Financial Performance - Net income for Q3 2024 was $9.0 million, or $0.53 per share, up from $7.7 million and $0.46 per share in Q3 2023, representing a 16.9% increase in net income year-over-year[2][7] - Net income for Q3 2024 was $8,975,000, compared to $7,743,000 in Q3 2023, indicating an increase of 15.9%[31] - Basic earnings per share for Q3 2024 were $0.54, up from $0.46 in Q3 2023, reflecting a growth of 17.4%[31] - Net income for the quarter ended September 30, 2024, was $8,975,000, an increase from $8,604,000 in the previous quarter, representing a growth of 4.3%[35] - Basic earnings per share increased to $0.54 from $0.52 in the previous quarter, reflecting a rise of 3.8%[35] Interest Income and Margin - Net interest income increased by 12.2% to $28.4 million in Q3 2024, compared to $25.4 million in Q3 2023, driven by loan growth and higher loan yields[8] - Total interest and dividend income for Q3 2024 was $49,443,000, an increase of 17.5% compared to $42,117,000 in Q3 2023[31] - Net interest income after provision for credit losses was $27,504,000 for Q3 2024, up from $24,999,000 in Q3 2023, reflecting a growth of 6.0%[31] - Net interest income for the quarter was $28,438,000, up from $27,152,000, indicating a growth of 4.7%[35] - The net interest spread improved to 2.12% for Q3 2024, compared to 1.92% in Q3 2023, showing an improvement in profitability[40] Assets and Liabilities - Total assets reached $4.4 billion as of September 30, 2024, a 3.9% increase from $4.2 billion at June 30, 2024[15] - Total assets increased to $4,411,449 thousand as of September 30, 2024, up from $4,169,868 thousand at December 31, 2023, representing a growth of 5.8%[33] - Total liabilities rose to $4,018,138 thousand, compared to $3,790,096 thousand at December 31, 2023, reflecting an increase of 6.0%[33] - Total assets as of September 30, 2024, were $4,245,597,000, slightly up from $4,237,359,000 in the previous quarter[35] Deposits - Deposit balances were $3.8 billion, an increase of $153.8 million from June 30, 2024, and $171.0 million from September 30, 2023[21] - Total deposits increased to $3,837,457 thousand, up from $3,687,566 thousand at December 31, 2023, reflecting a growth of 4.1%[33] - The company reported a decrease in noninterest-bearing deposits to $740,170 thousand from $758,425 thousand at the end of 2023, a decline of 2.1%[33] Credit Quality - The allowance for credit losses was $31.3 million, representing 0.94% of loans outstanding, stable compared to previous quarters[18] - The provision for credit losses was $934,000 in Q3 2024, compared to $354,000 in Q3 2023, showing a significant increase of 163.6%[31] - Nonperforming loans totaled $21,893 thousand, up from $6,334 thousand a year ago, indicating a significant increase in troubled assets[46] - The allowance for credit losses to period-end loans ratio was 0.94%, slightly down from 0.99% a year ago, suggesting a stable but cautious approach to credit risk management[46] Operational Efficiency - The efficiency ratio improved to 43.5% in Q3 2024 from 44.5% in Q3 2023, indicating better cost management[31] - The efficiency ratio improved to 65.59% from 66.29% in the previous quarter, showing enhanced operational efficiency[35] - The efficiency ratio, a non-GAAP measure, indicates improved expense control, although specific figures were not provided in the documents[38] Acquisitions and Market Presence - The company completed two small acquisitions in Q3 2024, expanding its insurance business and acquiring a branch in Whitehall, New York[4] - Arrow Financial Corporation plans to continue expanding its market presence and investing in new technologies to enhance service offerings[29] Capital Ratios - Arrow's Common Equity Tier 1 Capital Ratio was 12.77% as of September 30, 2024, indicating strong capital ratios[22] - The Common Equity Tier 1 (CET1) Ratio as of September 30, 2024, was 12.77%, slightly down from 13.17% in Q3 2023[39]

Core Points - Arrow Financial Corporation declared a quarterly cash dividend of $0.28 per share, marking a 3.7% increase from previous dividends and replacing the 3% stock dividend declared in recent years [1] - This cash dividend is the 46th consecutive quarterly cash dividend declared by Arrow Financial Corporation [1] - The company has returned over $6.4 million to shareholders through share repurchases and paid $13.6 million in regular quarterly cash dividends to date in 2024 [2] Company Overview - Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York [2] - The company is the parent of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, with additional subsidiaries including North Country Investment Advisers, Inc., and Upstate Agency, LLC [2]

Core Insights - Director Raymond O'Conor sold 2,000 shares of Arrow Financial Corp on October 1, 2024, reducing his holdings to 41,176 shares [1] - Over the past year, O'Conor has sold a total of 10,000 shares without making any purchases, indicating a trend of insider selling [1] - The company has experienced 13 insider buys and 4 insider sells in the past year, suggesting mixed insider sentiment [1] Company Overview - Arrow Financial Corp operates as the bank holding company for Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, providing commercial and consumer banking services in northeastern New York [1] - The company's market capitalization is approximately $471.861 million, with shares trading at $28.04 on the day of the transaction [1] - The price-earnings ratio of Arrow Financial Corp is 14.92, which is higher than the industry median of 10.285 and the company's historical median [1] Valuation Insights - The intrinsic value estimate for Arrow Financial Corp is $29.04, indicating that the stock is fairly valued with a price-to-GF-Value ratio of 0.97 [2][3] - The GF Value is derived from historical trading multiples and adjusted by a GuruFocus factor that considers past returns and future performance estimates [3]

Financial Performance - Arrow Financial Corporation reported a significant increase in net interest income, reaching $15 million for the quarter, a 10% increase compared to the previous year[161]. - Net income for the quarter ended June 30, 2024, was $8,604 million, an increase from $7,660 million in the previous quarter[162]. - Basic and diluted earnings per share both increased to $0.52 from $0.45 in the previous quarter[162]. - Net income for Q2 2024 was $8.6 million, up from $7.7 million in Q1 2024 and $6.0 million in Q2 2023, reflecting a 11.7% increase from the previous quarter and a 43.3% increase year-over-year[176]. - Net interest income for Q2 2024 was $27.2 million, a 2.6% increase from $26.5 million in Q1 2024 and a 5.4% increase from $25.8 million in Q2 2023[176]. - Net income for the first six months of 2024 was $16.3 million, an increase of $1.7 million or 11.3% from the same period in 2023[245]. - Diluted earnings per share for the first six months of 2024 rose to $0.97, up from $0.85 in the first six months of 2023[245]. Asset and Equity Growth - Arrow's total assets grew to $3.5 billion, representing a 7% increase from the previous quarter[161]. - Total assets as of June 30, 2024, were $4,237,359 million, slightly down from $4,245,484 million at the end of the previous quarter[162]. - Total stockholders' equity increased to $383,018 million from $377,986 million in the previous quarter[165]. - Stockholders' equity increased to $383.0 million at June 30, 2024, reflecting a 0.9% increase from $379.8 million at December 31, 2023[178]. - Book value per share was $22.90, an 8.0% increase over the prior-year level, with a tangible book value per share of $21.54, up 8.6% year-over-year[178]. Loan and Deposit Activity - The company experienced a 12% increase in loan originations, totaling $200 million for the quarter[161]. - Total loans reached $3.3 billion as of June 30, 2024, with loan growth of $57.6 million in Q2 2024 and $245.3 million since June 30, 2023[176]. - Total deposits were $3.7 billion at June 30, 2024, a decrease of $95.4 million from March 31, 2024, but an increase of $181.4 million from June 30, 2023[176]. - Total loans increased to $3,280,285 thousand as of June 30, 2024, up from $3,235,841 thousand in the previous quarter, representing a growth of 1.4%[200]. - Total deposits decreased slightly to $3,678,957 thousand in Q2 2024 from $3,693,325 thousand in Q1 2024, a decline of 0.4%[208]. Credit Quality and Risk Management - Arrow's allowance for credit losses was maintained at 1.2% of total loans, indicating a stable risk management approach[161]. - The allowance for credit losses was $31.0 million, representing 0.94% of loans outstanding, down from 0.97% at March 31, 2024, and 1.02% at June 30, 2023[176]. - Nonperforming loans reached $21.1 million, representing 0.64% of period-end loans, an increase from 0.21% in June 2023[179]. - The ratio of allowance for credit losses to total loans was 0.94% at June 30, 2024, down from 0.97% at March 31, 2024[218]. Operational Efficiency - The efficiency ratio improved to 60%, indicating better expense control compared to 65% in the same quarter last year[157]. - Non-interest expense decreased by $0.8 million, or 3.2%, to $23.3 million in Q2 2024 compared to Q2 2023[242]. - The efficiency ratio improved slightly to 67.90% from 67.94% in the prior year[250]. Investment and Securities - Total investments were $556.4 million as of June 30, 2024, a decrease of $63.6 million (10.3%) from March 31, 2024, and a decrease of $137.6 million (19.8%) from June 30, 2023[176]. - The total held-to-maturity securities decreased to $96,454,000 from $128,837,000, reflecting a decline of $32,383,000 or approximately 25.2%[194]. - The company held no investment securities related to foreign governments or agencies as of June 30, 2024[195]. Future Outlook - The management anticipates a continued growth trajectory, projecting a 5% increase in net income for the next quarter[151]. - The economic forecast projects a 0.17% improvement in GDP and a 2.62% increase in HPI from the previous quarter[216].

250 Glen Street Glens Falls, NY 12801 NEWS RELEASE NASDAQ® Symbol: "AROW" Website: arrowfinancial.com Media Contact: Rachael Murray Tel: (518) 742-6505 Arrow Reports 2nd Quarter Net Income of $8.6 Million, or $0.52 per Share, Declares Dividend of $0.27 per Share ® GLENS FALLS, N.Y. (July 25, 2024) – Arrow Financial Corporation (NasdaqGS – AROW) ("Arrow" or "the Company") announced financial results for the three-month period ended June 30, 2024. Net income for the second quarter of 2024 was $8.6 million and ...

GLENS FALLS, N.Y., July 23, 2024 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® - AROW) has finalized plans to unify its banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, into one entity to be renamed Arrow Bank National Association ("Arrow Bank"). Today's announcement follows the necessary public comment period and regulatory approval by the Office of the Comptroller of the Currency."Our decision to unify our bank brands under the Arrow ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. __ ☐ FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) ...

250 Glen Street Glens Falls, NY 12801 NASDAQ® Symbol: "AROW" Website: arrowfinancial.com Media Contact: Rachael Murray Tel: (518) 742-6505 Arrow Reports 1st Quarter Net Income of $7.7 Million, or $0.45 per Share, Declares Dividend of $0.27 per Share GLENS FALLS, N.Y. (April 30, 2024) – Arrow Financial Corporation (NasdaqGS – AROW) ("Arrow" or "the Company") announced financial results for the three-month period ended March 31, 2024. Net income for the first quarter of 2024 was $7.7 million and fully diluted ...

[PART I](index=6&type=section&id=PART%20I) [Item 1. Business](index=6&type=section&id=Item%201.%20Business) Arrow Financial Corporation is a two-bank holding company providing diverse banking, lending, trust, and insurance services in upstate New York, subject to extensive federal and state regulations - Arrow Financial Corporation is a two-bank holding company with subsidiaries Glens Falls National Bank and Trust Company (GFNB) and Saratoga National Bank and Trust Company (SNB)[7](index=7&type=chunk) Subsidiary Bank Overview (as of Dec 31, 2023) | Metric | Glens Falls National | Saratoga National | | :--- | :--- | :--- | | **Total Assets** | $3,274,507 thousand | $1,062,118 thousand | | **Trust Assets Under Administration** | $1,625,139 thousand | $138,055 thousand | | **Date Organized** | 1851 | 1988 | | **Employees (FTE)** | 480 | 57 | | **Offices** | 26 | 11 | - The company's lending activities include commercial and industrial loans, residential and commercial mortgages, and consumer financing, with a significant indirect auto lending program in upstate New York and Vermont[19](index=19&type=chunk) - Arrow and its subsidiary banks are subject to extensive regulation by the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), and the New York State Department of Financial Services[22](index=22&type=chunk) - The company has opted out of the Community Bank Leverage Ratio (CBLR) framework, remaining subject to the more stringent Capital Rules under Dodd-Frank. As of December 31, 2023, Arrow and its banks exceeded all minimum capital ratios and were classified as **'well-capitalized'**[25](index=25&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - Arrow emphasizes its commitment to Environmental, Social, and Governance (ESG) principles, detailing initiatives for employees, customers, communities, and shareholders, including diversity efforts, energy-saving renovations, and significant community donations and volunteer hours[46](index=46&type=chunk)[47](index=47&type=chunk)[49](index=49&type=chunk)[51](index=51&type=chunk) [Item 1A. Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from macroeconomic conditions, intense competition, operational challenges, financial volatility, and material weaknesses in internal controls - Macroeconomic risks include sensitivity to downturns in regional or the U.S. economy, the adverse impact of high inflation on operational costs and customer loan repayment ability, and intense competition from traditional and non-bank financial institutions[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk) - Operational risks are significant, including potential ongoing complications from the September 2022 core banking system implementation, growing cybersecurity threats to sensitive customer data, and the potential loss of key personnel[65](index=65&type=chunk)[66](index=66&type=chunk)[69](index=69&type=chunk) - Financial risks include exposure to interest rate fluctuations affecting net interest income, potential losses on the securities portfolio if rates rise or economic conditions worsen, and the risk that the allowance for credit losses may be insufficient[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - The company has identified material weaknesses in its internal control over financial reporting, which, if not fully remediated, could result in a material misstatement of financial statements and adversely affect its reputation and stock price[78](index=78&type=chunk) - Legal and regulatory risks stem from extensive banking regulations, including Dodd-Frank's capital and liquidity standards, and the need for compliance with anti-money laundering laws like the Patriot Act and the Bank Secrecy Act[80](index=80&type=chunk)[81](index=81&type=chunk)[83](index=83&type=chunk) [Item 1B. Unresolved Staff Comments](index=20&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments from the SEC - There are no unresolved staff comments[85](index=85&type=chunk) [Item 1C. Cybersecurity](index=20&type=section&id=Item%201C.%20Cybersecurity) Arrow employs a layered, defensive cybersecurity approach overseen by the Board and management, and has not experienced or anticipates a material incident - Arrow utilizes a layered defensive approach for cybersecurity risk management, including preventative and detective tools, regular reviews of internal controls, and periodic business continuity plan testing[85](index=85&type=chunk) - Cybersecurity governance involves the Board of Directors, Chief Information Officer, Director of IT, and the enterprise risk management group[86](index=86&type=chunk) - The company states it has not experienced a material cybersecurity incident and does not believe it is reasonably likely to experience one that would materially affect its business, operations, or financial condition[85](index=85&type=chunk) [Item 2. Properties](index=20&type=section&id=Item%202.%20Properties) Arrow owns its main Glens Falls office and 26 branch offices, while leasing 11, with all properties deemed suitable and adequate - The company's main office is at 250 Glen Street, Glens Falls, NY, which is owned by its subsidiary Glens Falls National[87](index=87&type=chunk) - Arrow owns 26 branch banking offices and leases 11 branch offices, in addition to other leased administrative and loan origination spaces[88](index=88&type=chunk) [Item 3. Legal Proceedings](index=21&type=section&id=Item%203.%20Legal%20Proceedings) Arrow faces a putative class action and a shareholder derivative lawsuit alleging false statements and control weaknesses, which the company intends to vigorously defend - A putative class action lawsuit was filed on June 23, 2023, alleging materially false and misleading statements between March 12, 2022, and May 12, 2023. The company filed a motion to dismiss this action on February 9, 2024[89](index=89&type=chunk) - A shareholder derivative complaint was filed on December 12, 2023, against individual defendants and board members, based on similar allegations as the class action lawsuit. This case is stayed pending the motion to dismiss the class action[89](index=89&type=chunk) - The company believes both lawsuits are without merit and intends to defend against the claims vigorously[89](index=89&type=chunk) [Item 4. Mine Safety Disclosures](index=21&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - None[89](index=89&type=chunk) [PART II](index=22&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Arrow's common stock trades on NASDAQ, underperformed the Russell 2000 Index over five years, and the company repurchased shares in Q4 2023 - Arrow's common stock is traded on the NASDAQ Global Select Market under the symbol AROW, with approximately **12,000 beneficial owners** as of December 31, 2023[91](index=91&type=chunk) Stock Performance Comparison (5-Year Total Return) | Index | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Arrow Financial Corporation** | 100.00 | 125.39 | 105.80 | 132.22 | 135.28 | 120.71 | | **Russell 2000 Index** | 100.00 | 125.52 | 150.58 | 172.90 | 137.56 | 160.85 | | **ABA NASDAQ Community Bank TR** | 100.00 | 123.30 | 109.05 | 147.76 | 137.43 | 134.58 | Issuer Purchases of Equity Securities (Q4 2023) | Month | Total Shares Purchased | Average Price Paid Per Share | Maximum Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | October | 0 | $ - | $9,152,132 | | November | 99,223 | $24.23 | $6,748,038 | | December | 14,347 | $24.92 | $6,390,538 | | **Total** | **113,570** | **$24.32** | **$6,390,538** | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Arrow's 2023 net income declined due to lower net interest income and higher expenses, despite asset and deposit growth, while maintaining solid asset quality and strong capital [A. OVERVIEW](index=30&type=section&id=A.%20OVERVIEW) Arrow's 2023 net income declined due to reduced net interest income and increased non-interest expenses, despite growth in assets and deposits 2023 vs. 2022 Financial Highlights | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | **Net Income** | $30.1 million | $48.8 million | -38.4% | | **Diluted EPS** | $1.77 | $2.86 | -38.1% | | **Return on Average Equity (ROE)** | 8.29% | 13.55% | -526 bps | | **Return on Average Assets (ROA)** | 0.74% | 1.21% | -47 bps | | **Net Interest Income** | $104.8 million | $118.3 million | -11.4% | | **Net Interest Margin** | 2.65% | 3.03% | -38 bps | - The decrease in net income was primarily caused by a **$13.5 million decrease in net interest income** and an **$11.5 million increase in non-interest expense**, partially offset by lower provisions for credit losses and income taxes[114](index=114&type=chunk) - Total assets grew by **$200.4 million (5.0%) to $4.17 billion**, driven by a **$230 million (7.7%) increase in total loans**, which reached **$3.2 billion**[114](index=114&type=chunk) - Total deposits increased by **$189.2 million (5.4%) to $3.7 billion**, though noninterest-bearing deposits decreased by **9.4%** and represented a smaller portion of total deposits (**20.6% vs. 23.9% in 2022**)[116](index=116&type=chunk) - Asset quality remained solid, with net loan charge-offs at **0.07% of average loans**. Nonperforming assets increased to **0.51% of total assets**, primarily due to one large, well-collateralized loan relationship[114](index=114&type=chunk) - Regulatory capital ratios remained strong and significantly exceeded 'well-capitalized' standards, with a Common Equity Tier 1 Capital Ratio of **13.00%** at year-end[116](index=116&type=chunk) [B. RESULTS OF OPERATIONS](index=33&type=section&id=B.%20RESULTS%20OF%20OPERATIONS) Arrow's 2023 results show decreased net interest income, lower provision for credit losses, increased noninterest expense, and a reduced effective tax rate Net Interest Income Analysis (2021-2023) | (In Thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Interest and Dividend Income** | $162,564 | $129,651 | $115,550 | | **Interest Expense** | $57,732 | $11,308 | $5,195 | | **Net Interest Income** | **$104,832** | **$118,343** | **$110,355** | Net Interest Margin Analysis (2021-2023) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Yield on Earning Assets** | 4.12% | 3.32% | 3.11% | | **Cost of Interest-Bearing Liabilities** | 1.99% | 0.40% | 0.19% | | **Net Interest Spread** | 2.13% | 2.92% | 2.92% | | **Net Interest Margin** | 2.65% | 3.03% | 2.97% | - The provision for credit losses was **$3.4 million** in 2023, a decrease from **$4.8 million** in 2022. The provision was driven by loan growth and charge-offs, offset by changes in economic forecast factors[133](index=133&type=chunk) - Total noninterest income decreased **5.8% to $29.1 million** in 2023, primarily due to a net loss on securities of **$92 thousand** compared to a gain of **$427 thousand** in 2022, and lower fees for services to customers[141](index=141&type=chunk) - Total noninterest expense increased **14.1% to $93.0 million** in 2023. The increase was primarily driven by **$4.8 million** in additional legal and professional fees associated with delayed SEC filings[143](index=143&type=chunk)[144](index=144&type=chunk) - The effective tax rate for 2023 was **19.8%**, down from **22.4%** in 2022. The reduction was the result of substantially similar permanent favorable tax benefits while pre-tax income decreased[146](index=146&type=chunk) [C. FINANCIAL CONDITION](index=41&type=section&id=C.%20FINANCIAL%20CONDITION) Arrow's financial condition at year-end 2023 reflects a decreased investment portfolio, loan growth, increased nonperforming assets, and a shift in deposit composition - The investment portfolio totaled **$636.1 million** at year-end 2023, a decrease of **16.0%** from 2022, driven by paydowns, maturities, and a portfolio repositioning. Gross unrealized losses on available-for-sale securities were **$42.4 million**, primarily attributed to changes in interest rates[149](index=149&type=chunk)[152](index=152&type=chunk) Loan Portfolio Composition (Dec 31, 2023 vs 2022) | Loan Type | 2023 Amount (Thousands) | 2023 % of Total | 2022 Amount (Thousands) | 2022 % of Total | | :--- | :--- | :--- | :--- | :--- | | Commercial | $156,224 | 5% | $140,293 | 5% | | Commercial Real Estate | $745,487 | 23% | $707,022 | 24% | | Consumer | $1,111,667 | 34% | $1,065,135 | 36% | | Residential Real Estate | $1,199,530 | 37% | $1,070,757 | 36% | | **Total Loans** | **$3,212,908** | **100%** | **$2,983,207** | **100%** | Asset Quality Ratios | Ratio | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Net Charge-offs to Average Loans** | 0.07% | 0.08% | | **Allowance for Credit Losses to Period-end Loans** | 0.97% | 1.00% | | **Nonperforming Loans to Period-end Loans** | 0.66% | 0.40% | | **Nonperforming Assets to Period-end Assets** | 0.51% | 0.32% | - Average total deposits decreased by **2.4%** in 2023, with a notable shift in composition from lower-cost checking and savings accounts to higher-cost time deposits due to competitive rate pressures[176](index=176&type=chunk) - Short-term borrowings at year-end 2023 were **$20.0 million**, down from **$27.0 million** at year-end 2022[184](index=184&type=chunk) [D. LIQUIDITY](index=48&type=section&id=D.%20LIQUIDITY) Arrow maintains strong liquidity through diverse sources including investments, loan cash flow, and deposits, supplemented by significant off-balance sheet borrowing capacity - The company's primary liquidity sources are overnight investments, cash flow from securities and loans, and its stable core deposit base. The company did not experience any liquidity constraints in 2023[185](index=185&type=chunk)[187](index=187&type=chunk) - As of December 31, 2023, Arrow had significant off-balance sheet liquidity sources, including **$550 million** in unused borrowing capacity at the FHLBNY and **$739 million** available at the Federal Reserve Bank discount window[187](index=187&type=chunk) - The primary liquidity ratio was **9.5% of total assets** at year-end 2023, well above the internal policy limit of **5%**[187](index=187&type=chunk) [E. CAPITAL RESOURCES AND DIVIDENDS](index=50&type=section&id=E.%20CAPITAL%20RESOURCES%20AND%20DIVIDENDS) Arrow maintains strong regulatory capital ratios exceeding well-capitalized standards, with increased stockholders' equity and an expanded stock repurchase program Regulatory Capital Ratios (as of Dec 31, 2023) | Capital Ratio | Arrow | Required Ratio (Well-Capitalized) | | :--- | :--- | :--- | | **Tier 1 Leverage Ratio** | 9.8% | > 5.0% | | **Common Equity Tier 1 Capital Ratio** | 13.0% | > 6.5% | | **Tier 1 Risk-Based Capital Ratio** | 13.7% | > 8.0% | | **Total Risk-Based Capital Ratio** | 14.7% | > 10.0% | - Total stockholders' equity increased by **$26.2 million (7.4%) to $379.8 million** at year-end 2023, driven by net income and other comprehensive income, partially offset by dividends and stock repurchases[190](index=190&type=chunk)[192](index=192&type=chunk) - The Board expanded its stock repurchase program by **$5 million** in October 2023, bringing the total availability to **$9.1 million**. As of year-end, **$2.8 million** had been repurchased under the program[195](index=195&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Arrow's primary market risk is interest rate volatility, managed by ALCO, with simulations indicating a near-term liability-sensitive balance sheet within policy limits - The company's primary market risk is interest rate volatility, managed by the Asset/Liability Committee (ALCO) using a detailed simulation model[206](index=206&type=chunk) Net Interest Income Sensitivity Analysis (as of Dec 31, 2023) | Change in Interest Rate | Calculated Change in Net Interest Income - Year 1 | Calculated Change in Net Interest Income - Year 2 | | :--- | :--- | :--- | | **+200 basis points** | (4.2)% | 15.2% | | **-100 basis points** | 1.3% | 13.5% | - The simulation results suggest the balance sheet is liability-sensitive in the near term, meaning net interest income would initially decrease in a rising rate environment as liability costs reprice faster than asset yields[207](index=207&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=55&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Arrow's audited financial statements, with KPMG issuing an unqualified opinion on financials but an adverse opinion on internal controls due to material weaknesses - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position and results of operations in conformity with U.S. GAAP[211](index=211&type=chunk) - KPMG LLP issued an adverse opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2023, due to two material weaknesses related to monitoring controls and risk assessment procedures following a core system conversion[212](index=212&type=chunk)[220](index=220&type=chunk)[222](index=222&type=chunk) - The critical audit matter identified by KPMG relates to the Allowance for Credit Losses for loans evaluated on a collective basis, citing the high degree of subjective and complex auditor judgment involved in assessing the methodology and models used[215](index=215&type=chunk)[217](index=217&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=118&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None[427](index=427&type=chunk) [Item 9A. Controls and Procedures](index=118&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of December 31, 2023, due to un-remediated material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023, due to ongoing material weaknesses in internal control over financial reporting[429](index=429&type=chunk) - The material weaknesses identified relate to: 1) Ineffective monitoring controls involving Internal Audit and the Audit Committee's oversight. 2) Ineffective risk assessment procedures related to the 2022 core banking system conversion[431](index=431&type=chunk) - Remediation efforts initiated in 2023 include hiring additional resources, increasing the frequency and depth of Audit Committee meetings and reporting, developing a comprehensive internal audit strategy, and performing a thorough risk assessment of the system conversion[436](index=436&type=chunk) - Despite remediation efforts, management concluded the material weaknesses were not fully remediated as of December 31, 2023, as the new measures had not been in place for a sufficient amount of time[435](index=435&type=chunk) [Item 9B. Other Information](index=119&type=section&id=Item%209B.%20Other%20Information) During the fourth quarter of 2023, none of Arrow's directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during Q4 2023[439](index=439&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=120&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - None[441](index=441&type=chunk) [PART III](index=121&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=121&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for its Annual Meeting of Shareholders to be held on June 5, 2024 - Information required by this item is incorporated by reference from the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held June 5, 2024[443](index=443&type=chunk) [Item 11. Executive Compensation](index=121&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's Proxy Statement for its upcoming Annual Meeting of Shareholders - Information required by this item is incorporated by reference from the Registrant's Proxy Statement[444](index=444&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=121&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership and related matters is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the Registrant's Proxy Statement[444](index=444&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=121&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the Registrant's Proxy Statement[445](index=445&type=chunk) [Item 14. Principal Accounting Fees and Services](index=121&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the Registrant's Proxy Statement[445](index=445&type=chunk) [PART IV](index=121&type=section&id=PART%20IV) [Item 15. Exhibits, Financial Statement Schedules](index=121&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements filed in Part II, Item 8, notes that all schedules are omitted as they are not applicable or the information is included elsewhere, and provides an index of all exhibits filed with or incorporated by reference into this Form 10-K - This section contains the list of financial statements filed with the report and an index of all exhibits[446](index=446&type=chunk)[449](index=449&type=chunk) [Item 16. Form 10-K Summary](index=122&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - None[447](index=447&type=chunk)

Company Overview - Arrow Financial (AROW) is based in Glens Falls and operates in the Finance sector, with a year-to-date share price change of -10.63% [2] - The company currently pays a dividend of $0.27 per share, resulting in a dividend yield of 4.33%, which is significantly higher than the Banks - Northeast industry's yield of 2.83% and the S&P 500's yield of 1.61% [2] Dividend Performance - Arrow Financial's current annualized dividend of $1.08 has increased by 2.3% from the previous year [2] - Over the past five years, the company has raised its dividend five times, achieving an average annual increase of 4.15% [2] - The current payout ratio stands at 52%, indicating that the company distributes 52% of its trailing 12-month earnings per share as dividends [2] Earnings Outlook - The Zacks Consensus Estimate for Arrow Financial's earnings in 2024 is projected at $2.60 per share, reflecting a year-over-year earnings growth rate of 46.89% [3] Investment Considerations - Dividends are favored by investors as they enhance stock investing profits, reduce overall portfolio risk, and offer tax advantages [4] - Arrow Financial is characterized as an attractive dividend play and a compelling investment opportunity, currently holding a Zacks Rank of 1 (Strong Buy) [4]