PR Newswire | Jul 21, 2020 08:33AM EDT

07/21 07:32 CDT

Arrow Reports $9.2 million in Q2 Net Income as COVID-19 Response Continues- Total loans grew by $147.7 million in the second quarter of 2020, including $140.0 million in Small Business Administration Paycheck Protection Program loans.- Second quarter revenue increased $3.4 million, or 11.9%, over the prior year comparative quarter.- Net income was $9.2 million and diluted earnings per share (EPS) were $0.61 for the second quarter.- Provision for loan losses was $3.0 million in the second quarter, reflecting the continued uncertainty of the COVID-19 pandemic. GLENS FALLS, N.Y., July 21, 2020

GLENS FALLS, N.Y., July 21, 2020 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS(r) - AROW) announced operating results for the three-month period ended June 30, 2020. Net income for the second quarter of 2020 was $9.2 million, compared to $8.9 million in the second quarter of 2019. Net interest income increased to $24.8 million in the second quarter of 2020, compared to $21.7 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 second quarter, as COVID-19 cases regionally declined and New York State Governor Andrew Cuomo began to lift restrictions, our bank lobbies reopened with significant safety protocols in place. However, a significant portion of our workforce continues to work remotely, and the Company remains focused on providing essential banking services and meeting customer needs, while maintaining proper health and safety protocols for our employees and our customers.

"The COVID-19 pandemic has undoubtedly confirmed our mission," said Thomas J. Murphy, President and CEO. "I am amazed at how our team has faced each challenge head-on in support of our customers and communities. In the second quarter, we provided Paycheck Protection Program loans to support more than 18,000 jobs at more than 1,400 local businesses. We also guided our customers through other stimulus programs, and we continue to work with those in need of temporary financial assistance. Through uncertain times, we are moving forward, together, with a focus on safety and service."

The following expands on our COVID-19 response:

COVID-19 Safety Measures: In June, Arrow began to lift appointment-only restrictions for our bank lobbies and some of our insurance offices in response to the declining number of COVID-19 cases regionally and New York State's phased reopening. Lobbies were opened with robust safety measures in place, including clear shields for desks and teller lines, hand sanitizing stations, required face coverings, and social distancing markers. Traffic has returned to lobbies at a manageable pace, 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 remain 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:Another significant aspect of Arrow's COVID-19 response has been support for customers experiencing financial hardship due to the mandated closure of non-essential businesses in New York State and the resulting rise in unemployment. Demand for the Small Business Administration's Paycheck Protection Program was tremendous in the second quarter. Arrow assisted more than 1,400 small businesses in our communities, resulting in more than $140 million in funding in support of more than 18,000 jobs. After two waves of funding, interest in these loan programs slowed and we are now engaged in supporting borrowers with the loan forgiveness process. This all-hands-on-deck effort continues to be a significant and positive contribution to our business customers, whose businesses are essential to the health of our local economies.

In the second quarter, we also worked closely with individuals and businesses seeking temporary financial assistance. That assistance is ongoing, and we also continue to guide our customers through other stimulus programs and provided COVID-19 fraud awareness.

COVID-19 Operational Impact:While COVID-19 did not have a material adverse effect on our second quarter 2020 financial results, we are actively monitoring the impact of the pandemic on our business and results of operations. 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 slowing economy and deteriorating economic outlook may lead to the continuation of elevated unemployment and decreased consumer and commercial spending. These factors may have adverse effects on the following: our customer deposits, the ability of our borrowers to satisfy their obligations, and the demand for loans and our other financial products and services, which may negatively impact the Company. Although Arrow has taken, and will continue to take, steps to mitigate against the impact of the pandemic on its operations, it cannot provide any assurance that these actions will be successful.

The following expands upon our second-quarter results:

Loan Growth:Total loans reached $2.6 billion as of June 30, 2020, which represents an increase of $281.6 million, or 12.3% from June 30, 2019. The consumer loan portfolio grew by $49.5 million, or 6.4%, as compared to June 30, 2019, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased $51.0 million, or 5.8%, as compared to June 30, 2019. Total outstanding commercial loans increased $181.1 million, or 28.8%, as compared to June 30, 2019. The increase in commercial loans includes $140.0 million in Small Business Administration Paycheck Protection Program loans.

Deposit Growth: At June 30, 2020, deposit balances reached $3.1 billion, up $565.0 million, or 22.6%, from the prior-year level. Noninterest-bearing deposits represented 21.8% of total deposits at June 30, 2020, compared to 18.7% of total deposits on June 30, 2019. At June 30, 2020, other time deposits were $216.6 million, a decrease of $72.7 million compared to the prior year. Municipal deposits increased $155.6 million, or 27.2% from June 30, 2019. Total combined Federal Home Loan Bank Overnight and Term Advances declined $66.6 million from June 30, 2019.

Net Interest Income:Net interest income for the second quarter increased to $24.8 million, up 14.4% from $21.7 million in the comparable quarter of 2019. The net interest margin was 3.05% for the quarter, compared to 3.04% for the second quarter of 2019. The increase in net interest margin from the prior year was primarily the result of the increase in the deposit balances as described above, combined with the decrease in market rates.

Noninterest Income: Noninterest income for the three months ended June 30, 2020 was $7.2 million, compared to $6.9 million in the comparable 2019 quarter. For the second quarter of 2020, the fair value of equity securities at June 30, 2020 decreased by $107 thousand. In addition, income of $547 thousand related to net gain on the sale of loans was recorded in the second quarter of 2020.

Noninterest Expense: Noninterest expense for the second quarter of 2020 increased 2.0% to $17.2 million, from $16.9 million for the second quarter of 2019. Salaries and benefits increased $0.5 million, which was primarily the result of increased cost of health insurance benefits.

Provision for Income Taxes: The provision for income taxes was $2.6 million for the second quarter of 2020, compared to $2.3 million for the same quarter of 2019. The effective income tax rates for the six-month periods ended June 30, 2020 and 2019 were 21.1% and 20.1%, respectively.

Asset Quality: Asset quality remained strong at June 30, 2020, with continued low levels of nonperforming loans and net charge-offs. Nonperforming loans at June 30, 2020, were $6.5 million, up $964 thousand from the level at June 30, 2019. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.06% for the three-month period ended June 30, 2020, consistent with December 31, 2019, and an increase from 0.02% for the three-month period ended June 30, 2019. The allowance for loan losses was $26.3 million at June 30, 2020, which represented 1.03% of loans outstanding, as compared to 0.91% at June 30, 2019. Loan loss provision expense for the second quarter of 2020 was $3.0 million, up $2.6 million from the provision for loan losses for the comparable 2019 quarter. Although credit quality remains strong, the increase in loss provision for loan losses reflects the uncertainty resulting from the COVID-19 pandemic. In the second quarter, we continued to work closely with individuals and businesses seeking temporary financial assistance.

Liquidity:At June 30, 2020, Arrow's liquidity position was strong, and provides flexibility to address unexpected near-term disruptions that may develop as a result of the COVID-19 pandemic, such as: reduced cash-flows from the investment and loan portfolios and aggressive funding of programs associated with response efforts, including the Small Business Administration Paycheck Protection Program. Interest-bearing cash balances at June 30, 2020 were $215.0 million compared to $28.0 million at June 30, 2019. At June 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 $317.7 million at June 30, 2020, up $33.0 million, or 11.6%, from June 30, 2019. Arrow's capital reserves are well positioned to address the uncertainties related to the COVID-19 pandemic. Arrow's consistent earnings and measured dividend practices have created strong capital reserves. Overall regulatory capital ratios also remained strong in 2020, with Arrow's common equity tier 1 ratio estimated to be 13.07% and the total risk-based capital ratio estimated to be 15.10% at June 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 June 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 second quarter of 2019 when adjusted for the 3% stock dividend distributed on September 27, 2019.

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 rating.

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 SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In Thousands, Except Per Share Amounts - Unaudited)

Three Months Ended June 30 Six Months Ended June 30,

2020 2019 2020 2019

INTEREST AND DIVIDEND INCOME

Interest and Fees on Loans $ 25,077 $ 23,520 $ 49,951 $ 45,923

Interest on Deposits at Banks 41 195 165 390

Interest and Dividends on InvestmentSecurities:

Fully Taxable 1,871 2,284 4,064 4,653

Exempt from Federal Taxes 1,013 1,228 2,048 2,474

Total Interest and Dividend Income 28,002 27,227 56,228 53,440

INTEREST EXPENSE

Interest-Bearing Checking Accounts 310 453 797 935

Savings Deposits 1,173 2,008 3,644 3,609

Time Deposits over $250,000 438 515 971 911

Other Time Deposits 784 1,131 1,784 1,844

Federal Funds Purchased andSecurities Sold Under Agreements to 16 25 38 47Repurchase

Federal Home Loan Bank Advances 217 1,099 646 2,693

Junior Subordinated Obligations Issued to 173 261 401 530Unconsolidated Subsidiary Trusts

Interest on Financing Leases 49 28 99 43

Total Interest Expense 3,160 5,520 8,380 10,612

NET INTEREST INCOME 24,842 21,707 47,848 42,828

Provision for Loan Losses 3,040 455 5,812 927

NET INTEREST INCOME AFTER PROVISION FOR LOAN 21,802 21,252 42,036 41,901LOSSES

NONINTEREST INCOME

Income From Fiduciary Activities 2,135 2,252 4,348 4,359

Fees for Other Services to Customers 2,278 2,545 4,729 4,947

Insurance Commissions 1,732 1,935 3,364 3,654

Net (Loss) Gain on Securities (106) - (480) 76

Net Gain on Sales of Loans 547 140 760 244

Other Operating Income 578 24 2,137 503

Total Noninterest Income 7,164 6,896 14,858 13,783

NONINTEREST EXPENSE

Salaries and Employee Benefits 10,212 9,727 20,595 19,046

Occupancy Expenses, Net 1,345 1,279 2,794 2,699

Technology and Equipment Expense 3,227 3,243 6,579 6,384

FDIC Assessments 242 212 461 424

Other Operating Expense 2,219 2,447 4,570 5,007

Total Noninterest Expense 17,245 16,908 34,999 33,560

INCOME BEFORE PROVISION FOR INCOME TAXES 11,721 11,240 21,895 22,124

Provision for Income Taxes 2,562 2,306 4,609 4,456

NET INCOME $ 9,159 $ 8,934 $ 17,286 $ 17,668

Average Shares Outstanding ^1:

Basic 14,992 14,922 14,994 14,912

Diluted 14,998 14,963 15,010 14,958

Per Common Share:

Basic Earnings $ 0.61 $ 0.60 $ 1.15 $ 1.19

Diluted Earnings 0.61 0.60 1.15 1.18

^12019 Share and Per Share Amounts have been restated for the September 27,2019, 3% stock dividend.

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

June 30, December 31, June 30, 2020 2019 2019

ASSETS

Cash and Due From Banks $ 38,267 $ 47,035 $ 34,650

Interest-Bearing Deposits at Banks 215,003 23,186 28,045

Investment Securities:

Available-for-Sale at Fair Value 378,778 357,334 285,878

Held-to-Maturity (Approximate Fair Value of $241,875 at June 30, 2020; $249,618 at December 31, 2019; and $ 233,517 245,065 262,541 266,068 at June 30, 2019)

Equity Securities 1,583 2,063 1,850

FHLB and Federal Reserve Bank Stock 5,574 10,317 8,202

Loans 2,561,915 2,386,120 2,280,308

Allowance for Loan Losses (26,300) (21,187) (20,695)

Net Loans 2,535,615 2,364,933 2,259,613

Premises and Equipment, Net 41,231 40,629 38,836

Goodwill 21,873 21,873 21,873

Other Intangible Assets, Net 1,662 1,661 1,730

Other Assets 74,074 70,179 62,532

Total Assets $ 3,547,177 $ 3,184,275 $ 3,005,750

LIABILITIES

Noninterest-Bearing Deposits 667,585 484,944 467,179

Interest-Bearing Checking Accounts 791,521 689,221 741,395

Savings Deposits 1,262,102 1,046,568 908,642

Time Deposits over $250,000 130,935 123,968 97,220

Other Time Deposits 216,630 271,353 289,317

Total Deposits 3,068,773 2,616,054 2,503,753

Federal Funds Purchased and 47,599 51,099 51,149Securities Sold Under Agreements to Repurchase

Federal Home Loan Bank Overnight Advances - 130,000 83,000

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

Junior Subordinated Obligations Issued to Unconsolidated 20,000 20,000 20,000Subsidiary Trusts

Finance Leases 5,239 5,254 5,270

Other Liabilities 37,879 30,140 27,929

Total Liabilities 3,229,490 2,882,547 2,721,101

STOCKHOLDERS' EQUITY

Preferred Stock, $1 Par Value and 1,000,000 SharesAuthorized at June 30, 2020, December 31, 2019 and June 30, - - -2019

Common Stock, $1 Par Value; 30,000,000 Shares Authorized atJune 30, 2020 and December 31, 2019 and 20,000,000 SharesAuthorized at June 30, 2019 (19,606,449 Shares Issued at 19,606 19,606 19,035June 30, 2020 and December 31, 2019 and 19,035,565 at June30, 2019)

Additional Paid-in Capital 336,643 335,355 316,229

Retained Earnings 42,704 33,218 39,397

Unallocated ESOP Shares (None at June 30, 2020 and December - - (100)31, 2019 and 5,001 Shares at June 30, 2019)

Accumulated Other Comprehensive Loss (276) (6,357) (9,647)

Treasury Stock, at Cost (4,595,891 Shares at June 30, 2020;4,608,258 Shares at December 31, 2019 and 4,517,412 Shares (80,990) (80,094) (80,265)at June 30, 2019)

Total Stockholders' Equity 317,687 301,728 284,649

Total Liabilities and Stockholders' Equity $ 3,547,177 $ 3,184,275 $ 3,005,750

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

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

Net Income $ 9,159 $ 8,127 $ 9,740 $ 10,067 $ 8,934

Transactions in Net Income (Net of Tax):

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

Share and Per Share Data:^1

Period End Shares Outstanding 15,011 14,982 14,998 14,969 14,949

Basic Average Shares Outstanding 14,992 14,996 14,978 14,955 14,922

Diluted Average Shares Outstanding 14,998 15,026 15,026 14,991 14,963

Basic Earnings Per Share $ 0.61 $ 0.54 $ 0.65 $ 0.67 $ 0.60

Diluted Earnings Per Share 0.61 0.54 0.65 0.67 0.60

Cash Dividend Per Share 0.260 0.260 0.260 0.252 0.252

Selected Quarterly Average Balances:

Interest-Bearing Deposits at Banks $ 155,931 $ 32,787 $ 28,880 $ 27,083 $ 25,107

Investment Securities 607,094 603,748 582,982 545,073 584,679

Loans 2,518,198 2,394,346 2,358,110 2,308,879 2,255,299

Deposits 2,952,432 2,670,009 2,607,421 2,472,528 2,436,290

Other Borrowed Funds 129,383 170,987 177,877 231,291 250,283

Shareholders' Equity 316,380 306,527 296,124 289,016 280,247

Total Assets 3,437,155 3,180,857 3,113,114 3,023,043 2,997,458

Return on Average Assets, annualized 1.07 % 1.03 % 1.24 % 1.32 % 1.20 %

Return on Average Equity, annualized 11.64 % 10.66 % 13.05 % 13.82 % 12.79 %

Return on Average Tangible Equity, 12.58 % 11.55 % 14.18 % 15.05 % 13.96 %annualized ^2

Average Earning Assets $ 3,281,223 $ 3,030,881 $ 2,969,972 $ 2,881,035 $ 2,865,085

Average Paying Liabilities 2,457,690 2,362,515 2,293,804 2,213,642 2,235,462

Interest Income 28,002 28,226 28,367 27,952 27,227

Tax-Equivalent Adjustment ^3 281 288 321 344 376

Interest Income, Tax-Equivalent ^3 28,283 28,514 28,688 28,296 27,603

Interest Expense 3,160 5,220 5,449 5,649 5,520

Net Interest Income 24,842 23,006 22,918 22,303 21,707

Net Interest Income, Tax-Equivalent ^3 25,123 23,294 23,239 22,647 22,083

Net Interest Margin, annualized 3.05 % 3.05 % 3.06 % 3.07 % 3.04 %

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

Efficiency Ratio Calculation: ^4

Noninterest Expense $ 17,245 $ 17,754 $ 17,099 $ 16,791 $ 16,908

Less: Intangible Asset Amortization 57 58 60 61 44

Net Noninterest Expense $ 17,188 $ 17,696 $ 17,039 $ 16,730 $ 16,864

Net Interest Income, Tax-Equivalent $ 25,123 $ 23,294 $ 23,238 $ 22,647 $ 22,083

Noninterest Income 7,164 7,694 7,081 7,691 6,896

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

Net Gross Income $ 32,393 $ 31,362 $ 30,252 $ 30,192 $ 28,979

Efficiency Ratio 53.06 % 56.42 % 56.32 % 55.41 % 58.19 %

Period-End Capital Information:

Total Stockholders' Equity (i.e. Book $ 317,687 $ 309,398 $ 301,728 $ 292,228 $ 284,649Value)

Book Value per Share^ 1 21.16 20.65 20.12 19.52 19.04

Goodwill and Other Intangible Assets, net 23,535 23,513 23,534 23,586 23,603

Tangible Book Value per Share ^1,2 19.60 19.08 18.55 17.95 17.46

Capital Ratios:^5

Tier 1 Leverage Ratio 9.32 % 9.87 % 9.98 % 10.04 % 9.88 %

Common Equity Tier 1 Capital Ratio^ 13.07 % 12.77 % 12.94 % 12.93 % 12.99 %

Tier 1 Risk-Based Capital Ratio 13.94 % 13.65 % 13.83 % 13.85 % 13.93 %

Total Risk-Based Capital Ratio 15.10 % 14.68 % 14.78 % 14.81 % 14.91 %

Assets Under Trust Admin. & Investment $ 1,502,866 $ 1,342,531 $ 1,543,653 $ 1,485,116 $ 1,496,966Mgmt.

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

Footnotes:

1. Share and Per Share Data have been restated for the September 27, 2019, 3% stock dividend

Non-GAAP Financial Measures Reconciliation: Tangible Book Value and Tangible2. 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.

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

Total Stockholders' $ 317,687 $ 309,398 $ 301,728 $ 292,228 $ 284,649 Equity (GAAP)

Less: Goodwill and Other 23,535 23,513 23,534 23,586 23,603 Intangible assets, net

Tangible Equity $ 294,152 $ 285,885 $ 278,194 $ 268,642 $ 261,046 (Non-GAAP)

Period End Shares 15,011 14,982 14,998 14,969 14,949 Outstanding

Tangible Book Value per $ 19.60 $ 19.08 $ 18.55 $ 17.95 $ 17.46 Share (Non-GAAP)

Net Income 9,159 8,127 9,740 10,067 8,934

Return on Average Tangible Equity (Net 12.58 % 11.55 % 14.18 % 15.05 % 13.96 % Income/ Tangible Equity - Annualized)

Non-GAAP Financial Measures Reconciliation: Net Interest Margin, Tax-Equivalent is the ratio of our annualized tax-equivalent net interest income to average3. 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.

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

Interest $ 28,002 $ 28,226 $ 28,367 $ 27,952 $ 27,227 Income (GAAP)

Add: Tax-Equivalent 281 288 321 344 376 adjustment (Non-GAAP)

Interest Income - Tax $ 28,283 $ 28,514 $ 28,688 $ 28,296 $ 27,603 Equivalent (Non-GAAP)

Net Interest $ 24,842 $ 23,006 $ 22,918 $ 22,303 $ 21,707 Income (GAAP)

Add: Tax-Equivalent 281 288 321 344 376 adjustment (Non-GAAP)

Net Interest Income - Tax $ 25,123 $ 23,294 $ 23,239 $ 22,647 $ 22,083 Equivalent (Non-GAAP)

Average $ 3,281,223 $ 3,030,881 $ 2,969,972 $ 2,881,035 $ 2,865,085 Earning Assets

Net Interest Margin 3.08 % 3.09 % 3.10 % 3.12 % 3.09 % (Non-GAAP)*

Non-GAAP Financial Measures: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. Arrow believes the4. 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).

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, and5. calculated in accordance with, bank regulatory capital rules. All prior quarters reflect actual results. The CET1 ratio at June 30, 2020 listed in the tables (i.e., 13.07%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).

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

Total Risk Weighted $ 2,283,430 $ 2,287,834 $ 2,237,127 $ 2,184,214 $ 2,121,541 Assets

Common Equity 298,362 292,165 289,409 282,485 275,528 Tier 1 Capital

Common Equity 13.07 % 12.77 % 12.94 % 12.93 % 12.99 % Tier 1 Ratio

* Quarterly ratios have been annualized

Arrow Financial CorporationConsolidated Financial Information(Dollars in Thousands - Unaudited)

Quarter Ended: 6/30/2020 12/31/2019 6/30/2019

Loan Portfolio

Commercial Loans $ 276,671 $ 150,660 $ 138,331

Commercial Real Estate Loans 533,032 510,541 490,274

Subtotal Commercial Loan Portfolio 809,703 661,201 628,605

Consumer Loans 828,493 811,198 779,024

Residential Real Estate Loans 923,719 913,721 872,679

Total Loans $ 2,561,915 $ 2,386,120 $ 2,280,308

Allowance for Loan Losses

Allowance for Loan Losses, Beginning of Quarter $ 23,637 $ 20,931 $ 20,373

Loans Charged-off (487) (503) (368)

Less Recoveries of Loans Previously Charged-off 110 125 235

Net Loans Charged-off (377) (378) (133)

Provision for Loan Losses 3,040 634 455

Allowance for Loan Losses, End of Quarter $ 26,300 $ 21,187 $ 20,695

Nonperforming Assets

Nonaccrual Loans $ 5,461 $ 4,005 $ 4,949

Loans Past Due 90 or More Days and Accruing 901 253 457

Loans Restructured and in Compliance with 150 143 142Modified Terms

Total Nonperforming Loans 6,512 4,401 5,548

Repossessed Assets 116 139 115

Other Real Estate Owned 595 1,122 1,258

Total Nonperforming Assets $ 7,223 $ 5,662 $ 6,921

Key Asset Quality Ratios

Net Loans Charged-off to Average Loans, 0.06 % 0.06 % 0.02 %Quarter-to-date Annualized

Provision for Loan Losses to Average Loans, 0.49 % 0.11 % 0.08 %Quarter-to-date Annualized

Allowance for Loan Losses to Period-End Loans 1.03 % 0.89 % 0.91 %

Allowance for Loan Losses to Period-End 403.87 % 481.41 % 373.02 %Nonperforming Loans

Nonperforming Loans to Period-End Loans 0.25 % 0.18 % 0.24 %

Nonperforming Assets to Period-End Assets 0.20 % 0.18 % 0.23 %

Six-Month Period Ended:

Allowance for Loan Losses

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

Loans Charged-off (968) (830)

Less Recoveries of Loans Previously Charged-off 269 402

Net Loans Charged-off (699) (428)

Provision for Loan Losses 5,812 927

Allowance for Loan Losses, End of Period $ 26,300 $ 20,695

Key Asset Quality Ratios

Net Loans Charged-off to Average Loans, 0.06 % 0.04 %Annualized

Provision for Loan Losses to Average Loans, 0.48 % 0.08 %Annualized

View original content: http://www.prnewswire.com/news-releases/arrow-reports-9-2-million-in-q2-net-income-as-covid-19-response-continues-301097029.html

SOURCE Arrow Financial Corporation