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 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.

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 200 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 December 31, 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 (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.

Current wording

Effective December 31, 2024, the Company unified its former subsidiary banks, Glens Falls National Bank and Trust Company ("GFNB") and Saratoga National Bank and Trust Company ("SNB"), and became a single bank holding company headquartered in Glens Falls, New York. The post-unification banking subsidiary is Arrow Bank National Association® ("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 provides investment advice to Arrow's proprietary mutual fund) 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 which could negatively affect growth and profitability.

Current wording

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

Previous wording

•Arrow Bank's allowance for credit losses may be insufficient, and an increase in the allowance would reduce earnings.

Current wording

•Arrow Bank's allowance for possible credit losses may be insufficient, and an increase in the allowance would reduce earnings.

Previous wording

•Federal banking statutes and regulations could change in the future, which may adversely affect Arrow.

Current wording

•Arrow operates in a highly regulated industry and face risks associated with noncompliance. Federal banking statutes and regulations could change in the future, which may adversely affect Arrow.

Previous wording

Arrow is under no duty to update any of the forward-looking statements after the date of this Report to conform such statements to actual results. All forward-looking statements, express or implied, included in this Report and the documents incorporated by reference and that are attributable to Arrow are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Arrow or any persons acting on its behalf may issue. This Report should be read in conjunction with the 2024 Form 10-K and our other filings with the Securities and Exchange Commission ("SEC").

Current wording

The Company is under no duty to update any of the forward-looking statements after the date of this Report to conform such statements to actual results. All forward-looking statements, express or implied, included in this Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Arrow or any persons acting on its behalf may issue. This Report should be read in conjunction with the 2025 Form 10-K and our other filings with the Securities and Exchange Commission ("SEC").

Previous 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.

Current wording

The Securities and Exchange Commission ("SEC") has adopted Regulation G, which applies to all public disclosures made by registered companies that contain “non-GAAP financial measures.” "GAAP" refers to generally accepted accounting principles in the United States of America. Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure and a statement of the Company’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required. The following measures used in this Report, which are commonly utilized by financial institutions, have not been specifically exempted by the SEC and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules. The Company believes that the non-GAAP financial measures disclosed 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. Arrow's non-GAAP financial measures may differ from similar measures presented by other companies. A reconciliation of non-GAAP financial measures to the closest comparable GAAP financial measures is included on page 40 of this Report. 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 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, 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.

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. 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 noninterest expense to net interest income and noninterest 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, i.e., it is expressed on a tax-equivalent basis. Moreover, many financial institutions, in calculating the efficiency ratio, also adjust both noninterest expense and noninterest 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 noninterest 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 noninterest income under GAAP but may be ignored for purposes of calculating the efficiency ratio). The Company makes these adjustments.

Previous wording

Adjustments for Certain Items of Income or Expense: In addition to our regular utilization in our public filings and disclosures of the various non-GAAP measures commonly utilized by financial institutions discussed above, we also may elect from time to time, in connection with our presentation of various financial measures prepared in accordance with GAAP, such as net income, earnings per share (i.e., EPS), return on average assets (i.e., ROA), and return on average equity (i.e., ROE), to additionally provide certain comparative disclosures that adjust these GAAP financial measures, typically by removing therefrom the impact of certain transactions or other material items of income or expense that are unusual or unlikely to be repeated. The Company does so only if it believes that inclusion of the resulting non-GAAP financial measures may improve the average investor's understanding of Arrow's results of operations by separating out items that have a disproportional positive or negative impact on the particular period in question or by otherwise permitting a better comparison from period-to-period in the results of operations with respect to the Company's fundamental lines of business, including the commercial banking business.

Current wording

Adjustments for Certain Items of Income or Expense: In addition to our regular use in our public filings and disclosures of the various non-GAAP measures commonly utilized by financial institutions discussed above, we also may elect from time to time, in connection with our presentation of various financial measures prepared in accordance with GAAP, such as net income, earnings per share (i.e., EPS), return on average assets (i.e., ROA), and return on average equity (i.e., ROE), to additionally provide certain comparative disclosures that adjust these GAAP financial measures, typically by removing therefrom the impact of certain transactions or other material items of income or expense that are unusual or unlikely to be repeated. The Company does so only if it believes that inclusion of the resulting non-GAAP financial measures may improve the average investor's understanding of Arrow's results of operations by separating out items that have a disproportional positive or negative impact on the particular period in question or by otherwise permitting a better comparison from period-to-period in the results of operations with respect to the Company's fundamental lines of business, including the commercial banking business.

Previous 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.

Current wording

Summary of Q1 2026 Financial Results: Net income for the first quarter of 2026 was $13.5 million, increasing from $6.3 million in the first quarter of 2025. Compared to the first quarter of 2025, net income increased primarily due to an increase in net interest income and a decrease in the provision for credit losses on loans.

Previous 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.

Current wording

Net interest income for the first quarter of 2026 was $36.1 million, increasing $4.8 million or 15.2% from the first quarter of 2025. Total interest and dividend income was $53.8 million for the first quarter of 2026, an increase from $50.4 million in the first quarter of 2025. Interest expense for the first quarter of 2026 was $17.7 million, a decrease from $19.0 million in the first quarter of 2025.

Previous 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.

Current wording

Net interest margin, on an FTE basis, for the first quarter of 2026 increased to 3.48%, 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 38 related to the use of non-GAAP financial measures.

Previous 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.

Current wording

Non-interest income for the three months ended March 31, 2026, was $8.6 million, an increase from $7.8 million in the first quarter of 2025. Revenue related to wealth management and insurance commissions increased in the first quarter of 2026 compared to the first quarter of 2025. The first quarter of 2026 included a positive valuation adjustment of $145 thousand related to equity positions.

Previous 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.

Current wording

Total assets were $4.5 billion at March 31, 2026, an increase of $76.2 million, or 1.7%, as compared to December 31, 2025. For the first quarter of 2026, the overall change in the balance sheet was primarily attributable to the seasonal surge in municipal deposits as well as fluctuations in cash balances and maturities of investments.

Previous 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.

Current wording

Total investments were $594.6 million as of March 31, 2026, an increase of $21.8 million, or 3.8%, compared to December 31, 2025. The increase from December 31, 2025 was driven primarily by $46 million of purchases of additional investments offset by paydowns and maturities. There were no credit quality issues related to the investment portfolio.

Previous 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.

Current wording

At March 31, 2026, deposit balances were $4.0 billion, an increase of $74.5 million from December 31, 2025. The change from December 31, 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- and nine-month periods are discussed in detail under the heading "RESULTS OF OPERATIONS," beginning on page 60.

Current wording

The changes in net income, net interest income and net interest margin between the three-month periods are discussed in detail under the heading "RESULTS OF OPERATIONS," beginning on page 55.

Previous 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.

Current wording

Stockholders’ equity was $440.1 million at March 31, 2026, an increase of $8.3 million, or 1.9%, from the December 31, 2025 level of $431.9 million. The increase in stockholders' equity over the first three months of 2026 principally reflected the following factors: the addition of (i) $13.5 million of net income for the period, and (ii) the issuance of $0.6 million of common stock through employee benefit and dividend reinvestment plans, reduced by (iii) other comprehensive loss of $0.7 million, and (iv) cash dividends of $5.0 million. The components of the change in stockholders’ equity since year-end 2025 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 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.

Current wording

At March 31, 2026, book value per share was $26.63, up 1.4% from year-end 2025. Tangible book value per share was $25.09, an increase of $0.38, or 1.54%, from December 31, 2025. See the disclosure on page 38 related to the use of non-GAAP financial measures.

Previous 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.

Current wording

In the first quarter of 2026, Arrow paid a quarterly cash dividend of $0.30 per share.

Previous 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").

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 March 31, 2026, as compared to 0.08% for the three-month period ended December 31, 2025.

Previous 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.

Current wording

The allowance for credit losses was $34.1 million as of March 31, 2026, which represented 0.99% of loans outstanding, as compared to $34.3 million, or 0.99%, at December 31, 2025.

Previous 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.

Current wording

Nonperforming loans were $4.4 million at March 31, 2026, representing 0.13% of period-end loans, a decrease from the December 31, 2025 of 0.24% of period-end loans. Nonperforming assets of $4.9 million at March 31, 2026 represented 0.11% of period-end assets, down from 0.20% of period-end assets at December 31, 2025.

Previous 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.

Current wording

Loan Segments: As of March 31, 2026, including the fair value marks associated with derivatives, total loans decreased by $14.1 million, or 0.4%, as compared to the balance at December 31, 2025. The largest decrease was in the residential real estate loan portfolio which decreased $7.0 million, or 0.5%. Consumer loans, primarily comprised of automobile loans, decreased $4.5 million. Commercial and commercial real estate loans decreased by $2.6 million, or 0.3%, from December 31, 2025. Loan balances were negatively impacted by severe winter weather, which slowed indirect auto and residential loan originations.

Previous 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.

Current wording

•Commercial and Commercial Real Estate Loans: Combined, these loans comprise 28.5% of the total loan portfolio at March 31, 2026. 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 at March 31, 2026. Retail loans were approximately 3% of the total loan portfolio and hotels and motels were approximately 4% of the total loan portfolio at March 31, 2026. 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 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.

Current wording

•Consumer Loans: These loans comprised 31.3% of the total loan portfolio at period-end. Consumer automobile loans at March 31, 2026, 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 39.9% 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.

Current wording

•Residential Real Estate Loans: These loans, including home equity loans, made up 40.3% of the total loan portfolio at March 31, 2026. 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 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.

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 March 31, 2026 were $256.5 million compared to $185.1 million at December 31, 2025. 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 53). 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 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:

Current wording

Changes in Earning Assets: The loan portfolio at March 31, 2026, was $3.4 billion, a decrease of $14.1 million, or 0.4%, from December 31, 2025. The following trends were experienced in our largest segments:

Previous 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.

Current wording

•Consumer loans: As of March 31, 2026, these loans, primarily auto loans originated through dealerships in New York and Vermont, decreased by $4.5 million, or 0.4%, from the December 31, 2025 balance. Loan growth was negatively impacted by severe winter weather, which slowed indirect auto originations. 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 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.

Current wording

•Residential real estate loans: This segment decreased during the first three months of 2026 by $7.0 million, or 0.5%. Loan growth was negatively impacted by severe winter weather, which slowed residential loan originations.Overall economic conditions, including the level of interest rates may impact future origination levels.

Previous 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.

Current wording

Changes in Sources of Funds: Deposit balances reached $4.0 billion, an increase of $74.5 million. or 1.9% from December 31, 2025. The increase from December 31, 2025 was primarily due to seasonality of municipal deposits in the first quarter. Noninterest-bearing deposits represented 18.0% of total deposits at March 31, 2026, compared to 18.3% of total deposits on December 31, 2025. At March 31, 2026, total time deposits were $775.7 million. Municipal deposits increased $131.5 million, or 16.7% from December 31, 2025.

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 $663.0 million and $648.5 million at September 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 $709.3 million and $614.9 million at March 31, 2026 and December 31, 2025, respectively.

Previous wording

Uninsured Deposits: Arrow's deposit base includes both insured and uninsured deposits. Arrow continually monitors levels and composition of uninsured deposits. Uninsured deposit balances at September 30, 2025 were less than 30% of the total deposit base.

Current wording

Uninsured Deposits: Arrow's deposit base includes both insured and uninsured deposits. Arrow continually monitors levels and composition of uninsured deposits. Uninsured deposit balances at March 31, 2026 and December 31, 2025 were estimated to be $1.1 billion and $917.6 million, respectively.

Previous wording

There were no sales of investment securities during the nine month periods ended September 30, 2025 or 2024.

Current wording

There were no sales of investment securities during the three month periods ended March 31, 2026 or 2025.

Previous wording

The following table summarizes purchases of investment securities within the AFS and HTM portfolios for the three and nine month periods ended September 30, 2025 and 2024, as well as proceeds from the maturity and calls of investment securities within each portfolio for the respective periods presented:

Current wording

The following table summarizes purchases of investment securities within the AFS and HTM portfolios for the three month periods ended March 31, 2026 and 2025, as well as proceeds from the maturity and calls of investment securities within each portfolio for the respective periods presented:

Previous wording

Commercial Loans and Commercial Real Estate Loans: Commercial and commercial real estate loans in the loan portfolio were extended to businesses or borrowers primarily located in Arrow's regional markets. There are no commercial real estate loans in major metropolitan areas. Approximately 2% of the loan portfolio are comprised of office related property. Retail loans were approximately 3% of the loan portfolio and hotels and motels were approximately 4% of the portfolio. A portion of the loans in the commercial portfolio have variable rates tied to market indices, such as Prime, SOFR or FHLBNY.

Current wording

Commercial Loans and Commercial Real Estate Loans: Commercial and commercial real estate loans in the loan portfolio were extended to businesses or borrowers primarily located in Arrow's regional markets. There are no commercial real estate loans in major metropolitan areas. Approximately 2% of the loan portfolio are comprised of office related property. Retail loans were approximately 3% of the loan portfolio and hotels and motels were approximately 4% of the portfolio as of March 31, 2026. A portion of the loans in the commercial portfolio have variable rates tied to market indices, such as Prime, SOFR or FHLBNY.

Previous wording

In the third quarter of 2025, the targeted Federal Funds rate fell 25 basis points and additional rate cuts are possible in 2025 and beyond. Arrow is well positioned for a variety of rate environments, see Part I, Item 3, entitled "Quantitative and Qualitative Disclosures About Market Risk," on page 64 for further discussion.

Current wording

In the fourth quarter of 2025, the targeted Federal Funds rate fell 25 basis points. Future rate cuts are difficult to determine. However, Arrow believes it is well positioned for a variety of rate environments, see Part I, Item 3, entitled "Quantitative and Qualitative Disclosures About Market Risk," on page 57 for further discussion.

Previous wording

The following table presents information related to the allowance and provision for credit losses:

Current wording

The following table presents information related to the allowance for credit losses: