Arrow Reports 1st Quarter Net Income of $7.7 Million, or $0.45 per Share, Declares Dividend of $0.27 per Share

• Gross loans grew $50.5 million¹ or 6.1% on an annualized basis.
• Deposit balances increased to $3.8 billion, growing $91.5 million, or 2.5%
• Net charge-offs to average loans were 0.04% as compared to 0.05% for the previous quarter
• Net interest margin improved to 2.60% (2.62% on a FTE² basis), up from 2.53% (2.55% on a FTE basis) from the prior quarter
• Loan-to-deposit ratio of approximately 86%
• Strong on-balance sheet liquidity of $450 million, or 10.4% of total assets
• Repurchased 244,387 shares for $6.0 million during the first quarter
• On March 4, Arrow announced the acquisition of a branch in Whitehall, NY with approximately $40 million in deposits;  transaction expected to close in 3Q24, subject to regulatory approval

Other Highlights

• On April 27, Arrow reached an agreement in principle to settle a class action complaint (the "Ashe Lawsuit"), fully described in Arrow's 2023 Form 10-K and 2024 Proxy filing, subject to final documentation and court approval. The terms of the settlement do not have a material impact on the financial results.

Income Statement

• Net Income: Net income for the first quarter of 2024 was $7.7 million, consistent with $7.7 million in the fourth quarter of 2023, while decreasing from $8.6 million in the first quarter of 2023.
  • As compared to the prior quarter, net income benefited from an increase of $0.8 million in net interest income as well as an increase in non-interest income of $0.4 million, offset by an increase in non-interest expense of $0.8 million.
  • As compared to the first quarter of 2023, net interest income decreased $1.6 million primarily on higher deposit costs. Non-interest income increased $1.2 million and non-interest expense increased $1.7 million.
    
    
• Net Interest Income: Net interest income for the first quarter of 2024 was $26.5 million, increasing 3.3% from $25.6 million for the fourth quarter of 2023 and decreasing 5.8% from $28.1 million in the comparable quarter of 2023.
  • Total interest and dividend income was $46.7 million for the first quarter of 2024, an increase from $44.3 million in the fourth quarter of 2023 and from $36.1 million for the first quarter of 2023. These increases were primarily driven by loan growth and higher loan rates. Interest expense for the first quarter of 2024 was $20.2 million, an increase from $18.7 million for the fourth quarter of 2023 and from $8.0 million for the first quarter of 2023.  The increases for both comparison periods were driven primarily by higher deposit rates and changes in deposit composition.
    
    
• Net Interest Margin: Net interest margin was 2.60% for the first quarter of 2024, compared to 2.53% for the fourth quarter of 2023 and 2.96% for the first quarter of 2023. The increase in net interest margin compared to the fourth quarter in 2023 was primarily the result of the continued expansion on the yield of earning assets combined with the moderating increase in the cost of interest-bearing liabilities.  As compared to the first quarter of 2023, the decline in net interest margin was primarily the result of costs of interest-bearing liabilities increasing at a faster pace than the yield on average earning assets. In addition, deposits have continued to migrate to higher costs products, such as money market savings and time deposits.

• Provision for Credit Losses: For the first quarter of 2024, the provision for credit losses was $0.6 million compared to $0.5 million in the fourth quarter of 2023 and $1.6 million in the first quarter of 2023. The key drivers for the provision for credit losses in the first quarter of 2024 were an increase in specific reserves and loan growth, partially offset by changes to the economic forecast factors embedded in the credit loss allowance model. The increase in specific reserves of $0.7 million is tied to overdraft balances from an isolated instance of check fraud from one customer relationship.
  
  
• Non-Interest Income: Non-interest income for the three months ended March 31, 2024, was $7.9 million, compared to $7.5 million in the fourth quarter of 2023 and $6.7 million in the first quarter of 2023. The increase was primarily driven by gains on other equity investments as well as income from fiduciary activities, which includes Wealth Management services, which benefited from strong equity markets.
  
  
• Non-Interest Expense: Non-interest expense for the first quarter of 2024 was $24.0 million, an increase from  $23.2 million in the fourth quarter of 2023 and an increase from $22.3 million for the first quarter of 2023. The increase from the prior year was primarily due to increased salaries and benefits related to new employees hired to support growth initiatives, increased legal and professional expenses associated with the finalization of the 2023 audit, and costs incurred to reach a settlement in the Ashe Lawsuit.
  
  
• Provision for Income Taxes: The provision for income taxes was 20.9% or $2.0 million for the first quarter of 2024,  17.7% or $1.7 million for the fourth quarter of 2023 and 21.6% or $2.4 million for the first quarter of 2023. The change in the effective tax rate from the previous quarter was primarily due to a change in pre-tax income combined with decreases in tax advantaged items.

Balance Sheet

• Total Assets: Total assets were $4.3 billion at March 31, 2024, an increase of $163.8 million, or 3.9%, as compared to December 31, 2023 and an increase of $219.0 million, or 5.3%, as compared to March 31, 2023.  For the first quarter of 2024, overall balance sheet growth was attributable to growth in the loan portfolio and an increase in cash balances. 
  
  
• Investments: Total investments were $620.0 million as of March 31, 2024, a decrease of $16.0 million, or 2.5%, compared to December 31, 2023 and a decrease of $125.1 million, or 16.8%, compared to March 31, 2023. The decrease from December 31, 2023 was driven primarily by paydowns and maturities. The change from March 31, 2023 was also impacted by the fourth quarter 2023 repositioning of the investment portfolio, reducing the portfolio by approximately $25 million at the time of the transaction. There were no credit quality issues related to the investment portfolio.
  
  
• Loans³: Total loans reached $3.3 billion as of March 31, 2024. Loan growth for the first quarter of 2024 was $50.5 million, and $252.2 million compared to March 31, 2023. Loan growth was spread across all loan products.  Please see the loan detail included in the Consolidated Financial Information table on page 12.
  
  
• Allowance for Credit Losses: The allowance for credit losses was $31.6 million as of March 31, 2024, which represented 0.97% of loans outstanding, as compared to $31.3 million, or 0.97%, at December 31, 2023 and $30.8 million, or 1.02%, at March 31, 2023. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.04% for the three-month period ended March 31, 2024, as compared to 0.05% for the three-month period ended December 31, 2023 and 0.10% for the three-month period ended March 31, 2023. Nonperforming assets were $21.8 million as of March 31, 2024, representing 0.50% of period-end assets, compared to 0.51% at December 31, 2023 and 0.27% at March 31, 2023. The increase from the first quarter of 2023 was primarily due to one large, well collateralized loan relationship of approximately $15 million, which moved into non-performing status during the fourth quarter of 2023.
  
  
• Deposits: At March 31, 2024, deposit balances were $3.8 billion, an increase of $91.5 million from December 31, 2023 and $232.7 million from March 31, 2023. The increase from March 31, 2023 was partially attributable to $175 million of brokered CDs, primarily used to reduce borrowings by $160 million. Arrow simultaneously entered into three-year swaps to strategically manage its asset-liability profile and cost of funds. Please refer to page 6 for further details related to deposits.
  
  
• Capital: Total stockholders' equity was $378.0 million at March 31, 2024, a decrease of $1.8 million, or 0.5%, from December 31, 2023 and an increase of $14.6 million, or 4.0%, from the March 31, 2023 level of $363.4 million. The net decrease in equity in the first quarter of 2024 was attributable to dividends paid ($4.6 million) and share repurchases ($6.0 million) exceeding the net income for the quarter.   Arrow's regulatory capital ratios remained strong. As of March 31, 2024, Arrow's Common Equity Tier 1 Capital Ratio was 12.84% and Total Risk-Based Capital Ratio was 14.57%. The capital ratios of Arrow's subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, continued to exceed the "well capitalized" regulatory standards.

Additional Commentary

• Bauer Financial Ratings: Both Glens Falls National Bank and Saratoga National Bank continued to maintain their 5-Star Exceptional Performance ratings from Bauer Financial, for the 67th and 59th quarters, respectively.

About Arrow 

Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York. Arrow is the parent of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company. Other subsidiaries include Upstate Agency, LLC and North Country Investment Advisers, Inc.

Non-GAAP Financial Measures Reconciliation 

In addition to presenting information in conformity with accounting principles generally accepted in the United States of America (GAAP), this news release contains financial information determined by methods other than GAAP (non-GAAP). Some measures used in this release, which are commonly utilized by financial institutions, have not been specifically exempted by the Securities and Exchange Commission ("SEC") and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules. These non-GAAP financial measures include: tangible equity, return on tangible equity, tax-equivalent adjustment and related net interest income, tax-equivalent, the efficiency ratio and net interest margin. Management believes that the non-GAAP financial measures disclosed by Arrow are useful in evaluating Arrow's performance and that such information should be considered as supplemental in nature and not as a substitute for, or superior to, the related financial information prepared in accordance with GAAP. Non-GAAP financial measures may differ from similar measures presented by other companies. See the reconciliation of GAAP to non-GAAP measures in the section "Selected Quarterly Information."

Safe Harbor Statement 

The information in this document may contain statements based on management's beliefs, assumptions, expectations, estimates and projections about the future. Such "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, as amended, involve a degree of uncertainty and attendant risk. Actual outcomes and results may differ, explicitly or by implication. We are not obligated to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with Arrow's 2023 Form 10-K 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:
		March 31, 2024		December 31, 2023		March 31, 2023
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans		$            40,376		$            38,813		$            31,886
Interest on Deposits at Banks		2,447		1,873		479
Interest and Dividends on Investment Securities:
Fully Taxable		3,186		2,941		2,948
Exempt from Federal Taxes		668		697		797
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