0000717538FALSE00007175382024-10-312024-10-31
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 31, 2024
(Date of earliest event reported)
ARROW FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| New York | 0-12507 | 22-2448962 |
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| | | | | | | | | | | | | | |
| 250 Glen Street | Glens Falls | New York | 12801 |
| (Address of principal executive offices) | (Zip Code) |
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| Registrant’s telephone number, including area code: | 518 | | 745-1000 |
(Former name or former address, if changed since last report)
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| 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 Class | Trading Symbol | Name of each exchange on which registered |
| Common Stock, Par Value $1.00 per share | AROW | NASDAQ 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 31, 2024, 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, 2024. 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 31, 2024, the Company made available certain presentation material (the "Third Quarter 2024 Investor Presentation"), which includes among other things, a review of financial results and trends through the period ended September 30, 2024. The furnished Third Quarter 2024 Investor Presentation should be read in conjunction with our Earnings Release for the quarter ended September 30, 2024.
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 31, 2024 | /s/ Penko Ivanov |
| | Penko Ivanov |
| | Chief Financial Officer |
| | | | | |
| 250 Glen Street
Glens Falls, NY 12801 |
NASDAQ® Symbol: "AROW"
Website: arrowfinancial.com
Media Contact: Rachael Murray
Tel: (518) 742-6505 |
Arrow Reports 3rd Quarter Net Income of $9.0 Million, or $0.53 per Share
GLENS FALLS, N.Y. (October 31, 2024) – Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow" or "the Company") announced financial results for the three-month period ended September 30, 2024. Net income for the third quarter of 2024 was $9.0 million and fully diluted earnings per share ("EPS") was $0.53, versus $7.7 million and EPS of $0.46 for the same period in 2023.
This Earnings Release and related commentary should be read in conjunction with the Company's October 31, 2024 Form 8-K and related Third Quarter 2024 Investor Presentation, which can also be found on Arrow's website: arrowfinancial.com/documents/investor-presentations.
Arrow President and CEO David S. DeMarco:
“We delivered a solid third quarter with strong net interest margin expansion, improved core profitability, increased return on average assets and continued strong credit metrics. Stabilizing funding costs, increasing asset yields, and continued expense discipline have positioned us for increased core operating leverage for the upcoming quarters. Our incredible teamwork was recently recognized by being named to the prestigious Piper Sandler Sm-All Stars: Class of 2024, a list of 30 top-performing small-cap banks and thrifts in the country.
Among our third-quarter accomplishments, we completed two small acquisitions. We expanded our insurance business with the strategic acquisition of the assets of A&B Agency, Inc. and acquired a branch in Whitehall, New York. Our team continues to prepare for the unification of our banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, into a single entity renamed Arrow Bank National Association, or Arrow Bank, slated for December 31, 2024. Starting in early November, our customers will gain surcharge-free access to the Allpoint ATM Network of more than 55,000 locations. As we continue to strengthen our market position, we also rewarded our shareholders with an increase to the fourth-quarter cash dividend, which we announced in early October.”
Third-Quarter Highlights and Key Metrics
•EPS improved $0.07 to $0.53 versus the same period in 2023 and $0.01 over the previous quarter
•Results included approximately $450 thousand of non-core expenses related to our insurance agency and branch acquisitions as well as unification efforts
•Deposit balances were $3.8 billion, resulting in a Loan-to-Deposit ratio of 87.0%
•Net Interest Margin improved to 2.78% (2.79% FTE1), up from 2.67% (2.69% FTE) in the prior quarter
•Year-to-date loan growth reached $126.3 million2 (5.2% annualized)
•Resumed mortgage loan sales into the secondary market
•Average Loan Yields increased to 5.27% for 3Q24, up from 5.17% in the prior quarter
•Net Charge-Offs for the quarter were 8bps on an annualized basis
•Tangible Book Value increased to $21.95
•Accumulated Other Comprehensive Loss improved $5.7 million, or 18%, from the prior quarter
•Return on Average Assets (ROA) improved to 0.84%, up from 0.82% in the previous quarter
1 FTE Net interest margin is a non-GAAP measure. See reconciliation on Note 3 to the Selected Quarterly Information.
2 Excludes both $6.5 million fair value hedge adjustment at September 30, 2024 and $5.8 million fair value hedge adjustment at December 31, 2023
Income Statement
•Net Income: Net income for the third quarter of 2024 was $9.0 million, increasing from $8.6 million in the second quarter of 2024 and $7.7 million in the third quarter of 2023.
◦Compared to the prior quarter, net income benefited from an increase of $1.3 million in net interest income, partially offset by an increase in non-interest expense of $0.8 million.
◦Compared to the third quarter of 2023, net income growth was driven by an increase in net interest income of $3.1 million, partially offset by an increase in non-interest expense of $0.6 million.
•Net Interest Income: Net interest income for the third quarter of 2024 was $28.4 million, increasing 4.7% from $27.2 million for the second quarter of 2024 and increasing 12.2% from $25.4 million in the third quarter of 2023.
◦Total interest and dividend income was $49.4 million for the third quarter of 2024, an increase from $48.0 million in the second quarter of 2024 and from $42.1 million for the third quarter of 2023. These increases were primarily driven by loan growth and higher loan yields. Interest expense for the third quarter of 2024 was $21.0 million, an increase from $20.8 million for the second quarter of 2024 and from $16.8 million for the third quarter of 2023. The increase from the prior year was driven primarily by higher deposit rates and changes in deposit composition.
•Net Interest Margin: Net interest margin, on an FTE basis, for the third quarter of 2024 was 2.79% compared to 2.69% for the second quarter of 2024 and 2.55% for the third quarter of 2023. The increase in net interest margin compared to the second quarter in 2024 was primarily the result of continued yield expansion on earning assets combined with the moderating cost of interest-bearing liabilities. As compared to the third quarter of 2023, the increase in net interest margin was primarily the result of yield on average earning assets increasing at a faster pace than costs of interest-bearing liabilities. Net interest margin is affected by deposits continuing to migrate to higher costing products, such as money market savings and time deposits.
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| Three Months Ended | | | | |
| (Dollars in Thousands) | | | | |
| September 30, 2024 | | June 30, 2024 | | September 30, 2023 | | | | |
| Interest and Dividend Income | $ | 49,443 | | | $ | 47,972 | | | $ | 42,117 | | | | | |
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| | | | | | | | | |
| | | | | | | | | |
| Interest Expense | 21,005 | | | 20,820 | | | 16,764 | | | | | |
| Net Interest Income | 28,438 | | | 27,152 | | | 25,353 | | | | | |
| | | | | | | | | |
Average Earning Assets(A) | 4,075,162 | | | 4,083,813 | | | 3,973,747 | | | | | |
| Average Interest-Bearing Liabilities | 3,085,066 | | | 3,127,417 | | | 2,920,518 | | | | | |
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Yield on Earning Assets(A) | 4.83 | % | | 4.72 | % | | 4.20 | % | | | | |
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| Cost of Interest-Bearing Liabilities | 2.71 | | | 2.68 | | | 2.28 | | | | | |
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| Net Interest Spread | 2.12 | | | 2.04 | | | 1.92 | | | | | |
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| | | | | | | | | |
| Net Interest Margin | 2.78 | | | 2.67 | | | 2.53 | | | | | |
| Net Interest Margin - FTE | 2.79 | | | 2.69 | | | 2.55 | | | | | |
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(A) Includes Nonaccrual Loans. | | | | | | | | | |
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•Provision for Credit Losses: For the third quarter of 2024, the provision for credit losses was $0.9 million compared to $0.8 million in the second quarter of 2024 and $0.4 million in the third quarter of 2023. The key drivers for the provision for credit losses in the third quarter of 2024 were replenishment of the allowance for charge-offs, growth in loan balances and changes to the economic forecast factors embedded in the credit loss allowance model.
•Non-Interest Income: Non-interest income for the three months ended September 30, 2024, was $8.1 million, an increase from $7.9 million in the second quarter of 2024 and consistent with the third quarter of 2023. The increases from the prior periods are primarily the result of the resumption of loan sales from current loan originations, higher wealth management fees resulting from improved market valuations of assets under management and increased insurance commissions resulting from the A&B asset acquisition. The third quarter of 2023 included one-time proceeds from bank-owned life insurance in other income.
•Non-Interest Expense: Non-interest expense for the third quarter of 2024 was $24.1 million, an increase from $23.3 million in the second quarter of 2024 and an increase from $23.5 million for the third quarter of 2023. The increase from the prior quarter was primarily attributable to several one-time non-core expenses related to the Whitehall and A&B asset acquisitions.
•Provision for Income Taxes: The provision for income taxes and effective tax rate were $2.6 million and 22.2%, for the third quarter of 2024, $2.3 million and 21.2%, for the second quarter of 2024 and $1.8 million and 19.1%, for the third quarter of 2023. The increase in the effective tax rate from the second quarter of 2024 was primarily attributable to a decrease in the amount of tax advantaged earning assets as a percentage of total earning assets, while the increase in the effective tax rate from the third quarter of 2023 was primarily due to a change in pre-tax income combined with a decrease in the amount of tax advantaged earning assets as a percentage of total earning assets.
Balance Sheet
•Total Assets: Total assets were $4.4 billion at September 30, 2024, an increase of $167.0 million, or 3.9%, as compared to June 30, 2024 and an increase of $138.5 million, or 3.2%, as compared to September 30, 2023. For the third quarter of 2024, overall growth in the balance sheet was attributable to changes in cash balances, primarily seasonal municipal and corporate deposits, as well as growth in the loan portfolio.
•Investments: Total investments were $549.8 million as of September 30, 2024, a decrease of $6.6 million, or 1.2%, compared to June 30, 2024 and a decrease of $117.0 million, or 17.6%, compared to September 30, 2023. The decrease from June 30, 2024 was driven primarily by paydowns and maturities. The decrease from September 30, 2023 was also driven by paydowns and maturities as well as the fourth quarter 2023 repositioning of the investment portfolio, which reduced the portfolio by approximately $25 million at the time of the transaction. There were no credit quality issues related to the investment portfolio.
•Loans3: Total loans were $3.3 billion as of September 30, 2024. Loan growth for the third quarter of 2024 was $24.2 million, and $201.2 million since September 30, 2023. Loan growth was spread across all loan products. Please see the loan detail included in the Consolidated Financial Information table on page 13.
•Allowance for Credit Losses: The allowance for credit losses was $31.3 million as of September 30, 2024, which represented 0.94% of loans outstanding, as compared to $31.0 million, or 0.94%, at June 30, 2024, and $31.1 million, or 0.99%, at September 30, 2023. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.08% for the three-month period ended September 30, 2024, as compared to 0.16%4 for the three-month period ended June 30, 2024 and 0.05% for the three-month period ended September 30, 2023. Non
3 Includes both $6.5 million fair value hedge adjustment at September 30, 2024 and $0.4 million fair value hedge adjustment at June 30, 2024
4 Charge-offs for 2Q24 included 0.09% related to a previously specifically reserved amount for overdraft balances relating to one customer relationship
performing assets were $22.3 million as of September 30, 2024, representing 0.51% of period-end assets, compared to 0.50% at June 30, 2024 and 0.16% at September 30, 2023.
•Deposits: At September 30, 2024, deposit balances were $3.8 billion, an increase of $153.8 million from June 30, 2024 and an increase of $171.0 million from September 30, 2023. The increase from the second quarter was primarily attributable to the seasonality of municipal deposits. The increase from September 30, 2023 was partially attributable to $175 million of brokered CDs, primarily used to reduce borrowings and fund continued loan growth. Please refer to page 7 for further details related to deposits.
•Capital: Total stockholders’ equity was $393.3 million at September 30, 2024, an increase of $10.3 million, or 2.7%, from June 30, 2024 and an increase of $33.3 million, or 9.2%, from the September 30, 2023 level of $360.0 million. The increase from the second quarter was primarily attributable to net income of $9.0 million, other comprehensive income of $5.7 million offset by dividends of $4.5 million. The increase in stockholders' equity from September 30, 2023 was primarily attributable to income for the period of $32.9 million, other comprehensive income of $26.6 million and various capital items of $1.1 million offset by dividends of $18.1 million and stock repurchases of $9.2 million. Arrow's regulatory capital ratios remained strong. As of September 30, 2024, Arrow's Common Equity Tier 1 Capital Ratio was 12.77% and Total Risk-Based Capital Ratio was 14.46%. The capital ratios of Arrow's subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, continued to exceed the “well capitalized” regulatory standards.
Additional Commentary
•Piper Sandler Sm-All Stars: Arrow was recently named to the prestigious Piper Sandler Sm-All Stars: Class of 2024, a list of 30 top-performing small-cap banks and thrifts in the country. Arrow is one of just three New York financial institutions on the list and the only bank in Upstate New York. Piper Sandler, an independent investment bank and research firm, evaluated more than 300 institutions that trade on a major exchange, narrowing the field to the top 30.
•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 69th and 61st quarters, respectively.
•Subsidiary Bank Unification: Arrow received approval from the Office of the Comptroller of the Currency to combine its two subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, into one bank that will be known as Arrow Bank National Association. The combination will create operational efficiencies, unify branding and enhance Arrow's ability to pursue its strategic growth objectives. The combination of the entities is anticipated to become effective December 31, 2024.
About Arrow
Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York. Arrow is the parent of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company. Other subsidiaries include Upstate Agency, LLC and North Country Investment Advisers, Inc.
Non-GAAP Financial Measures Reconciliation
In addition to presenting information in conformity with accounting principles generally accepted in the United States of America (GAAP), this news release contains financial information determined by methods other than GAAP (non-GAAP). Some measures used in this release, which are commonly utilized by financial institutions, have not been specifically exempted by the Securities and Exchange Commission ("SEC") and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules. These non-GAAP financial measures include: tangible equity, return on tangible equity, tax-equivalent adjustment and related net interest income, tax-equivalent, the efficiency ratio and net interest margin (FTE). Management believes that the non-GAAP financial measures disclosed by Arrow are useful in evaluating Arrow's performance and that such information should be considered as supplemental in nature and not as a substitute for, or superior to, the related financial information prepared in accordance with GAAP. Non-GAAP financial measures may differ from similar measures presented by other companies. See the reconciliation of GAAP to non-GAAP measures in the section "Selected Quarterly Information."
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 Annual Report on Form 10-K for the year ended December 31, 2023 and other filings with the SEC.
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts - Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30 | | Nine Months Ended September 30 |
| | | 2024 | | | | 2023 | | 2024 | | 2023 |
| INTEREST AND DIVIDEND INCOME | | | | | | | | | | |
| Interest and Fees on Loans | | $ | 44,122 | | | | | $ | 36,699 | | | $ | 126,639 | | | $ | 103,203 | |
| Interest on Deposits at Banks | | 2,103 | | | | | 1,805 | | | 6,735 | | | 3,958 | |
| Interest and Dividends on Investment Securities: | | | | | | | | | | |
| Fully Taxable | | 2,656 | | | | | 2,924 | | | 8,851 | | | 8,823 | |
| Exempt from Federal Taxes | | 562 | | | | | 689 | | | 1,867 | | | 2,256 | |
| Total Interest and Dividend Income | | 49,443 | | | | | 42,117 | | | 144,092 | | | 118,240 | |
| INTEREST EXPENSE | | | | | | | | | | |
| Interest-Bearing Checking Accounts | | 1,966 | | | | | 1,156 | | | 5,510 | | | 2,346 | |
| Savings Deposits | | 10,905 | | | | | 9,729 | | | 31,706 | | | 23,830 | |
| Time Deposits over $250,000 | | 1,803 | | | | | 1,466 | | | 5,645 | | | 3,159 | |
| Other Time Deposits | | 4,934 | | | | | 2,051 | | | 15,091 | | | 3,721 | |
| | | | | | | | | | |
| Borrowings | | 1,177 | | | | | 2,143 | | | 3,439 | | | 5,309 | |
Junior Subordinated Obligations Issued to
Unconsolidated Subsidiary Trusts | | 173 | | | | | 173 | | | 514 | | | 513 | |
| Interest on Financing Leases | | 47 | | | | | 46 | | | 142 | | | 143 | |
| Total Interest Expense | | 21,005 | | | | | 16,764 | | | 62,047 | | | 39,021 | |
| NET INTEREST INCOME | | 28,438 | | | | | 25,353 | | | 82,045 | | | 79,219 | |
| Provision for Credit Losses | | 934 | | | | | 354 | | | 2,326 | | | 2,856 | |
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | | 27,504 | | | | | 24,999 | | | 79,719 | | | 76,363 | |
| NON-INTEREST INCOME | | | | | | | | | | |
| Income From Fiduciary Activities | | 2,429 | | | | | 2,378 | | | 7,337 | | | 7,081 | |
| Fees for Other Services to Customers | | 2,881 | | | | | 2,761 | | | 8,130 | | | 8,073 | |
| Insurance Commissions | | 1,955 | | | | | 1,695 | | | 5,299 | | | 4,775 | |
| Net Gain (Loss) on Securities | | 94 | | | | | 71 | | | 165 | | | (214) | |
| Net Gain on Sales of Loans | | 126 | | | | | 21 | | | 135 | | | 25 | |
| Other Operating Income | | 648 | | | | | 1,124 | | | 2,781 | | | 1,893 | |
| Total Non-Interest Income | | 8,133 | | | | | 8,050 | | | 23,847 | | | 21,633 | |
| NON-INTEREST EXPENSE | | | | | | | | | | |
| Salaries and Employee Benefits | | 13,446 | | | | | 11,988 | | | 39,375 | | | 35,974 | |
| Occupancy Expenses, Net | | 1,754 | | | | | 1,517 | | | 5,299 | | | 4,728 | |
| Technology and Equipment Expense | | 4,692 | | | | | 4,371 | | | 14,246 | | | 13,150 | |
| FDIC Assessments | | 698 | | | | | 515 | | | 2,111 | | | 1,478 | |
| Other Operating Expense | | 3,510 | | | | | 5,088 | | | 10,399 | | | 14,528 | |
| Total Non-Interest Expense | | 24,100 | | | | | 23,479 | | | 71,430 | | | 69,858 | |
| INCOME BEFORE PROVISION FOR INCOME TAXES | | 11,537 | | | | | 9,570 | | | 32,136 | | | 28,138 | |
| Provision for Income Taxes | | 2,562 | | | | | 1,827 | | | 6,897 | | | 5,786 | |
| NET INCOME | | $ | 8,975 | | | | | $ | 7,743 | | | $ | 25,239 | | | $ | 22,352 | |
| Average Shares Outstanding: | | | | | | | | | | |
| Basic | | 16,710 | | | | | 17,050 | | | 16,746 | | | 17,049 | |
| Diluted | | 16,742 | | | | | 17,050 | | | 16,772 | | | 17,049 | |
| Per Common Share: | | | | | | | | | | |
| Basic Earnings | | $ | 0.54 | | | | | $ | 0.46 | | | $ | 1.51 | | | $ | 1.31 | |
| Diluted Earnings | | 0.53 | | | | | 0.46 | | | 1.50 | | | 1.31 | |
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ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts - Unaudited)
| | | | | | | | | | | | | | | | | |
| | September 30,
2024 | | December 31, 2023 | | September 30,
2023 |
| ASSETS | | | | | |
| Cash and Due From Banks | $ | 53,969 | | | $ | 36,755 | | | $ | 39,778 | |
| Interest-Bearing Deposits at Banks | 286,119 | | | 105,781 | | | 254,961 | |
| Investment Securities: | | | | | |
| Available-for-Sale at Fair Value | 437,067 | | | 497,769 | | | 519,240 | |
Held-to-Maturity (Fair Value of $101,929 at September 30, 2024; $128,837 at December 31, 2023; and $134,811 at September 30, 2023) | 103,337 | | | 131,395 | | | 140,577 | |
| Equity Securities | 5,089 | | | 1,925 | | | 1,960 | |
| Other Investments | 4,352 | | | 5,049 | | | 5,110 | |
| Loans | 3,339,937 | | | 3,212,908 | | | 3,138,617 | |
| Allowance for Credit Losses | (31,262) | | | (31,265) | | | (31,112) | |
| Net Loans | 3,308,675 | | | 3,181,643 | | | 3,107,505 | |
| Premises and Equipment, Net | 59,932 | | | 59,642 | | | 60,311 | |
| Goodwill | 23,789 | | | 21,873 | | | 21,873 | |
| Other Intangible Assets, Net | 2,190 | | | 1,110 | | | 1,205 | |
| Other Assets | 126,930 | | | 126,926 | | | 120,391 | |
| Total Assets | $ | 4,411,449 | | | $ | 4,169,868 | | | $ | 4,272,911 | |
| LIABILITIES | | | | | |
| Noninterest-Bearing Deposits | 740,170 | | | 758,425 | | | 798,392 | |
| Interest-Bearing Checking Accounts | 875,365 | | | 799,785 | | | 920,250 | |
| Savings Deposits | 1,544,868 | | | 1,466,280 | | | 1,496,193 | |
| Time Deposits over $250,000 | 177,990 | | | 179,301 | | | 167,614 | |
| Other Time Deposits | 499,064 | | | 483,775 | | | 284,036 | |
| Total Deposits | 3,837,457 | | | 3,687,566 | | | 3,666,485 | |
| Borrowings | 103,600 | | | 26,500 | | | 174,300 | |
| | | | | |
| | | | | |
Junior Subordinated Obligations Issued to Unconsolidated
Subsidiary Trusts | 20,000 | | | 20,000 | | | 20,000 | |
| Finance Leases | 5,022 | | | 5,066 | | | 5,080 | |
| Other Liabilities | 52,059 | | | 50,964 | | | 47,032 | |
| Total Liabilities | 4,018,138 | | | 3,790,096 | | | 3,912,897 | |
| STOCKHOLDERS’ EQUITY | | | | | |
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at September 30, 2024, December 31, 2023 and September 30, 2023 | — | | | — | | | — | |
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (22,066,559 Shares Issued at September 30, 2024, December 31, 2023 and September 30, 2023) | 22,067 | | | 22,067 | | | 22,067 | |
| Additional Paid-in Capital | 413,065 | | | 412,551 | | | 412,397 | |
| Retained Earnings | 77,429 | | | 65,792 | | | 62,647 | |
| | | | | |
| Accumulated Other Comprehensive Loss | (25,968) | | | (33,416) | | | (52,584) | |
Treasury Stock, at Cost (5,332,907 Shares at September 30, 2024; 5,124,073 Shares at December 31, 2023 and 5,017,063 Shares at September 30, 2023) | (93,282) | | | (87,222) | | | (84,513) | |
| Total Stockholders’ Equity | 393,311 | | | 379,772 | | | 360,014 | |
| Total Liabilities and Stockholders’ Equity | $ | 4,411,449 | | | $ | 4,169,868 | | | $ | 4,272,911 | |
Arrow Financial Corporation
Selected Quarterly Information
(Dollars In Thousands, Except Per Share Amounts - Unaudited)
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| Quarter Ended | 9/30/2024 | | 6/30/2024 | | 3/31/2024 | | 12/31/2023 | | 9/30/2023 |
| Net Income | $ | 8,975 | | | $ | 8,604 | | | $ | 7,660 | | | $ | 7,723 | | | $ | 7,743 | |
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Net Changes in Fair Value of Equity Investments (Net of Tax) | 69 | | | 39 | | | 13 | | | 90 | | | 52 | |
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| Share and Per Share Data: | | | | | | | | | |
| Period End Shares Outstanding | 16,734 | | | 16,723 | | | 16,710 | | | 16,942 | | | 17,049 | |
| Basic Average Shares Outstanding | 16,710 | | | 16,685 | | | 16,865 | | | 17,002 | | | 17,050 | |
| Diluted Average Shares Outstanding | 16,742 | | | 16,709 | | | 16,867 | | | 17,004 | | | 17,050 | |
| Basic Earnings Per Share | $ | 0.54 | | | $ | 0.52 | | | $ | 0.45 | | | $ | 0.46 | | | $ | 0.46 | |
| Diluted Earnings Per Share | 0.53 | | | 0.52 | | | 0.45 | | | 0.46 | | | 0.46 | |
| Cash Dividend Per Share | 0.270 | | | 0.270 | | | 0.270 | | | 0.270 | | | 0.262 | |
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| Selected Quarterly Average Balances: | | | | | | | | | |
| Interest-Bearing Deposits at Banks | $ | 154,937 | | | $ | 159,336 | | | $ | 178,452 | | | $ | 136,026 | | | $ | 131,814 | |
| Investment Securities | 590,352 | | | 644,192 | | | 671,105 | | | 713,144 | | | 745,693 | |
| Loans | 3,329,873 | | | 3,280,285 | | | 3,235,841 | | | 3,170,262 | | | 3,096,240 | |
| Deposits | 3,672,128 | | | 3,678,957 | | | 3,693,325 | | | 3,593,949 | | | 3,491,028 | |
| Other Borrowed Funds | 134,249 | | | 131,537 | | | 122,033 | | | 149,507 | | | 208,527 | |
Stockholders' Equity | 387,904 | | | 378,256 | | | 379,446 | | | 363,753 | | | 362,701 | |
| Total Assets | 4,245,597 | | | 4,237,359 | | | 4,245,484 | | | 4,159,313 | | | 4,109,995 | |
| Return on Average Assets, annualized | 0.84 | % | | 0.82 | % | | 0.73 | % | | 0.74 | % | | 0.75 | % |
| Return on Average Equity, annualized | 9.20 | % | | 9.15 | % | | 8.12 | % | | 8.42 | % | | 8.47 | % |
Return on Average Tangible Equity, annualized 1 | 9.79 | % | | 9.74 | % | | 8.64 | % | | 8.99 | % | | 9.05 | % |
| Average Earning Assets | $ | 4,075,162 | | | $ | 4,083,813 | | | $ | 4,085,398 | | | $ | 4,019,432 | | | $ | 3,973,747 | |
| Average Paying Liabilities | 3,085,066 | | | 3,127,417 | | | 3,108,093 | | | 2,985,717 | | | 2,920,518 | |
| Interest Income | 49,443 | | | 47,972 | | | 46,677 | | | 44,324 | | | 42,117 | |
Tax-Equivalent Adjustment 2 | 149 | | | 163 | | | 176 | | | 184 | | | 183 | |
Interest Income, Tax-Equivalent 2 | 49,592 | | | 48,135 | | | 46,853 | | | 44,508 | | | 42,117 | |
| Interest Expense | 21,005 | | | 20,820 | | | 20,222 | | | 18,711 | | | 16,764 | |
| Net Interest Income | 28,438 | | | 27,152 | | | 26,455 | | | 25,613 | | | 25,353 | |
Net Interest Income, Tax-Equivalent 2 | 28,587 | | | 27,315 | | | 26,631 | | | 25,797 | | | 25,536 | |
| Net Interest Margin, annualized | 2.78 | % | | 2.67 | % | | 2.60 | % | | 2.53 | % | | 2.53 | % |
Net Interest Margin, Tax-Equivalent, annualized 2 | 2.79 | % | | 2.69 | % | | 2.62 | % | | 2.55 | % | | 2.55 | % |
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Efficiency Ratio Calculation: 3 | | | | | | | | | |
| Non-Interest Expense | $ | 24,100 | | | $ | 23,318 | | | $ | 24,012 | | | $ | 23,190 | | | $ | 23,479 | |
| Less: Intangible Asset Amortization | 78 | | | 40 | | | 41 | | | 43 | | | 43 | |
| Net Non-Interest Expense | $ | 24,022 | | | $ | 23,278 | | | $ | 23,971 | | | $ | 23,147 | | | $ | 23,436 | |
| Net Interest Income, Tax-Equivalent | $ | 28,587 | | | $ | 27,315 | | | $ | 26,631 | | | $ | 25,797 | | | $ | 25,536 | |
| Non-Interest Income | 8,133 | | | 7,856 | | | 7,858 | | | 7,484 | | | 8,050 | |
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Less: Net Gain on Securities | 94 | | | 54 | | | 17 | | | 122 | | | 71 | |
| Net Gross Income | $ | 36,626 | | | $ | 35,117 | | | $ | 34,472 | | | $ | 33,159 | | | $ | 33,515 | |
| Efficiency Ratio | 65.59 | % | | 66.29 | % | | 69.54 | % | | 69.81 | % | | 69.93 | % |
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| Period-End Capital Information: | | | | | | | | | |
| Total Stockholders' Equity (i.e. Book Value) | $ | 393,311 | | | $ | 383,018 | | | $ | 377,986 | | | $ | 379,772 | | | $ | 360,014 | |
Book Value per Share | 23.50 | | | 22.90 | | | 22.62 | | | 22.42 | | | 21.12 | |
| Goodwill and Other Intangible Assets, net | 25,979 | | | 22,800 | | | 22,891 | | | 22,983 | | | 23,078 | |
Tangible Book Value per Share 1 | 21.95 | | | 21.54 | | | 21.25 | | | 21.06 | | | 19.76 | |
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Capital Ratios:4 | | | | | | | | | |
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| Tier 1 Leverage Ratio | 9.78 | % | | 9.74 | % | | 9.63 | % | | 9.84 | % | | 9.94 | % |
Common Equity Tier 1 Capital Ratio | 12.77 | % | | 12.88 | % | | 12.84 | % | | 13.00 | % | | 13.17 | % |
| Tier 1 Risk-Based Capital Ratio | 13.41 | % | | 13.53 | % | | 13.50 | % | | 13.66 | % | | 13.84 | % |
| Total Risk-Based Capital Ratio | 14.46 | % | | 14.57 | % | | 14.57 | % | | 14.74 | % | | 14.94 | % |
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| Assets Under Trust Admin. & Investment Mgmt. | $ | 1,944,239 | | | $ | 1,848,349 | | | $ | 1,829,266 | | | $ | 1,763,194 | | | $ | 1,627,522 | |
Arrow Financial Corporation
Selected Quarterly Information - Continued
(Dollars In Thousands, Except Per Share Amounts - Unaudited)
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| Footnotes: | | | | | | | | |
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| 1. | Non-GAAP Financial Measure Reconciliation: Tangible Book Value, Tangible Equity, and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which Arrow believes provide investors with information that is useful in understanding its financial performance. |
| | 9/30/2024 | | 6/30/2024 | | 3/31/2024 | | 12/31/2023 | | 9/30/2023 |
| Total Stockholders' Equity (GAAP) | $ | 393,311 | | | $ | 383,018 | | | $ | 377,986 | | | $ | 379,772 | | | $ | 360,014 | |
| Less: Goodwill and Other Intangible assets, net | 25,979 | | | 22,800 | | | 22,891 | | | 22,983 | | | 23,078 | |
| Tangible Equity (Non-GAAP) | $ | 367,332 | | | $ | 360,218 | | | $ | 355,095 | | | $ | 356,789 | | | $ | 336,936 | |
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| Period End Shares Outstanding | 16,734 | | | 16,723 | | | 16,710 | | | 16,942 | | | 17,049 | |
| Tangible Book Value per Share (Non-GAAP) | $ | 21.95 | | | $ | 21.54 | | | $ | 21.25 | | | $ | 21.06 | | | $ | 19.76 | |
| Net Income | 8,975 | | | 8,604 | | | 7,660 | | | 7,723 | | | 7,743 | |
| Return on Tangible Equity (Net Income/Tangible Equity - Annualized) | 9.79 | % | | 9.74 | % | | 8.64 | % | | 8.99 | % | | 9.05 | % |
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| 2. | 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. |
| | 9/30/2024 | | 6/30/2024 | | 3/31/2024 | | 12/31/2023 | | 9/30/2023 |
| Interest Income (GAAP) | $ | 49,443 | | | $ | 47,972 | | | $ | 46,677 | | | $ | 44,324 | | | $ | 42,117 | |
| Add: Tax-Equivalent adjustment
(Non-GAAP) | 149 | | | 163 | | | 176 | | | 184 | | | 183 | |
| Interest Income - Tax Equivalent
(Non-GAAP) | $ | 49,592 | | | $ | 48,135 | | | $ | 46,853 | | | $ | 44,508 | | | $ | 42,300 | |
| Net Interest Income (GAAP) | $ | 28,438 | | | $ | 27,152 | | | $ | 26,455 | | | $ | 25,613 | | | $ | 25,353 | |
| Add: Tax-Equivalent adjustment
(Non-GAAP) | 149 | | | 163 | | | 176 | | | 184 | | | 183 | |
| Net Interest Income - Tax Equivalent
(Non-GAAP) | $ | 28,587 | | | $ | 27,315 | | | $ | 26,631 | | | $ | 25,797 | | | $ | 25,536 | |
| Average Earning Assets | $ | 4,075,162 | | | $ | 4,083,813 | | | $ | 4,085,398 | | | $ | 4,019,432 | | | $ | 3,973,747 | |
| Net Interest Margin (Non-GAAP)* | 2.79 | % | | 2.69 | % | | 2.62 | % | | 2.55 | % | | 2.55 | % |
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| 3. | 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). |
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| 4. | 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, 2024 CET1 ratio listed in the tables (i.e., 12.77%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%). |
| | 9/30/2024 | | 6/30/2024 | | 3/31/2024 | | 12/31/2023 | | 9/30/2023 |
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| Total Risk Weighted Assets | $ | 3,110,178 | | | $ | 3,072,922 | | | $ | 3,049,525 | | | $ | 3,032,188 | | | $ | 2,988,438 | |
| Common Equity Tier 1 Capital | 397,122 | | | 395,691 | | | 391,706 | | | 394,166 | | | 393,541 | |
| Common Equity Tier 1 Ratio | 12.77 | % | | 12.88 | % | | 12.84 | % | | 13.00 | % | | 13.17 | % |
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| * Quarterly ratios have been annualized. | | | | | | | | | |
Arrow Financial Corporation
Average Consolidated Balance Sheets and Net Interest Income Analysis
(Dollars in Thousands - Unaudited)
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| Quarter Ended: | September 30, 2024 | | September 30, 2023 |
| | | Interest | | Rate | | | | Interest | | Rate |
| Average | | Income/ | | Earned/ | | Average | | Income/ | | Earned/ |
| Balance | | Expense | | Paid | | Balance | | Expense | | Paid |
| Interest-Bearing Deposits at Banks | $ | 154,937 | | | $ | 2,103 | | | 5.40 | % | | $ | 131,814 | | | $ | 1,805 | | | 5.43 | % |
| Investment Securities: | | | | | | | | | | | |
| Fully Taxable | 497,450 | | | 2,656 | | | 2.12 | | | 616,020 | | | 2,924 | | | 1.88 | |
| Exempt from Federal Taxes | 92,902 | | | 562 | | | 2.41 | | | 129,673 | | | 689 | | | 2.11 | |
Loans (1) | 3,329,873 | | | 44,122 | | | 5.27 | | | 3,096,240 | | | 36,699 | | | 4.70 | |
Total Earning Assets (1) | 4,075,162 | | | 49,443 | | | 4.83 | | | 3,973,747 | | | 42,117 | | | 4.20 | |
| Allowance for Credit Losses | (31,147) | | | | | | | (31,386) | | | | | |
| Cash and Due From Banks | 33,159 | | | | | | | 32,874 | | | | | |
| Other Assets | 168,423 | | | | | | | 134,760 | | | | | |
| Total Assets | $ | 4,245,597 | | | | | | | $ | 4,109,995 | | | | | |
| Deposits: | | | | | | | | | | | |
| Interest-Bearing Checking Accounts | $ | 785,134 | | | 1,966 | | | 1.00 | | | $ | 795,627 | | | 1,156 | | | 0.58 | |
| Savings Deposits | 1,492,888 | | | 10,905 | | | 2.91 | | | 1,505,916 | | | 9,729 | | | 2.56 | |
| Time Deposits of $250,000 or More | 174,028 | | | 1,803 | | | 4.12 | | | 152,738 | | | 1,466 | | | 3.81 | |
| Other Time Deposits | 498,767 | | | 4,934 | | | 3.94 | | | 257,710 | | | 2,051 | | | 3.16 | |
| Total Interest-Bearing Deposits | 2,950,817 | | | 19,608 | | | 2.64 | | | 2,711,991 | | | 14,402 | | | 2.11 | |
| Borrowings | 109,230 | | | 1,177 | | | 4.29 | | | 183,452 | | | 2,143 | | | 4.63 | |
| Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 | | | 173 | | | 3.44 | | | 20,000 | | | 173 | | | 3.43 | |
| Finance Leases | 5,019 | | | 47 | | | 3.73 | | | 5,075 | | | 46 | | | 3.60 | |
| Total Interest-Bearing Liabilities | 3,085,066 | | | 21,005 | | | 2.71 | | | 2,920,518 | | | 16,764 | | | 2.28 | |
| Noninterest-Bearing Deposits | 721,311 | | | | | | | 779,037 | | | | | |
| Other Liabilities | 51,316 | | | | | | | 47,739 | | | | | |
| Total Liabilities | 3,857,693 | | | | | | | 3,747,294 | | | | | |
| Stockholders’ Equity | 387,904 | | | | | | | 362,701 | | | | | |
| Total Liabilities and Stockholders’ Equity | $ | 4,245,597 | | | | | | | $ | 4,109,995 | | | | | |
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| Net Interest Income | | | $ | 28,438 | | | | | | | $ | 25,353 | | | |
| Net Interest Spread | | | | | 2.12 | % | | | | | | 1.92 | % |
| Net Interest Margin | | | | | 2.78 | % | | | | | | 2.53 | % |
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(1) Includes Nonaccrual Loans.
Arrow Financial Corporation
Average Consolidated Balance Sheets and Net Interest Income Analysis
(Dollars in Thousands - Unaudited)
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| Quarter Ended: | September 30, 2024 | | June 30, 2024 |
| | | Interest | | Rate | | | | Interest | | Rate |
| Average | | Income/ | | Earned/ | | Average | | Income/ | | Earned/ |
| Balance | | Expense | | Paid | | Balance | | Expense | | Paid |
| Interest-Bearing Deposits at Banks | $ | 154,937 | | | $ | 2,103 | | | 5.40 | % | | $ | 159,336 | | | $ | 2,185 | | | 5.52 | % |
| Investment Securities: | | | | | | | | | | | |
| Fully Taxable | 497,450 | | | 2,656 | | | 2.12 | | | 530,869 | | | 3,009 | | | 2.28 | |
| Exempt from Federal Taxes | 92,902 | | | 562 | | | 2.41 | | | 113,323 | | | 637 | | | 2.26 | |
Loans (1) | 3,329,873 | | | 44,122 | | | 5.27 | | | 3,280,285 | | | 42,141 | | | 5.17 | |
Total Earning Assets (1) | 4,075,162 | | | 49,443 | | | 4.83 | | | 4,083,813 | | | 47,972 | | | 4.72 | |
| Allowance for Credit Losses | (31,147) | | | | | | | (31,459) | | | | | |
| Cash and Due From Banks | 33,159 | | | | | | | 28,611 | | | | | |
| Other Assets | 168,423 | | | | | | | 156,394 | | | | | |
| Total Assets | $ | 4,245,597 | | | | | | | $ | 4,237,359 | | | | | |
| Deposits: | | | | | | | | | | | |
| Interest-Bearing Checking Accounts | $ | 785,134 | | | 1,966 | | | 1.00 | | | $ | 832,087 | | | 1,903 | | | 0.92 | |
| Savings Deposits | 1,492,888 | | | 10,905 | | | 2.91 | | | 1,487,062 | | | 10,571 | | | 2.86 | |
| Time Deposits of $250,000 or More | 174,028 | | | 1,803 | | | 4.12 | | | 172,655 | | | 1,869 | | | 4.35 | |
| Other Time Deposits | 498,767 | | | 4,934 | | | 3.94 | | | 504,076 | | | 5,074 | | | 4.05 | |
| Total Interest-Bearing Deposits | 2,950,817 | | | 19,608 | | | 2.64 | | | 2,995,880 | | | 19,417 | | | 2.61 | |
| Borrowings | 109,230 | | | 1,177 | | | 4.29 | | | 106,502 | | | 1,186 | | | 4.48 | |
| Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 | | | 173 | | | 3.44 | | | 20,000 | | | 170 | | | 3.42 | |
| Finance Leases | 5,019 | | | 47 | | | 3.73 | | | 5,035 | | | 47 | | | 3.75 | |
| Total Interest-Bearing Liabilities | 3,085,066 | | | 21,005 | | | 2.71 | | | 3,127,417 | | | 20,820 | | | 2.68 | |
| Noninterest-Bearing Deposits | 721,311 | | | | | | | 683,077 | | | | | |
| Other Liabilities | 51,316 | | | | | | | 48,609 | | | | | |
| Total Liabilities | 3,857,693 | | | | | | | 3,859,103 | | | | | |
| Stockholders’ Equity | 387,904 | | | | | | | 378,256 | | | | | |
| Total Liabilities and Stockholders’ Equity | $ | 4,245,597 | | | | | | | $ | 4,237,359 | | | | | |
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| Net Interest Income | | | $ | 28,438 | | | | | | | $ | 27,152 | | | |
| Net Interest Spread | | | | | 2.12 | % | | | | | | 2.04 | % |
| Net Interest Margin | | | | | 2.78 | % | | | | | | 2.67 | % |
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(1) Includes Nonaccrual Loans.
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| Average Consolidated Balance Sheets and Net Interest Income Analysis |
| (GAAP Basis) |
| (Dollars In Thousands) |
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| Nine Months Ended September 30: | 2024 | | 2023 |
| | | Interest | | Rate | | | | Interest | | Rate |
| Average | | Income/ | | Earned/ | | Average | | Income/ | | Earned/ |
| Balance | | Expense | | Paid | | Balance | | Expense | | Paid |
| Interest-Bearing Deposits at Banks | $ | 164,208 | | | $ | 6,735 | | | 5.48 | % | | $ | 101,104 | | | $ | 3,958 | | | 5.23 | % |
| Investment Securities: | | | | | | | | | | | |
| Fully Taxable | 526,181 | | | 8,851 | | | 2.25 | | | 635,126 | | | 8,823 | | | 1.86 | |
| Exempt from Federal Taxes | 108,872 | | | 1,867 | | | 2.29 | | | 146,736 | | | 2,256 | | | 2.06 | |
Loans (1) | 3,282,175 | | | 126,639 | | | 5.15 | | | 3,041,909 | | | 103,203 | | | 4.54 | |
Total Earning Assets (1) | 4,081,436 | | | 144,092 | | | 4.72 | | | 3,924,875 | | | 118,240 | | | 4.03 | |
| Allowance for Credit Losses | (31,340) | | | | | | | (30,591) | | | | | |
| Cash and Due From Banks | 30,534 | | | | | | | 30,720 | | | | | |
| Other Assets | 162,194 | | | | | | | 134,310 | | | | | |
| Total Assets | $ | 4,242,824 | | | | | | | $ | 4,059,314 | | | | | |
| Deposits: | | | | | | | | | | | |
| Interest-Bearing Checking Accounts | $ | 815,933 | | | 5,510 | | | 0.90 | | | $ | 874,132 | | | 2,346 | | | 0.36 | |
| Savings Deposits | 1,487,005 | | | 31,706 | | | 2.85 | | | 1,494,976 | | | 23,830 | | | 2.13 | |
| Time Deposits of $250,000 or More | 174,668 | | | 5,645 | | | 4.32 | | | 127,230 | | | 3,159 | | | 3.32 | |
| Other Time Deposits | 499,881 | | | 15,091 | | | 4.03 | | | 203,047 | | | 3,721 | | | 2.45 | |
| Total Interest-Bearing Deposits | 2,977,487 | | | 57,952 | | | 2.60 | | | 2,699,385 | | | 33,056 | | | 1.64 | |
| Borrowings | 104,257 | | | 3,439 | | | 4.41 | | | 151,887 | | | 5,309 | | | 4.67 | |
| Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 | | | 514 | | | 3.43 | | | 20,000 | | | 513 | | | 3.43 | |
| Finance Leases | 5,034 | | | 142 | | | 3.77 | | | 5,088 | | | 143 | | 3.76 | |
| Total Interest-Bearing Liabilities | 3,106,778 | | | 62,047 | | | 2.67 | | | 2,876,360 | | | 39,021 | | | 1.81 | |
| Noninterest-Bearing Deposits | 703,948 | | | | | | | 777,994 | | | | | |
| Other Liabilities | 50,207 | | | | | | | 42,506 | | | | | |
| Total Liabilities | 3,860,933 | | | | | | | 3,696,860 | | | | | |
| Stockholders’ Equity | 381,891 | | | | | | | 362,454 | | | | | |
| Total Liabilities and Stockholders’ Equity | $ | 4,242,824 | | | | | | | $ | 4,059,314 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net Interest Income | | | $ | 82,045 | | | | | | | $ | 79,219 | | | |
| Net Interest Spread | | | | | 2.05 | % | | | | | | 2.22 | % |
| Net Interest Margin | | | | | 2.69 | % | | | | | | 2.70 | % |
(1) Includes Nonaccrual Loans.
Arrow Financial Corporation
Consolidated Financial Information
(Dollars in Thousands - Unaudited)
| | | | | | | | | | | | | | | | | |
| Quarter Ended: | 9/30/2024 | | 12/31/2023 | | 9/30/2023 |
| Loan Portfolio | | | | | |
| Commercial Loans | $ | 169,884 | | | $ | 156,224 | | | $ | 148,066 | |
| Commercial Real Estate Loans | 756,420 | | | 745,487 | | | 734,604 | |
| Subtotal Commercial Loan Portfolio | 926,304 | | | 901,711 | | | 882,670 | |
| Consumer Loans | 1,120,241 | | | 1,111,667 | | | 1,107,638 | |
| Residential Real Estate Loans | 1,293,392 | | | 1,199,530 | | | 1,148,309 | |
| Total Loans | $ | 3,339,937 | | | $ | 3,212,908 | | | $ | 3,138,617 | |
| Allowance for Credit Losses | | | | | |
| Allowance for Credit Losses, Beginning of Quarter | $ | 31,009 | | | $ | 31,112 | | | $ | 31,170 | |
| | | | | |
| Loans Charged-off | (1,429) | | | (1,366) | | | (1,204) | |
| Less Recoveries of Loans Previously Charged-off | 748 | | | 994 | | | 792 | |
| Net Loans Charged-off | (681) | | | (372) | | | (412) | |
| Provision for Credit Losses | 934 | | | 525 | | | 354 | |
| Allowance for Credit Losses, End of Quarter | $ | 31,262 | | | $ | 31,265 | | | $ | 31,112 | |
| Nonperforming Assets | | | | | |
| Nonaccrual Loans | $ | 21,047 | | | $ | 20,645 | | | $ | 6,023 | |
| Loans Past Due 90 or More Days and Accruing | 816 | | | 452 | | | 251 | |
| Loans Restructured and in Compliance with Modified Terms | 30 | | | 54 | | | 60 | |
| Total Nonperforming Loans | 21,893 | | | 21,151 | | | 6,334 | |
| Repossessed Assets | 322 | | | 312 | | | 344 | |
| Other Real Estate Owned | 76 | | | — | | | 182 | |
| Total Nonperforming Assets | $ | 22,291 | | | $ | 21,463 | | | $ | 6,860 | |
| | | | | |
| Key Asset Quality Ratios | | | | | |
Net Loans Charged-off to Average Loans,
Quarter-to-date Annualized | 0.08 | % | | 0.05 | % | | 0.05 | % |
Provision for Credit Losses to Average Loans,
Quarter-to-date Annualized | 0.11 | % | | 0.07 | % | | 0.05 | % |
| Allowance for Credit Losses to Period-End Loans | 0.94 | % | | 0.97 | % | | 0.99 | % |
| Allowance for Credit Losses to Period-End Nonperforming Loans | 142.79 | % | | 147.82 | % | | 491.19 | % |
| Nonperforming Loans to Period-End Loans | 0.66 | % | | 0.66 | % | | 0.20 | % |
| Nonperforming Assets to Period-End Assets | 0.51 | % | | 0.51 | % | | 0.16 | % |
| | | | | |
| Year-to-Date Period Ended: | 9/30/2024 | | 12/31/2023 | | 9/30/2023 |
| Allowance for Credit Losses | | | | | |
| Allowance for Credit Losses, Beginning of Year | $ | 31,265 | | | $ | 29,952 | | | $ | 29,952 | |
| | | | | |
| Loans Charged-off | (4,562) | | | (5,177) | | | (3,812) | |
| Less Recoveries of Loans Previously Charged-off | 2,233 | | | 3,109 | | | 2,116 | |
| Net Loans Charged-off | (2,329) | | | (2,068) | | | (1,696) | |
| Provision for Credit Losses | 2,326 | | | 3,381 | | | 2,856 | |
| Allowance for Credit Losses, End of Period | $ | 31,262 | | | $ | 31,265 | | | $ | 31,112 | |
| | | | | |
| Key Asset Quality Ratios | | | | | |
| Net Loans Charged-off to Average Loans, Annualized | 0.09 | % | | 0.07 | % | | 0.07 | % |
| Provision for Loan Losses to Average Loans, Annualized | 0.09 | % | | 0.11 | % | | 0.13 | % |
3Q 2024 Investor Presentation October 31, 2024
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, 2023 (the “2023 10-K”), other filings with the SEC, and the third quarter 2024 earnings release issued October 31, 2024 (the “3Q Earnings Release”).
3 Table of Contents • 3Q 2024 Results and Performance Metrics • Non-Interest Income/Expense • Loans • Deposits/Funding Sources • Credit Quality • Capital Actions & Strategy • Investments • Overview and History
3Q 2024 Results 4
5 Takeaways & Themes • Strong Expansion of Net Interest Margin • Successful Integration of Two Acquisitions • Continued Capital Return to Investors • Excellent Credit Profile • Strong Capital Base • Diversified Revenue Sources Core Banking Wealth Management Insurance • 2025 Tailwinds Liability Sensitive Balance Sheet Positive Core Operating Leverage
6 3Q 2024 Highlights • Net income of $9.0 million; Diluted Earnings Per Share (EPS) of $0.53; negatively impacted by $0.02 per share of non-core expenses related to acquisitions • Net Interest Margin improved to 2.78% (2.79% FTE), up from 2.67% (2.69% FTE) from the prior quarter • Average loan yields increased to 5.27% for 3Q24, up from 5.17% for 2Q24 • Loan portfolio rate at end of 3Q24 reached 5.35%, up 10 bps from 2Q24 • Cost of deposits were 2.12% for 3Q24, unchanged from 2Q24 • Cost of deposits rate at end of 3Q24 was 2.08%, 4 bps lower than the average rate for the quarter • Tangible Book Value increased to $21.95 • Accumulated Other Comprehensive Loss improved $5.7 million, or 18%, from 2Q24 • ROA improved to 0.84%, up from 0.82% in the previous quarter • Strong credit quality; Annualized net charge-offs were 0.08% • Acquisition of Whitehall, NY branch with ~$38 million in deposits • Acquisition of the assets of A&B Agency, Inc., an employee benefits insurance solutions provider Other Items • 4th Quarter Dividend of $0.28 per share paid on October 29, 2024, a 3.7% increase from prior quarter • In October, paid off BTFP1 borrowing of $95 million and replaced with lower costing brokered CDs • Named to the prestigious Piper Sandler list of “Sm-All Stars” Class of 2024 • In November, customers will gain surcharge-free access to the Allpoint ATM Network of over 55,000 locations 1Bank Term Funding Program Financial information provided in this document is unaudited. Please refer to the 3Q24 Earnings Release for a reconciliation of any non-GAAP measures.
7 3Q 2024 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 3Q24 2Q24 Fav/(Unfav) Var1 Total Interest Income $ 49.4 $ 48.0 1.5 Total Interest Expense 21.0 20.8 (0.2) Net Interest Income 28.4 27.2 1.3 Non-Interest Income 8.1 7.9 0.2 Non-Interest Expense 24.1 23.3 (0.8) Pre-Tax, Pre-Provision Net Revenue2 $ 12.4 $ 11.7 0.7 Provision for Credit Losses $ 0.9 $ 0.8 (0.2) Pre-Tax Income $ 11.5 $ 10.9 0.6 Income Tax Expense $ 2.5 $ 2.3 (0.2) Reported Net Income $ 9.0 $ 8.6 0.4 EPS $ 0.53 $ 0.52 0.01 Income Statement YTD 3Q24 YTD 3Q23 Fav/(Unfav) Var1 Total Interest Income $ 144.1 $ 118.2 25.9 Total Interest Expense 62.1 39.0 (23.1) Net Interest Income 82.0 79.2 2.8 Non-Interest Income 23.8 21.6 2.2 Non-Interest Expense 71.4 69.8 (1.6) Pre-Tax, Pre-Provision Net Revenue2 $ 34.4 $ 31.0 3.4 Provision for Credit Losses $ 2.3 $ 2.9 0.6 Pre-Tax Income $ 32.1 $ 28.1 4.0 Income Tax Expense $ 6.9 $ 5.8 (1.1) Reported Net Income $ 25.2 $ 22.3 2.9 EPS $ 1.50 $ 1.31 0.19
8 3Q 2024 Consolidated Financial Statements 1 Variances rounded based on actual whole dollar amounts UNAUDITED Dollars in millions, except per share data Linked Quarter Balance Sheet 3Q24 2Q24 4Q23 3Q24 vs 2Q241 3Q24 vs 4Q231 Cash & Cash Equivalents $ 340.1 $ 200.2 $ 142.5 139.9 197.6 Investment Securities 549.8 556.4 636.1 (6.6) (86.3) Loans Receivable, net 3,308.7 3,284.5 3,181.6 24.2 127.0 All Other Assets 212.8 203.3 209.6 9.5 3.2 Total Assets $ 4,411.4 $ 4,244.4 $ 4,169.9 167.0 241.6 Total Deposits $ 3,837.5 $ 3,683.6 $ 3,687.6 153.8 149.9 Total Borrowings 128.6 131.5 51.6 (2.9) 77.0 Other Liabilities 52.0 46.2 51.0 5.8 1.0 Total Liabilities $ 4,018.1 $ 3,861.4 $ 3,790.1 156.7 228.0 Equity $ 393.3 $ 383.0 $ 379.8 10.3 13.5 Total Liabilities & Equity $ 4,411.4 $ 4,244.4 $ 4,169.9 167.0 241.5
9 3Q24 YTD 2024 EPS $0.53 $1.50 Net Interest Margin* 2.78% 2.69% Profitability Net Revenue $36.6 million $105.9 million Return on Average Assets (ROA) 0.84% 0.79% Return on Average Equity (ROE) 9.20% 8.83% $3.34 billion of gross loans 87.0% loan-to-deposit ratio Balance Sheet $3.84 billion of deposits 6.32% wholesale funding ratio 0.94% Allowance for Credit Losses (ACL) 0% digital deposits $21.95 Fully Diluted Tangible Book Value per Share Capital 8.63% Tangible Common Equity Ratio YTD 2024 Results *FTE for 3Q24 is 2.79%; 2Q24 is 2.69%; 1Q’24 is 2.62%; FY 2023 is 2.67% Arrow GFNB SNB Tier 1 Leverage Ratio 9.78% 8.75% 9.41% CET 1 Capital Ratio 12.77% 12.97% 12.04% Tier 1 Risk-Based Capital Ratio 13.41% 12.97% 12.04%
10 Performance Trends $2.41 $2.92 $2.86 $1.77 $0.45 $0.52 $0.53 2020 2021 2022 2023 1Q24 2Q24 3Q24 EPS $18.32 $20.42 $19.37 $21.06 $21.25 $21.54 $21.95 2020 2021 2022 2023 1Q24 2Q24 3Q24 Fully Diluted Tangible Book Value 12.77% 14.09%13.55% 8.29% 8.12% 9.15% 9.20% 2020 2021 2022 2023 1Q24 2Q24 3Q24 Return on Average Equity 1.17% 1.28% 1.21% 0.74% 0.73% 0.82% 0.84% 2020 2021 2022 2023 1Q24 2Q24 3Q24 Return on Average Assets After a challenging 2023, EPS and profitability metrics continue to rebound History of strong earnings and performance metrics YTD $1.50
11 Net Interest Margin 2.97% 3.03% 2.65% 2.60% 2.67% 2.78% 3.97% 4.00% 4.62% 5.01% 5.17% 5.27% 0.10% 0.27% 1.43% 2.06% 2.12% 2.12% 2021 2022 2023 1Q24 2Q24 3Q24 NIM Average Loan Yield for the Period Shown Cost of Deposits 1 1Yield includes the impact of deferred fees and loan origination costs amortization 2.90% 3.02% 3.14% 3.08% 2.96% 2.61% 2.53%2.53% 2.60% 2.67% 2.78% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 NIM Expansion Accelerating 3Q24 Full Tax Equivalent NIM 2.79% 3Q2024 2Q2024 Loan Origination Avg. Rate 7.35% 7.46% Loan Portfolio Exit Rate at Quarter End 5.35% 5.25% Deposit Exit Rate at Quarter End 2.08% 2.10% 3Q24 Exit Rate for Deposits below the average for the quarter
Non-Interest Income/Expense 12
13 3Q24 Non-Interest Income Steady, broad based non-interest income sources: • Wealth Management • Insurance (3Q24 aided by acquisition of A&B Agency) • Banking Fees Dollars in thousands September 30, 2024 June 30, 2024 September 30, 2023 Fees for Other Services to Customers $ 2,881 $ 2,706 $ 2,761 Fiduciary Activities/Wealth Management 2,429 2,451 2,378 Insurance Commissions 1,955 1,662 1,695 Other Operating Income 868 1,037 1,216 Total Non-Interest Income $ 8,133 $ 7,856 $ 8,050 Three Months Ended
14 3Q24 Non-Interest Expense • Increase in Compensation & Benefits – Supporting growing organization and inflation-driven wage increases • Fraud Expenses in 2Q24 benefitted from recoveries related to 2023 and 1Q24 events • Legal & Professional elevated in 3Q2024 related to one-time charges for acquisitions of Whitehall and A&B Agency Dollars in thousands September 30, 2024 June 30, 2024 September 30, 2023 Compensation & Benefits $ 13,446 $ 13,036 $ 11,988 Occupancy & Equipment 1,754 1,774 1,517 Data Processing & Technology 4,692 4,734 4,371 Advertising & Contributions 305 278 305 Legal & Professional 1,155 926 2,598 FDIC Assessment 698 698 484 Fraud Expenses 9 (362) 190 All Other Expenses 2,041 2,234 2,026 Total Non-Interest Expense $ 24,100 $ 23,318 $ 23,479 Three Months Ended
15 Operating Expenses - Efficiency Trends 57.1% 52.8% 54.2% 54.3% 68.8% 2.22% 2.02% 2.00% 2.01% 2.28% 2019 2020 2021 2022 2023 Efficiency Ratio Net Non-interest Expense / Average Assets 2023 impacted by margin compression and elevated expenses (audit, professional, legal) due to regulatory filing delays 63.4% 72.7% 69.9% 69.8% 69.5% 66.3% 65.6% 2.27% 2.36% 2.26% 2.21% 2.27% 2.21% 2.25% 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Efficiency Ratio Net Non-interest Expense / Average Assets 3Q24 expenses moderating/efficiency measures improving: • Sustainable reduction in audit, professional and legal expenses • Salary and Benefit adjustments from increased staffing levels and wage inflation impacting 2024
Loans 16
17 Loan Portfolio Composition Commercial (C&I)1 10.9% Commercial Real Estate (CRE) 16.9% Consumer 33.6% Residential Real Estate (RRE) 38.6% • No single relationship represents more than ~1.75% of total loans as of September 30, 2024 • CRE concentration ratio of ~131% of risk-based capital • CRE loans not in major metropolitan areas • C&I portfolio can be a source of deposit growth Total Loan Portfolio ~ $3.33 billion 1Commercial (C&I) includes owner-occupied real estate loans RRE and total loans do not include FV hedge mark of $5.8M, $1.2M, $0.4M, and $6.5M in 2023, 1Q24, 2Q24, and 3Q24, respectively.
18 $316 $350 $357 $358 $360 $365 $442 $497 $544 $555 $561 $562 $921 $1,065 $1,112 $1,126 $1,139 $1,120 $946 $1,071 $1,194 $1,218 $1,255 $1,287 2021 2022 2023 1Q24 2Q24 3Q24 Residential Real Estate (RRE) Consumer Commercial Real Estate (CRE) Commercial (C&I) $2,624 $2,983 $3,207 $3,257 $3,315 $3,333 Loan Balances Dollars in millions Loan Growth Across Multiple Portfolios Balances exclude all Paycheck Protection Plan loans. CRE excludes owner-occupied real estate loans. Owner-occupied real estate loans shown as part of the C&I portfolio. RRE and total loans do not include FV hedge mark of $5.8M, $1.2M, $0.4M, and $6.5M in 2023, 1Q24, 2Q24, and 3Q24, respectively. YTD loan growth of 5.2% (annualized); 5.5% excluding RRE loan sales ~10.6% CAGR
19 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 $3.21 $3.26 $3.32 $3.33 3.94% 3.90% 4.04% 4.08% 3.82% 3.90% 3.85% 4.09% 4.13% 4.32% 4.57% 4.70% 4.86% 5.02% 5.17% 5.27% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Loan Portfolio Yields experiencing meaningful increase during 2024, continuing trend from 2023 Loan Balance Average Loan Portfolio Yield for the Periods Shown Dollars in billions Pre 2020 4.99% 2020 4.30% 2021 3.83%2022 4.66% 2023 6.71% 2024 7.44% Rate by Vintage • ~56% of balances are 2022-2024 vintages • Portfolio exit rate was 5.35% as of Sept. 30, 2024 1Yield includes the impact of deferred fees and loan origination costs amortization 1 …
20 Consumer Loan Portfolio $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $1,088 $1,108 $1,112 $1,126 $1,139 $1,120 3.95%3.94%3.92%3.93%3.87%3.84%3.83% 4.10%4.02% 4.26% 4.61% 4.83% 5.11% 5.36% 5.61% 5.79% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • 99.6% of the portfolio are collateralized auto loans; only $4 million in unsecured personal loans • Auto loans sourced through a network of >485 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 739; Average debt to income ratio ~31%; average LTV is 88% • Less than 5% of indirect loans have FICO scores <620 • Annual losses over last 5 years were 9-20 bps • ~27% new, ~73% 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 at September 30, 2024 - 6.19% Average origination rate for 2024 - 7.92% Rate excludes the impact of deferred fees/loan origination costs
21 Commercial Real Estate Portfolio $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $529 $543 $555 $561 $562 3.66% 4.90%5.08%5.19% 4.88% 5.07%5.18%5.25% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 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, 2024: – ~$132 million, or ~24%, of CRE loans are variable- rate loans or are fixed-rate loans that reprice within 12 months – Non-owner occupied Office exposure accounted for ~10% of CRE and ~2% of total loans – Non-owner occupied Retail exposure accounted for ~15% of CRE and ~2% of total loans outstanding – Total Hotels and Motels exposure accounted for ~24% of CRE and ~4% of total loans outstanding – The majority of the remaining CRE exposure is comprised of multi-family and other residential investment properties Commercial real estate excludes owner-occupied real estate loans. 1 Yield includes the impact of deferred fees and loan origination costs amortization 1 Portfolio rates trending upward September 30, 2024 - 5.36% Rate excludes the impact of deferred fees/loan origination costs
22 Commercial (C&I) Portfolio $305 $301 $312 $312 $316 $334 $346 $350 $350 $344 $352 $354 $359 $358 $360 $365 4.17% 4.35% 4.57% 4.89% 5.38% 5.53% 5.66% 5.81% $200 $250 $300 $350 $400 $450 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • C&I loans extended to businesses/ borrowers primarily located in our regional market area • C&I portfolio a potential source for deposit acquisition • As of September 30, 2024: – ~$71 million, or ~19%, of C&I loans are either variable-rate loans or fixed-rate loans that reprice within 12 months Commercial (C&I) includes owner-occupied real estate loans. 1Yield includes the impact of deferred fees and loan origination costs amortization 1 Portfolio rates trending upward 3Q24 exit rates at 5.36% vs 2Q24 at 5.27% Rate excludes the impact of deferred fees/loan origination costs
23 Residential Real Estate Loans $923 $908 $911 $930 $946 $967 $1,012 $1,051 $1,071 $1,081 $1,111 $1,148 $1,194 $1,218 $1,255 $1,287 3.83%3.79%3.77%3.76%3.73%3.71%3.70%3.78%3.80% 4.10%4.17%4.25% 4.52%4.57%4.67%4.77% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • 3Q24 yields include ~19bps related to FV balance sheet hedge • 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 other guarantees • ~ $49MM, or 4%, of residential loan portfolio is for construction purposes • ~9% of the portfolio are home equity loans • As of September 30, 2024: • ~30% of portfolio subject to adjustable rates • ~70% of portfolio is fixed rate RRE loan balances exclude FV hedge mark. 1Yield includes the impact of deferred fees and loan origination costs amortization 1 As of September 30, 2024, the average rate in the Residential Mortgage portfolio was ~4.32% and the Home Equity Line portfolio rate was ~7.33%, resulting in overall portfolio rate of ~4.61% Rates exclude the impact of deferred fees/loan origination costs
Deposits/Funding Sources 24
25 Deposit Balances – Excl. Brokered CDs 26.5% 25.8% 27.5% 27.0% 25.5% 26.5% 26.6% 27.2% 25.2% 26.2% 27.0% 26.5% 24.6% 26.3% 24.3% 27.1% 25.2% 26.8% 23.3% 26.5% 24.3% 25.6% 47.0% 49.8% 46.2% 48.7% 47.4% 48.3% 46.7% 49.5% 48.3% 49.5% 47.4% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Axis Title Non-Municipal Municipal Business Dollars in billions $3.72 $3.55 $3.80 $3.50 $3.55 $3.50 $3.67 $3.51 $3.60 $3.51 $3.66 • Increase in 3Q24 balances driven by seasonal fluctuation in municipal and corporate deposits • Municipal deposits are from county and local governments, including school, water, fire, sewer districts and housing authorities • $175M in brokered CDs obtained in 4Q23, excluded from chart Subject to three-year swap arrangement
26 Deposit Balances – Excl. Brokered CDs 21.8% 23.3% 24.1% 23.9% 22.3% 21.8% 21.8% 21.5% 19.3% 20.1% 20.2% 31.1% 29.5% 29.3% 28.5% 27.0% 24.4% 25.1% 22.8% 25.2% 24.4% 23.9% 42.4% 42.5% 41.8% 41.7% 42.3% 43.4% 40.9% 41.9% 41.6% 41.3% 42.2% 4.8% 4.8% 4.9% 6.0% 8.5% 10.5% 12.3% 13.9% 13.9% 14.2% 13.7% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 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 $3.51 $3.60 $3.51 $3.66 • Migration continues from low to high-cost products • Seasonality of deposits amplify concentrations in higher-costing deposits
27 Funding Sources and 3Q24 Exit Rates • Recent FRB activity created opportunity to actively reduce Cost of Funds (COF) • Laddered retail CD pricing (6, 14, and 23 month offerings) lower than the average maturing CD specials Dollars in millions Balance Rate Balance Rate Balance Rate Balance Rate Demand (Non-Interest Bearing) $ 291 0.00% $ 425 0.00% $ 24 0.00% $ 740 0.00% Interest Bearing Checking 307 0.14% 257 3.28% 312 0.19% 875 1.08% Savings and Money Market 714 1.29% 274 3.55% 556 4.64% 1,545 2.90% Time Deposits 426 3.66% 31 3.51% 45 2.85% 502 3.58% Core Deposits $ 1,738 1.45% $ 987 1.95% $ 938 2.95% $ 3,662 1.97% Brokered CDs - Net of Swap Effect 175 4.49% Total Deposits $ 1,738 1.45% $ 987 1.95% $ 938 2.95% $ 3,837 2.08% Other Borrowings 109 4.35% Junior Subordinated Obligations - TRUPS 20 3.43% Total Deposits and Borrowings $ 1,738 1.45% $ 987 1.95% $ 938 2.95% $ 3,966 2.15% Consumer Business Municipal Total
28 Deposit Rate Analysis Balance Exit Rate1 Balance Exit Rate1 Balance Exit Rate1 Demand (Non-Interest Bearing) $740 0.00% $705 0.00% $35 0.00% Interest Bearing Checking $875 1.08% $857 1.06% $19 0.02% Savings and Money Market $1,545 2.90% $1,447 2.84% $98 0.06% Time Deposits $502 3.58% $500 3.90% $2 -0.32% Total $3,662 1.97% $3,509 1.98% $154 -0.01% 3Q 2024 2Q 2024 Variance Exit Rate is the rate as of the end of the quarter1 • Deposit pricing discipline challenged by changes in deposit mix • Lower COF Exit Rate in 3Q24 driven by CD repricing • Potential reduction of COF due to future Fed rate cuts
Credit Quality 29
30 Credit Quality 0.44% 0.40% 0.37% 0.21% 0.20% 0.66% 0.66% 0.64% 0.66% 2021 2022 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Non-Performing Loans (NPL) / Gross Loans Dollars in millions $11.7 $12.0 $11.2 $6.5 $6.3 $21.2 $21.4 $21.1 $21.9 • Increase in 4Q23 related to one ~$15.3M Commercial Loan relationship going on non-accrual Strong collateral position; account closely monitored and in active work-out discussions • Annualized charge-offs were 8bps in 3Q24 and 9bps on a YTD basis • ACL Coverage Ratio of 143%; 489% excluding the ~$15.3M Commercial Loan • One NPL relationship • Well collateralized • No specific reserve required 0.48% 0.18%
31 Allowance for Credit Losses Provision for Credit Losses $0.9M
32 Allowance for Credit Losses Provision for Credit Losses $2.3M
Capital Actions and Strategy 33
34 Equity and Ownership Dividends and Return of Capital • 4th Quarter Dividend of $0.28 per share paid on October 29, 2024 • Represents a 3.7% increase to our quarterly dividend • 46th consecutive quarter of dividends • YTD ~$6.4 million of stock repurchases (263K shares) • No repurchase activity in 3Q24 Capital Strategy • $5M stock buyback authorization in place for opportunistic use Ownership • Directors, Management and Employees (through employee ownership plans) currently own ~6% of Arrow
35 Fully Diluted Tangible Book Value (TBV)
36 Capital Position 9.78% 12.77% 13.41% 14.46% 8.63% 9.74% 12.88% 13.53% 14.57% 8.53% 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 2Q24 3Q24
Investments 37
38 Duration Wtd Avg Remaining LifeCurrent Book Value Market ValueCategoy Unrealized Gain / (Loss) Book Yield • Decrease of $12.5M in unrealized losses from June 30, 2024 • Book yield consistent with prior quarter and duration decreased from 2.53 to 2.39 in 3Q2024 Investment Portfolio – AFS and HTM 1 1 Unrealized Gain/(Loss) on HTM for informational purposes only – not reflected in OCI Dollars in thousands September 30, 2024 229$ 4.94% 0.65 0.62 (3,650) Agency CMO Municipal - Local Other Total AFS US Treasuries 7.02% 7.65% 2.07% 0 (43) (30,976)$ Market Value 141,350 75,470 20,805 2,526 2,445 20,805 240 957 437,067$ 4,414$ 49,795$ 50,024$ Category 2.39 6,908 6,690 (218) 4.01% 265,100 237,806 (27,294) 1.59% Unrealized Gain / (Loss)1 Book Yield 1.84% Current Book Value 145,000 Total Investments US Agencies 240 1,000 468,043$ 4,536$ Agency MBS (32,384)$ 2.40% 2.60% 101,929$ Agency MBS Agency CMO Municipal Municipal - Local Total HTM 74,265 103,337$ (122)$ (81) Duration 1.24 3.76 3.56 2.69 Wtd Avg Remaining Life 1.28 4.34 4.13 1.32 0.76 1.22 2.77 5.00 3.00 1.54 1.88 1.38 0.76 1.27 2.77 4.09 2.64 1.46 1.73 571,380$ 538,996$ 2.57% 5.04% 3.06% 2.25% (1,205) 0 (1,408)$ 215 5,040 929 6,618$ 43,051$ Expected Runoff Thru 12/31/24 25,000$ 0 11,276 157 0 0 36,433$ 434$
Overview and History 39
40 Our Profile Insurance Offices Bank Branches 938 • Multi-Bank Holding company • Glens Falls National Bank and Trust Company • Saratoga National Bank and Trust Company • Upstate Agency, LLC • Wealth Management Services • $4.4 billion in assets • 560 plus employees • Primary service area population of more than 1.1 million
41 Financial Snapshot 2019 2020 2021 2022 2023 3Q24 YTD Total assets $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,169,868 $4,411,449 Loans $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,212,908 $3,339,937 Loan-to-deposit ratio 91.2% 80.2% 75.1% 85.3% 87.1% 87.0% Return on average assets 1.24% 1.17% 1.28% 1.21% 0.74% 0.79% Efficiency ratio 57.08% 52.80% 54.16% 54.26% 68.81% 67.10% Net interest margin 3.05% 2.99% 2.97% 3.03% 2.65% 2.69% Tier 1 Leverage Ratio 9.98% 9.07% 9.20% 9.80% 9.84% 9.78% Return on average equity 13.17% 12.77% 14.09% 13.55% 8.29% 8.83% Tangible book value per share $16.48 $18.32 $20.41 $19.37 $21.06 $21.95 Net interest income $88,049 $99,202 $110,355 $118,343 $104,832 $82,045 Net income $37,475 $40,827 $49,857 $48,799 $30,075 $25,239 EPS (fully diluted) $2.23 $2.41 $2.92 $2.86 $1.77 $1.50 Dollars in thousands, except per share amounts
42 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.
43 Our History 1988 Formed Saratoga National Bank and Trust Company (SNB) and expanded footprint 1999 Surpassed $1 billion in assets 2004 2021 Bought 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
44 President and Chief Executive Officer 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 S. DeMarco, President and CEO
45 Experienced Leadership Team 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. David D. Kaiser, Senior Executive Vice President and CCO 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. Penko Ivanov, Senior Executive Vice President, CFO, Treasurer and CAO 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 Risk 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. Andrew J. Wise, Senior Executive Vice President and CRO
46 Experienced Leadership Team Ms. Pancoe joined the Company in 2018 as Director of Human Resources. In her current role as Chief Human Resources Officer, she has executive oversight of the Company’s human resource strategies, which includes organizational design and succession planning, talent acquisition and retention, performance management, professional development and compensation and benefits. Prior to joining the Company, Ms. Pancoe held various human resource management roles within the power generation and engineering services industry. Ms. Pancoe holds a bachelor’s degree in psychology from Clark University in Worcester, MA, and an MBA from the University at Albany. In addition, she maintains a certified professional human resources designation. Brooke Pancoe, Executive Vice President, Chief Human Resources Officer 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. In addition, Marc oversees the Wealth Management division and Marketing. 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. Marc Yrsha, Senior Executive Vice President, Chief Banking Officer 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 earned a bachelor’s degree in finance from Siena College and an associate degree in business administration from Hudson Valley Community College. Michael Jacobs, Executive Vice President, Chief Information Officer
Thank You
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