Arrow Reports $12.0 million in Q2 Net Income, Loan Growth of $108 Million

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Jul 27, 2022, 07:56 ET

GLENS FALLS, N.Y., July 27, 2022 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced financial results for the three-month period ended June 30, 2022. Net income for the second quarter of 2022 was $12.0 million and diluted earnings per share was $0.75.

Loan growth was strong in the second quarter of 2022, with gross loans increasing by $108 million. Excluding Paycheck Protection Program (PPP) loans, which decreased by $17 million, loans grew by $125 million in the quarter.

"Arrow had a strong second quarter with total loan balances at June 30, 2022 reaching a record high," said Arrow President and CEO Thomas J. Murphy. "I commend the Arrow Team for their outstanding efforts and strong work ethic. While economic challenges are expected this year, I am confident in our direction as a Company and our ability to deliver strong results for our shareholders, our customers and our communities."

For the second quarter of 2022, net income was $12.0 million compared to $13.3 million for the second quarter of 2021. The year-over-year decline in second quarter net income was primarily due to:

An increase in the provision expense for credit losses to $905 thousand for the second quarter of 2022, as compared to $263 thousand in the second quarter of 2021.
Net gain on sale of loans was lower by $615 thousand when comparing year-over-year quarters.
A decrease of $2.6 million in income earned on PPP loans included as part of net interest income in the second quarter of 2022 compared to the second quarter of 2021.

Second Quarter Highlights

Earnings:

Net income was $12.0 million.
Net interest margin was 3.02%.
Return on average assets (ROA) was 1.20%.
Return on average equity (ROE) was 13.44%.
Diluted earnings per share (EPS) was $0.75 for the second quarter.
Second-quarter revenue was consistent to the prior-year comparative quarter.
Net charge-offs for the second quarter of 2022 were $476 thousand as compared to $93 thousand for the comparable 2021 quarter.

Balance Sheet:

Total assets were $4.0 billion as of June 30, 2022.
Total loans were $2.8 billion as of June 30, 2022, a record high for Arrow.
Total deposits were $3.5 billion as of June 30, 2022.
Loans to deposits ratio as of June 30, 2022 was 80.2%

Additional Items:

$17 million of PPP loans were forgiven in the second quarter of 2022.
$1.5 million of PPP loans remained outstanding as of June 30, 2022.
Book value per share was $22.25, up by 1.1% over the prior-year level.
Nonperforming assets of $10.0 million at June 30, 2022 represented 0.25% of period-end assets, up from 0.20% at June 30, 2021.
A core system upgrade is scheduled for the third quarter of 2022, with the first customer communications expected in early August.

Income Statement

Net Interest Income: Net interest income for the second quarter was $29.0 million, up 2.4% from $28.4 million in the comparable quarter of 2021. Interest and fees on loans were $26.9 million for the second quarter of 2022, a decrease of 0.4% from $27.0 million for the quarter ending June 30, 2021. Interest and fees related to PPP loans, included in the $26.9 million total, were $439 thousand in the second quarter of 2022, a decrease from $3.1 million for the second quarter of 2021. Interest expense for the second quarter of 2022 was $1.6 million, an increase of $0.2 million, or 16.5%, from $1.3 million in expense for the comparable quarter ending June 30, 2021.
Net Interest Margin: Net interest margin was 3.02% for the quarter, compared to 3.08% for the second quarter of 2021. The decrease in net interest margin from the prior year was primarily due to the decrease in the amount of PPP loan interest and related fees recognized in the second quarter of 2022 as compared to the comparable quarter of 2021. Net interest margin, excluding PPP income, increased from the comparable prior year quarter from 2.86% to 2.98% The cost of interest-bearing liabilities increased slightly primarily due to the repricing of municipal deposits.


	Three Months Ended
	June 30, 2022			June 30, 2021
Interest and Dividend Income	$	30,593		$	29,695
Interest Expense	1,555			1,335
Net Interest Income	29,038			28,360
Average Earning Assets⁽¹⁾	3,858,837			3,688,572
Average Interest-Bearing Liabilities	2,808,287			2,721,961

Yield on Earning Assets⁽¹⁾	3.18		%	3.23		%
Cost of Interest-Bearing Liabilities	0.22			0.20
Net Interest Spread	2.96			3.03
Net Interest Margin	3.02			3.08

Income Earned on PPP Loans included in Net Interest Income	$	438		$	3,086
Net Interest Income excluding PPP loans	28,600			25,274
Net Interest Margin excluding PPP loans	2.98		%	2.86		%

⁽¹⁾ Includes Nonaccrual Loans.

Provision for Credit Losses: For the second quarter of 2022, the provision for credit losses was $905 thousand compared to $263 thousand in provision expense in the second quarter of 2021. The key drivers for the increase were strong loan growth and a slight deterioration in forecasted economic conditions in the second quarter of 2022.
Noninterest Income: Noninterest income for the three months ended June 30, 2022 was $7.7 million, compared to $8.5 million in the comparable 2021 quarter. Income from fiduciary activities for the three months ended June 30, 2022, decreased by $72 thousand over the comparable quarter of 2021. Fees and other services to customers increased $131 thousand over the comparable quarter of 2021. Gain on sales of loans decreased $615 thousand from the second quarter of 2021 as a result of a strategic decision to retain more newly originated real estate loans. Other operating income decreased $132 thousand from the comparable quarter of 2021 due to a variety of factors, including, among others, a $99 thousand loss on the disposal of a building.
Noninterest Expense: Noninterest expense for the second quarter of 2022 was $20.3 million, an increase from $19.1 million for the second quarter of 2021. The largest component of noninterest expense was salaries and benefits paid to our employees, which totaled $11.7 million for the second quarter of 2022. The expense for estimated credit losses on off-balance sheet credit exposures included in other expenses was $110 thousand.
Provision for Income Taxes: The provision for income taxes was $3.6 million for the second quarter of 2022, compared to $4.2 million for the same quarter of 2021.

Balance Sheet

Total Assets: Total assets were $4.0 billion at June 30, 2022 an increase of $95.0 million, or 2.4%, compared to June 30, 2021 and a decrease of $165.2 million, or 4.0%, compared to March 31, 2022.
Investments: Total investments were $766.9 million as of June 30, 2022 an increase of $122.5 million, or 19.0%, compared to June 30, 2021 and a decrease of $14.1 million, or 1.8%, compared to March 31, 2022.
Loans: Total loans were $2.8 billion as of June 30, 2022. Loan growth for the second quarter of 2022 was $107.5 million and increased $200.7 million, or 7.6%, from June 30, 2021. In the second quarter, total outstanding commercial loans increased $8.0 million, or 1.0%. PPP loans, which are included in the commercial portfolio, decreased $17.2 million in the second quarter as a result of the continued loan forgiveness processed by the Small Business Administration. The consumer loan portfolio grew by $54.5 million, or 5.6% in the second quarter, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased $45.1 million, or 4.7%, for the second quarter of 2022.
Allowance for Credit Losses: The allowance for credit losses was $28.1 million on June 30, 2022, which represented 0.99% of loans outstanding, as compared to 1.02% at June 30, 2021. Asset quality remained solid at June 30, 2022. Net loan losses, expressed as an annualized percentage of average loans outstanding, were 0.07% for the three-month period ended June 30, 2022, as compared to 0.01% for the three-month period ended June 30, 2021. Nonperforming assets of $10.0 million at June 30, 2022 represented 0.25% of period-end assets, compared to 0.20% at June 30, 2021.
Deposits: At June 30, 2022, deposit balances were $3.5 billion. Deposits decreased in the second quarter of 2022 by $169.7 million and increased by $107.6 million, or 3.1%, from the prior-year level. Municipal deposits decreased $112.1 million in the second quarter and increased $4.8 million, or 0.6% from June 30, 2021. Non-municipal deposits decreased $57.6 million for the quarter and increased $102.8 million, or 4.0%, from June 30, 2021. Noninterest-bearing deposits represented 23.3% of total deposits at June 30, 2022, compared to 22.2% of total deposits at June 30, 2021. At June 30, 2022, total time deposits were $169.5 million, a decrease of $57.0 million, or 25.2%, compared to the prior year.
Capital: Total stockholders' equity was $356.5 million on June 30, 2022, up $3.5 million, or 1.0%, from June 30, 2021. Arrow's regulatory capital ratios remained strong in the second quarter of 2022. As of June 30, 2022, Arrow's Common Equity Tier 1 Capital Ratio was 13.14% and Total Risk-Based Capital Ratio was 14.93%. The capital ratios of Arrow and both its subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, continued to exceed the "well capitalized" regulatory standards.

Additional Commentary

Cash and Stock Dividends: On June 15, 2022, Arrow distributed a cash dividend of $0.27 per share. The cash dividend was 7% higher than the cash dividend paid by Arrow in the second quarter of 2021 due to a one cent increase in the cash dividend rate and after adjusting for the 3% stock dividend distributed on September 24, 2021.
Industry Recognition: In the second quarter of 2022, both of Arrow's banking subsidiaries once again earned BauerFinancial, Inc. 5-Star Exceptional Performance Bank ratings.

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, and the efficiency ratio. Management believes that the non-GAAP financial measures disclosed by Arrow are useful in evaluating Arrow's performance and that such information should be considered as supplemental in nature and not as a substitute for, or superior to, the related financial information prepared in accordance with GAAP. Non-GAAP financial measures may differ from similar measures presented by other companies. See the reconciliation of GAAP to non-GAAP measures in the section "Selected Quarterly Information."

Safe Harbor Statement

The information in this document may contain statements based on management's beliefs, assumptions, expectations, estimates and projections about the future. Such "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, as amended, involve a degree of uncertainty and attendant risk. Actual outcomes and results may differ, explicitly or by implication. We are not obliged to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with Arrow's Annual Report on Form 10-K for the year ended December 31, 2021 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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans	$	26,906	$	27,014	$	52,645	$	52,197
Interest on Deposits at Banks	427		103		625		188
Interest and Dividends on Investment Securities:
Fully Taxable	2,444		1,671		4,633		3,177
Exempt from Federal Taxes	816		907		1,637		1,827
Total Interest and Dividend Income	30,593		29,695		59,540		57,389
INTEREST EXPENSE
Interest-Bearing Checking Accounts	199		192		362		411
Savings Deposits	892		501		1,309		1,066
Time Deposits over $250,000	26		69		54		189
Other Time Deposits	111		156		220		378
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	—		1		—		3
Federal Home Loan Bank Advances	108		196		295		389
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	171		171		340		340
Interest on Financing Leases	48		49		97		98
Total Interest Expense	1,555		1,335		2,677		2,874
NET INTEREST INCOME	29,038		28,360		56,863		54,515
Provision for Credit Losses	905		263		1,674		(385)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	28,133		28,097		55,189		54,900
NONINTEREST INCOME
Income From Fiduciary Activities	2,517		2,589		5,113		4,967
Fees for Other Services to Customers	3,050		2,919		5,845		5,528
Insurance Commissions	1,622		1,626		3,133		3,266
Net Gain on Securities	154		196		284		356
Net Gain on Sales of Loans	10		625		62		2,040
Other Operating Income	391		523		1,469		929
Total Noninterest Income	7,744		8,478		15,906		17,086
NONINTEREST EXPENSE
Salaries and Employee Benefits	11,687		10,845		22,973		21,983
Occupancy Expenses, Net	1,602		1,484		3,200		3,077
Technology and Equipment Expense	3,974		3,710		7,753		7,169
FDIC Assessments	291		245		598		515
Other Operating Expense	2,791		2,803		4,766		5,021
Total Noninterest Expense	20,345		19,087		39,290		37,765
INCOME BEFORE PROVISION FOR INCOME TAXES	15,532		17,488		31,805		34,221
Provision for Income Taxes	3,558		4,209		7,256		7,662
NET INCOME	$	11,974	$	13,279	$	24,549	$	26,559
Average Shares Outstanding ¹:
Basic	16,014		16,024		16,022		16,009
Diluted	16,054		16,085		16,069		16,056
Per Common Share:
Basic Earnings	$	0.75	$	0.83	$	1.53	$	1.66
Diluted Earnings	0.75		0.83		1.53		1.65

¹ 2021 Share and Per Share Amounts have been restated for the September 24, 2021, 3% stock dividend.

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

	June 30, 2022		December 31, 2021		June 30, 2021
ASSETS
Cash and Due From Banks	$	51,549	$	26,978	$	44,760
Interest-Bearing Deposits at Banks	165,705		430,718		433,468
Investment Securities:
Available-for-Sale at Fair Value	582,741		559,316		437,868
Held-to-Maturity (Fair Value of $180,511 at June 30, 2022; $201,292 at December 31, 2021; and $210,916 at June 30, 2021)	182,096		196,566		204,490
Equity Securities	2,031		1,747		1,992
FHLB and Federal Reserve Bank Stock	4,718		5,380		5,380
Loans	2,844,802		2,667,941		2,644,082
Allowance for Credit Losses	(28,090)		(27,281)		(27,010)
Net Loans	2,816,712		2,640,660		2,617,072
Premises and Equipment, Net	50,141		46,217		43,268
Goodwill	21,873		21,873		21,873
Other Intangible Assets, Net	1,710		1,918		2,082
Other Assets	111,929		96,579		83,938
Total Assets	$	3,991,205	$	4,027,952	$	3,896,191
LIABILITIES
Noninterest-Bearing Deposits	824,842		810,274		761,991
Interest-Bearing Checking Accounts	1,046,570		994,391		977,955
Savings Deposits	1,504,791		1,531,287		1,471,591
Time Deposits over $250,000	40,021		82,811		84,357
Other Time Deposits	129,436		131,734		142,139
Total Deposits	3,545,660		3,550,497		3,438,033
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	—		—		3,092

Federal Home Loan Bank Term Advances	25,000		45,000		45,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000		20,000		20,000
Finance Leases	5,144		5,169		5,193
Other Liabilities	38,903		36,100		31,840
Total Liabilities	3,634,707		3,656,766		3,543,158
STOCKHOLDERS' EQUITY
Preferred Stock, $1 Par Value and 1,000,000 Shares Authorized at June 30, 2022, December 31, 2021 and June 30, 2021	—		—		—
Common Stock, $1 Par Value; 30,000,000 Shares Authorized (20,800,144 Shares Issued at June 30, 2022 and December 31, 2021 and 20,194,474 at June 30, 2021)	20,800		20,800		20,194
Additional Paid-in Capital	379,423		377,996		355,195
Retained Earnings	69,980		54,078		60,494

Accumulated Other Comprehensive (Loss) Income	(29,564)		347		(2,658)
Treasury Stock, at Cost (4,777,605 Shares at June 30, 2022; 4,759,414 Shares at December 31, 2021 and 4,622,797 Shares at June 30, 2021)	(84,141)		(82,035)		(80,192)
Total Stockholders' Equity	356,498		371,186		353,033
Total Liabilities and Stockholders' Equity	$	3,991,205	$	4,027,952	$	3,896,191

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


Quarter Ended	6/30/2022			3/31/2022			12/31/2021			9/30/2021			6/30/2021
Net Income	$	11,974		$	12,575		$	10,309		$	12,989		$	13,279
Transactions in Net Income (Net of Tax):
Net Changes in Fair Value of Equity Investments	114			96			(104)			(79)			145

Share and Per Share Data:¹
Period End Shares Outstanding	16,023			16,013			16,041			16,020			16,039
Basic Average Shares Outstanding	16,014			16,030			16,028			16,027			16,024
Diluted Average Shares Outstanding	16,054			16,083			16,091			16,085			16,085
Basic Earnings Per Share	$	0.75		$	0.78		$	0.64		$	0.81		$	0.83
Diluted Earnings Per Share	0.75			0.78			0.63			0.81			0.83
Cash Dividend Per Share	0.270			0.270			0.260			0.252			0.252

Selected Quarterly Average Balances:
Interest-Bearing Deposits at Banks	$	232,545		$	410,644		$	551,890		$	416,500		$	369,034
Investment Securities	822,112			797,347			681,732			675,980			668,089
Loans	2,804,180			2,678,796			2,660,665			2,641,726			2,651,449
Deposits	3,569,754			3,582,256			3,590,766			3,435,933			3,395,271
Other Borrowed Funds	50,140			68,596			70,162			72,187			74,957
Shareholders' Equity	357,228			370,264			364,409			359,384			350,203
Total Assets	4,012,999			4,054,943			4,060,540			3,902,041			3,851,921
Return on Average Assets, annualized	1.20		%	1.26		%	1.01		%	1.32		%	1.38		%
Return on Average Equity, annualized	13.44		%	13.77		%	11.22		%	14.34		%	15.21		%
Return on Average Tangible Equity, annualized ²	14.40		%	14.72		%	12.01		%	15.36		%	16.32		%
Average Earning Assets	$	3,858,837		$	3,886,787		$	3,894,287		$	3,734,206		$	3,688,572
Average Paying Liabilities	2,808,287			2,855,884			2,841,304			2,705,283			2,721,961
Interest Income	30,593			28,947			28,354			29,807			29,695
Tax-Equivalent Adjustment ³	269			270			285			292			293
Interest Income, Tax-Equivalent ³	30,862			29,217			28,639			30,099			29,988
Interest Expense	1,555			1,122			1,152			1,169			1,335
Net Interest Income	29,038			27,825			27,202			28,638			28,360
Net Interest Income, Tax-Equivalent ³	29,307			28,095			27,487			28,930			28,653
Net Interest Margin, annualized	3.02		%	2.90		%	2.77		%	3.04		%	3.08		%
Net Interest Margin, Tax-Equivalent, annualized ³	3.05		%	2.93		%	2.80		%	3.07		%	3.12		%

Efficiency Ratio Calculation: ⁴
Noninterest Expense	$	20,345		$	18,945		$	20,860		$	19,423		$	19,087
Less: Intangible Asset Amortization	48			49			52			51			53
Net Noninterest Expense	$	20,297		$	18,896		$	20,808		$	19,372		$	19,034
Net Interest Income, Tax-Equivalent	$	29,307		$	28,095		$	27,487		$	28,930		$	28,653
Noninterest Income	7,744			8,162			7,589			7,694			8,478

Less: Net (Loss) Gain on Securities	154			130			(139)			(106)			196
Net Gross Income	$	36,897		$	36,127		$	35,215		$	36,730		$	36,935
Efficiency Ratio	55.01		%	52.30		%	59.09		%	52.74		%	51.53		%

Period-End Capital Information:
Total Stockholders' Equity (i.e. Book Value)	$	356,498		$	357,243		$	371,186		$	360,171		$	353,033
Book Value per Share ¹	22.25			22.31			23.14			22.48			22.01
Goodwill and Other Intangible Assets, net	23,583			23,691			23,791			23,879			23,955
Tangible Book Value per Share ^1,2	20.78			20.83			21.66			20.99			20.52

Capital Ratios:5

Tier 1 Leverage Ratio	9.60		%	9.37		%	9.20		%	9.39		%	9.29		%
Common Equity Tier 1 Capital Ratio	13.14		%	13.48		%	13.77		%	13.71		%	13.79		%
Tier 1 Risk-Based Capital Ratio	13.86		%	14.23		%	14.55		%	14.51		%	14.61		%
Total Risk-Based Capital Ratio	14.93		%	15.33		%	15.69		%	15.66		%	15.78		%

Assets Under Trust Admin. & Investment Mgmt.	$	1,589,178		$	1,793,747		$	1,851,101		$	1,778,659		$	1,804,854

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 24, 2021, 3% stock dividend.

2.	Non-GAAP Financial Measures Reconciliation: Tangible Book Value and Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which Arrow believes provides investors with information that is useful in understanding its financial performance.
		6/30/2022			3/31/2022			12/31/2021			9/30/2021			6/30/2021
	Total Stockholders' Equity (GAAP)	$	356,498		$	357,243		$	371,186		$	360,171		$	353,033
	Less: Goodwill and Other Intangible assets, net	23,583			23,691			23,791			23,879			23,955
	Tangible Equity (Non-GAAP)	$	332,915		$	333,552		$	347,395		$	336,292		$	329,078

	Period End Shares Outstanding	16,023			16,013			16,041			16,020			16,039
	Tangible Book Value per Share (Non-GAAP)	$	20.78		$	20.83		$	21.66		$	20.99		$	20.52
	Net Income	11,974			12,575			10,309			12,989			13,279
	Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized)	14.40		%	14.72		%	12.01		%	15.36		%	16.32		%

3.	Non-GAAP Financial Measures Reconciliation: Net Interest Margin, Tax-Equivalent is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which Arrow believes provides investors with information that is useful in understanding its financial performance.
		6/30/2022			3/31/2022			12/31/2021			9/30/2021			6/30/2021
	Interest Income (GAAP)	$	30,593		$	28,947		$	28,354		$	29,807		$	29,695
	Add: Tax-Equivalent adjustment (Non-GAAP)	269			270			285			292			293
	Interest Income - Tax Equivalent (Non-GAAP)	$	30,862		$	29,217		$	28,639		$	30,099		$	29,988
	Net Interest Income (GAAP)	$	29,038		$	27,825		$	27,202		$	28,638		$	28,360
	Add: Tax-Equivalent adjustment (Non-GAAP)	269			270			285			292			293
	Net Interest Income - Tax Equivalent (Non-GAAP)	$	29,307		$	28,095		$	27,487		$	28,930		$	28,653
	Average Earning Assets	$	3,858,837		$	3,886,787		$	3,894,287		$	3,734,206		$	3,688,572
	Net Interest Margin (Non-GAAP)*	3.05		%	2.93		%	2.80		%	3.07		%	3.12		%

4.	Non-GAAP Financial Measures: 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 noninterest expense to net gross income (which equals tax-equivalent net interest income plus noninterest income, as adjusted).

5.	For the current quarter, all of the regulatory capital ratios in the table above, as well as the Total Risk-Weighted Assets and Common Equity Tier 1 Capital amounts listed in the table below, are estimates based on, and calculated in accordance with, bank regulatory capital rules. All prior quarters reflect actual results. The CET1 ratio at June 30, 2022 listed in the tables (i.e., 13.14%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).
		6/30/2022			3/31/2022			12/31/2021			9/30/2021			6/30/2021

	Total Risk Weighted Assets	$	2,790,520		$	2,661,952		$	2,552,812		$	2,511,910		$	2,438,445
	Common Equity Tier 1 Capital	366,798			358,738			351,497			344,507			336,265
	Common Equity Tier 1 Ratio	13.14		%	13.48		%	13.77		%	13.71		%	13.79		%

* Quarterly ratios have been annualized.

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

Quarter Ended June 30:		2022						2021
				Interest		Rate				Interest		Rate
		Average		Income/		Earned/		Average		Income/		Earned/
		Balance		Expense		Paid		Balance		Expense		Paid
Interest-Bearing Deposits at Banks	$		232,545	$	427	0.74	%	$	369,034	$	103	0.11	%
Investment Securities:
Fully Taxable		644,443		2,444		1.52		479,365		1,671		1.40
Exempt from Federal Taxes		177,669		816		1.84		188,724		907		1.93
Loans		2,804,180		26,906		3.85		2,651,449		27,014		4.09
Total Earning Assets		3,858,837		30,593		3.18		3,688,572		29,695		3.23
Allowance for Credit Losses		(27,558)						(26,862)
Cash and Due From Banks		40,105						34,976
Other Assets		141,615						155,235
Total Assets	$		4,012,999					$	3,851,921
Deposits:
Interest-Bearing Checking Accounts	$		1,048,752	199		0.08		$	924,651	192		0.08
Savings Deposits		1,541,616		892		0.23		1,481,232		501		0.14
Time Deposits of $250,000 or More		37,418		26		0.28		95,673		69		0.29
Other Time Deposits		130,361		111		0.34		145,448		156		0.43
Total Interest-Bearing Deposits		2,758,147		1,228		0.18		2,647,004		918		0.14
Short-Term Borrowings		—		—				4,770		1		0.08
FHLBNY Term Advances & Other Long-Term Debt		45,000		279		2.49		65,000		367		2.26
Finance Leases		5,140		48		3.75		5,187		49		3.79
Total Interest-Bearing Liabilities		2,808,287		1,555		0.22		2,721,961		1,335		0.20
Noninterest-bearing deposits		811,607						748,267
Other Liabilities		35,877						31,490
Total Liabilities		3,655,771						3,501,718
Stockholders' Equity		357,228						350,203
Total Liabilities and Stockholders' Equity	$		4,012,999					$	3,851,921
Net Interest Income				$	29,038					$	28,360
Net Interest Spread						2.96	%					3.03	%
Net Interest Margin						3.02	%					3.08	%

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

Quarter Ended:	6/30/2022			12/31/2021			6/30/2021
Loan Portfolio
Commercial Loans	$	138,675		$	172,518		$	242,790
Commercial Real Estate Loans	663,234			628,929			598,241
Subtotal Commercial Loan Portfolio	801,909			801,447			841,031
Consumer Loans	1,031,111			920,556			892,549
Residential Real Estate Loans	1,011,782			945,938			910,502
Total Loans	$	2,844,802		$	2,667,941		$	2,644,082
Allowance for Credit Losses
Allowance for Credit Losses, Beginning of Quarter	$	27,661		$	26,956		$	26,840

Loans Charged-off	(907)			(719)			(443)
Less Recoveries of Loans Previously Charged-off	431			486			350
Net Loans Charged-off	(476)			(233)			(93)
Provision for Credit Losses	905			558			263
Allowance for Credit Losses, End of Quarter	$	28,090		$	27,281		$	27,010
Nonperforming Assets
Nonaccrual Loans	$	7,999		$	10,764		$	7,102
Loans Past Due 90 or More Days and Accruing	1,641			823			595
Loans Restructured and in Compliance with Modified Terms	77			77			78
Total Nonperforming Loans	9,717			11,664			7,775
Repossessed Assets	297			126			99
Other Real Estate Owned	—			—			99
Total Nonperforming Assets	$	10,014		$	11,790		$	7,973

Key Asset Quality Ratios
Net Loans Charged-off to Average Loans, Quarter-to-date Annualized	0.07		%	0.03		%	0.01		%
Provision for Credit Losses to Average Loans, Quarter-to-date Annualized	0.13		%	0.08		%	0.04		%
Allowance for Credit Losses to Period-End Loans	0.99		%	1.02		%	1.02		%
Allowance for Credit Losses to Period-End Nonperforming Loans	289.08		%	233.89		%	347.40		%
Nonperforming Loans to Period-End Loans	0.34		%	0.44		%	0.29		%
Nonperforming Assets to Period-End Assets	0.25		%	0.29		%	0.20		%

Six Month Period Ended:
Allowance for Loan Losses
Allowance for Loan Losses, Beginning of Year	$	27,281					$	29,232
Impact of the Adoption of ASU 2016-13	—						(1,300)
Loans Charged-off	(1,736)						(1,076)
Less Recoveries of Loans Previously Charged-off	871						539
Net Loans Charged-off	(865)						(537)
Provision for Loan Losses	1,674						(385)
Allowance for Loan Losses, End of Period	$	28,090					$	27,010

Key Asset Quality Ratios
Net Loans Charged-off to Average Loans, Annualized	0.06		%				0.04		%
Provision for Loan Losses to Average Loans, Annualized	0.12		%				(0.03)		%