increase of $69 million (9% annualized growth) during 3Q23 • Loan yields increased by 13bps from 2Q23 to 4.70% while loan rates reached 4.90% at September 30, 2023 • Net interest margin was 2.53% for the quarter, while the September net interest margin improved to 2.59% • In late September, Arrow entered into $300 million pay-fixed portfolio layer method fair value swaps, adding more than $2 million in annual net interest income in the current “higher for longer” rate environment • Strong credit quality metrics: • Net charge-offs were 0.05% as compared to 0.07% for the previous quarter • Nonperforming assets are $6.9 million or 0.16% of period-end assets • Non-interest expense included incremental ~$1.1 million (~$0.06/share) related to the 10-K/10-Q filing delays; YTD these expense exceed $4.1 million. • ROA of 0.75% and ROE of 8.47%; incremental expenses impacted ROA by 9 bps and ROE by almost 100 bps • Arrow expects to resume its dividend reinvestment plan during the fourth quarter Financial information provided in this document is unaudited. Please refer to the 3Q23 Earnings Release for a reconciliation of any non-GAAP measures.

 
12 Net Interest Margin 2.53% Profitability Revenue $33.4 million Return on Average Assets (ROA) 0.75% Return on Average Equity (ROE) 8.47% $3.14 billion of gross loans 85.6% loan-to-deposit ratio Balance Sheet $3.67 billion of gross deposits 0% brokered deposits 0.99% Allowance for Credit Losses (ACL) 0% digital deposits Cash Dividend of $0.27/share and 3% stock dividend paid in Q3* Capital $19.76 Fully Diluted Tangible Book Value per Share Well Capitalized 3Q 2023 Results Arrow GFNB SNB Tier 1 Leverage Ratio 9.94% 9.28% 9.97% Common Equity Tier 1 Capital Ratio 13.17% 13.44% 13.09% Tier 1 Risk-Based Capital Ratio 13.84% 13.44% 13.09% *Cash dividend restated to $0.262 after September 2023, 3% stock dividend

 
13 3Q 2023 Consolidated Financial Statements 1 Variances are rounded based on actual whole dollar amounts 2 Pre-tax, pre-provision net revenue per share is a non-GAAP metric and excludes provision for loan losses and income tax expense UNAUDITED Dollars in millions, except per share data Linked Quarter Income Statement 3Q23 2Q23 Fav/(Unfav) Var1 Total Interest Income $ 42.1 40.0 2.1 Total Interest Expense 16.7 14.2 (2.5) Net Interest Income 25.4 25.8 (0.4) Non-Interest Income 8.0 6.9 1.1 Non-Interest Expense 23.5 24.1 0.6 Pre-Tax, Pre-Provision Net Revenue2 $ 9.9 8.6 1.3 Provision for Credit Losses $ 0.4 1.0 0.6 Pre-Tax Income $ 9.5 7.6 1.9 Income Tax Expense $ 1.8 1.6 (0.2) Reported Net Income $ 7.7 6.0 1.7 EPS 0.46$ 0.35 0.11 Balance Sheet 3Q23 2Q23 Var1 Cash & Cash Equivalents $ 294.7 173.6 121.1 Investment Securities 666.9 694.0 (27.1) Loans Receivable, net 3,107.5 3,038.7 68.8 All Other Assets 203.8 197.3 6.5 Total Assets $ 4,272.9 4,103.6 169.3 Total Deposits $ 3,666.5 3,502.2 164.3 Total Borrowings 174.3 171.8 2.5 Other Liabilities 72.1 68.2 3.9 Total Liabilities $ 3,912.9 3,742.2 170.7 Equity $ 360.0 361.4 (1.4) Total Liabilities & Equity $ 4,272.9 4,103.6 169.3

 
14 3Q 2023 Consolidated Financial Statements 1 Variances are rounded based on actual whole dollar amounts 2 Pre-tax, pre-provision net revenue per share is a non-GAAP metric and excludes provision for loan losses and income tax expense UNAUDITED Dollars in millions, except per share data Comparative Quarter Income Statement 3Q23 3Q22 Fav/(Unfav) Var1 Total Interest Income $ 42.1 34.2 7.9 Total Interest Expense 16.7 3.3 (13.4) Net Interest Income 25.4 30.9 (5.5) Non-Interest Income 8.0 7.8 0.2 Non-Interest Expense 23.5 21.4 (2.1) Pre-Tax, Pre-Provision Net Revenue2 $ 9.9 17.3 (7.4) Provision for Credit Losses $ 0.4 1.7 1.3 Pre-Tax Income $ 9.5 15.6 (6.1) Income Tax Expense $ 1.8 3.4 1.6 Reported Net Income $ 7.7 12.2 (4.5) EPS 0.46$ 0.71 (0.25) Balance Sheet 3Q23 3Q22 Var1 Cash & Cash Equivalents $ 294.7 373.4 (78.7) Investment Securities 666.9 764.1 (97.2) Loans Receivable, net 3,107.5 2,895.6 211.9 All Other Assets 203.8 199.7 4.1 Total Assets $ 4,272.9 4,232.8 40.1 Total Deposits $ 3,666.5 3,795.1 (128.6) Total Borrowings 174.3 25.0 149.3 Other Liabilities 72.1 67.1 5.0 Total Liabilities $ 3,912.9 3,887.2 25.7 Equity $ 360.0 345.6 14.4 Total Liabilities & Equity $ 4,272.9 4,232.8 40.1

 
15 Performance Trends $2.16 $2.23 $2.41 $2.92 $2.86 $1.31 2018 2019 2020 2021 2022 3Q23 YTD Diluted EPS $14.65 $16.48 $18.32 $20.42 $19.37 $19.76 2018 2019 2020 2021 2022 3Q23 YTD Fully Diluted Tangible Book Value 13.96% 13.17% 12.77% 14.09% 13.55% 8.25% 2018 2019 2020 2021 2022 3Q23 YTD Return on Average Equity 1.27% 1.24% 1.17% 1.28% 1.21% 0.74% 2018 2019 2020 2021 2022 3Q23 YTD Return on Average Assets YTD metrics affected by lower margins and expenses related to delayed filings History of strong earnings and performance metrics

 
16 Net Interest Margin • 3Q 2023 NIM trends pointing to inflection point - Deposit costs still increasing but at a slower rate - Loans repricing faster than deposits - NIM to benefit from $300 million fair value hedge initiated in late 3Q 2023 2.90% 3.02% 3.14% 3.08% 2.96% 2.61% 2.53% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Quarterly Net Interest Margin (NIM) 2.50% 2.52% 2.59% Jul-23 Aug-23 Sep-23 3rd Quarter NIM Detail

 
17 Net Interest Margin 3.05% 2.99% 2.97% 3.03% 2.70% 4.18% 3.98% 3.97% 4.00% 4.54% 0.67% 0.36% 0.10% 0.27% 1.27% 2019 2020 2021 2022 3Q23 YTD Net Interest Margin (NIM) Average Loan Yield for the Period Shown Cost of Deposits • 3Q loans originated at average rate of 7.23% • YTD originations at average rate of 6.86% • Portfolio rate at Sept. 30, 2023 averaged 4.90% • Cost of deposits at Sept. 30, 2023 at 1.71% Rate excludes the impact of deferred fees/loan origination costs 1 1Yield includes the impact of deferred fees and loan origination costs amortization

 
18 Operating Expenses - Efficiency Trends 56.6% 57.1% 52.8% 54.2% 54.3% 68.6% 59.4% 2.27% 2.22% 2.02% 2.00% 2.01% 2.30% 2018 2019 2020 2021 2022 3Q23 YTD 3Q23 YTD Efficiency Ratio Net Non-interest Expense / Average Assets Efficiency Ratio trend driven primarily by margin compression and by elevated expenses due to regulatory filing delays $65.1 $67.5 $70.7 $78.0 $81.5 $69.9 $65.8 2018 2019 2020 2021 2022 3Q23 YTD 3Q23 YTD Non-Interest Expenses (in millions) • Elevated expenses impact ~ 4% • Margin compression impact ~5% • Remainder driven by inflationary cost increases, investments in technology and FDIC insurance • $4.1 million of expenses YTD related to the delayed filings

 
Funding, Investments and Liquidity 19

 
20 Deposit Balances 26.5% 25.8% 27.5% 27.0% 25.5% 26.5% 26.6% 26.5% 24.6% 26.3% 24.3% 27.1% 25.2% 26.8% 47.0% 49.8% 46.2% 48.7% 47.4% 48.3% 46.6% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Axis Title Deposit Balances Non-Municipal Municipal Business Dollars in billions $3.72 $3.55 $3.80 $3.50 $3.55 $3.50 $3.67 • Stable deposit franchise with diverse funding sources • Municipal deposits include county and local governments, including school, water, fire, sewer districts and housing authorities • No brokered deposit balances • No digital (bitcoin, etc.) deposit balances

 
21 Deposit Balances 21.8% 23.3% 24.1% 23.9% 22.3% 21.8% 21.8% 31.1% 29.5% 29.3% 28.5% 27.0% 24.4% 25.1% 42.3% 42.4% 41.7% 41.6% 42.2% 43.3% 40.8% 4.8% 4.8% 4.9% 6.0% 8.5% 10.5% 12.3% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Axis Title Deposit Balances Time Deposits Savings Deposits Interest-Bearing Checking Noninterest-Bearing Dollars in billions $3.72 $3.55 $3.80 $3.50 $3.55 $3.50 $3.67 • Deposit franchise with diverse product offerings and long-standing customer base • No lasting impact on deposits from industry turmoil earlier in the year • Deposit balances at 3Q 2023 exceed year-end 2022 balances

 
22 Funding Sources and Rates • 3Q2023 Deposit Beta is 128% • YTD Deposit Beta is 147% versus 153% as of 2Q 2023 • Deposit Beta through current rate cycle 1Q 2022 to 3Q 2023 is 41.8% • CD and Money Market specials are currently priced at or above 5% • Other Borrowings contain $150 million from FRB Bank Term Funding Program - maturing May 2024 Dollars in millions Deposit rate increases moderating during 3Q23 Balance Rate Balance Rate Balance Rate Balance Rate Demand (Non-Interest Bearing) $ 303 0.00% $ 478 0.00% $ 18 0.00% $ 798 0.00% Interest Bearing Checking 325 0.05% 210 3.34% 385 0.04% 920 0.79% Savings and Money Market 713 0.88% 252 3.24% 532 4.65% 1,496 2.62% Time Deposits 370 3.66% 35 2.72% 46 3.41% 452 3.56% Total Deposits $ 1,711 1.17% $ 975 1.65% $ 981 2.70% $ 3,666 1.71% Other Borrowings 174 4.88% Junior Subordinated Obligations - TRUPS 20 3.43% Total Deposits and Borrowings $ 1,711 1.17% $ 975 1.65% $ 981 2.70% $ 3,861 1.86% Consumer Business Municipal Total

 
23 Duration Wtd Avg Remaining LifeCurrent Book Value Market ValueCategoy Unrealized Gain / (Loss) Book Yield • Unrealized Losses at ~10% of carrying value; moderate impact due to relative short duration • A change in rates of ~ 25 bps impacts Other Comprehensive Income (OCI) by ~$4MM • Q3 2023 mark-to-market adjustment resulted in a negative impact to OCI of ~$5.8MM (tax effected) Investment Portfolio 1 1 Unrealized Gain/(Loss) on HTM for informational purposes only – not reflected in OCI Dollars in thousands September 30, 2023 Agency CMO Municipal - Local Other Total AFS Market Value 176,420$ 115,110 15,907 3,292 3,075 15,907 Category 3.00 7,416 6,885 (531) 3.88% 390,907 334,854 (56,053) 1.78% Unrealized Gain / (Loss)1 (13,580)$ Book Yield 1.82% Current Book Value 190,000$ Total Investments US Agency 280 1,000 589,603$ 6,268$ Agency MBS 280 800 519,239$ 5,923$ 134,812$ Agency MBS Agency CMO Municipal Municipal - Local Total HTM 109,907 140,577$ 0 (200) (70,364)$ (345)$ (217) 2.38% 4.97% 2.68% 2.00% (5,203) 0 (5,765)$ (76,129)$ 7.12% 8.29% 1.83% 2.41% 2.61% Duration 2.18 3.89 4.21 3.46 Wtd Avg Remaining Life 2.28 4.64 5.02 1.66 0.70 1.57 3.27 6.00 3.89 1.97 2.33 1.76 0.70 1.66 3.27 4.45 3.35 1.81 2.09 730,180$ 654,051$

 
24 Liquidity FDIC Insured Deposits ~70% Uninsured Deposits ~30% Total Deposits = $3.67 billion • ~ $2.5 billion in deposits are insured • ~ 8% on-balance sheet liquidity (cash and unencumbered AFS securities) • Available Borrowing Capacity Brokered Deposits $0.8 billion Borrowing Capacity1 $1.5 billion $2.3 billion • Liquidity and borrowing capacity provide in excess of 2X coverage of uninsured deposits • National Listing Services also available as additional sources of liquidity • Securities, Mortgage, and Auto Loan Portfolios provide steady source of cash flow 1 FHLB, FRB and other bank lines Ample coverage of uninsured deposits Uninsured deposit accounts consist of municipal, business, and high net worth individuals – many of which have a broad and deep banking relationship with Arrow

 
Non-Interest Income 25

 
26 Non-Interest Income • Decrease in fee income related to post-pandemic slowdown in consumer use of debit cards • Other Operating Income includes bank-owned life insurance (BOLI) proceeds • Wealth Management and Insurance revenues relatively stable • Minimal gains from loan sale activity (Residential, SBA) in the last two years Dollars in thousands September 30, 2023 June 30, 2023 September 30, 2022 Fees for Other Services to Customers $ 2,761 $ 2,717 $ 3,071 Fiduciary Activities/Wealth Management 2,378 2,428 2,341 Insurance Commissions 1,695 1,560 1,650 Other Operating Income 1,216 201 765 Total Noninterest Income $ 8,050 $ 6,906 $ 7,827 Three Months Ended

 
27 Wealth Management • $1.6 Billion Assets under Management (AUM) as of September 30, 2023 • YTD AUM increased ~$21 million (1.3%) • Net account activity increased AUM by $32 million • Market performance reduced AUM by ~$11 million • 3Q2023 AUM decreased by ~$84 million (4.9%) • Net account activity decreased AUM by $14 million • Market performance reduced AUM by ~$70 million • Serving New York (Upper Hudson Valley, Capital Region, North Country) • Based in Glens Falls, New York; 33 employees • Services • Asset Management Accounts • Employer Retirement Plans • Brokerage Services (offered through LPL Financial) • Revenues • 2022 Revenue was $10.3 million on average AUM of ~$1.73B while S&P declined ~20% • 3Q2023 Revenue was $2.5 million on average AUM of ~$1.67B while S&P declined ~3.6% • Trust and Estate Management • Individual Retirement Plans

 
28 Insurance • Upstate Agency - Headquartered in South Glens Falls, NY - Total of 9 locations in New York (Capital Region, North Country) - 37 employees - Majority of policyholders reside within our geographic footprint • Insurance Products - Personal, Commercial, and Employee Benefit Plans • Revenues • 2022 Revenue of $6.5 million • 3Q23 Revenue of $1.7 million, in line with 3Q22 • 2023 YTD Revenue of $4.8 million

 
Loans 29

 
30 Loan Balances $2.20 $2.39 $2.37 $2.58 $2.98 $3.14 2018 2019 2020 2021 2022 3Q23 Consistent Loan Growth Excludes PPP loans Dollars in billions • 3Q23 loan growth of $69 million; ~9% annualized growth rate • YTD 2023 loan growth of $155 million • YTD Annualized loan growth ~7% ~8% CAGR

 
31 $2,595 $2,639 $2,644 $2,655 $2,668 $2,737 $2,845 $2,925 $2,983 $3,005 $3,070 $3,139 Loan Balances Dollars in millions $305 $301 $312 $312 $316 $334 $345 $350 $350 $344 $352 $354 $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $529 $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $1,088 $1,108 $923 $908 $911 $930 $946 $967 $1,012 $1,051 $1,071 $1,081 $1,111 $1,148 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Residential Real Estate Consumer Commercial Real Estate (CRE) Commercial (C&I) Consistent Loan Growth Across Multiple Portfolios Commercial real estate excludes owner-occupied real estate loans Owner-occupied real estate shown as part of the C&I portfolio

 
32 Loan Yields Steadily Increasing $2.60 $2.64 $2.64 $2.66 $2.67 $2.74 $2.85 $2.93 $2.98 $3.01 $3.07 $3.14 3.94% 3.90% 4.04% 4.08% 3.82% 3.90% 3.85% 4.09% 4.13% 4.32% 4.57% 4.70% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Loan Portfolio Yields experiencing meaningful increase during 2023 Loan Balance Average Loan Portfolio Yield for the Periods Shown Dollars in billions Pre 2020 4.84% 2020 4.29% 2021 3.86% 2022 4.70% 2023 6.86% Yield by Vintage • 44% of balances are 2022 - 2023 vintages • Loan rates averaged 4.90% as of September 30, 2023 1Yield includes the impact of deferred fees and loan origination costs amortization 1

 
33 Loan Portfolio Composition Commercial (C&I) 11.3% Commercial Real Estate 16.8% Consumer 35.3% Residential Real Estate 36.6% • No single relationship represents more than ~1.5% of total loans as of September 30, 2023 • CRE concentration ratio of ~120% of risk-based capital • C&I portfolio can be a source of deposit growth Total Loan Portfolio ~ $3.14 billion Commercial (C&I) includes owner-occupied real estate loans

 
34 Consumer Loan Portfolio $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $1,088 $1,108 3.95% 3.94% 3.92% 3.93% 3.87% 3.84% 3.83% 4.10% 4.02% 4.26% 4.61% 4.83% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • 99.6% of the portfolio, or $1.08 billion are collateralized auto loans; only $4 million in unsecured personal loans • Auto loans sourced through a network of 450+ dealers in New York and Vermont with customers extending beyond those states • Loans are underwritten/credit scored by Arrow • Essentially 100% of auto loans are fully amortizing, fixed rate loans • > 73% of auto loan balances have customers with FICO scores >700 • Average portfolio FICO score is 738; Average debt to income ratio ~30%; average LTV is 87% • Annual losses over last 5 years were 9-20 bps • ~30% new, ~70% used vehicles exposure 2 1Yield includes the impact of deferred fees and loan origination costs amortization 2 Based on MSRP or used National Automobile Dealers Association (NADA) retail value at time of origination 1 Portfolio rates meaningfully increasing September 30 - 5.44% Rate excludes the impact of deferred fees/loan origination costs

 
35 Commercial Real Estate Portfolio $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $529 3.66% 4.90% 5.08% 5.19% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • CRE loans extended to businesses / borrowers primarily located in our regional market area • No CRE exposure to large metropolitan areas – e.g. no NYC exposure • As of September 30, 2023: – ~$349 million or ~ 66% of loans have rates tied to market indices, such as Prime, SOFR or FHLBNY – ~$131 million of loans will reprice within next 12 months – ~$21 million of fixed rate loans mature within 12 months – Total non-owner occupied Office exposure accounted for ~11% of CRE and ~2% of total loans – Total non-owner occupied Retail exposure accounted for ~15% of CRE and ~3% of total loans outstanding – Total Hotels and Motels exposure accounted for ~23% of CRE and ~4% of total loans outstanding – Total Other Accommodation and Food Services2 exposure accounted for ~8% of CRE and ~1% of total loans outstanding – The majority of the remaining CRE exposure is comprised of multi-family and other residential investment properties 1Yield includes the impact of deferred fees and loan origination costs amortization 2Other Accommodation and Food Services includes RV parks, recreational camps, restaurants and other eating places. Commercial real estate excludes owner-occupied real estate loans 1 Portfolio rates trending upward September 30 - 5.22% Rate excludes the impact of deferred fees/loan origination costs

 
36 Commercial (C&I) Portfolio $305 $301 $312 $312 $316 $334 $346 $350 $350 $344 $352 $354 4.17% 4.35% 4.57% 4.89% Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • C&I loans extended to businesses / borrowers primarily located our regional market area • Growing C&I Portfolio a potential source for deposit acquisition • As of September 30, 2023: – ~$199 million or ~ 56% of loans have rates tied to market indices, such as Prime, SOFR or FHLBNY – ~$61 million of loans will reprice within next 12 months – Only ~$3 million of fixed rate loans mature within 12 months 1Yield includes the impact of deferred fees and loan origination costs amortization Commercial (C&I) includes owner-occupied real estate loans 1 Portfolio rates on strong upward trend September 30 - 4.90% Rate excludes the impact of deferred fees/loan origination costs

 
37 Residential Real Estate Loans $923 $908 $911 $930 $946 $967 $1,012 $1,051 $1,071 $1,081 $1,111 $1,148 3.83% 3.79% 3.77% 3.76% 3.73% 3.71% 3.70% 3.78% 3.80% 4.10% 4.17% 4.25% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • One-to-four family residential real estate secured by first or second mortgages on residences and home equity lines located in our market area • LTV generally does not exceed 80% at time of origination (lower of purchase price or appraised value) • Loans exceeding 80% LTV at origination require private mortgage insurance or govt. guarantee • ~ $56MM, or 5%, of residential loan portfolio is for construction purposes • ~8% of the portfolio are home equity loans and lines • As of September 30, 2023: • ~20% of portfolio subject to adjustable rates • ~80% of portfolio is fixed • ~$95MM or ~38% of the adjustable-rate portfolio is within the active reset period 1Yield includes the impact of deferred fees and loan origination costs amortization 1 As of September 30, 2023, the average Residential Mortgage portfolio rate was ~3.94% and the Home Equity Line portfolio rate was ~7.35%, resulting in overall portfolio rate of ~4.24% Rates exclude the impact of deferred fees/loan origination costs

 
Credit Quality and Capital 38

 
39 Credit Quality 0.25% 0.44% 0.40% 0.37% 0.21% 0.20% 2020 2021 2022 1Q23 2Q23 3Q23 Non-Performing Loans (NPL) / Gross Loans Dollars in millions $6.4 $11.7 $12.0 $11.2 $7.1 $6.9 • ACL of 0.99% available to address potential credit issues • Charge-offs were 5bps in 3Q23; down from 7bps in 2Q23 and 10bps in 1Q23 Strong Credit Quality - Allowance is 491% of NPL

 
40 Fully Diluted Tangible Book Value (TBV) Increasing TBV in challenging industry environment

 
41 Capital Position 9.92% 13.27% 13.96% 15.08% 8.24% 9.94% 13.17% 13.84% 14.94% 7.93% 4.00% 4.50% 6.00% 8.00% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% Tier 1 Leverage Ratio Common Equity Tier 1 Capital Tier 1 Risk-Based Capital Total Risk-Based Capital Tangible Common Equity Capital Ratios – Arrow Minimum Regulatory Capital Ratios 3Q23 2Q23 Strong Capital Ratios

 
42 Financial Snapshot 2018 2019 2020 2021 2022 3Q23 YTD Total assets $2,988,334 $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,272,911 Loans $2,196,215 $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,138,617 Loan-to-deposit ratio 93.6% 91.2% 80.2% 75.1% 85.3% 85.6% Return on average assets 1.27% 1.24% 1.17% 1.28% 1.21% 0.74% Efficiency ratio 56.60% 57.08% 52.80% 54.16% 54.26% 68.60% Net interest margin 3.07% 3.05% 2.99% 2.97% 3.03% 2.69% Tier 1 Leverage Ratio 9.61% 9.98% 9.07% 9.20% 9.80% 9.94% Return on average equity 13.96% 13.17% 12.77% 14.09% 13.55% 8.25% Tangible book value per share $15.09 $16.98 $18.87 $21.03 $19.95 $19.76 Net interest income $84,018 $88,049 $99,202 $110,355 $118,343 $79,219 Net income $36,279 $37,475 $40,827 $49,857 $48,799 $22,352 EPS (fully diluted) $2.24 $2.28 $2.48 $3.00 $2.94 $1.31 Dollars in thousands, except per share amounts

 
Thank You

 
v3.23.3
Cover Page
Oct. 24, 2023
Cover [Abstract]  
Document Type 8-K
Entity Registrant Name ARROW FINANCIAL CORPORATION
Entity Incorporation, State or Country Code NY
Entity File Number 0-12507
Entity Tax Identification Number 22-2448962
Entity Address, Address Line One 250 Glen Street
Entity Address, City or Town Glens Falls
Entity Address, State or Province NY
Entity Address, Postal Zip Code 12801
City Area Code 518
Local Phone Number 745-1000
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common Stock, Par Value $1.00 per share
Trading Symbol AROW
Security Exchange Name NASDAQ
Entity Emerging Growth Company false
Entity Central Index Key 0000717538
Amendment Flag false
Document Period End Date Oct. 24, 2023
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