ARROW FINANCIAL CORP

Previous wording

In this Report, the terms "Arrow," "the registrant," "the Company," "we," "us," and "our" generally refer to Arrow Financial Corporation and its subsidiaries as a group, except where the context indicates otherwise. At certain points in this Report, Arrow's performance is compared with that of the Company's "peer group" of financial institutions. Unless otherwise specifically stated, the peer group for the purposes of this Report is comprised of the group of 191 domestic bank holding companies with $3 to $10 billion in total consolidated assets as identified in the FRB’s "Bank Holding Company Performance Report" for March 31, 2025 (the most recent such report currently available), and peer group data contained herein has been derived from such report.

Current wording

In this Report, the terms "Arrow," "the registrant," "the Company," "we," "us," and "our" generally refer to Arrow Financial Corporation and its subsidiaries as a group, except where the context indicates otherwise. At certain points in this Report, Arrow's performance is compared with that of the Company's "peer group" of financial institutions. Unless otherwise specifically stated, the peer group for the purposes of this Report is comprised of the group of 201 domestic bank holding companies with $3 to $10 billion in total consolidated assets as identified in the FRB’s "Bank Holding Company Performance Report" for June 30, 2025 (the most recent such report currently available), and peer group data contained herein has been derived from such report.

Previous wording

Effective December 31, 2024, the Company unified its former subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, and became a single bank holding company headquartered in Glens Falls, New York. The post-unification banking subsidiary is Arrow Bank National Association®, or Arrow Bank™, whose main office is located in Glens Falls, New York. Active subsidiaries of Arrow Bank include Upstate Agency, LLC (an insurance agency that sells property and casualty insurance and also specializes in selling and servicing group health care policies and life insurance), North Country Investment Advisers, Inc. (a registered investment adviser that provided investment advice to Arrow's proprietary mutual fund until the fund was transferred to a new investment advisor in the first half of 2025) and Arrow Properties, Inc. (a real estate investment trust, or REIT). Arrow also owns directly two subsidiary business trusts, organized in 2003 and 2004 to issue trust preferred securities (TRUPs), which are still outstanding.

Current wording

Effective December 31, 2024, the Company unified its former subsidiary banks (the "Unification"), Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, and became a single bank holding company headquartered in Glens Falls, New York. The post-Unification banking subsidiary is Arrow Bank National Association®, or Arrow Bank™, whose main office is located in Glens Falls, New York. Active subsidiaries of Arrow Bank include Upstate Agency, LLC (an insurance agency that sells property and casualty insurance and also specializes in selling and servicing group health care policies and life insurance), North Country Investment Advisers, Inc. (a registered investment adviser that provided investment advice to Arrow's proprietary mutual fund until the fund was transferred to a new investment advisor in the first half of 2025) and Arrow Properties, Inc. (a real estate investment trust, or REIT). Arrow also directly owns two subsidiary business trusts, organized in 2003 and 2004 to issue trust preferred securities (TRUPs), which are still outstanding.

Previous wording

•Arrow operates in a highly competitive industry and market areas that could negatively affect growth and profitability.

Current wording

•Arrow operates in a highly competitive industry and market areas which could negatively affect growth and profitability.

Previous wording

•Health emergencies may adversely affect Arrow’s business activities, financial condition and results of operations.

Current wording

•Public health emergencies may adversely affect Arrow’s business activities, financial condition and results of operations.

Previous wording

•The Company relies on the operations of its subsidiaries to provide liquidity, which, if limited, could impact Arrow's ability to pay dividends to its shareholders or to repurchase its common stock.

Current wording

•Arrow relies on the operations of its subsidiaries to provide liquidity, which, if limited, could impact Arrow's ability to pay dividends to its shareholders or to repurchase its common stock.

Previous wording

Arrow believes that the non-GAAP financial measures disclosed from time-to-time are useful in evaluating our 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.

Current wording

This Report contains financial information determined by methods other than accounting principles generally accepted in the United States of America (“GAAP”). Management believes that the non-GAAP financial measures disclosed by Arrow from time to time 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 measures used in this release, which are commonly utilized by financial institutions, include the following.

Previous wording

Tax-Equivalent Net Interest Income and Net Interest Margin: Net interest income, as a component of the tabular presentation by financial institutions of Selected Financial Information regarding their recently completed operations, as well as disclosures based on that tabular presentation, is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of another institution or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time. The Company follows these practices.

Current wording

Tax-Equivalent Net Interest Income and Net Interest Margin: Net interest income is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of another institution or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time. The Company follows these practices.

Previous wording

The Efficiency Ratio: Financial institutions often use an "efficiency ratio" as a measure of expense control. The efficiency ratio typically is defined as the ratio of non-interest expense to net interest income and non-interest income. Net interest income as utilized in calculating the efficiency ratio is typically the same as the net interest income presented in Selected Financial Information table discussed in the preceding paragraph, i.e., it is expressed on a tax-equivalent basis. Moreover, many financial institutions, in calculating the efficiency ratio, also adjust both non-interest expense and non-interest income to exclude from these items (as calculated under GAAP) certain recurring component elements of income and expense, such as intangible asset amortization (which is included in non-interest expense under GAAP but may not be included therein for purposes of calculating the efficiency ratio) and securities gains or losses (which are reflected in the calculation of non-interest income under GAAP but may be ignored for purposes of calculating the efficiency ratio). The Company makes these adjustments.

Current wording

The Efficiency Ratio: Financial institutions often use an "efficiency ratio" as a measure of expense control. The efficiency ratio typically is defined as the ratio of non-interest expense to net interest income and non-interest income. Net interest income as utilized in calculating the efficiency ratio is typically the same as the net interest income. Moreover, many financial institutions, in calculating the efficiency ratio, also adjust both non-interest expense and non-interest income to exclude from these items (as calculated under GAAP) certain recurring component elements of income and expense, such as intangible asset amortization (which is included in non-interest expense under GAAP but may not be included therein for purposes of calculating the efficiency ratio) and securities gains or losses (which are reflected in the calculation of non-interest income under GAAP but may be ignored for purposes of calculating the efficiency ratio). The Company makes these adjustments.

Previous wording

The following discussion and analysis focuses on and reviews the results of operations for the three-month period ended June 30, 2025 and the financial conditions as of June 30, 2025 and December 31, 2024. The discussion below should be read in conjunction with the selected quarterly and annual information set forth above and the Unaudited Interim Consolidated Financial Statements and other financial data presented elsewhere in this Report. When necessary, prior-year financial information has been reclassified to conform to the current-year presentation.

Current wording

The following discussion and analysis focuses on and reviews the results of operations for the three-month periods ended September 30, 2025 and June 30, 2025 and the financial conditions as of September 30, 2025 and December 31, 2024. The discussion below should be read in conjunction with the selected quarterly and annual information set forth above and the Unaudited Interim Consolidated Financial Statements and other financial data presented elsewhere in this Report. When necessary, prior-year financial information has been reclassified to conform to the current-year presentation.

Previous wording

Summary of Q2 2025 Financial Results: Net income for the second quarter of 2025 was $10.8 million, increasing from $6.3 million in the first quarter of 2025. Compared to the prior quarter, net income benefited from an increase of $1.2 million in net interest income, a decrease in the provision for credit losses of $4.4 million and a slight decrease in non-interest expense of $0.4 million.

Current wording

Summary of Q3 2025 Financial Results: Net income for the third quarter of 2025 was $12.8 million, increasing from $10.8 million in the second quarter of 2025. Compared to the prior quarter, net income benefited from an increase of $1.6 million in net interest income, an increase in non-interest income of $1.1 million and a slight decrease in non-interest expense of $0.2 million.

Previous wording

Net interest income for the second quarter of 2025 was $32.5 million, increasing 3.8% from the first quarter of 2025. Total interest and dividend income was $51.6 million for the second quarter of 2025, an increase from $50.4 million in the first quarter of 2025. Interest expense for the second quarter of 2025 was $19.0 million, consistent with the first quarter of 2025.

Current wording

Net interest income for the third quarter of 2025 was $34.1 million, increasing 4.9% from the second quarter of 2025. Total interest and dividend income was $53.6 million for the third quarter of 2025, an increase from $51.6 million in the second quarter of 2025. Interest expense for the third quarter of 2025 was $19.5 million, an increase from $19.0 million in the second quarter of 2025.

Previous wording

Net interest margin, on an fully taxable-equivalent basis, for the second quarter of 2025 increased to 3.16%, compared to 3.08% for the first quarter of 2025. The increase in net interest margin compared to the first quarter of 2025 was primarily the result of continued yield expansion on earning assets combined with the moderating cost of interest-bearing liabilities. See the disclosure on page 41 related to the use of non-GAAP financial measures.

Current wording

Net interest margin, on an FTE basis, for the third quarter of 2025 increased to 3.24%, compared to 3.16% for the second quarter of 2025. The increase in net interest margin compared to the second quarter of 2025 was primarily the result of continued yield expansion on earning assets combined with the moderating cost of interest-bearing liabilities. See the disclosure on page 43 related to the use of non-GAAP financial measures.

Previous wording

Non-interest income for the three months ended June 30, 2025, was $7.6 million, a decrease from $7.8 million in the first quarter of 2025. Revenue related to wealth management decreased from the prior quarter primarily as a result of weaker overall market performance. Interchange fees improved in the second quarter from the linked quarter. Other operating income was negatively affected by small valuation adjustments to Other Assets.

Current wording

Non-interest income for the three months ended September 30, 2025, was $8.7 million, an increase from $7.6 million in the second quarter of 2025. Revenue related to wealth management increased from the prior quarter as a result of overall improved market performance. Interchange fees increased in the third quarter from the linked quarter. The third quarter of 2025 included a positive valuation adjustment of $392 thousand related to equity positions.

Previous wording

Non-interest expense for the second quarter of 2025 was $25.7 million, a decrease from $26.0 million in the first quarter of 2025. The second quarter of 2025 included unification expenses of approximately $1.1 million as compared to $0.6 million in the first quarter of 2025. The unification expenses were primarily comprised of project management and information technology costs related to the July 2025 system conversion. Arrow continues to focus on overall expense management.

Current wording

Non-interest expense for the third quarter of 2025 was $25.4 million, a decrease from $25.7 million in the second quarter of 2025. The third quarter of 2025 included Unification expenses of approximately $600 thousand as compared to $1.1 million in the second quarter of 2025. The Unification expenses were primarily comprised of project management and information technology costs related to the July 2025 system conversion. Arrow continues to focus on overall expense control.

Previous wording

The provision for income taxes and effective tax rate were $3.1 million and 22.2%, respectively, for the second quarter of 2025, and $1.8 million and 22.4%, respectively, for the first quarter of 2025.

Current wording

The provision for income taxes and effective tax rate were $3.8 million and 22.7%, respectively, for the third quarter of 2025, and $3.1 million and 22.2%, respectively, for the second quarter of 2025.

Previous wording

Total assets were $4.4 billion at June 30, 2025, a decrease of $34.2 million, or 0.8%, as compared to March 31, 2025. For the second quarter of 2025, overall change in the balance sheet was primarily attributable to fluctuations in cash balances, maturities of investments and growth in the loan portfolio.

Current wording

Total assets were $4.6 billion at September 30, 2025, an increase of $172.4 million, or 3.9%, as compared to June 30, 2025. For the third quarter of 2025, the overall change in the balance sheet was primarily attributable to the seasonal surge in deposits as well as fluctuations in cash balances, maturities of investments and growth in the loan portfolio.

Previous wording

Total investments were $528.4 million as of June 30, 2025, a decrease of $24.6 million, or 4.4%, compared to March 31, 2025. The decrease from March 31, 2025 was driven primarily by paydowns and maturities. There were no credit quality issues related to the investment portfolio.

Current wording

Total investments were $558.4 million as of September 30, 2025, an increase of $30.0 million, or 5.7%, compared to June 30, 2025. The increase from June 30, 2025 was driven primarily by $48 million of additional investments offset by paydowns and maturities. There were no credit quality issues related to the investment portfolio.

Previous wording

Total loans 1 were $3.4 billion as of June 30, 2025. Loan growth for the second quarter of 2025 was $7.9 million. Loan growth was primarily driven by an increase in residential real estate loans and to a lesser extent by commercial loan relationships.

Current wording

Total loans 1 were $3.4 billion as of September 30, 2025. Loan growth for the third quarter of 2025 was $17.3 million. Loan growth was primarily driven by an increase in residential real estate loans and commercial loan relationships.

Previous wording

At June 30, 2025, deposit balances were $3.9 billion, a decrease of $38.8 million from March 31, 2025. The change from March 31, 2025 was primarily attributable to the seasonality of municipal deposits.

Current wording

At September 30, 2025, deposit balances were $4.1 billion, an increase of $170.7 million from June 30, 2025. The change from June 30, 2025 was primarily attributable to the seasonality of municipal deposits.

Previous wording

The changes in net income, net interest income and net interest margin between the three-month are discussed in detail under the heading "RESULTS OF OPERATIONS," beginning on page 57.

Current wording

The changes in net income, net interest income and net interest margin between the three- and nine-month periods are discussed in detail under the heading "RESULTS OF OPERATIONS," beginning on page 60.

Previous wording

Stockholders’ equity was $408.5 million at June 30, 2025, an increase of $7.6 million, or 1.9%, from the December 31, 2024 level of $400.9 million. The increase in stockholders' equity over the first six months of 2025 principally reflected the following factors: the addition of (i) $17.1 million of net income for the period, (ii) other comprehensive gain of $7.6 million, and (iii) the issuance of $0.9 million of common stock through employee benefit and dividend reinvestment plans, reduced by (iv) cash dividends of $9.4 million and (v) repurchases of common stock of $8.7 million. The components of the change in stockholders’ equity since year-end 2024 are presented in the Consolidated Statements of Changes in Stockholders’ Equity on page 6, and are discussed in more detail in the next section.

Current wording

Stockholders’ equity was $417.7 million at September 30, 2025, an increase of $16.8 million, or 4.2%, from the December 31, 2024 level of $400.9 million. The increase in stockholders' equity over the first nine months of 2025 principally reflected the following factors: the addition of (i) $29.9 million of net income for the period, (ii) other comprehensive gain of $9.8 million, and (iii) the issuance of $1.2 million of common stock through employee benefit and dividend reinvestment plans, reduced by (iv) cash dividends of $14.1 million and (v) repurchases of common stock of $10.1 million. The components of the change in stockholders’ equity since year-end 2024 are presented in the Consolidated Statements of Changes in Stockholders’ Equity on page 6, and are discussed in more detail in the next section.

Previous wording

At June 30, 2025, book value per share was $24.78, up 3.5% from year-end 2024. Tangible book value per share was $23.23, an increase of $0.83, or 3.71%, over December 31, 2024. See the disclosure on page 41 related to the use of non-GAAP financial measures.

Current wording

At September 30, 2025, book value per share was $25.41, up 6.1% from year-end 2024. Tangible book value per share was $23.85, an increase of $1.45, or 6.47%, from December 31, 2024. See the disclosure on page 43 related to the use of non-GAAP financial measures.

Previous wording

On June 30, 2025, Arrow's closing stock price was $26.42 per share, representing a trading multiple of 1.14 to tangible book value per share. In the second quarter of 2025, Arrow paid a quarterly cash dividend of $0.28 per share. Further discussion of dividends is included in the Capital Components; Stock Repurchases; Dividends section located on page 55.

Current wording

In the third quarter of 2025, Arrow paid a quarterly cash dividend of $0.29 per share. Further discussion of dividends is included in the Capital Components; Stock Repurchases; Dividends section located on page 58.

Previous wording

Loan Quality: Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.49% for the three-month period ended June 30, 2025, as compared to 0.10% for the three-month period ended March 31, 2025. The increase was the result of the charge-off of the previously reserved CRE Participation.

Current wording

Loan Quality: Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.10% for the three-month period ended September 30, 2025, as compared to 0.49% for the three-month period ended June 30, 2025. The decrease was the result of the charge-off during the three-month period ended June 30, 2025 of a previously reserved $3.75 million CRE related to one large commercial loan participation (the "CRE Participation").

Previous wording

1 Excludes both $3.2 million fair value hedge adjustment at June 30, 2025 and $3.3 million fair value hedge adjustment at March 31, 2025

Current wording

1 Excludes $3.0 million and $3.2 million fair value hedge adjustments at September 30, 2025 and June 30, 2025, respectively.

Previous wording

For the second quarter of 2025, the provision for credit losses was $0.6 million compared to $5.0 million in the first quarter of 2025. The quarter-over-quarter decrease in the second quarter provision reflects the recognition of the specific reserve on the CRE Participation in the first quarter of 2025. Arrow recorded a decrease for estimated credit losses on off-balance sheet credit exposures in other liabilities of $38 thousand in the second quarter of 2025.

Current wording

For the third quarter of 2025, the provision for credit losses was $0.8 million compared to $0.6 million in the second quarter of 2025. Arrow recorded an increase for estimated credit losses on off-balance sheet credit exposures in other liabilities of $56 thousand in the third quarter of 2025.

Previous wording

The allowance for credit losses was $34.2 million as of June 30, 2025, which represented 1.00% of loans outstanding, as compared to $37.8 million, or 1.11%, at March 31, 2025 and $33.6 million, or 0.99% at December 31, 2024 . The decrease in the allowance for credit losses was primarily driven by the recognition of a specific reserve of $3.75 million in the first quarter of 2025 and subsequent charge-off of the reserved loan balances during the second quarter. The remaining loan balance has been reclassified to Other Assets after the participating banks assumed control of the collateral properties. The participating banks have appointed a property manager to manage the day-to-day activities while exploring further options. The properties itself are being held in an unconsolidated LLC in which Arrow has an ownership interest equivalent to its rights under the former loan participation. As previously disclosed, the properties are generating positive cash flow and a majority is tenant occupied.

Current wording

The allowance for credit losses was $34.2 million as of September 30, 2025, which represented 0.99% of loans outstanding, as compared to $34.2 million, or 1.00%, at June 30, 2025 and $33.6 million, or 0.99% at December 31, 2024.

Previous wording

Nonperforming loans were $6.2 million at June 30, 2025, representing 0.18% of period-end loans, a decrease from the December 31, 2024 of 0.62%. The ratio compares favorably with the weighted average ratio of the peer group of 0.61% at March 31, 2025. Nonperforming assets of $6.8 million at June 30, 2025 represented 0.15% of period-end assets, down from 0.50% at December 31, 2024.

Current wording

Nonperforming loans were $6.3 million at September 30, 2025, representing 0.18% of period-end loans, a decrease from the December 31, 2024 of 0.62% of period-end loans. Nonperforming assets of $6.7 million at September 30, 2025 represented 0.15% of period-end assets, down from 0.50% of period-end assets at December 31, 2024.

Previous wording

Loan Segments: As of June 30, 2025, including the fair value marks associated with derivatives, total loans grew by $30.2 million, or 0.9%, as compared to the balance at December 31, 2024. The largest increase was in the residential real estate loan portfolio which increased $24.9 million, or 1.9%. Consumer loans, primarily comprised of automobile loans, decreased $9.7 million. Commercial and commercial real estate loans increased by $15.0 million, or 1.6%, from December 31, 2024.

Current wording

Loan Segments: As of September 30, 2025, including the fair value marks associated with derivatives, total loans grew by $47.5 million, or 1.4%, as compared to the balance at December 31, 2024. The largest increase was in the residential real estate loan portfolio which increased $52.5 million, or 4.0%. Consumer loans, primarily comprised of automobile loans, decreased $29.7 million. Commercial and commercial real estate loans increased by $24.7 million, or 2.6%, from December 31, 2024.

Previous wording

•Commercial and Commercial Real Estate Loans: Combined, these loans comprise 28.3% of the total loan portfolio at period-end. Commercial loans are extended to businesses primarily located in Arrow's regional market area. There are no commercial real estate loans in major metropolitan areas. In addition, only approximately 2% of the total loan portfolio is composed of office related property. Retail loans were approximately 3% of the total loan portfolio and hotels and motels were approximately 4% of the total loan portfolio. Commercial property values in Arrow's region have largely remained stable. Appraisals on nonperforming and watched commercial real estate loan properties are updated as necessary, usually when the loan is downgraded or when there has been significant market deterioration since the last appraisal.

Current wording

•Commercial and Commercial Real Estate Loans: Combined, these loans comprise 28.5% of the total loan portfolio at September 30, 2025. Commercial loans are extended to businesses primarily located in Arrow's regional market area. There are no commercial real estate loans in major metropolitan areas. In addition, only approximately 2% of the total loan portfolio is composed of office related property. Retail loans were approximately 3% of the total loan portfolio and hotels and motels were approximately 4% of the total loan portfolio. Commercial property values in Arrow's region have largely remained stable. Appraisals on nonperforming and watched commercial real estate loan properties are updated as necessary, usually when the loan is downgraded or when there has been significant market deterioration since the last appraisal.

Previous wording

•Consumer Loans: These loans comprised 32.4% of the total loan portfolio at period-end. Consumer automobile loans at June 30, 2025, were 99.6% of this portfolio segment. The vast majority of automobile loans are initiated through automobile dealers. Inflation and the uncertain economic environment may limit the potential growth in this category.

Current wording

•Consumer Loans: These loans comprised 31.7% of the total loan portfolio at period-end. Consumer automobile loans at September 30, 2025, were 99.6% of this portfolio segment. The vast majority of automobile loans are initiated through automobile dealers. Inflation and the uncertain economic environment may limit the potential growth in this category.

Previous wording

•Residential Real Estate Loans: These loans, including home equity loans, made up 39.3% of the total loan portfolio at period-end. Demand for residential real estate has continued to remain strong. Arrow originated nearly all of the residential real estate loans currently held in the loan portfolio and applies conservative underwriting standards. Arrow may sell a portion of the residential real estate mortgage originations into the secondary market. The ratio of the sales of originations to total originations tends to fluctuate from period to period based on market conditions and other factors such as prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions.

Current wording

•Residential Real Estate Loans: These loans, including home equity loans, made up 39.9% of the total loan portfolio at September 30, 2025. Demand for residential real estate has continued to remain strong. Arrow originated nearly all of the residential real estate loans currently held in the loan portfolio and applies conservative underwriting standards. Arrow may sell a portion of the residential real estate mortgage originations into the secondary market. The ratio of the sales of originations to total originations tends to fluctuate from period to period based on market conditions and other factors such as prevailing mortgage rates, other lending opportunities, capital and liquidity needs, and the availability of a market for such transactions.

Previous wording

Liquidity and Access to Credit Markets: Arrow has not, nor is it currently, experiencing any liquidity events. Arrow’s liquidity position should provide the necessary flexibility to address any unexpected near-term liquidity needs. Interest-bearing cash balances at June 30, 2025 were $227.5 million compared to $127.1 million at December 31, 2024. Contingent lines of credit are also available. Operating collateralized lines of credit are established and available through the FHLBNY, FRB and other bank lines totaling approximately $1.4 billion. The general terms of Arrow's lines of credit have not changed significantly in recent periods (see the general liquidity discussion on page 56). Historically, Arrow has principally relied on asset-based liquidity (i.e., funds in overnight investments and cash flow from maturing investments and loans) with liability-based liquidity as a secondary source of funds (the main liability-based sources are an overnight borrowing arrangement with correspondent banks, an arrangement for overnight borrowing and term credit advances from the FHLBNY, and an additional arrangement for short-term advances at the FRB discount window). Regular liquidity stress tests and tests of the contingent liquidity plan are performed to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity crises.

Current wording

Liquidity and Access to Credit Markets: Arrow has not experienced, nor is it currently experiencing, any liquidity events. Arrow’s liquidity position should provide the necessary flexibility to address any unexpected near-term liquidity needs. Interest-earning cash balances at September 30, 2025 were $351.5 million compared to $127.1 million at December 31, 2024. Contingent lines of credit are also available. Operating collateralized lines of credit are established and available through the FHLBNY, FRB and other bank lines totaling approximately $1.4 billion. The general terms of Arrow's lines of credit have not changed significantly in recent periods (see the general liquidity discussion on page 58). Historically, Arrow has principally relied on asset-based liquidity (i.e., funds in overnight investments and cash flow from maturing investments and loans) with liability-based liquidity as a secondary source of funds (the main liability-based sources are an overnight borrowing arrangement with correspondent banks, an arrangement for overnight borrowing and term credit advances from the FHLBNY, and an additional arrangement for short-term advances at the FRB discount window). Regular liquidity stress tests and tests of the contingent liquidity plan are performed to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity crises.

Previous wording

Changes in Earning Assets: The loan portfolio at June 30, 2025, was $3.4 billion, an increase of $30.2 million, or 0.9%, from the December 31, 2024 level. The following trends were experienced in our largest segments:

Current wording

Changes in Earning Assets: The loan portfolio at September 30, 2025, was $3.4 billion, an increase of $47.5 million, or 1.4%, from December 31, 2024. The following trends were experienced in our largest segments:

Previous wording

•Commercial and commercial real estate loans: This segment of the loan portfolio increased by $15.0 million, or 1.6%, during the first six months of 2025. In the first six months of 2025, loan growth was negatively impacted as loan pay-off activity accelerated. In addition, approximately $10.6 million of the previously reserved commercial real estate loans have been reclassified to Other Assets after the participating banks assumed control of the collateral properties related to the CRE Participation. The participating banks have appointed a property manager to manage the day-to-day activities while exploring further options. The properties are being held in an unconsolidated LLC in which Arrow has an ownership interest equivalent to its rights under the former CRE Participation. As previously disclosed, the properties are generating positive cash flow and a majority is tenant occupied.

Current wording

•Commercial and commercial real estate loans: This segment of the loan portfolio increased by $24.7 million, or 2.6%, during the first nine months of 2025. In the first nine months of 2025, loan growth was partially offset by accelerated loan pay-off activity. In addition, approximately $10.6 million of the previously reserved commercial real estate loans have been reclassified to Other Assets after the participating banks assumed control of the collateral properties related to the CRE Participation. The participating banks have appointed a property manager to manage the day-to-day activities while exploring further options. The properties are being held in an unconsolidated LLC in which Arrow has an ownership interest equivalent to its rights under the former CRE Participation. As previously disclosed, the properties are generating positive cash flow and a majority is tenant occupied.

Previous wording

•Consumer loans: As of June 30, 2025, these loans, primarily auto loans originated through dealerships in New York and Vermont, decreased by $9.7 million, or 0.9%, from the December 31, 2024 balance. Inflation, high interest rates and prepayment/refinancing activity may continue to slow demand.

Current wording

•Consumer loans: As of September 30, 2025, these loans, primarily auto loans originated through dealerships in New York and Vermont, decreased by $29.7 million, or 2.7%, from the December 31, 2024 balance. Inflation, high interest rates and prepayment/refinancing activity may continue to slow demand.

Previous wording

•Residential real estate loans: This segment increased during the first six months of 2025 by $24.9 million, or 1.9%. Loan origination activity continued to be strong through the end of the second quarter. Overall economic conditions, including the level of interest rates may impact future origination levels.

Current wording

•Residential real estate loans: This segment increased during the first nine months of 2025 by $52.5 million, or 4.0%. Loan origination activity continued to be strong through the end of the third quarter. Overall economic conditions, including the level of interest rates may impact future origination levels.

Previous wording

Changes in Sources of Funds: Deposit balances reached $3.9 billion, an increase of $101.4 million. or 2.6% from December 31, 2024. The increase from December 31, 2024 was primarily attributable to the additional of $125 million of brokered CDs. The brokered CDs partially replaced previous wholesale funding sources and are part of a cash flow hedge using interest rate swaps to reduce overall funding costs. Noninterest-bearing deposits represented 18.7% of total deposits at June 30, 2025, compared to 18.4% of total deposits on December 31, 2024. At June 30, 2025, total time deposits were $824.0 million. Municipal deposits increased $117.4 million, or 14.5% from December 31, 2024.

Current wording

Changes in Sources of Funds: Deposit balances reached $4.1 billion, an increase of $272.1 million. or 7.1% from December 31, 2024. The increase from December 31, 2024 was primarily attributable to the addition of $125 million of brokered CDs and a surge in municipal deposits in the third quarter. The brokered CDs partially replaced previous wholesale funding sources and are part of a cash flow hedge using interest rate swaps to reduce overall funding costs. Noninterest-bearing deposits represented 18.8% of total deposits at September 30, 2025, compared to 18.4% of total deposits on December 31, 2024. At September 30, 2025, total time deposits were $825.1 million. Municipal deposits increased $155.3 million, or 19.2% from December 31, 2024.

Previous wording

In general, there is a seasonal pattern to municipal deposits which dip to a low point in August each year. Account balances tend to increase throughout the fall and into early winter from tax deposits, flatten out after the beginning of the ensuing calendar year, and increase again at the end of March from the electronic deposit of NYS aid payments to school districts. In addition to seasonal patterns, the overall level of municipal deposit balances fluctuates from year-to-year as a result of local economic factors as well as competition from other banks and non-bank entities.

Current wording

In general, there is a seasonal pattern to municipal deposits. Account balances tend to increase throughout the fall and into early winter from tax deposits, flatten out after the beginning of the ensuing calendar year, and increase again at the end of March from the electronic deposit of NYS aid payments to school districts. In addition to seasonal patterns, the overall level of municipal deposit balances fluctuates from year-to-year as a result of local economic factors as well as competition from other banks and non-bank entities.

Previous wording

Arrow uses reciprocal deposits for a select group of municipalities to reduce the amount of investment securities required to be pledged as collateral for municipal deposits where municipal deposits in excess of the FDIC insurance coverage limits were transferred to other participating banks, divided into portions so as to qualify for FDIC insurance coverage at each transferee bank. In return, reciprocal amounts are transferred to Arrow in equal amounts of deposits from the participant banks. The balances of reciprocal deposits were $650.0 million and $648.5 million at June 30, 2025 and December 31, 2024, respectively.

Current wording

Arrow uses reciprocal deposits for a select group of municipalities to reduce the amount of investment securities required to be pledged as collateral for municipal deposits where municipal deposits in excess of the FDIC insurance coverage limits were transferred to other participating banks, divided into portions so as to qualify for FDIC insurance coverage at each transferee bank. In return, reciprocal amounts are transferred to Arrow in equal amounts of deposits from the participant banks. The balances of reciprocal deposits were $663.0 million and $648.5 million at September 30, 2025 and December 31, 2024, respectively.