PR Newswire | Oct 21, 2020 08:01AM EDT

10/21 06:59 CDT

Arrow Reports $11.0 million in Q3 Net Income as COVID-19 Response Continues- Net income was $11.0 million and diluted earnings per share (EPS) were $0.71 for the third quarter.- Key profitability ratios were strong in the third quarter with return on average assets (ROA) of 1.23% and return on average equity (ROE) of 13.55%.- Third quarter revenue increased $3.6 million, or 11.9%, over the prior year comparative quarter.- Deposits were $3.3 billion at September 30, 2020, up $196.1 million from the previous quarter.- $142.7 million in Small Business Administration Paycheck Protection Program loans have been funded.-Provision for loan losses was $2.3 million in the third quarter, reflecting the continued uncertainty of the COVID-19 pandemic. GLENS FALLS, N.Y., Oct. 21, 2020

GLENS FALLS, N.Y., Oct. 21, 2020 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS(r) - AROW) announced operating results for the three month and nine month periods ended September 30, 2020. Net income for the third quarter of 2020 was $11.0 million, compared to $10.1 million in the third quarter of 2019. Net interest income increased to $24.9 million in the third quarter of 2020, compared to $22.3 million for the comparable quarter of 2019.

Arrow continues to manage its COVID-19 response with health and safety concerns as a top priority. In the third quarter, our Business Continuity Task Force focused on maintaining protocols that have allowed us to keep our team and customers healthy and our branches open. We actively monitor developments, and if future restrictions are imposed, we are confident in our ability to continue to provide essential banking services and meet our customers' needs.

"Throughout this pandemic, Arrow has remained strong, and we delivered again for our shareholders in the third quarter with solid earnings, and both a cash and stock dividend," said Thomas J. Murphy, President and CEO. "We continued to assist our customers and communities with temporary financial assistance, stimulus program support, and forgiveness assistance for our 1,400 Small Business Administration Paycheck Protection Program borrowers. As these challenging times continue, I thank our team for their commitment to safety while also demonstrating flexibility in adapting to the changing needs of our customers."

In the third quarter, Arrow opened a Saratoga National Bank Branch as well as a Capital Region Business Development Office in Latham, NY. Both locations continue our forward momentum and expansion into the Capital Region. Also in the third quarter, Arrow closed the Glens Falls National Bank Route 9 Queensbury Branch, consolidating the operations of that branch with those of other nearby branches.

The following expands on our COVID-19 response:

COVID-19 Safety Measures:Throughout the third quarter, Arrow maintained open lobbies for the majority of its bank branches and insurance offices. Safety measures continue to be followed, including clear shields for desks and teller lines, hand sanitizing stations, required face coverings, and social distancing markers. Traffic to lobbies is stable, and we continue to promote usage of no-contact alternatives such as digital banking, drive-ins and ATMs. While some positions have returned to the office, a significant portion of the Arrow workforce remains remote as part of our risk-mitigation strategy. Additionally, employee travel remains paused, self-quarantine protocol is in place for personal travel to hot spots, in-person meetings are minimized, social distancing is strongly enforced, and increased cleaning and sanitizing of our locations continues. We believe these measures have helped to keep our workforce healthy and has aided in community efforts to slow the spread of the COVID-19 virus in our footprint. We will continue to utilize these measures as appropriate based on public health guidance.

COVID-19 Customer Support:During the third quarter, support continued for customers experiencing financial hardship. We worked closely with individuals and businesses seeking temporary financial assistance. On the small business side, support for Small Business Administration Paycheck Protection Program borrowers shifted from taking new applications to preparing for loan forgiveness. In total, we have assisted more than 1,400 small businesses, and more than $142.7 million in such loans have been funded. Our team has engaged in regular communication around the ever-changing guidelines and the start of our digital forgiveness application process.

COVID-19 Operational Impact:While COVID-19 did not have a material adverse effect on our third quarter 2020 financial results, we are actively monitoring the impact of the pandemic on our business and results of operations and we can make no assurance as to the future negative impact on our operations or results. Currently, all of our banking locations and some of our insurance locations are open to the public, and through a mix of onsite and remote work amongst our team, we continue to meet customer needs and deliver high-quality service daily.

The following expands upon our third quarter financial results:

Loan Growth:Total loans reached $2.6 billion as of September 30, 2020, which represents an increase of $256.9 million, or 11.0%, from September 30, 2019. Loan growth for the third quarter of 2020 was $30.5 million. The consumer loan portfolio grew by $43.7 million, or 5.4%, as compared to September 30, 2019, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased $36.2 million, or 4.1%, as compared to September 30, 2019. Total outstanding commercial loans increased $176.9 million, or 27.6%, as compared to September 30, 2019. The increase in commercial loans includes $142.7 million in Small Business Administration Paycheck Protection Program loans.

Deposit Growth:At September 30, 2020, deposit balances reached $3.3 billion, up $650.3 million, or 24.9%, from the prior-year level. Deposit growth for the third quarter of 2020 was $196.1 million. Noninterest-bearing deposits represented 21.1% of total deposits at September 30, 2020, compared to 19.8% of total deposits on September 30, 2019. At September 30, 2020, other time deposits were $194.1 million, a decrease of $75.6 million compared to the prior year. Municipal deposits increased $218.8 million, or 34.6% from September 30, 2019.

Net Interest Income:Net interest income for the third quarter increased to $24.9 million, up 11.6% from $22.3 million in the comparable quarter of 2019. The net interest margin was 2.90% for the quarter, compared to 3.07% for the third quarter of 2019. The decrease in net interest margin from the prior year was due to a variety of factors, including lower interest rates, increased cash balances and the impact of participating in the Small Business Administration Paycheck Protection Program.

Noninterest Income:Noninterest income for the three months ended September 30, 2020 was $8.7 million, compared to $7.7 million in the comparable 2019 quarter. For the third quarter of 2020, the net gain on the sale of loans was $1.4 million. In addition, income from fiduciary activities for the three months ended September 30, 2020 increased over the comparable quarter of 2019.

Noninterest Expense:Noninterest expense for the third quarter of 2020 increased 4.1% to $17.5 million, from $16.8 million for the third quarter of 2019. Salaries and benefits increased $393 thousand. In the third quarter, both the Saratoga National Bank Latham Branch and the Capital Region Business Development Office opened, increasing occupancy expenses for the quarter.

Provision for Income Taxes:The provision for income taxes was $2.8 million for the third quarter of 2020, compared to $2.6 million for the same quarter of 2019. The effective income tax rates for the nine month periods ended September 30, 2020 and 2019 were 20.7% and 20.3%, respectively.

Asset Quality:Asset quality remained strong at September 30, 2020, with continued low levels of nonperforming loans and net charge-offs. Nonperforming loans at September 30, 2020, were $6.3 million, up $1.6 million from the level at September 30, 2019. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.02% for the three month period ended September 30, 2020, a decrease from 0.05% for the three month period ended September 30, 2019. The allowance for loan losses was $28.4 million at September 30, 2020, which represented 1.10% of loans outstanding, as compared to 0.90% at September 30, 2019. Loan loss provision expense for the third quarter of 2020 was $2.3 million, up $1.8 million from the provision for loan losses for the comparable 2019 quarter. Although credit quality remains strong, the increase in provision for loan losses reflects the uncertainty resulting from the COVID-19 pandemic.

Liquidity:At September 30, 2020, Arrow's liquidity position was strong. Deposit growth for the third quarter of 2020 was $196.1 million and interest-bearing cash balances at September 30, 2020 were $396.4 million. Arrow continues to be well-prepared to address volatility due to the COVID-19 pandemic, which may affect current cash and deposit balances. At September 30, 2020, contingent collateralized lines of credit were established and available through the Federal Home Loan Bank of New York and Federal Reserve Bank, totaling $1.3 billion. Arrow also has additional liquidity options available to it including unsecured lines of credit, such as Fed Funds and brokered markets.

Capital:Total stockholders' equity was $325.7 million at September 30, 2020, up $33.4 million, or 11.4%, from September 30, 2019. Arrow's consistent earnings and measured dividend practices have created strong capital reserves, which make the company well-positioned to address the uncertainties related to the COVID-19 pandemic. Overall regulatory capital ratios also remained strong in 2020, with Arrow's common equity tier 1 ratio estimated to be 13.20% and the total risk-based capital ratio estimated to be 15.28% at September 30, 2020. These capital levels at Arrow and both of the subsidiary banks continue to exceed the "well capitalized" regulatory standard.

Cash and Stock Dividends:On September 15, 2020, the Company distributed a cash dividend of $0.26 per share. The cash dividend was 3% higher than the cash dividend paid by the Company in the third quarter of 2019 when adjusted for the 3% stock dividend distributed on September 27, 2019. Additionally, a 3% stock dividend was distributed on September 25, 2020. This is the 12th consecutive year the Company has declared a stock dividend.

Industry Recognition:Both of Arrow's banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, continue to hold BauerFinancial, Inc. 5-Star Superior Bank ratings.

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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. The Company 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). The following 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. Certain 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 the Company from time to time are useful in evaluating the Company'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 contained in this news release may contain statements that are not historical in nature but rather are based on management's beliefs, assumptions, expectations, estimates and projections about the future, including, in particular, statements regarding the uncertainty surrounding the COVID-19 pandemic. These statements may be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, involving a degree of uncertainty and attendant risk. In the case of all forward-looking statements, actual outcomes and results may differ materially from what the statements predict or forecast, explicitly or by implication. The Company undertakes no obligation to revise or update these forward-looking statements to reflect the occurrence of unanticipated events. This News Release should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2019, and other filings with the Securities and Exchange Commission.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME(In Thousands, Except Per Share Amounts - Unaudited)

Three Months Ended Nine Months Ended September 30 September 30,

2020 2019 2020 2019

INTEREST ANDDIVIDEND INCOME

Interest and $ 24,706 $ 24,620 $ 74,657 $ 70,543Fees on Loans

Interest onDeposits at 64 182 229 572Banks

Interest andDividends onInvestmentSecurities:

Fully Taxable 1,557 2,018 5,621 6,671

Exempt from 969 1,132 3,017 3,606Federal Taxes

Total Interestand Dividend 27,296 27,952 83,524 81,392Income

INTEREST EXPENSE

Interest-BearingChecking 264 500 1,061 1,435Accounts

Savings Deposits 806 2,317 4,450 5,926

Time Deposits 292 451 1,263 1,362over $250,000

Other Time 576 1,255 2,360 3,099Deposits

Federal FundsPurchased and

Securities SoldUnder Agreements 17 28 55 75to Repurchase

Federal HomeLoan Bank 219 820 865 3,513Advances

JuniorSubordinatedObligationsIssued to

UnconsolidatedSubsidiary 173 250 574 780Trusts

Interest on 49 28 148 71Financing Leases

Total Interest 2,396 5,649 10,776 16,261Expense

NET INTEREST 24,900 22,303 72,748 65,131INCOME

Provision for 2,271 518 8,083 1,445Loan Losses

NET INTEREST INCOME AFTERPROVISION FOR 22,629 21,785 64,665 63,686LOAN LOSSES

NONINTERESTINCOME

Income FromFiduciary 2,265 2,212 6,613 6,571Activities

Fees for OtherServices to 2,619 2,623 7,348 7,570Customers

Insurance 1,713 1,936 5,077 5,590Commissions

Net (Loss) Gain (72) 146 (552) 222on Securities

Net Gain on 1,433 257 2,193 501Sales of Loans

Other Operating 739 517 2,876 1,020Income

TotalNoninterest 8,697 7,691 23,555 21,474Income

NONINTERESTEXPENSE

Salaries andEmployee 10,408 10,015 31,003 29,061Benefits

Occupancy 1,427 1,324 4,221 4,023Expenses, Net

Technology andEquipment 3,228 3,305 9,807 9,689Expense

FDIC Assessments 309 (480) 770 (56)

Other Operating 2,115 2,627 6,685 7,634Expense

TotalNoninterest 17,487 16,791 52,486 50,351Expense

INCOME BEFOREPROVISION FOR 13,839 12,685 35,734 34,809INCOME TAXES

Provision for 2,793 2,618 7,402 7,074Income Taxes

NET INCOME $ 11,046 $ 10,067 $ 28,332 $ 27,735

Average SharesOutstanding ^1:

Basic 15,472 15,404 15,453 15,375

Diluted 15,481 15,441 15,467 15,417

Per CommonShare:

Basic Earnings $ 0.71 $ 0.65 $ 1.83 $ 1.80

Diluted Earnings 0.71 0.65 1.83 1.80

1 2019 Share and Per Share Amounts have been restated for the September 25, 2020, 3% stock dividend.

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

September 30, December 31, September 30,

2020 2019 2019

ASSETS

Cash and Due From Banks $ 54,286 $ 47,035 $ 65,882

Interest-Bearing Deposits at Banks 396,380 23,186 26,416

Investment Securities:

Available-for-Sale at Fair Value 374,928 357,334 314,182

Held-to-Maturity (Approximate Fair Value of $233,501 at

September 30, 2020; $249,618 at December 31, 2019; and

$259,128 at September 30, 2019) 224,799 245,065 255,095

Equity Securities 1,511 2,063 1,996

FHLB and Federal Reserve Bank Stock 5,574 10,317 6,627

Loans 2,592,455 2,386,120 2,335,591

Allowance for Loan Losses (28,446) (21,187) (20,931)

Net Loans 2,564,009 2,364,933 2,314,660

Premises and Equipment, Net 42,075 40,629 40,228

Goodwill 21,873 21,873 21,873

Other Intangible Assets, Net 1,789 1,661 1,713

Other Assets 90,460 70,179 64,150

Total Assets $ 3,777,684 $ 3,184,275 $ 3,112,822

LIABILITIES

Noninterest-Bearing Deposits 690,232 484,944 516,876

Interest-Bearing Checking Accounts 912,980 689,221 801,446

Savings Deposits 1,354,956 1,046,568 929,691

Time Deposits over $250,000 112,555 123,968 96,770

Other Time Deposits 194,135 271,353 269,764

Total Deposits 3,264,858 2,616,054 2,614,547

Federal Funds Purchased and

Securities Sold Under Agreements to Repurchase 73,949 51,099 72,869

Federal Home Loan Bank Overnight Advances - 130,000 48,000

Federal Home Loan Bank Term Advances 50,000 30,000 30,000

Junior Subordinated Obligations Issued to Unconsolidated

Subsidiary Trusts 20,000 20,000 20,000

Finance Leases 5,228 5,254 5,263

Other Liabilities 37,989 30,140 29,915

Total Liabilities 3,452,024 2,882,547 2,820,594

STOCKHOLDERS' EQUITY

Preferred Stock, $1 Par Value and 1,000,000 Shares

Authorized at September 30, 2020, December 31, 2019 and

September 30, 2019 - - -

Common Stock, $1 Par Value; 30,000,000 Shares Authorized

(20,194,474 Shares Issued at September 30, 2020 and

19,606,449 at December 31, 2019 and September 30, 2019) 20,194 19,606 19,606

Additional Paid-in Capital 353,062 335,355 334,597

Retained Earnings 33,434 33,218 27,375

Unallocated ESOP Shares (None at September 30, 2020 and

December 31, 2019 and 5,151 Shares at September 30, 2019) - - (100)

Accumulated Other Comprehensive Loss (253) (6,357) (8,979)

Treasury Stock, at Cost (4,705,102 Shares at September30,

2020; 4,608,258 Shares at December 31, 2019 and 4,632,657

Shares at September 30, 2019) (80,777) (80,094) (80,271)

Total Stockholders' Equity 325,660 301,728 292,228

Total Liabilities and Stockholders' Equity $ 3,777,684 $ 3,184,275 $ 3,112,822

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

Quarter Ended 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019

Net Income $ 11,046 $ 9,159 $ 8,127 $ 9,740 $ 10,067

Transactions in Net Income (Net of Tax):

Net Changes in Fair Value of Equity Investments (53) (80) (279) 50 109

Share and Per Share Data:^1

Period End Shares Outstanding 15,489 15,461 15,432 15,448 15,418

Basic Average Shares Outstanding 15,472 15,441 15,446 15,427 15,404

Diluted Average Shares Outstanding 15,481 15,448 15,476 15,476 15,441

Basic Earnings Per Share $ 0.71 $ 0.59 $ 0.53 $ 0.63 $ 0.65

Diluted Earnings Per Share 0.71 0.59 0.53 0.63 0.65

Cash Dividend Per Share 0.252 0.252 0.252 0.252 0.245

Selected Quarterly Average Balances:

Interest-Bearing Deposits at Banks $ 242,928 $ 155,931 $ 32,787 $ 28,880 $ 27,083

Investment Securities 592,457 607,094 603,748 582,982 545,073

Loans 2,582,253 2,518,198 2,394,346 2,358,110 2,308,879

Deposits 3,082,499 2,952,432 2,670,009 2,607,421 2,472,528

Other Borrowed Funds 136,117 129,383 170,987 177,877 231,291

Shareholders' Equity 324,269 316,380 306,527 296,124 289,016

Total Assets 3,583,322 3,437,155 3,180,857 3,113,114 3,023,043

Return on Average Assets, annualized 1.23 % 1.07 % 1.03 % 1.24 % 1.32 %

Return on Average Equity, annualized 13.55 % 11.64 % 10.66 % 13.05 % 13.82 %

Return on Average Tangible Equity, annualized ^2 14.61 % 12.58 % 11.55 % 14.18 % 15.05 %

Average Earning Assets $ 3,417,638 $ 3,281,223 $ 3,030,881 $ 2,969,972 $ 2,881,035

Average Paying Liabilities 2,545,435 2,457,690 2,362,515 2,293,804 2,213,642

Interest Income 27,296 28,002 28,226 28,367 27,952

Tax-Equivalent Adjustment ^3 284 281 288 321 344

Interest Income, Tax-Equivalent ^3 27,580 28,283 28,514 28,688 28,296

Interest Expense 2,396 3,160 5,220 5,449 5,649

Net Interest Income 24,900 24,842 23,006 22,918 22,303

Net Interest Income, Tax-Equivalent ^3 25,184 25,123 23,294 23,239 22,647

Net Interest Margin, annualized 2.90 % 3.05 % 3.05 % 3.06 % 3.07 %

Net Interest Margin, Tax-Equivalent, annualized ^3 2.93 % 3.08 % 3.09 % 3.10 % 3.12 %

Efficiency Ratio Calculation: ^4

Noninterest Expense $ 17,487 $ 17,245 $ 17,754 $ 17,099 $ 16,791

Less: Intangible Asset Amortization 56 57 58 60 61

Net Noninterest Expense $ 17,431 $ 17,188 $ 17,696 $ 17,039 $ 16,730

Net Interest Income, Tax-Equivalent $ 25,184 $ 25,123 $ 23,294 $ 23,238 $ 22,647

Noninterest Income 8,697 7,164 7,694 7,081 7,691

Less: Net Changes in Fair Value of Equity Invest. (72) (106) (374) 67 146

Net Gross Income $ 33,953 $ 32,393 $ 31,362 $ 30,252 $ 30,192

Efficiency Ratio 51.34 % 53.06 % 56.42 % 56.32 % 55.41 %

Period-End Capital Information:

Total Stockholders' Equity (i.e. Book Value) $ 325,660 $ 317,687 $ 309,398 $ 301,728 $ 292,228

Book Value per Share ^1 21.03 20.55 20.05 19.53 18.95

Goodwill and Other Intangible Assets, net 23,662 23,535 23,513 23,534 23,586

Tangible Book Value per Share ^1,2 19.50 19.03 18.53 18.01 17.42

Capital Ratios:^5

Tier 1 Leverage Ratio 9.17 % 9.32 % 9.87 % 9.98 % 10.04 %

Common Equity Tier 1 Capital Ratio 13.20 % 13.07 % 12.84 % 12.94 % 12.93 %

Tier 1 Risk-Based Capital Ratio 14.06 % 13.94 % 13.72 % 13.83 % 13.85 %

Total Risk-Based Capital Ratio 15.28 % 15.10 % 14.76 % 14.78 % 14.81 %

Assets Under Trust Admin. & Investment Mgmt. $ 1,537,128 $ 1,502,866 $ 1,342,531 $ 1,543,653 $ 1,485,116

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 25, 2020, 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.

9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019

Total Stockholders'Equity (GAAP) $ 325,660 $ 317,687 $ 309,398 $ 301,728 $ 292,228

Less:Goodwill andOtherIntangible

assets, net 23,662 23,535 23,513 23,534 23,586

TangibleEquity $ 301,998 $ 294,152 $ 285,885 $ 278,194 $ 268,642(Non-GAAP)

Period EndShares 15,489 15,461 15,432 15,448 15,418Outstanding

Tangible BookValue perShare (Non-

GAAP) $ 19.50 $ 19.03 $ 18.53 $ 18.01 $ 17.42

Net Income 11,046 9,159 8,127 9,740 10,067

Return onAverageTangibleEquity (NetIncome/TangibleEquity -

Annualized) 14.61 % 12.58 % 11.55 % 14.18 % 15.05 %

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.

9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019

Interest $ 27,296 $ 28,002 $ 28,226 $ 28,367 $ 27,952Income (GAAP)

Add: Tax-Equivalentadjustment 284 281 288 321 344(Non-GAAP)

Interest Income - TaxEquivalent $ 27,580 $ 28,283 $ 28,514 $ 28,688 $ 28,296(Non-GAAP)

Net Interest $ 24,900 $ 24,842 $ 23,006 $ 22,918 $ 22,303Income (GAAP)

Add: Tax-Equivalentadjustment 284 281 288 321 344(Non-GAAP)

Net Interest Income - TaxEquivalent $ 25,184 $ 25,123 $ 23,294 $ 23,239 $ 22,647(Non-GAAP)

Average $3,417,638 $3,281,223 $3,030,881 $2,969,972 $2,881,035Earning Assets

Net InterestMargin 2.93 % 3.08 % 3.09 % 3.10 % 3.12 %(Non-GAAP)*

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 September 30, 2020 listed in the tables (i.e., 13.20%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).

9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019

Total Risk Weighted $2,321,637 $2,283,430 $2,275,902 $2,237,127 $2,184,214Assets

Common Equity Tier 1 306,356 298,362 292,165 289,409 282,485Capital

Common Equity Tier 1 13.20 % 13.07 % 12.84 % 12.94 % 12.93 %Ratio

* Quarterly ratios have been annualized

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

Quarter Ended: 9/30/2020 12/31/2019 9/30/2019Loan Portfolio

Commercial Loans $ 275,921 $ 150,660 $ 142,135

Commercial Real Estate Loans 541,233 510,541 498,083

Subtotal Commercial Loan 817,154 661,201 640,218Portfolio

Consumer Loans 849,526 811,198 805,798

Residential Real Estate 925,775 913,721 889,575Loans

Total Loans $ 2,592,455 $ 2,386,120 $ 2,335,591

Allowance for Loan Losses

Allowance for Loan Losses, $ 26,300 $ 20,931 $ 20,695Beginning of Quarter

Loans Charged-off (392) (503) (402)

Less Recoveries of Loans 267 125 120Previously Charged-off

Net Loans Charged-off (125) (378) (282)

Provision for Loan Losses 2,271 634 518

Allowance for Loan Losses, $ 28,446 $ 21,187 $ 20,931End of Quarter

Nonperforming Assets

Nonaccrual Loans $ $ $ 6,004 4,005 3,465

Loans Past Due 90 or More 121 253 1,066Days and Accruing

Loans Restructured and inCompliance with Modified 157 143 150Terms

Total Nonperforming Loans 6,282 4,401 4,681

Repossessed Assets 126 139 76

Other Real Estate Owned - 1,122 1,198

Total Nonperforming Assets $ $ $ 6,408 5,662 5,955

Key Asset Quality Ratios

Net Loans Charged-off toAverage Loans,

Quarter-to-date Annualized 0.02 % 0.06 % 0.05 %

Provision for Loan Losses to Average Loans,Quarter-to-date Annualized 0.35 % 0.11 % 0.09 %

Allowance for Loan Losses to 1.10 % 0.89 % 0.90 %Period-End Loans

Allowance for Loan Losses toPeriod-End Nonperforming 452.82 % 481.41 % 447.15 %Loans

Nonperforming Loans to 0.24 % 0.18 % 0.20 %Period-End Loans

Nonperforming Assets to 0.17 % 0.18 % 0.19 %Period-End Assets

Nine Month Period Ended:

Allowance for Loan Losses

Allowance for Loan Losses, $ 21,187 $ 20,196Beginning of Year

Loans Charged-off (1,360) (1,232)

Less Recoveries of Loans 536 522Previously Charged-off

Net Loans Charged-off (824) (710)

Provision for Loan Losses 8,083 1,445

Allowance for Loan Losses, $ 28,446 $ 20,931End of Period

Key Asset Quality Ratios

Net Loans Charged-off to 0.04 % 0.04 %Average Loans, Annualized

Provision for Loan Losses to 0.43 % 0.09 %Average Loans, Annualized

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SOURCE Arrow Financial Corporation