PR Newswire | Jan 27, 2022 07:46AM EST

Billion

01/27 06:45 CST

Arrow Reports Annual Net Income of $49.9 million and Total Assets Over $4 Billion- Net income for 2021 was $49.9 million, up 22.1% year over year.- Diluted Earnings Per Share (EPS) grew to $3.10 for the year.- Return on average equity (ROE) was 14.09% and return on average assets (ROA) was 1.28%.- Record highs were achieved at year-end for total assets, equity and assets under management by Arrow's Wealth Management Division. GLENS FALLS, N.Y., Jan. 27, 2022

GLENS FALLS, N.Y., Jan. 27, 2022 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS(r) - AROW) reported for the year ended December 31, 2021, that net income reached a record $49.9 million, up 22.1% over net income of $40.8 million for 2020. For 2021, revenue increased by $10.9 million and the provision for credit losses decreased by $9.0 million, which was partially offset by higher operating expenses and income taxes. For the fourth quarter of 2021, net income was $10.3 million, a decrease of $2.2 million, or 17.5%, from the fourth quarter of 2020. Diluted EPS was $3.10 for 2021, up 21.2% from $2.56 in 2020, and $0.63 for the fourth quarter of 2021, down 19.2% from $0.78 from the comparable 2020 quarter.

Return on average equity (ROE) and return on average assets (ROA) were 14.09% and 1.28%, respectively, as compared to 12.77% and 1.17%, respectively, for 2020. ROE was 11.22% for the fourth quarter, down from 14.98% from the fourth quarter of 2020. ROA was 1.01% for the fourth quarter, which represents a decrease from 1.34% for the comparable 2020 quarter.

"Arrow Financial Corporation delivered another year of strong financial results in 2021, with exceptional earnings, strong profitability ratios and asset growth to a record $4 billion, all while weathering a second year of pandemic-related issues," said Arrow President and CEO Thomas J. Murphy. "In addition to driving shareholder value in 2021, I am proud to say we advanced many continuous improvement initiatives with key investments in our Team, our branch network and our technology to position us for the future. Arrow also gave back to the communities it serves through increased charitable support to meet increasing and evolving needs. I commend the Arrow Team for their stellar performance, commitment and dedication to our company, our customers and our communities."

In the fourth quarter, Arrow continued its branch optimization initiative. In November, Saratoga National Bank consolidated two smaller branches into one larger, fully renovated branch in nearby Wilton Square. In December, Glens Falls National Bank consolidated two branches within a mile of each other in Fort Edward, allowing our Team to serve the community from one central, updated location. Throughout the year, a combination of renovation, consolidation and relocation has allowed us to deliver an enhanced customer experience while streamlining expenses.

On the technology front, the Team prepared a new online account opening platform, which launched earlier this month for Saratoga National Bank and will be followed later in 2022 at Glens Falls National Bank. Work also began in late 2021 on replacing our core technology in preparation for an upgrade this summer.

The following expands on fourth quarter and 2021 results:

COVID-19 Response We continue to monitor the impact of the pandemic variants and all the challenges they present on our business and operations and the health and safety of our employees and customers are at the forefront of related decisions.

We continue to comply with Federal and New York State guidelines and regulations. All employees and directors are vaccinated, subject to appropriate health and religious exemptions. We continue to encourage remote work and minimize work-related travel and in-person meetings. A pandemic bonus to eligible employees, the second in two years, was awarded in recognition of the Team's enduring and exceptional pandemic performance. Arrow managed to avoid widespread lobby closures for the majority of the year. We are working through the current spike in cases by implementing temporary changes to branch availability by location as needed. On the lending side, we are well under way with the forgiveness process for the second round of Small Business Administration Paycheck Protection Program (PPP) loans, with the first round of loans already forgiven. As of December 31, 2021, $43.6 million of the total $234.2 million PPP loans funded are outstanding.

Loan Growth At December 31, 2021, total loan balances reached $2.7 billion, up $73 million, or 2.8%, from the prior-year level. Net of $70.1 million of PPP loans forgiven by the Small Business Administration in 2021, loans grew by $143.1 million for the year. Loan growth for the fourth quarter was $13.2 million. Net of $16.4 million PPP loans forgiven in the quarter, loans grew by $29.6 in the fourth quarter. The consumer loan portfolio grew by $60.8 million, or 7.1%, over the balance at December 31, 2020, primarily as a result of continued strength in the indirect automobile lending program. Net of approximately $52.1 million of loans sold in 2021, the residential real estate loan portfolio increased $23.0 million, or 2.5% from the prior year. Commercial loans, including commercial real estate, decreased $10.9 million, or 1.3%, over the balances at December 31, 2020. The decrease in commercial loans includes $70.1 million of PPP loans forgiven by the Small Business Administration in 2021.

Deposit Growth:At December 31, 2021, total deposit balances reached $3.6 billion, up by $315.8 million, or 9.8%, from the prior-year level. Deposits decreased in the fourth quarter by $55.1 million. Non-municipal deposits grew by $53.3 million and municipal deposits seasonally contracted by $108.4 million as compared to September 30, 2021. Noninterest-bearing deposits grew by $108.9 million, or 15.5%, during 2021, and represented 22.8% of total deposits at year-end, as compared to the prior- year level of 21.7%. At December 31, 2021, total time deposits decreased $63.0 million from the prior- year level.

Net Interest Income:Net interest income for the year ending December 31, 2021, was $110.4 million, an increase of $11.2 million, or 11.2%, from the prior year. Interest and fees on loans were $105.0 million, an increase of 4.5% from the $100.5 million for the year ending December 31, 2020. Interest and fees related to PPP loans included in the $105.0 million, were $7.8 million. Interest expense for the year ending December 31, 2021 was $5.2 million. This is a decrease of $7.5 million, or 59.1%, from the $12.7 million in expense for the prior year period. The net interest margin was 2.97% for the year ending December 31, 2021, as compared to 2.99% for the year ended December 31, 2020. In the fourth quarter of 2021, the net interest margin was 2.77%, as compared to 2.96% for the fourth quarter of 2020.

Noninterest Income:Noninterest income was $32.4 million for the year ending December 31, 2021, a decrease of 0.9% as compared to $32.7 million for the year ending December 31, 2020. Income from fiduciary activities in 2021 was $10.1 million, an increase of $1.3 million from 2020. Fees and other services to customers increased $1.5 million to $11.5 million in 2021. Interchange fees related to increased customer activity of debit card usage was the largest driver of the increase. Gain on sales of loans decreased $1.5 million from 2020 to $2.4 million in 2021 as a result of the strategic decision in the second half of 2021 to retain more newly originated residential real estate loans. The decrease in other operating income from 2020 was primarily driven by a $1.4 million decrease in income related to interest rate swap agreements.

Noninterest Expense:Noninterest expense for the year ending December 31, 2021, increased by $7.4 million, or 10.5%, to $78.1 million, as compared to $70.7 million in 2020. The largest component of noninterest expense is salaries and benefits paid to our employees, which totaled $44.8 million in 2021. Noninterest expense for the fourth quarter of 2021 increased $2.7 million, or 14.7%, as compared to the fourth quarter of 2020. Other operating expenses increased from the prior comparable quarter as a result of $1.4 million in non-recurring litigation reserve expense.

Provision for Income Taxes:The provision for income taxes for 2021 was $14.5 million, compared to $11.0 million for 2020. The effective income tax rates for 2021 and 2020 were 22.6% and 21.3%, respectively.

Asset Quality:Asset quality remained strong in 2021, as evidenced by low levels of nonperforming assets and charge-offs. Net loan losses for 2021, expressed as an annualized percentage of average loans outstanding, were 0.03% of average loans outstanding, a decrease from 0.05% for 2020. Net loan losses for the fourth quarter of 2021 were 0.03%, a decrease from 0.07% for the fourth quarter of 2020. Nonperforming assets of $11.8 million at December 31, 2021, represented 0.29% of period-end assets, an increase from 0.18% at December 31, 2020. The increase in nonperforming assets from the prior year was primarily the result of two commercial real estate loans being classified as nonaccrual during 2021.

Arrow's allowance for credit losses was $27.3 million at December 31, 2021, which represented 1.02% of loans outstanding, a decrease from 1.13% at year-end 2020. When expressed as a percentage of nonperforming loans, the allowance for credit loss coverage ratio was 233.9% at year-end 2021. Arrow adopted the Current Expected Credit Losses (CECL) accounting standard as of January 1, 2021. The provision of credit losses related to the loan portfolio was $272 thousand and the expense for estimated credit losses on off-balance sheet credit exposures included in other liabilities was $685 thousand for 2021.

Liquidity:Interest-bearing cash balances at December 31, 2021, were $430.7 million. Arrow continues to be well-prepared to address any unexpected volatility, which may affect cash flow and deposit balances. At December 31, 2021, contingent collateralized lines of credit were established and available through the Federal Home Loan Bank of New York and the Federal Reserve Bank of New York, totaling $1.3 billion. Arrow has additional liquidity options currently available, including unsecured lines of credit such as Fed Funds and brokered markets.

Capital:Total shareholders' equity grew to a record of $371.2 million at period-end, an increase of $36.8 million, or 11.0%, above the year-end 2020 balance. Arrow's regulatory capital ratios remained strong in 2021. At December 31, 2021, Arrow's Common Equity Tier 1 Capital Ratio was 13.77% and Total Risk-Based Capital Ratio was 15.69%. The capital ratios of Arrow and both its subsidiary banks continued to significantly exceed the "well capitalized" regulatory standards.

Cash and Stock Dividends:On December 15, 2021, Arrow distributed a cash dividend of $0.26 per share. The cash dividend was 3% higher than the cash dividend paid by Arrow in the fourth quarter of 2020 when adjusted for the 3% stock dividend distributed on September 24, 2021.

Industry Recognition:In the fourth quarter, both of Arrow's banking subsidiaries, Glens Falls National Bank and Saratoga National Bank, maintained their BauerFinancial, Inc. 5-Star "Exceptional Performance" Bank ratings for the 14th and 12th consecutive years, respectively. Other awards during 2021 included the Raymond James Community Bankers Cup, which recognizes the top 10% of community banks using various profitability, efficiency and balance sheet metrics; and the Piper Sandler Sm-All Stars Class of 2021, which includes the top 35 banks and thrifts.

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 North Country Investment Advisers, Inc. and Upstate Agency, LLC.

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. 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, 2020, 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 Twelve Months Ended December 31, December 31,

2021 2020 2021 2020

INTEREST AND DIVIDEND INCOME

Interest and Fees on Loans $ 25,631 $ 25,835 $ 104,985 $ 100,492

Interest on Deposits at Banks 214 92 565 321

Interest and Dividends on Investment Securities:

Fully Taxable 1,678 1,510 6,487 7,131

Exempt from Federal Taxes 831 935 3,513 3,952

Total Interest and Dividend Income 28,354 28,372 115,550 111,896

INTEREST EXPENSE

Interest-Bearing Checking Accounts 165 231 731 1,292

Savings Deposits 412 640 1,902 5,090

Time Deposits over $250,000 33 202 261 1,465

Other Time Deposits 123 422 634 2,782

Federal Funds Purchased and

Securities Sold Under Agreements to Repurchase - 5 3 60

Federal Home Loan Bank Advances 197 198 783 1,063

Junior Subordinated Obligations Issued 173 172 686 746to Unconsolidated Subsidiary Trusts

Interest on Financing Leases 49 48 195 196

Total Interest Expense 1,152 1,918 5,195 12,694

NET INTEREST INCOME 27,202 26,454 110,355 99,202

Provision for Credit Losses 558 1,236 272 9,319

NET INTEREST INCOME AFTER PROVISION 26,644 25,218 110,083 89,883FOR CREDIT LOSSES

NONINTEREST INCOME

Income From Fiduciary Activities 2,604 2,277 10,142 8,890

Fees for Other Services to Customers 2,968 2,655 11,462 10,003

Insurance Commissions 1,645 1,799 6,487 6,876

Net (Loss) Gain on Securities (139) 88 111 (464)

Net Gain on Sales of Loans 142 1,696 2,393 3,889

Other Operating Income 369 588 1,774 3,464

Total Noninterest Income 7,589 9,103 32,369 32,658

NONINTEREST EXPENSE

Salaries and Employee Benefits 11,438 11,058 44,798 42,061

Occupancy Expenses, Net 1,334 1,393 5,814 5,614

Technology and Equipment Expense 3,868 3,169 14,870 12,976

FDIC Assessments 278 293 1,042 1,063

Other Operating Expense 3,942 2,279 11,524 8,964

Total Noninterest Expense 20,860 18,192 78,048 70,678

INCOME BEFORE PROVISION FOR INCOME TAXES 13,373 16,129 64,404 51,863

Provision for Income Taxes 3,064 3,634 14,547 11,036

NET INCOME $ 10,309 $ 12,495 $ 49,857 $ 40,827

Average Shares Outstanding^1:

Basic 16,028 15,964 16,018 15,929

Diluted 16,091 15,981 16,073 15,944

Per Common Share:

Basic Earnings $ 0.64 $ 0.78 $ 3.11 $ 2.56

Diluted Earnings 0.63 0.78 3.10 2.56

^1Share and per share data 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)

December 31, December 31,

2021 2020

ASSETS

Cash and Due From Banks $ 26,978 $ 42,116

Interest-Bearing Deposits at Banks 430,718 338,875

Investment Securities:

Available-for-Sale 559,316 365,287

Held-to-Maturity (Approximate Fair Value of $201,292 196,566 218,405at December 31, 2021, and $226,576 at December 31, 2020)

Equity Securities 1,747 1,636

Other Investments 5,380 5,349

Loans 2,667,941 2,595,030

Allowance for Credit Losses (27,281) (29,232)

Net Loans 2,640,660 2,565,798

Premises and Equipment, Net 46,217 42,612

Goodwill 21,873 21,873

Other Intangible Assets, Net 1,918 1,950

Other Assets 96,579 84,735

Total Assets $ 4,027,952 $ 3,688,636

LIABILITIES

Noninterest-Bearing Deposits $ 810,274 $ 701,341

Interest-Bearing Checking Accounts 994,391 832,434

Savings Deposits 1,531,287 1,423,358

Time Deposits over $250,000 82,811 123,622

Other Time Deposits 131,734 153,971

Total Deposits 3,550,497 3,234,726

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase - 17,486

Federal Home Loan Bank Overnight Advances - -

Federal Home Loan Bank Term Advances 45,000 45,000

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

Finance Leases 5,169 5,217

Other Liabilities 36,100 31,815

Total Liabilities 3,656,766 3,354,244

STOCKHOLDERS' EQUITY

Preferred Stock, $1 Par Value, 1,000,000 Shares Authorized - -

Common Stock, $1 Par Value; 30,000,000 Shares Authorized(20,800,144 Shares Issued at December 31, 2021, and 20,194,474 Shares Issued at

December 31, 2020) 20,800 20,194

Additional Paid-in Capital 377,996 353,662

Retained Earnings 54,078 41,899

Accumulated Other Comprehensive Loss 347 (816)

Treasury Stock, at Cost (4,759,414 Shares at December 31, 2021, and 4,678,736 Shares at December (82,035) (80,547)31, 2020)

Total Stockholders' Equity 371,186 334,392

Total Liabilities and Stockholders' Equity $ 4,027,952 $ 3,688,636

Arrow Financial Corporation Selected Quarterly Information

(Dollars In Thousands, Except Per Share Amounts - Unaudited)

Quarter Ended 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020

Net Income $ 10,309 $ 12,989 $ 13,279 $ 13,280 $ 12,495

Transactions in Net Income (Net of Tax):

Net Changes in Fair Value of Equity Investments (104) (79) 145 119 66

Share and Per Share Data:^1

Period End Shares Outstanding 16,041 16,020 16,039 16,009 15,981

Basic Average Shares Outstanding 16,028 16,027 16,024 15,994 15,964

Diluted Average Shares Outstanding 16,091 16,085 16,085 16,030 15,981

Basic Earnings Per Share $ 0.64 $ 0.81 $ 0.83 $ 0.83 $ 0.78

Diluted Earnings Per Share 0.63 0.81 0.83 0.83 0.78

Cash Dividend Per Share 0.260 0.252 0.252 0.252 0.252

Selected Quarterly Average Balances:

Interest-Bearing Deposits at Banks $ 551,890 $ 416,500 $ 369,034 $ 334,155 $ 349,430

Investment Securities 681,732 675,980 668,089 593,822 590,151

Loans 2,660,665 2,641,726 2,651,449 2,618,362 2,610,834

Deposits 3,590,766 3,435,933 3,395,271 3,254,815 3,256,238

Other Borrowed Funds 70,162 72,187 74,957 82,659 95,047

Shareholders' Equity 364,409 359,384 350,203 340,708 331,899

Total Assets 4,060,540 3,902,041 3,851,921 3,712,020 3,721,954

Return on Average Assets, annualized 1.01 % 1.32 % 1.38 % 1.45 % 1.34 %

Return on Average Equity, annualized 11.22 % 14.34 % 15.21 % 15.81 % 14.98 %

Return on Average Tangible Equity, annualized ^2 12.01 % 15.36 % 16.32 % 17.00 % 16.13 %

Average Earning Assets 3,894,287 3,734,206 3,688,572 3,546,339 3,550,415

Average Paying Liabilities 2,841,304 2,705,283 2,721,961 2,639,240 2,674,795

Interest Income 28,354 29,807 29,695 27,694 28,372

Tax-Equivalent Adjustment ^3 285 292 293 235 251

Interest Income, Tax-Equivalent ^3 28,639 30,099 29,988 27,929 28,623

Interest Expense 1,152 1,169 1,335 1,539 1,918

Net Interest Income 27,202 28,638 28,360 26,155 26,454

Net Interest Income, Tax-Equivalent ^3 27,487 28,930 28,653 26,390 26,705

Net Interest Margin, annualized 2.77 % 3.04 % 3.08 % 2.99 % 2.96 %

Net Interest Margin, Tax-Equivalent, annualized 2.80 % 3.07 % 3.12 % 3.02 % 2.99 %^3

Efficiency Ratio Calculation: ^4

Noninterest Expense $ 20,860 $ 19,423 $ 19,087 $ 18,678 $ 18,192

Less: Intangible Asset Amortization 52 51 53 54 56

Net Noninterest Expense $ 20,808 $ 19,372 $ 19,034 $ 18,624 $ 18,136

Net Interest Income, Tax-Equivalent $ 27,487 $ 28,930 $ 28,653 $ 26,390 $ 26,705

Noninterest Income 7,589 7,694 8,478 8,608 9,103

Less: Net (Loss) Gain on Securities (139) (106) 196 160 88

Net Gross Income $ 35,215 $ 36,730 $ 36,935 $ 34,838 $ 35,720

Efficiency Ratio 59.09 % 52.74 % 51.53 % 53.46 % 50.77 %

Period-End Capital Information:

Total Stockholders' Equity (i.e. Book Value) $ 371,186 $ 360,171 $ 353,033 $ 342,413 $ 334,392

Book Value per Share ^1 23.14 22.48 22.01 21.39 20.92

Goodwill and Other Intangible Assets, net 23,791 23,879 23,955 23,922 23,823

Tangible Book Value per Share ^1,2 21.66 20.99 20.52 19.89 19.43

Capital Ratios:^5

Tier 1 Leverage Ratio 9.20 % 9.39 % 9.29 % 9.37 % 9.07 %

Common Equity Tier 1 Capital Ratio 13.77 % 13.71 % 13.79 % 13.56 % 13.39 %

Tier 1 Risk-Based Capital Ratio 14.55 % 14.51 % 14.61 % 14.39 % 14.24 %

Total Risk-Based Capital Ratio 15.69 % 15.66 % 15.78 % 15.55 % 15.48 %

Assets Under Trust Admin. & Investment Mgmt. $1,851,101 $1,778,659 $1,804,854 $1,725,754 $1,659,029

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.

Non-GAAP Financial Measure Reconciliation: Tangible Book Value, Tangible Equity, and Return on Tangible Equity exclude goodwill and other intangible2. assets, net from total equity. These are non-GAAP financial measures which we believe provide investors with information that is useful in understanding our financial performance.

12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020

Total Stockholders' Equity $ 371,186 $ 360,171 $ 353,033 $ 342,413 $ 334,392(GAAP)

Less: Goodwill and Other 23,791 23,879 23,955 23,922 23,823Intangible assets, net

Tangible Equity (Non-GAAP) $ 347,395 $ 336,292 $ 329,078 $ 318,491 $ 310,569

Period End Shares Outstanding 16,041 16,020 16,039 16,009 15,981

Tangible Book Value per Share $ 21.66 $ 20.99 $ 20.52 $ 19.89 $ 19.43(Non- GAAP)

Net Income 10,309 12,989 13,279 13,280 12,495

Return on Tangible Equity (Net

Income/ 12.01 % 15.36 % 16.32 % 17.00 % 16.13 %Tangible Equity - Annualized)

Non-GAAP Financial Measure Reconciliation: Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning3. assets. This is also a non-GAAP financial measure which we believe provides investors with information that is useful in understanding our financial performance.

12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020

Interest Income (GAAP) $ 28,354 $ 29,807 $ 29,695 $ 27,694 $ 28,372

Add: Tax Equivalent Adjustment 285 292 293 235 251(Non- GAAP)

Interest Income - Tax Equivalent $ 28,639 $ 30,099 $ 29,988 $ 27,929 $ 28,623(Non-GAAP)

Net Interest Income (GAAP) $ 27,202 $ 28,638 $ 28,360 $ 26,155 $ 26,454

Add: Tax-Equivalent adjustment 285 292 293 235 251(Non-GAAP)

Net Interest Income - Tax Equivalent $ 27,487 $ 28,930 $ 28,653 $ 26,390 $ 26,705(Non-GAAP)

Average Earning Assets 3,894,287 3,734,206 3,688,572 3,546,339 3,550,415

Net Interest Margin (Non-GAAP)* 2.80 % 3.07 % 3.12 % 3.02 % 2.99 %

Non-GAAP Financial Measure Reconciliation: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. We believe the efficiency ratio provides investors with information that is4. useful in understanding our financial performance. We define our efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals our 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 December 31, 2021 CET1 ratio listed in the tables (i.e., 13.77%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).

12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020

Total Risk Weighted Assets 2,552,821 2,511,910 2,438,445 2,404,456 2,357,094

Common Equity Tier 1 Capital 351,497 344,507 336,265 326,039 315,696

Common Equity Tier 1 Ratio 13.77 % 13.71 % 13.79 % 13.56 % 13.39 %

* Quarterly ratios have been annualized

Arrow Financial Corporation Consolidated Financial Information

(Dollars in Thousands - Unaudited)

Quarter Ended: 12/31/2021 12/31/2020

Loan Portfolio

Commercial Loans $ 172,518 $ 240,554

Commercial Real Estate Loans 628,929 571,787

Subtotal Commercial Loan Portfolio 801,447 812,341

Consumer Loans 920,556 859,768

Residential Real Estate Loans 945,938 922,921

Total Loans $ 2,667,941 $ 2,595,030

Allowance for Credit Losses

Allowance for Credit Losses, Beginning of Quarter $ 26,956 $ 28,446

Loans Charged-off (719) (630)

Recoveries of Loans Previously Charged-off 486 179

Net Loans Charged-off (233) (451)

Provision for Credit Losses 558 1,237

Allowance for Credit Losses, End of Quarter $ 27,281 $ 29,232

Nonperforming Assets

Nonaccrual Loans $ 10,764 $ 6,033

Loans Past Due 90 or More Days and Accruing 823 228

Loans Restructured and in Compliance with Modified Terms 77 145

Total Nonperforming Loans 11,664 6,406

Repossessed Assets 126 155

Other Real Estate Owned - -

Total Nonperforming Assets $ 11,790 $ 6,561

Key Asset Quality Ratios

Net 0.03 % 0.07 %Loans Charged-off to Average Loans, Quarter-to-date Annualized

Provision for Credit Losses to Average Loans, Quarter-to-date 0.08 % 0.19 %Annualized

Allowance for Credit Losses to Period-End Loans 1.02 % 1.13 %

Allowance for Credit Losses to Period-End Nonperforming Loans 233.89 % 456.32 %

Nonperforming Loans to Period-End Loans 0.44 % 0.25 %

Nonperforming Assets to Period-End Assets 0.29 % 0.18 %

Twelve-Month Period Ended:

Allowance for Credit Losses

Allowance for Credit Losses, Beginning of Year $ 29,232 $ 21,187

Impact of the Adoption of ASU 2016-13 (1,300) -

Loans Charged-off (2,239) (1,989)

Recoveries of Loans Previously Charged-off 1,316 715

Net Loans Charged-off (923) (1,274)

Provision for Credit Losses 272 9,319

Allowance for Credit Losses, End of Year $ 27,281 $ 29,232

Key Asset Quality Ratios

Net Loans Charged-off to Average Loans 0.03 % 0.05 %

Provision for Credit Losses to Average Loans 0.01 % 0.37 %

View original content: https://www.prnewswire.com/news-releases/arrow-reports-annual-net-income-of-49-9-million-and-total-assets-over-4-billion-301469666.html

SOURCE Arrow Financial Corporation