Arrow Financial : 2023 Annual Review

2023

ANNUAL REVIEW

While the last year posed its challenges, it did not distract us from growing the business. We remain steadfast in our commitment to serving our shareholders, customers and communities and empowering our employees.

David S. DeMarco

President and CEO

The information in this document may contain statements based on management's beliefs, assumptions, expectations, estimates and projections about the future. Such "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, as amended, involve a degree of uncertainty and attendant risk. Actual outcomes and results may differ, explicitly or by implication. We are not obliged to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with Arrow's Annual Report on Form 10-K for the year ended December 31, 2023 and other filings with the Securities and Exchange Commission.

Arrow Stakeholders:

As we reflect on the past year, I am pleased to share our accomplishments and milestones. While the last year posed its challenges, it did not distract us from growing the business. We remain steadfast in our commitment to serving our shareholders, customers and communities and empowering our employees.

One of the highlights of 2023 was our robust loan growth. This growth was coupled with record-high loan balances, a testament to our ability to meet the diverse financial needs of our customers while maintaining strong credit, capital and liquidity positions. We issued a cash dividend to our shareholders for the 43rd consecutive quarter, expanded our existing stock repurchase program by $5 million, reinstated our dividend reinvestment program and issued an annual stock dividend for the

15th consecutive year. Both Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company maintained their Bauer Financial 5-Star "Exceptional Performance" ratings for the 16th and 14th consecutive years, respectively.

Furthermore, we completed a multi-year renovation project on our downtown Glens Falls headquarters, providing a modern and welcoming space for both employees and customers alike. The Main Office branch of Glens Falls National Bank also reopened right in the center of downtown Glens Falls, serving as a centerpiece of what community banking means to us-accessible,long-lasting and friendly. This investment in our infrastructure underscores our dedication to providing the best possible customer experience and reinforces our commitment to the community. You can read more about the headquarters renovation on page 4.

In line with our commitment to innovation, we continued to advance our technology, enhancing our capabilities and delivering

a superior customer experience. Additionally, we invested in our people through expanded learning and development programs designed to support our culture of collaboration and continuous improvement.

At the heart of everything we do is our mission to strengthen financial lives and make a positive impact in the communities we serve. As noted at the end of this review, we continued to demonstrate an impressive commitment to our communities by donating $781,000 and more than 11,000 volunteer hours in 2023.

We are incredibly proud of the dollars we donate, the thousands of hours our team gives back and the impact we make on our communities by doing so.

Finally, I would like to take this opportunity to recognize our exceptional team for their hard work and dedication throughout the year. Our success is directly tied to their unwavering commitment to our values and vision.

As we look ahead, we remain focused on building upon our achievements and continuing to deliver value to our shareholders, customers and communities.

Thank you for your commitment to the Arrow Family of Companies. For those of you who are shareholders, thank you for your investment in Arrow Financial Corporation. Your support is appreciated as we continue to work to maintain your trust in us and create increased value for your investment.

David S. DeMarco

President and CEO

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2023

IN REVIEW

Our team continued to advance our strategic goals while serving the needs of our customers, communities and shareholders. Find more details below, followed by our financial highlights.

SOLID RESULTS

In 2023, Arrow Financial Corporation saw robust loan growth and retail deposit balances of $3.5 billion, slightly ahead of year-end 2022. Arrow finished the year with solid earnings, again thanks to the hard work and dedication of our exceptional team. In a challenging rate environment, we looked to draw in new customers with competitive rates on deposit products while continuing to

deepen existing customer relationships. We maintained asset quality with total assets reaching $4.17 billion at year-end.

Throughout the year, we focused on enhancing customer relationships, expanding our presence in newer markets and maintaining asset quality and other performance metrics.

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HEADQUARTERS

RENOVATION

After a multi-year investment, we reopened our completely renovated

corporate headquarters in downtown Glens Falls and welcomed back our team and our customers.

These renovations and updates, which include our Main Office branch and lending areas, provide our team with an efficient and flexible workspace, an enhanced experience for our customers and will help reduce our environmental impact. Project updates included:

• A fully renovated lobby and lending center for the main branch of Glens Falls National Bank
• The replacement of aging infrastructure and equipment including a full overhaul of electrical and HVAC, a rooftop green space, solar panels, energy-saving lighting and water-conserving plumbing
• Flexible and functional workspaces for our teams
• Increased physical security
• Energy-savinginterior and exterior improvements

The completion of our corporate headquarters renovation project is more than just a revitalization of our bank and offices-it's an investment in the future of our customers, our employees and our communities. See images on page 6.

ADVANCING TECHNOLOGY

As a company, we are continually making enhancements to our customer-facing

platforms. Upgrades focused on improving the user experience with efficient tools and mobile capabilities.

In addition, we continue to introduce easy- to-use fraud prevention digital services for businesses to monitor and approve activity on their accounts. As always, our goal is to improve operational efficiency and internal reporting to make data-driven decisions.

SAFER BANKING,

TOGETHER

Fraud attempts are widespread,

targeting both individuals and businesses. We are dedicated to educating and empowering our customers to prevent, detect and report fraud on their accounts. We also urge our customers and communities to be cautious with their financial and personal information. Behind the scenes, we work to maintain robust

and ever-evolving fraud prevention measures to protect customer data.

SOCIALLY CONSCIOUS PERFORMANCE

At Arrow, we are committed to operating in a socially conscious manner that demonstrates positive environmental, social and governance contributions.

Below are some examples of our commitment to conserving natural resources, supporting our employees, customers and communities, demonstrating that we value differences, particularly in the areas of diversity, equity, inclusion

and belonging ("DEIB") and adhering to strong corporate governance.

• Digital banking options and paperless statements are provided and encouraged
• Facility renovations, including our corporate headquarters, incorporate energy-saving features
• Emissions reduction through remote work and video conferencing

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• Long-standing dedication to diversity on Arrow's Board of Directors, exceeding Nasdaq requirements
• Professional development, wellness and mental health employee services are available to our team
• Annual engagements with a third party to assess diversity within our employee base and support for the setting and tracking of goals to encourage the advancement of minorities, women, veterans and persons with disabilities
• Incorporation of inclusion and belonging into our HR policies, practices and programs
• Products to facilitate first-timehome ownership
• Bank On certification for Smart Steps checking to serve the underbanked
• Annually, time, dollars and expertise are donated to community organizations with an emphasis on affordable homeownership, economic empowerment, health and human services and social progress (find more about our 2023 support on page 12)
• Comprehensive governance program, as described in further detail in our annual Proxy Statement
• Expanding our philanthropic support of environmental sustainability in our community, including organizations that impact soil, water and land conservation, sustainable farming, mountain and lake protection and stewardship, and parks and recreation
• Developed sustainability investment models for our socially conscious clients
• Strong cybersecurity protections and training

Find additional details in our shareholder communications and filings with the Securities and Exchange Commission.

GREAT TEAM, GREAT RESULTS

What we achieve, we

achieve together. It is through our team's hard work and dedication that we continue to deliver on our mission of strengthening financial lives.

Beyond our mission, we have a company culture of continuous improvement. That means we are constantly growing, learning and evolving. We have internal programs in place to support our emerging talent and our seasoned managers. As our business environment changes more rapidly, we want to meet the evolving needs of our customers, and that starts with a culture of learning and collaboration. Together, the Arrow Team will continue

to deliver the results that our customers, communities and shareholders expect.

IN MEMORY OF

THOMAS L. HOY

Finally, we would like to acknowledge and remember Tom Hoy, former President and CEO, and Chairman of Arrow Financial Corporation.

In his nearly five-decade career with the Arrow Family of Companies, Tom's dedication was unwavering. He held various roles before becoming company President and CEO from 1997 until his retirement in 2012. He remained Chair of the Board until early 2023, when he stepped back due to health reasons.

During his time as CEO, Tom expanded our company's footprint and set forth a strategic vision that we still follow today. As Chair, his steadiness and integrity helped us navigate significant growth and continuous improvement.

We are grateful to have known Tom, and his professional legacy lives on in the company culture he helped shape.

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This is more than just a revitalization of our bank and offices-it's an investment in the future of our customers, our employees and our communities.

Here's a look at our revitalized corporate headquarters and Main Office branch at 250 Glen Street in downtown Glens Falls.

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2023 Financial Highlights

Arrow finished the year with robust loan growth, posting record high loan balances while maintaining strong credit, capital and liquidity positions.

Net Income:	$30.08 million
Total Loans:	$3.18 billion, up 7.7%
Total Retail Deposits:	$3.51 billion, up 0.4%
Total Assets:	$4.17 billion, up 5.0%
Total Shareholders' Equity:	$379.77 million, up 7.4%
Return on Average Equity:	8.29%
Return on Average Assets:	0.74%
Stock Dividend:	3% distributed in
	September 2023
Current Quarterly	$0.27
Cash Dividend:
Book Value Per Share:	$22.42
Diluted Earnings per Share:	$1.77

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Performance Comparisons

			$4,170
$2.92		$4,028	$3,970
$2.86	$3,689
$2.41		$3,184

$2.23

$1.77

2019	2020		2021		2022		2023		2019	2020	2021		2022		2023
DILUTED EARNINGS PER SHARE					ASSETS
For the 12 Months Ended December 31*			As of December 31
													($ in Millions)
								$1.06										$3,688**
						$1.03
												$3,550
													$3,498
				$0.96
$0.90		$0.93									$3,235
										$2,616
2019		2020		2021		2022		2023		2019		2020		2021		2022		2023
CASH DIVIDENDS PAID PER SHARE					DEPOSITS
For the 12 Months Ended December 31*			As of December 31
													($ in Millions)
								$22.42										$380
				$21.81									$371
		$19.72				$20.74						$334				$354
$17.87										$302
2019		2020		2021		2022		2023		2019		2020		2021		2022		2023
	BOOK VALUE PER SHARE				SHAREHOLDERS' EQUITY
		As of December 31*					As of December 31
													($ in Millions)

*Per Share Amounts have been restated for stock dividends distributed. **Includes retail and wholesale deposits.

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Total Return Performance

Comparison of Five-Year Cumulative Total Return • Assumes Initial Investment of $100

200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
2018	2019	2020	2021	2022	2023
Arrow Financial Corporation	ABA NASDAQ Community BankTR	Russell 2000 Index	Zacks $1B-$5B Bank Assets Index

December 2023

										2018			2019			2020			2021			2022			2023
Arrow Financial Corporation				100.00			125.39			105.80			132.22		135.28		120.71
NASDAQ Banks Index						100.00			123.30			109.05			147.76		137.43		134.58
Russell 2000 Index						100.00			125.52			150.58			172.90		137.56		160.85
Zacks $1B-$5B Bank Assets Index		100.00			117.34			95.01			130.61		127.10		126.09
		Comparison of 15-Year Cumulative Total Return • Assumes Initial Investment of $100
600.00
550.00
500.00
450.00
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
		Arrow Financial Corporation		ABA NASDAQ Community BankTR		Russell 2000 Index		Zacks $1B-$5B Bank Assets Index
																												December 2023
		2008		2009		2010		2011		2012	2013		2014	2015		2016	2017		2018		2019		2020		2021		2022	2023
Arrow
Financial
Corporation	100.00	106.74	126.21	115.69	130.80	147.59	161.74	169.10	267.96	238.23	238.10	298.56	251.91	314.82	322.12	287.41
NASDAQ	100.00		80.80		90.06		84.18		99.10	140.40	146.94	160.97	223.37	229.11	194.97	240.40	212.62	288.09	267.94 262.39
Banks Index
Russell 2000	100.00	127.17	161.32	154.57	179.84	249.66	261.87	250.32	303.66	348.15	309.82	388.90	466.53	535.66	426.19	498.34
Index
Zacks $1B-$5B
Bank Assets	100.00		83.14		91.29		86.56	101.88	128.00	140.15	152.44	212.71	234.10	214.34	251.50	203.63	279.96	272.42	270.26
Index

Source: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2024.

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