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Arrow Financial
AROW
#6913
Rank
$0.67 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$41.05
Share price
2.27%
Change (1 day)
55.14%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Arrow Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2026 Q1

Arrow Financial - 10-Q quarterly report FY2026 Q1


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2026
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-12507

ARROW FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)
New York22-2448962
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

250 Glen StreetGlens FallsNew York12801
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:518 745-1000

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, Par Value $1.00 per shareAROWNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes    ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes     ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☐Accelerated filer☑
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐  Yes   ☑ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding as of April 30, 2026
Common Stock, par value $1.00 per share16,529,019


ARROW FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
3
37
57
59
PART II - OTHER INFORMATION
60
60
60
60
60
60
62
63

2

PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
 March 31,
2026		December 31,
2025
ASSETS 
Cash and Due From Banks$29,102 $29,132 
Interest-Earning Deposits at Banks
256,504 185,051 
Investment Securities:
Available-for-Sale at Fair Value518,803 495,868 
Held-to-Maturity (Fair Value of $65,321 at March 31, 2026 and $66,569 at December 31, 2025)
65,646 66,975 
Equity Securities5,742 5,597 
Other Investments4,375 4,372 
Loans3,438,966 3,453,093 
Allowance for Credit Losses(34,055)(34,322)
Net Loans3,404,911 3,418,771 
Premises and Equipment, Net59,561 59,433 
Goodwill23,789 23,789 
Other Intangible Assets, Net1,692 1,741 
Other Assets151,894 155,133 
Total Assets$4,522,019 $4,445,862 
LIABILITIES 
Noninterest-Bearing Deposits$721,734 $722,374 
Interest-Bearing Checking Accounts898,168 862,192 
Savings Deposits1,618,309 1,557,638 
Time Deposits over $250
140,899 155,802 
Other Time Deposits634,829 641,463 
Total Deposits4,013,939 3,939,469 
Borrowings4,265 4,265 
Junior Subordinated Obligations Issued to Unconsolidated
  Subsidiary Trusts		20,000 20,000 
Finance Leases4,908 4,929 
Other Liabilities38,764 45,347 
Total Liabilities4,081,876 4,014,010 
STOCKHOLDERS’ EQUITY 
Preferred Stock, $1 Par Value; 1,000,000 Shares Authorized at March 31, 2026 and December 31, 2025 (none issued)
— — 
Common Stock, $1 Par Value: 30,000,000 Shares Authorized; 22,066,559 Shares Issued and 16,526,929 and 16,445,342 outstanding at March 31, 2026 and December 31, 2025
22,067 22,067 
Additional Paid-in Capital414,431 414,506 
Retained Earnings110,804 102,271 
Accumulated Other Comprehensive Loss(4,764)(4,037)
Treasury Stock, at Cost (5,539,630 Shares at March 31, 2026 and 5,621,217 Shares at December 31, 2025)
(102,395)(102,955)
Total Stockholders’ Equity440,143 431,852 
Total Liabilities and Stockholders’ Equity$4,522,019 $4,445,862 
    See Notes to Unaudited Interim Consolidated Financial Statements.
3

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
 Three Months Ended March 31,
 20262025
INTEREST AND DIVIDEND INCOME  
Interest and Fees on Loans$47,126 $44,550 
Interest on Deposits at Banks1,675 1,621 
Interest and Dividends on Investment Securities:
Fully Taxable4,529 3,608 
Exempt from Federal Taxes464 587 
Total Interest and Dividend Income53,794 50,366 
INTEREST EXPENSE  
Interest-Bearing Checking Accounts2,100 1,803 
Savings Deposits8,716 9,483 
Time Deposits over $250
1,196 1,811 
Other Time Deposits5,436 5,529 
Borrowings— 167 
Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts		169 169 
Interest on Financing Leases47 47 
Total Interest Expense17,664 19,009 
NET INTEREST INCOME36,130 31,357 
Provision for Credit Losses on Loans548 5,019 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES35,582 26,338 
NON-INTEREST INCOME  
Income From Fiduciary Activities2,713 2,535 
Fees for Other Services to Customers2,727 2,600 
Insurance Commissions2,113 1,826 
Net Gain on Securities145 317 
Net Gain on Sales of Loans290 101 
Other Operating Income640 460 
Total Non-Interest Income8,628 7,839 
NON-INTEREST EXPENSE  
Salaries and Employee Benefits14,922 13,555 
Occupancy Expenses, Net2,459 2,022 
Technology and Equipment Expense5,052 5,087 
FDIC Assessments585 670 
Other Operating Expense3,847 4,711 
Total Non-Interest Expense26,865 26,045 
INCOME BEFORE PROVISION FOR INCOME TAXES17,345 8,132 
Provision for Income Taxes3,860 1,822 
NET INCOME$13,485 $6,310 
Average Shares Outstanding:  
Basic16,382 16,665 
Diluted16,403 16,673 
Per Common Share:  
Basic Earnings$0.82 $0.38 
Diluted Earnings0.82 0.38 


See Notes to Unaudited Interim Consolidated Financial Statements.

4



ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Three Months Ended March 31,
20262025
Net Income$13,485 $6,310 
Other Comprehensive (Loss) Income, Net of Tax:
  Net Unrealized Securities Holding (Loss) Gain Arising
  During the Period		(1,810)6,416 
  Net Unrealized Gain (Loss) on Cash Flow Hedge
  Agreements		902 (1,154)
  Reclassification of Net Unrealized Loss (Gain) on
  Cash Flow Hedge Agreements to Interest Expense		216 (319)
  Amortization of Net Retirement Plan Actuarial (Gain)(87)(71)
  Amortization of Net Retirement Plan Prior Service Cost 52 61 
Other Comprehensive (Loss) Income (727)4,933 
  Comprehensive Income $12,758 $11,243 

    See Notes to Unaudited Interim Consolidated Financial Statements.
5




ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)

Three Months Ended March 31, 2026
Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumu-lated
Other Com-
prehensive
Loss		Treasury
Stock		Total
Balance at December 31, 2025
$22,067 $414,506 $102,271 $(4,037)$(102,955)$431,852 
Net Income— — 13,485 — — 13,485 
Other Comprehensive Loss— — — (727)— (727)
Cash Dividends Paid, $.30 per Share
— — (4,952)— — (4,952)
Stock Options Exercised, Net  (7,325 Shares)
— 107 — — 58 165 
Shares Issued Under the Directors’ Stock
  Plan  (3,925 Shares)
— 94 — — 31 125 
Shares Issued Under the Employee Stock
  Purchase Plan  (2,684 Shares)
— 58 — — 22 80 
Shares Issued Related to Restricted Share Awards (71,111 Shares)
— (562)— — 562 — 
Compensation expense related to Employee Stock Purchase Plan— 8— — — 8 
Stock-Based Compensation Expense— 220— — — 220 
Purchase of Treasury Stock (3,458 Shares) related to vesting or exercise of stock based compensation awards
— — — — (113)(113)
Balance at March 31, 2026
$22,067 $414,431 $110,804 $(4,764)$(102,395)$440,143 
Three Months Ended March 31, 2025
Common
Stock		Additional
Paid-In
Capital		Retained
Earnings		Accumu-lated
Other Com-
prehensive
Loss		Treasury
Stock		Total
Balance at December 31, 2024
$22,067 $413,476 $77,215 $(18,453)$(93,404)$400,901 
Net Income— — 6,310 — — 6,310 
Other Comprehensive Income— — — 4,933 — 4,933 
Cash Dividends Paid, $.28 per Share
— — (4,698)— — (4,698)
Stock Options Exercised, Net (5,144 Shares)
— 62 — — 40 102 
Shares Issued Under the Directors’ Stock
  Plan  (4,989 Shares)
— 92 — — 40 132 
Shares Issued Under the Employee Stock
  Purchase Plan  (3,327 Shares)
— 56 — — 27 83 
Shares Issued Related to Restricted Share Awards (43,250 Shares)
— (342)— — 342 — 
Compensation expense related to Employee Stock Purchase Plan— 9 — — — 9 
Stock-Based Compensation Expense— 116 — — — 116 
Purchase of Treasury Stock
 (130,101 Shares) 1
— — — — (3,479)(3,479)
Balance at March 31, 2025
$22,067 $413,469 $78,827 $(13,520)$(96,434)$404,409 
1 Cost of Treasury Stock includes the Stock Buyback Tax Under the Inflation Reduction Act of 2022.

See Notes to Unaudited Interim Consolidated Financial Statements.

6

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended March 31,
Cash Flows from Operating Activities:20262025
Net Income$13,485 $6,310 
Provision for Credit Losses548 5,019 
Depreciation and Amortization1,246 1,206 
Net gain on equity securities(145)(317)
Loans originated and held-for-sale(7,420)(5,591)
Proceeds from the sale of loans held-for-sale10,605 4,135 
Net gain on the sale of loans(290)(101)
Net loss on the sale of premises and equipment, other real estate owned and repossessed assets39 37 
Contributions to retirement benefit plans(157)(177)
Deferred income tax benefit(1,530)(854)
Settlement of Energy Production Tax Credits
(4,070)— 
Shares issued under the Directors’ Stock Plan125 132 
Stock-based compensation expense228 125 
Tax benefit from exercise of stock options109 8 
Net increase in Other Assets4,482 3,089 
Net decrease in Other Liabilities(2,012)(2,951)
Net Cash Provided By Operating Activities15,243 10,070 
Cash Flows from Investing Activities:
Proceeds from maturities, calls, and principal repayments of securities AFS17,945 26,172 
Purchases of securities AFS(43,152)— 
Proceeds from maturities, calls, and principal repayments of securities HTM2,070 3,629 
Purchases of securities HTM(752)(2,899)
Net decrease (increase) in loans9,617 (21,168)
Proceeds from sales of premises and equipment, OREO and repos468 623 
Purchases of premises and equipment(1,302)(1,274)
Purchase of FHLB stock(3)— 
Net Cash (Used) Provided By Investing Activities(15,109)5,083 
Cash Flows from Financing Activities:
Net increase in deposits74,470 140,235 
Finance lease payments(21)(26)
Net cash collateral received from (paid to) derivative counterparties1,660 (470)
Purchase of treasury stock(113)(3,479)
Stock options exercised, net165 102 
Shares issued under ESPP80 83 
Cash dividends paid(4,952)(4,698)
Net Cash Provided By Financing Activities71,289 131,747 
Net Increase in Cash and Cash Equivalents71,423 146,900 
Cash and Cash Equivalents at Beginning of Period214,183 154,546 
Cash and Cash Equivalents at End of Period$285,606 $301,446 
Supplemental Disclosures to Statements of Cash Flow Information:
Interest on deposits and borrowings$18,101 $18,718 
Income taxes603 507 
Transfer of loans to other real estate owned and repossessed assets749 624 

See Notes to Unaudited Interim Consolidated Financial Statements.
7

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.RISKS AND UNCERTAINTIES

Nature of Operations - Arrow Financial Corporation ("Arrow"), a New York corporation, was incorporated on March 21, 1983 and is registered as a bank holding company within the meaning of the Bank Holding Company Act of 1956.  Arrow's banking subsidiary is Arrow Bank National Association® ("Arrow Bank™") whose main office is located in Glens Falls, New York. Arrow Bank provides a full range of services to individuals and small to mid-size businesses in New York State from Albany to the Canadian border. In addition, through an indirect lending program, Arrow sources consumer loans from an extensive network of automobile dealers that operate throughout New York and Vermont. An active subsidiary of Arrow Bank is Upstate Agency LLC, offering insurance services including property, and casualty insurance, group health insurance and individual life insurance products. Arrow Bank has a wealth management department which provides investment management and trust services. 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, are subsidiaries of Arrow Bank. Arrow also directly owns two subsidiary business trusts, organized in 2003 and 2004 to issue trust preferred securities (TRUPs), which are still outstanding.

Concentrations of Credit - With the exception of some indirect auto lending, Arrow's loans are primarily with borrowers in upstate New York.  Although the loan portfolio of Arrow Bank is well diversified, tourism has a substantial impact on the northeastern New York economy. The commitments to extend credit are fairly consistent with the distribution of loans presented in Note 4. Loans to the Consolidated Financial Statements, generally have the same credit risk and are subject to normal credit policies.  Generally, the loans are secured by assets and are expected to be repaid from cash flow or the sale of selected assets of the borrowers.  Arrow evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Arrow upon extension of credit, is based upon Management's credit evaluation of the counterparty.  The nature of the collateral varies with the type of loan and may include: residential real estate, cash and securities, inventory, accounts receivable, property, plant and equipment, income producing commercial properties and automobiles.

Liquidity - The objective of effective liquidity management is to ensure that Arrow has the ability to raise cash when needed at a reasonable cost.  This includes the capability of meeting expected and unexpected obligations to Arrow's customers at any time. Given the uncertain nature of customer demands and the need to maximize earnings, Arrow must have available reasonably priced sources of funds, both on- and off-balance sheet, that can be accessed quickly in times of need. Arrow’s liquidity position should provide the Company with the necessary flexibility to address any unexpected near-term disruptions such as reduced cash flows from the investment and loan portfolio, unexpected deposit runoff, or increased loan originations.
Arrow's primary sources of available liquidity are overnight investments in federal funds sold, interest bearing bank balances at the Federal Reserve Bank of New York, and cash flow from investment securities and loans.
In addition to liquidity from cash, short-term investments, investment securities and borrowings, Arrow has supplemented available operating liquidity with additional off-balance sheet sources such as a federal funds lines of credit with correspondent banks and credit lines with the FHLBNY.

Note 2.     ACCOUNTING POLICIES

The accompanying unaudited interim Consolidated Financial Statements contain all of the adjustments necessary to present fairly the financial position as of March 31, 2026 and December 31, 2025; the results of operations for the three month periods ended March 31, 2026 and 2025; the consolidated statements of comprehensive income for the three month periods ended March 31, 2026 and 2025; the changes in stockholders' equity for the three month periods ended March 31, 2026 and 2025; and the cash flows for the three month periods ended March 31, 2026 and 2025. All such adjustments are of a normal recurring nature. The unaudited interim Consolidated Financial Statements should be read in conjunction with the audited annual Consolidated Financial Statements of Arrow for the year ended December 31, 2025 included in Arrow's Annual Report on Form 10-K for the year ended December 31, 2025 (the "2025 Form 10-K").

Accounting Standards Pending Adoption
ASU No. 2024-03, "Income Statement - Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses", requires new financial statement disclosures, disaggregating information for certain expense captions presented on the face of the income statements, including employee compensation, depreciation, and intangible asset amortization. Arrow is required to adopt this ASU prospectively for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. Arrow is currently evaluating the potential impact of ASU 2024-03 on our Consolidated Financial Statements.

Other ASUs issued but not effective until after March 31, 2026, are not expected to have a material effect on the Company’s consolidated financial position, annual results of operations and/or cash flows.

Management’s Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
8

and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expenses during the reporting period.  Our most significant estimates are the allowance for credit losses, the evaluation of impairment of investment securities, goodwill impairment, pension and other postretirement liabilities and an analysis of a need for a valuation allowance for deferred tax assets. Actual results could differ from those estimates.
A material estimate that is particularly susceptible to significant change in the near term is the allowance for credit losses. In connection with the determination of the allowance for credit losses, management obtains appraisals for properties.  The allowance for credit losses is management’s best estimate of expected credit losses as of the balance sheet date.  While management uses available information to recognize losses on loans, future adjustments to the allowance for credit losses may be necessary based on changes in economic conditions.  

Allowance for Credit Losses – Loans
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to present the net lifetime amount expected to be collected on the loans. Credit losses are charged off against the allowance when management believes a loan balance to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.
Management estimates the allowance using relevant available information from internal and external sources related to past events, current conditions, and a reasonable and supportable single economic forecast. Historical credit loss experience provides the basis for the estimation of expected credit losses. Arrow's historical loss experience is supplemented with peer information when there is insufficient loss data for Arrow. Peer selection is based on a review of institutions with comparable loss experience as well as loan yield, bank size, portfolio concentration and geography. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in credit concentrations, delinquency level, collateral values and underwriting standards as well as changes in economic conditions or other relevant factors. Management judgment is required at each point in the measurement process.
Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Management developed portfolio segments for estimating loss based on type of borrower and collateral as follows:

Commercial Loans
Commercial Real Estate Loans
Consumer Loans
Residential Loans

Further details related to loan portfolio segments are included in Note 4. Loans to the Consolidated Financial Statements of this Form 10-Q.
Arrow utilized regression analyses of peer data where observed credit losses and selected economic factors were utilized to determine suitable loss drivers for modeling lifetime probability of default (PD) rates. Arrow uses the discounted cash flow (DCF) method to estimate expected credit losses for the commercial, commercial real estate, and residential segments. For each of these loan segments, Arrow generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, PD, and segment-specific loss given default (LGD) risk factors. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions.
For the loan segments utilizing the DCF method (commercial, commercial real estate, and residential) management utilizes externally developed economic forecast of the following economic factors as loss drivers: national unemployment, gross domestic product and Case-Shiller U.S. National Home Price Index (HPI). The economic forecast is applied over a reasonable and supportable forecast period. Arrow utilizes a six quarter reasonable and supportable forecast period with an eight quarter reversion to the historic mean on a straight-line basis.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (NPV). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.
Arrow uses the vintage analysis method to estimate expected credit losses for the consumer loan segment. The vintage method was selected since the loans within the consumer loan segment are homogeneous, not just by risk characteristic, but by loan structure. Under the vintage analysis method, a loss rate is calculated based on the quarterly net charge-offs to the outstanding loan balance for each vintage year over the lookback period. Once this periodic loss rate is calculated for each quarter in the lookback period, the periodic rates are averaged into the loss rate. The loss rate is then applied to the outstanding loan balances based on the loan's vintage year. Arrow maintains, over the life of the loan, the loss curve by vintage year. If estimated losses computed by the vintage method need to be adjusted based on current conditions and the reasonable and supportable economic forecast, these adjustments would be incorporated over a six quarter reasonable and supportable forecast period, reverting to historical losses using a straight-line method over an eight quarter period.
Arrow considers the need to qualitatively adjust expected credit loss estimates for information not already captured in the loss estimation process. These qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Adjustments are not made for information that has already been considered and included in the loss estimation process.
9

Arrow considers the qualitative factors that are relevant to Arrow as of the reporting date, which may include, but are not limited to the following factors:
•The nature and volume of Arrow's financial assets;
•The existence, growth, and effect of any concentrations of credit;
•The volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
•The value of the underlying collateral for loans that are not collateral-dependent;
•Arrow's lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries;
•The quality of Arrow's loan review function;
•The experience, ability, and depth of Arrow's lending, investment, collection, and other relevant management/staff;
•The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters;
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the institution operates that affect the collectability of financial assets; and
•Other qualitative factors not reflected in quantitative loss rate calculations.

All loans that exceed $250 thousand which are on nonaccrual, are evaluated on an individual basis. For collateral dependent financial assets where Arrow has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and Arrow expects repayment of the financial asset to be provided substantially through the sale of the collateral, Arrow has elected to measure the allowance for credit loss as the difference between the fair value of the collateral less cost to sell, and the amortized cost basis of the asset as of the measurement date. In the event the repayment of a collateral dependent financial asset is expected to be provided substantially through the operation of the collateral, Arrow will use fair value of the collateral at the reporting date when recording the net carrying amount of the asset and determining the allowance for credit losses. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
Arrow evaluates whether a modification represents a new loan or a continuation of an existing loan, consistent with the current GAAP treatment for other loan modifications. In addition, Arrow evaluates and if necessary, discloses if loan modifications made to borrowers experiencing financial difficulty contain a financial concession

Estimated Credit Losses on Off-Balance Sheet Credit Exposures Recognized as Other Liabilities - Arrow estimates expected credit losses over the contractual period in which Arrow has exposure to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by Arrow. The allowance for credit losses on off-balance sheet credit exposures recognized in other liabilities, is adjusted as an expense in other non-interest expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. Estimating credit losses on unfunded commitments requires Arrow to consider the following categories of off-balance sheet credit exposure: unfunded commitments to extend credit, unfunded lines of credit, and standby letters of credit. Each of these unfunded commitments is then analyzed for a probability of funding to calculate a probable funding amount. The life of loan loss factor by related portfolio segment from the loan allowance for credit loss calculation is then applied to the probable funding amount to calculate the estimated credit losses on off-balance sheet credit exposures recognized as other liabilities.

10

Note 3.    INVESTMENT SECURITIES (In Thousands)

The following table is the schedule of Available-For-Sale Securities at March 31, 2026 and December 31, 2025:
Available-For-Sale Securities
U.S. TreasuriesU.S. Government & Agency
Obligations		State and
Municipal
Obligations		Mortgage-
Backed
Securities		Corporate
and Other
Debt
Securities		Total
Available-
For-Sale
Securities
March 31, 2026
Available-For-Sale Securities,
  at Amortized Cost		$78,523 $25,000 $200 $408,303 $26,250 $538,276 
Gross Unrealized Gains1,352 — — 1,203 331 2,886 
Gross Unrealized Losses (73)(198)— (22,031)(57)(22,359)
Available-For-Sale Securities,
  at Fair Value 		79,802 24,802 200 387,475 26,524 518,803 
Available-For-Sale Securities,
  Pledged as Collateral, at Fair
  Value		264,016 
Maturities of Debt Securities,
  at Amortized Cost:
Within One Year$— $15,000 $— $111 $— $15,111 
From 1 - 5 Years73,465 10,000 200 39,288 1,000 123,953 
From 5 - 10 Years5,058 — — 64,801 25,250 95,109 
Over 10 Years— — — 304,103 — 304,103 
Maturities of Debt Securities,
  at Fair Value:
Within One Year$— $14,856 $— $111 $— $14,967 
From 1 - 5 Years74,817 9,946 200 38,856 980 124,799 
From 5 - 10 Years4,985 — — 60,630 25,544 91,159 
Over 10 Years— — — 287,878 — 287,878 
Securities in a Continuous
  Loss Position, at Fair Value:
Less than 12 Months$4,985 $— $— $75,348 $9,213 $89,546 
12 Months or Longer— 24,802 — 184,721 980 210,503 
Total$4,985 $24,802 $— $260,069 $10,193 $300,049 
Number of Securities in a
  Continuous Loss Position		1 3 — 90 8 102 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
Less than 12 Months$73 $— $— $896 $37 $1,006 
12 Months or Longer— 198 — 21,135 20 21,353 
Total$73 $198 $— $22,031 $57 $22,359 
December 31, 2025
Available-For-Sale Securities,
  at Amortized Cost		$78,436 $25,000 $200 $385,766 $23,500 $512,902 
Gross Unrealized Gains2,139 — — 2,153 194 4,486 
Gross Unrealized Losses(12)(184)— (21,238)(86)(21,520)
Available-For-Sale Securities,
  at Fair Value		80,563 24,816 200 366,681 23,608 495,868 
Available-For-Sale Securities,
  Pledged as Collateral,
  at Fair Value		234,933 
Securities in a Continuous
  Loss Position, at Fair Value:
Less than 12 Months$5,047 $— $— $13,154 $4,436 $22,637 
11

Available-For-Sale Securities
U.S. TreasuriesU.S. Government & Agency
Obligations		State and
Municipal
Obligations		Mortgage-
Backed
Securities		Corporate
and Other
Debt
Securities		Total
Available-
For-Sale
Securities
12 Months or Longer— 24,816 — 193,635 979 219,430 
Total$5,047 $24,816 $— $206,789 $5,415 $242,067 
Number of Securities in a
  Continuous Loss Position		1 3 — 83 4 91 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
Less than 12 Months$12 $— $— $8 $64 $84 
12 Months or Longer— 184 — 21,230 22 21,436 
Total$12 $184 $— $21,238 $86 $21,520 
There was no allowance for credit losses for the AFS debt securities portfolio at either March 31, 2026 or December 31, 2025.

The following table is the schedule of Held-To-Maturity Securities at March 31, 2026 and December 31, 2025:
Held-To-Maturity Securities
State and
Municipal
Obligations		Mortgage-
Backed
Securities		Total
Held-To
Maturity
Securities
March 31, 2026
Held-To-Maturity Securities,
  at Amortized Cost		$62,081 $3,565 $65,646 
Gross Unrealized Losses(246)(79)(325)
Held-To-Maturity Securities,
  at Fair Value		61,835 3,486 65,321 
Held-To-Maturity Securities,
  Pledged as Collateral, at Carrying Value		33,703 
Held-To-Maturity Securities,
  Pledged as Collateral, at Fair Value		33,378 
Maturities of Debt Securities,
  at Amortized Cost:
Within One Year$46,161 $— $46,161 
From 1 - 5 Years14,560 2,261 16,821 
From 5 - 10 Years1,360 — 1,360 
Over 10 Years— 1,304 1,304 
Maturities of Debt Securities,
  at Fair Value:
Within One Year$46,095 $— $46,095 
From 1 - 5 Years14,385 2,222 16,607 
From 5 - 10 Years1,355 — 1,355 
Over 10 Years— 1,264 1,264 
Securities in a Continuous
  Loss Position, at Fair Value:
Less than 12 Months$792 $— $792 
12 Months or Longer31,058 3,485 34,543 
Total$31,850 $3,485 $35,335 
12

Held-To-Maturity Securities
State and
Municipal
Obligations		Mortgage-
Backed
Securities		Total
Held-To
Maturity
Securities
Number of Securities in a
  Continuous Loss Position		109 16 125 
Unrealized Losses on Securities
   in a Continuous Loss Position:
Less than 12 Months$3 $— $3 
12 Months or Longer243 79 322 
Total$246 $79 $325 
December 31, 2025
Held-To-Maturity Securities,
  at Amortized Cost		$62,870 $4,105 $66,975 
Gross Unrealized Losses(324)(82)(406)
Held-To-Maturity Securities,
  at Fair Value		62,546 4,023 66,569 
Held-To-Maturity Securities,
  Pledged as Collateral, at Carrying Value		35,078 
Held-To-Maturity Securities,
  Pledged as Collateral, at Fair Value		34,672 
Securities in a Continuous
  Loss Position, at Fair Value:
Less than 12 Months$400 $— $400 
12 Months or Longer32,138 4,023 36,161 
Total$32,538 $4,023 $36,561 
Number of Securities in a
  Continuous Loss Position		109 16 125 
Unrealized Losses on
  Securities in a Continuous
  Loss Position:
Less than 12 Months$— $— $— 
12 Months or Longer324 82 406 
Total$324 $82 $406 

In the tables above, maturities of mortgage-backed securities are included based on their contractual lives. Actual maturities will differ because issuers may have the right to call or prepay obligations with or without prepayment penalties.
Securities in a continuous loss position, in the tables above for March 31, 2026 and December 31, 2025 do not reflect any material deterioration of the credit worthiness of the issuing entities.
Arrow evaluates AFS debt securities in unrealized loss positions at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or non-credit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized within the allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. Arrow determined that at March 31, 2026 and December 31, 2025, gross unrealized losses were attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. Arrow does not intend to sell, nor is it more likely than not that Arrow will be required to sell, any securities before recovery of its amortized cost basis, which may be at maturity. Therefore, Arrow carried no allowance for credit loss at March 31, 2026 or December 31, 2025 and there was no credit loss expense recognized by Arrow with respect to the securities portfolio during the three months ended March 31, 2026 or the year ended December 31, 2025.  
Arrow's HTM debt securities are comprised of U.S. government-sponsored enterprises (GSEs) or state and municipal obligations. GSE securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Arrow determined that the expected credit loss on its HTM debt portfolio was immaterial and therefore no allowance for credit loss was recorded as of March 31, 2026.
13


The following table is the schedule of Equity Securities at March 31, 2026 and December 31, 2025:
Equity Securities
March 31, 2026December 31, 2025
Equity Securities, at Fair Value$5,742$5,597

The following is a summary of realized and unrealized gains and losses recognized in income on equity securities during the three month periods ended March 31, 2026 and 2025:
Three Months Ended March 31,
20262025
Net Gain on Equity Securities$145 $317 
Less: Net gain recognized during the reporting period on equity securities sold during the period— — 
Unrealized net gain recognized during the reporting period on equity securities still held at the reporting date$145 $317 
14


Note 4.    LOANS (In Thousands)

Loan Categories and Past Due Loans

The following two tables present loan balances outstanding as of March 31, 2026 and December 31, 2025 and an analysis of the recorded investment in loans that are past due at these dates. Generally, Arrow considers a loan past due 30 or more days when the borrower is two payments past due. Loans held-for-sale of $490 thousand and $3.4 million as of March 31, 2026 and December 31, 2025, respectively, are included in the residential real estate balances for current loans.

Schedule of Past Due Loans by Loan Category
Commercial
CommercialReal EstateConsumerResidentialTotal
March 31, 2026
Loans past due 30-59 days$514 $— $13,620 $5,233 $19,367 
Loans past due 60-89 days175 — 4,606 1,059 5,840 
Loans past due 90 or more days304 — 1,290 1,960 3,554 
Total loans past due993 — 19,516 8,252 28,761 
Current loans168,606 811,770 1,052,027 1,377,802 3,410,205 
Total Loans$169,599 $811,770 $1,071,543 $1,386,054 $3,438,966 
December 31, 2025
Loans past due 30-59 days$584 $— $13,476 $808 $14,868 
Loans past due 60-89 days255 2,888 7,495 3,503 14,141 
Loans past due 90 or more days195 — 1,886 3,517 5,598 
Total loans past due1,034 2,888 22,857 7,828 34,607 
Current loans164,695 815,371 1,053,150 1,385,270 3,418,486 
Total loans$165,729 $818,259 $1,076,007 $1,393,098 $3,453,093 

Schedule of Nonaccrual Loans by Category
Commercial
March 31, 2026CommercialReal EstateConsumerResidentialTotal
Loans 90 or more days past due
  and Still Accruing Interest		$— $— $— $621 $621 
Nonaccrual loans304 — 1,355 2,143 3,802 
Nonaccrual with no allowance for credit loss— — — 1,027 1,027 
December 31, 2025
Loans 90 or more days past due
  and Still Accruing Interest		$27 $— $31 $1,983 $2,040 
Nonaccrual loans168 — 1,879 4,368 6,415 
Nonaccrual with no allowance for credit loss168 — 1,879 4,368 6,415 

The Company recognized $0 of interest income on nonaccrual loans during the three months ended March 31, 2026.
15


Arrow disaggregates its loan portfolio into the following four categories:

Commercial - Arrow offers a variety of loan options to meet the specific needs of our commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment or other assets owned by the borrower. In the event of default by the borrower, Arrow may be required to liquidate collateral at deeply discounted values. To reduce the risk, management usually obtains personal guarantees to support the borrowing, as permitted by applicable law.

Commercial Real Estate - Arrow offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. Commercial real estate loans are made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are typically secured by first liens on the real estate, which may include apartments, hotels, commercial structures, housing businesses, healthcare facilities, and both owner- and non-owner-occupied facilities. Arrow also offers commercial construction and land development loans to finance projects. Many projects will ultimately be used by the borrowers' businesses, while others are developed for resale. These real estate loans are also typically secured by first liens on the real estate, which may include apartments, hotels, commercial structures, housing businesses, healthcare facilities and both owner-occupied and non-owner-occupied facilities. There is elevated risk during the construction period, since the loan is secured by an incomplete project. Arrow’s commercial real estate loans are primarily located within the footprint of the Company’s branch network, with some loans extending into the greater upstate New York area. Arrow does not provide commercial real estate loans in major metropolitan areas such as New York City, Boston, etc.

Consumer Loans - This category is primarily comprised of automobile loans. Arrow primarily finances the purchases of automobiles indirectly through dealer relationships located throughout upstate New York and Vermont. Most automobile loans carry a fixed rate of interest with principal repayment terms typically ranging from three to seven years. Automobile loans are underwritten on a secured basis using the underlying collateral being financed. Arrow also offers a variety of consumer installment loans to finance personal expenditures. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from one to five years, based upon the nature of the collateral and the size of the loan. In addition to installment loans, Arrow also offers personal lines of credit and overdraft protection. Several of these consumer loans are unsecured, which carry a higher risk of loss.

Residential - Residential real estate loans consist primarily of loans secured by first or second mortgages on primary residences. Arrow originates fixed-rate and adjustable-rate one-to-four-family residential real estate loans for the construction, purchase of real estate or refinancing of an existing mortgage. These loans are collateralized primarily by owner-occupied properties generally located in Arrow's market area. Loans on one-to-four-family residential real estate are generally originated in amounts of no more than 80% of the purchase price or appraised value (whichever is lower), or have private mortgage insurance. Arrow’s underwriting analysis for residential mortgage loans typically includes credit verification, independent appraisals, and a review of the borrower’s financial condition. Mortgage title insurance and hazard insurance are normally required. It is Arrow's general practice to underwrite residential real estate loans to secondary market standards. Construction loans have a unique risk, because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period. In addition, Arrow offers fixed home equity loans, as well as home equity lines of credit to consumers to finance home improvements, debt consolidation, education and other uses.  Arrow originates home equity lines of credit and second mortgage loans (loans secured by a second junior lien position on one-to-four-family residential real estate).  Risk is generally reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows.  A security interest, with title insurance when necessary, is taken in the underlying real estate.

Allowance for Credit Losses

Loan segments were selected by class code and application code to ensure each segment is comprised of loans with homogenous loan characteristics and similar risk profiles. The resulting loan segments are commercial, commercial real estate, consumer and residential real estate loans. Please see Note 2. Accounting Policies to the Consolidated Financial Statements for additional detail on our Allowance for Credit Losses.


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The following table details activity in the allowance for credit losses on loans for the three months ended March 31, 2026 and March 31, 2025:

Allowance for Credit Losses
CommercialCommercial Real EstateConsumerResidentialTotal
December 31, 2025$2,954 $15,260 $4,090 $12,018 $34,322 
Charge-offs$— $— $(1,560)$(14)$(1,574)
Recoveries$— $— $759 $— $759 
Provision$(499)$(703)$1,221 $529 $548 
March 31, 2026$2,455 $14,557 $4,510 $12,533 $34,055 
December 31, 2024$1,925 $14,507 $3,882 $13,284 $33,598 
Charge-offs$— $— $(1,519)$(31)$(1,550)
Recoveries$— $— $704 $— $704 
Provision$(124)$3,729 $1,080 $334 $5,019 
March 31, 2025$1,801 $18,236 $4,147 $13,587 $37,771 


Estimated Credit Losses on Off-Balance Sheet Credit Exposures Recognized as Other Liabilities

As of March 31, 2026 and December 31, 2025, estimated credit losses on unfunded off-balance sheet credit exposures were $1.1 million and $1.3 million, respectively, and were included in other liabilities on the consolidated balance sheets.

Individually Evaluated Loans

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2026 and December 31, 2025:
March 31, 2026Collateral Type -Residential Real EstateCollateral Type - Commercial Real EstateTotal Loans
Commercial$— $— $— 
Commercial Real Estate— — — 
Consumer— — — 
Residential1,027 — 1,027 
Total$1,027 $— $1,027 

December 31, 2025Collateral Type -Residential Real EstateCollateral Type - Commercial Real EstateTotal Loans
Commercial$— $— $— 
Commercial Real Estate— — — 
Consumer— — — 
Residential3,172 — 3,172 
Total$3,172 $— $3,172 



Through the provision for credit losses, an allowance for credit losses is maintained that reflects the best estimate of the calculated expected credit losses in Arrow's loan portfolio as of the balance sheet date. Additions are made to the allowance for credit losses through a periodic provision for credit losses. Actual credit losses are charged against the allowance for credit losses when loans are deemed uncollectible and recoveries of amounts previously charged off are recorded as credits to the allowance for credit losses.
Arrow's loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with certain criticized and classified commercial-related relationships. In addition, the independent internal loan review department performs periodic reviews of the credit quality indicators on individual loans in the commercial loan portfolio.
Arrow considers the need to qualitatively adjust expected credit loss estimates for information not already captured in the loss estimation process. These qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Adjustments are not made for information that has already been considered and included in the loss estimation
process.
Arrow considers the qualitative factors that are relevant as of the reporting date, which may include, but are not limited to the following factors:
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•The nature and volume of Arrow's financial assets;
•The existence, growth, and effect of any concentrations of credit;
•The volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
•The value of the underlying collateral for loans that are not collateral-dependent;
•Arrow's lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries;
•The quality of Arrow's loan review function;
•The experience, ability, and depth of Arrow's lending, investment, collection, and other relevant management/staff;
•The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters;
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the institution operates that affect the collectability of financial assets; and
•Other qualitative factors not reflected in quantitative loss rate calculations.

Loan Credit Quality Indicators and Modifications

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. In some cases, the Company provides multiple types of concession on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, may be granted. The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The Company did not modify loans to borrowers experiencing financial difficulty during the three months ended March 31, 2026 and 2025.
The following table presents the amortized cost basis of loans at March 31, 2026 that were both experiencing financial difficulty and modified during the trailing 12 months ended March 31, 2026, by class and by type of modification.
March 31, 2026
CurrentLoans Past Due 30-59 DaysLoans Past Due 60-89 DaysLoans Past Due 90 or more DaysTotal Loans Past Due
Commercial$— $— $— $— $— 
Commercial Real Estate— — — — — 
Consumer— — — — — 
Residential348 — — — — 
Total$348 $— $— $— $— 
There were no defaults during the three months ended March 31, 2026.
The following tables present credit quality indicators by total loans amortized cost basis by origination year as of March 31, 2026 and December 31, 2025:

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Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loan Converted to TermTotal
March 31, 202620262025202420232022Prior
Commercial:
Risk rating
Satisfactory$12,197 $39,452 $39,302 $18,748 $15,402 $28,085 $11,114 $— $164,300 
Special mention— 132 — 25 — — — — 157 
Substandard— — 88 293 745 2,861 1,155 — 5,142 
Doubtful— — — — — — — — — 
Total Commercial Loans$12,197 $39,584 $39,390 $19,066 $16,147 $30,946 $12,269 $— $169,599 
Current-period gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial Real Estate:
Risk rating
Satisfactory$8,157 $93,054 $113,161 $77,881 $133,042 $345,620 $3,286 $— $774,201 
Special mention— 301 6,317 778 7,449 7,653 — — 22,498 
Substandard— 2,527 — 141 2,960 9,179 264 — 15,071 
Doubtful— — — — — — — — — 
Total Commercial Real Estate Loans$8,157 $95,882 $119,478 $78,800 $143,451 $362,452 $3,550 $— $811,770 
Current-period gross charge-offs$— $— $— $— $— $— $— $— $— 
Consumer:
Risk rating
Performing$114,168 $349,748 $250,442 $169,275 $122,322 $63,771 $462 $— $1,070,188 
Nonperforming— 264 342 214 331 204 — — 1,355 
Total Consumer Loans$114,168 $350,012 $250,784 $169,489 $122,653 $63,975 $462 $— $1,071,543 
Current-period gross charge-offs$— $135 $469 $341 $293 $322 $— $— $1,560 
Residential:
Risk rating
Performing$17,463 $151,890 $166,240 $156,001 $201,232 $554,780 $135,684 $— $1,383,290 
Nonperforming— 204 475 285 — 1,548 252 — 2,764 
Total Residential Loans$17,463 $152,094 $166,715 $156,286 $201,232 $556,328 $135,936 $— $1,386,054 
Current-period gross charge-offs$— $— $— $— $— $14 $— $— $14 
Total Loans$151,985 $637,572 $576,367 $423,641 $483,483 $1,013,701 $152,217 $— $3,438,966 
Total gross
charge-offs		$— $135 $469 $341 $293 $336 $— $— $1,574 



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Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisRevolving Loan Converted to TermTotal
December 31, 202520252024202320222021Prior
Commercial:
Risk rating
Satisfactory$40,855 $41,908 $20,671 $15,915 $12,070 $19,917 $9,765 $— $161,101 
Special mention196 — 25 — — — — — 221 
Substandard— — 410 92 — 2,896 1,009 — 4,407 
Doubtful— — — — — — — — — 
Total Commercial Loans$41,051 $41,908 $21,106 $16,007 $12,070 $22,813 $10,774 $— $165,729 
Current-period gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial Real Estate:
Risk rating
Satisfactory$90,358 $113,616 $78,723 $128,103 $96,305 $264,374 $2,112 $— $773,591 
Special mention302 6,348 275 7,504 4,749 3,808 473 — 23,459 
Substandard2,127 — 341 4,104 304 14,069 264 — 21,209 
Doubtful— — — — — — — — — 
Total Commercial Real Estate Loans$92,787 $119,964 $79,339 $139,711 $101,358 $282,251 $2,849 $— $818,259 
Current-period gross charge-offs$— $— $— $— $1,656 $2,162 $— $— $3,818 
Consumer:
Risk rating
Performing$370,436 $281,349 $194,467 $144,210 $62,395 $20,796 $444 $— $1,074,097 
Nonperforming121 502 363 421 375 128 — — 1,910 
Total Consumer Loans$370,557 $281,851 $194,830 $144,631 $62,770 $20,924 $444 $— $1,076,007 
Current-period gross charge-offs$291 $1,472 $1,380 $1,367 $904 $271 $— $— $5,685 
Residential:
Risk rating
Performing$144,618 $172,965 $160,802 $206,858 $170,889 $395,132 $135,483 $— $1,386,747 
Nonperforming204 1,041 337 1,966 342 2,291 170 — 6,351 
Total Residential Loans$144,822 $174,006 $161,139 $208,824 $171,231 $397,423 $135,653 $— $1,393,098 
Current-period gross charge-offs$— $— $— $20 $— $31 $— $— $51 
Total Loans$649,217 $617,729 $456,414 $509,173 $347,429 $723,411 $149,720 $— $3,453,093 
Total gross
charge-offs		$291 $1,472 $1,380 $1,387 $2,560 $2,464 $— $— $9,554 

For the purposes of the table above, nonperforming consumer and residential loans were those loans on nonaccrual status or were 90 days or more past due and still accruing interest.
As of March 31, 2026 and December 31, 2025, the amortized cost of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $776 thousand and $795 thousand, respectively.
For the allowance calculation, an internally developed system of five credit quality indicators is used to rate the credit worthiness of each commercial loan defined as follows:
1) Satisfactory - "Satisfactory" borrowers have acceptable financial condition with satisfactory record of earnings and sufficient historical and projected cash flow to service the debt.  Borrowers have satisfactory repayment histories and primary and secondary sources of repayment can be clearly identified;
2) Special Mention - Loans in this category have potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit
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position at some future date.  "Special mention" assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.  Loans which might be assigned this credit quality indicator include loans to borrowers with deteriorating financial strength and/or earnings record and loans with potential for problems due to weakening economic or market conditions;
3) Substandard - Loans classified as “substandard” are inadequately protected by the current net worth or paying capacity of the borrower or the collateral pledged, if any.  Loans in this category have well defined weaknesses that jeopardize the repayment. They are characterized by the distinct possibility that Arrow will sustain some loss if the deficiencies are not corrected. “Substandard” loans may include loans which are likely to require liquidation of collateral to effect repayment, and other loans where character or ability to repay has become suspect. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard;
4) Doubtful - Loans classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable.  Although possibility of loss is extremely high, classification of these loans as “loss” has been deferred due to specific pending factors or events which may strengthen the value (e.g. possibility of additional collateral, injection of capital, collateral liquidation, debt restructure, economic recovery, etc.).  Loans classified as “doubtful” need to be placed on nonaccrual; and
5) Loss - Loans classified as “loss” are considered uncollectible with collateral of such little value that their continuance as bankable assets is not warranted.  As of the date of the balance sheet, all loans in this category have been charged-off to the allowance for loan losses.  
Commercial loans are generally evaluated on an annual basis depending on the size and complexity of the loan relationship, unless the credit related quality indicator falls to a level of "special mention" or below, when the loan is evaluated quarterly.  The credit quality indicator is one of the factors used in assessing the level of incurred risk of loss in our commercial related loan portfolios.


Note 5. DEBT (Dollars in Thousands)

Schedule of Borrowings:
March 31, 2026December 31, 2025
Balance:
FHLBNY Overnight Advances$— $— 
FHLBNY Term Advances4,265 4,265 
Total Borrowings$4,265 $4,265 
Maximum Borrowing Capacity:
Federal Funds Purchased$23,000 $23,000 
Federal Home Loan Bank of New York753,393 756,968 
Federal Reserve Bank of New York717,806 707,839 
Available Borrowing Capacity:
Federal Funds Purchased$23,000 $23,000 
Federal Home Loan Bank of New York719,128 722,703 
Federal Reserve Bank of New York717,806 707,839 

Arrow Bank has in place unsecured federal funds lines of credit with two correspondent banks. As a member of the FHLBNY, Arrow participates in the advance program which allows for overnight and term advances up to the limit of pledged collateral, including FHLBNY stock and any loans secured by real estate such as commercial real estate, residential real estate and home equity loans (see Note 3. Investment Securities to the Consolidated Financial Statements, and Note 4. Loans to the Consolidated Financial Statements). The maximum borrowing capacities at the FHLBNY and FRB are determined based on the fair value of the collateral pledged, subject to discounts determined by the respective lenders. As of March 31, 2026, the carrying cost for the FHLBNY collateral was approximately $1.1 billion and approximately $951 million for the FRB, and $1.1 billion and $939 million as of December 31, 2025, respectively. As of March 31, 2026, the fair value for the FHLBNY collateral was approximately $943 million and approximately $718 million for the FRB, and $948 million and $707 million as of December 31, 2025, respectively.  The investment in FHLBNY stock is proportional to the total of Arrow's overnight and term advances (see the schedule of FRB and FHLB Stock in Note 3. Investment Securities to the Consolidated Financial Statements). Arrow Bank has also established borrowing facilities with the FRB of New York for potential “discount window” advances, pledging certain consumer loans as collateral (see Note 4. Loans to the Consolidated Financial Statements).

Long Term Debt - FHLBNY Term Advances

In addition to overnight advances, Arrow Bank also borrows longer-term funds from the FHLBNY.


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Maturity Schedule of FHLBNY Term Advances:
Balances
Weighted Average Rate 1
Final Maturity3/31/202612/31/20253/31/202612/31/2025
First Year$— $— — %— %
Second Year4,265 4,265 4.32 %4.32 %
Third Year— — — %— %
Fourth Year— — — %— %
Total$4,265 $4,265 4.32 %4.32 %
1The effective rate on the FHLBNY Advances is 0% due to subsidized funding in the form of interest rate credits.
Long Term Debt - Guaranteed Preferred Beneficial Interests in Corporation's Junior Subordinated Debentures

At March 31, 2026, Arrow had two classes of financial instruments issued by two separate subsidiary business trusts of Arrow, Arrow Capital Statutory Trust II ("ACST II") and Arrow Capital Statutory Trust III ("ACST III" and, together with ACST II, the "Trusts"), identified as “Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts” on the Consolidated Balance Sheets and the Consolidated Statements of Income.
The first of the two classes of trust-issued instruments outstanding at March 31, 2026 was issued by ACST II, a Delaware business trust established on July 16, 2003, upon the filing of a certificate of trust with the Delaware Secretary of State.  In July 2003, ACST II issued all of its voting (common) stock to Arrow and issued and sold to an unaffiliated purchaser 30-year guaranteed preferred beneficial interests in the trust's assets ("ACST II TRUPS"). The rate on the securities is variable and tied to the 3-month Secured Overnight Financing Rate (SOFR) plus 3.15%. ACST II used the proceeds of the sale of the ACST II TRUPS to purchase an identical amount of junior subordinated debentures issued by Arrow that bear an interest rate identical at all times to the rate payable on the ACST II TRUPS.  The ACST II TRUPS became redeemable after July 23, 2008 and mature on July 23, 2033.
The second of the two classes of trust-issued instruments outstanding at year-end was issued by ACST III, a Delaware business trust established on December 23, 2004, upon the filing of a certificate of trust with the Delaware Secretary of State. On December 28, 2004, the ACST III issued all of its voting (common) stock to Arrow and issued and sold to an unaffiliated purchaser 30-year guaranteed preferred beneficial interests in the trust's assets ("ACST III TRUPS").  The rate on the ACST III TRUPS is a variable rate, adjusting quarterly to the 3-month SOFR plus 2.00%. ACST III used the proceeds of the sale of the ACST III TRUPS to purchase an identical amount of junior subordinated debentures issued by Arrow that bear an interest rate identical at all times to the rate payable on the ACST III TRUPS.  The ACST III TRUPS became redeemable on or after March 31, 2010 and mature on December 28, 2034.
Arrow has entered into interest rate swaps to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities attributable to the Trusts. These agreements are designated as cash flow hedges.
The primary assets of the Trusts are Arrow's junior subordinated debentures discussed above, and the sole revenues of the Trusts are payments received by them from Arrow with respect to the junior subordinated debentures.  The trust preferred securities issued by the Trusts are non-voting.  All common voting securities of the Trusts are owned by Arrow.  Arrow used the net proceeds from its sale of junior subordinated debentures to the Trusts, facilitated by the Trusts' sale of their trust preferred securities to the purchasers thereof, for general corporate purposes.  The trust preferred securities and underlying junior subordinated debentures, with associated expense that is tax deductible, qualify as Tier I capital under regulatory definitions.
Arrow's primary source of funds to pay interest on the debentures that are held by the Trusts are current dividends received by Arrow from Arrow Bank.  Accordingly, Arrow's ability to make payments on the debentures, and the ability of the Trusts to make payments on their trust preferred securities, are dependent upon the continuing ability of Arrow Bank to pay dividends to Arrow.  Since the trust preferred securities issued by the subsidiary trusts and the underlying junior subordinated debentures issued by Arrow at March 31, 2026 and December 31, 2025 are classified as debt for financial statement purposes, the expense associated with these securities is recorded as interest expense in the Consolidated Statements of Income.
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Schedule of Guaranteed Preferred Beneficial Interests in Corporation's Junior Subordinated Debentures

March 31, 2026December 31, 2025
ACST II
Balance $10,000 $10,000 
Period End:
     Variable Interest Rate 7.11 %7.08 %
     Fixed Interest Rate resulting from cash flow hedge agreement 4.00 %4.00 %
ACST III
Balance $10,000 $10,000 
Period End:
     Variable Interest Rate5.96 %5.93 %
     Fixed Interest Rate resulting from cash flow hedge agreement2.86 %2.86 %


Note 6.    COMMITMENTS AND CONTINGENCIES (In Thousands)

The following table presents the notional amount and fair value of Arrow's off-balance sheet commitments to extend credit and commitments under standby letters of credit as of March 31, 2026 and December 31, 2025:
Commitments to Extend Credit and Letters of Credit
March 31, 2026December 31, 2025
Notional Amount:
Commitments to Extend Credit$478,249 $462,855 
Standby Letters of Credit3,106 3,562 
Fair Value:
Commitments to Extend Credit$— $— 
Standby Letters of Credit(4)(2)
    
Arrow is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit.  Commitments to extend credit include home equity lines of credit, commitments for residential and commercial construction loans and other personal and commercial lines of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The contract or notional amounts of those instruments reflect the extent of the involvement Arrow has in particular classes of financial instruments.
Arrow's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments.  Arrow uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are not expected to be fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  Arrow evaluates each customer's creditworthiness on a case-by-case basis.  Home equity lines of credit are secured by residential real estate.  Construction lines of credit are secured by underlying real estate.  For other lines of credit, the amount of collateral obtained, if deemed necessary by Arrow upon extension of credit, is based on management's credit evaluation of the counterparty.  Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.  Most of the commitments are variable rate instruments.
Arrow does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit. Arrow has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party.  Standby letters of credit generally arise in connection with commercial lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit at March 31, 2026 and December 31, 2025 represent the maximum potential future payments Arrow could be required to make.  Typically, these instruments have terms of 12 months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.  Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments. Arrow's policies governing loan collateral apply to standby letters of credit at the time of credit extension. Loan-to-value ratios will generally range from 50% for movable assets, such as inventory, to 100% for liquid assets, such as bank CDs. Fees for standby letters of credit range from 1% to 3% of the notional amount.  Fees are collected upfront and amortized over the life of the commitment. The carrying amount and fair value of Arrow's standby letters of credit at March 31, 2026 and December 31, 2025, were insignificant.  The fair value of standby letters of credit is based on the fees currently charged for similar agreements or the cost to terminate the arrangement with the counterparties.
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The fair value of commitments to extend credit is determined by estimating the fees to enter into similar agreements, taking into account the remaining terms and present creditworthiness of the counterparties, and for fixed rate loan commitments, the difference between the current and committed interest rates.  Arrow provides several types of commercial lines of credit and standby letters of credit to its commercial customers.  The pricing of these services is not isolated as Arrow considers the customer's complete deposit and borrowing relationship in pricing individual products and services.  The commitments to extend credit also include commitments under home equity lines of credit, for which Arrow charges no fee.  The carrying value and fair value of commitments to extend credit are not material and Arrow does not expect to incur any material loss as a result of these commitments.
In the normal course of business, Arrow and Arrow Bank become involved in a variety of routine legal proceedings.  At March 31, 2026, there were no legal proceedings pending or threatened, which in the opinion of management and counsel, would result in a material loss to Arrow. Legal expenses incurred in connection with loss contingencies are expensed as incurred.

Note 7.    COMPREHENSIVE INCOME (In Thousands)

The following table presents the components of other comprehensive income (loss) for the three month periods ended March 31, 2026 and 2025:
Schedule of Comprehensive Income (Loss)
Three Months Ended March 31
Tax
Before-Tax(Expense)Net-of-Tax
AmountBenefitAmount
2026
Net Unrealized Securities Holding (Loss) on Securities Available-for-Sale Arising During the Period$(2,439)$629 $(1,810)
Net Unrealized Gain on Cash Flow Swap1,216 (314)902 
Reclassification of Net Unrealized Loss on Cash Flow Hedge Agreements to Interest Expense291 (75)216 
Amortization of Net Retirement Plan Actuarial (Gain)(117)30 (87)
Amortization of Net Retirement Plan Prior Service Cost71 (19)52 
  Other Comprehensive (Loss)$(978)$251 $(727)
2025
Net Unrealized Securities Holding Gain on Securities Available-for-Sale Arising During the Period$8,645 $(2,229)$6,416 
Net Unrealized (Loss) on Cash Flow Swap(1,554)400 (1,154)
Reclassification of Net Unrealized (Gain) on Cash Flow Hedge Agreements to Interest Expense(430)111 (319)
Amortization of Net Retirement Plan Actuarial (Gain)(96)25 (71)
Amortization of Net Retirement Plan Prior Service Cost83 (22)61 
  Other Comprehensive Income$6,648 $(1,715)$4,933 

24


The following table presents the changes in accumulated other comprehensive (loss) income by component:

Changes in Accumulated Other Comprehensive (Loss) Income by Component (1)
Unrealized Loss on Available-for-Sale SecuritiesUnrealized Gain on Cash Flow SwapDefined Benefit Plan ItemsTotal
Net Actuarial Gain Net Prior Service Cost
For the quarter-to-date periods ended:
December 31, 2025$(12,799)$2,475 $6,807 $(520)$(4,037)
Other comprehensive income or loss before reclassifications(1,810)902 — — (908)
Amounts reclassified from accumulated other comprehensive income or loss— 216 (87)52 181 
Net current-period other comprehensive income or loss(1,810)1,118 (87)52 (727)
March 31, 2026$(14,609)$3,593 $6,720 $(468)$(4,764)
December 31, 2024$(27,292)$4,677 $4,927 $(765)$(18,453)
Other comprehensive income or loss before reclassifications6,416 (1,154)— — 5,262 
Amounts reclassified from accumulated other comprehensive income or loss— (319)(71)61 (329)
Net current-period other comprehensive income or loss6,416 (1,473)(71)61 4,933 
March 31, 2025$(20,876)$3,204 $4,856 $(704)$(13,520)
(1) All amounts are net of tax.

25


The following table presents the reclassifications out of accumulated other comprehensive income or loss:

Reclassifications Out of Accumulated Other Comprehensive Income or Loss
Details about Accumulated Other Comprehensive Income or Loss ComponentsAmounts Reclassified from Accumulated Other Comprehensive Income or LossAffected Line Item in the Statement Where Net Income Is Presented
For the quarter-to-date periods ended:
March 31, 2026
Reclassification of Net Unrealized Loss on Cash Flow Hedge Agreements to Interest Expense$(291)Interest expense
Amortization of defined benefit pension items:
Prior-service costs(71)
(1)
Salaries and Employee Benefits
Actuarial gain117 
(1)
Salaries and Employee Benefits
(245)Total before Tax
64 Provision for Income Taxes
Total reclassifications for the period$(181)Net of Tax
March 31, 2025
Reclassification of Net Unrealized Gain on Cash Flow Hedge Agreements to Interest Expense$430 Interest expense
Amortization of defined benefit pension items:
Prior-service costs$(83)
(1)
Salaries and Employee Benefits
Actuarial gain96 
(1)
Salaries and Employee Benefits
443 Total before Tax
(114)Provision for Income Taxes
Total reclassifications for the period$329 Net of Tax
(1) These accumulated other comprehensive gain or loss components are included in the computation of net periodic pension cost.
26

Note 8.    STOCK-BASED COMPENSATION (Dollars In Thousands, Except Share and Per Share Amounts)

Arrow has established three stock-based compensation plans: a Long Term Incentive Plan (LTIP), an Employee Stock Purchase Plan (ESPP) and an Employee Stock Ownership Plan (ESOP).

Long Term Incentive Plan
The LTIP provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, performance units and performance shares. The Compensation Committee of the Board of Directors administers the LTIP.

Restricted Stock Awards - In the three months ended March 31, 2026, the Company granted restricted stock awards which will generally vest over a three to four-year period. Unvested restricted stock will generally be forfeited if the recipient ceases to be employed by the Company, with limited exceptions. Grantees of restricted stock awards are entitled to receive all dividends and distributions declared and paid on restricted stock, or cash payments equivalent to such dividends or distributions, including those declared and paid during the vesting period.

The following table summarizes information about restricted stock awards for the year to date period ended March 31, 2026:
Restricted Stock AwardsWeighted Average
Grant Date Fair Value
Outstanding at January 1, 2026
53,564 $26.68 
Granted71,111 32.57 
Vested (10,266)27.50 
Forfeited(1,114)25.92 
Outstanding at March 31, 2026
113,295 $30.31 

The following table presents information on the amounts expensed related to restricted stock for the three month periods ended March 31, 2026 and 2025:
Three Months Ended
March 31,
20262025
Amount expensed$199 $82 

Stock Options - Options may be granted at a price no less than the greater of the par value or fair market value of such shares on the date on which such option is granted, and generally expire ten years from the date of grant.  The options usually vest over a four-year period.

The following table summarizes information about stock option activity for the three month period ended March 31, 2026:
SharesWeighted Average Exercise Price
Outstanding at January 1, 2026
$229,155 $29.83 
Exercised(7,325)22.50 
Forfeited(2,536)20.41 
Outstanding at March 31, 2026
219,294 30.18 
Vested at Period-End210,932 30.13 
Expected to Vest8,362 31.44 
The following table presents information on the amounts expensed related to stock options for the three month periods ended March 31, 2026 and 2025:
Three Months Ended
March 31,
20262025
Amount expensed$21 $33 




27

Employee Stock Purchase Plan
In October 2023, the Board of Directors approved the adoption of the 2023 ESPP, which is intended to satisfy the requirements of Section 423 of the Internal Revenue Code. Under this plan, the amount of the discount is 10%. The Qualified ESPP was approved by Arrow shareholders at the 2024 annual meeting of shareholders.

Director Stock Plan
Arrow maintains a director stock plan, pursuant to which a portion of the directors’ fees, as determined by the Board in its sole discretion, is paid to the directors in shares of Company common stock, as opposed to cash or any other form of compensation, subject to applicable law. Each director may elect to receive a greater amount or percentage of his or her directors’ fees payable in common stock from the portion that would otherwise have been payable in cash to the director.

Employee Stock Ownership Plan
Arrow maintains an ESOP, pursuant to which substantially all employees of Arrow and its subsidiaries are eligible to participate upon satisfaction of applicable service requirements. The Company may make, and historically has made, a cash contribution to the ESOP each year.

Note 9.    RETIREMENT BENEFIT PLANS (Dollars in Thousands)

Arrow sponsors qualified and non-qualified defined benefit pension plans and other postretirement benefit plans for its employees. Arrow maintains a non-contributory pension plan, which covers substantially all employees. Arrow also maintains a supplemental non-qualified unfunded retirement plan to provide eligible employees of Arrow and its subsidiaries with benefits in excess of qualified plan limits imposed by federal tax law.
Arrow has multiple non-pension postretirement benefit plans.  The health care, dental and life insurance plans are contributory, with participants’ contributions adjusted annually.  Arrow’s policy is to fund the cost of postretirement benefits based on the current cost of the underlying policies.  However, the health care plan provision allows for grandfathered participants to receive automatic increases of Company contributions each year based on the increase in inflation, limited to a maximum of 5%.

The following tables provide the components of net periodic benefit costs for the three-month periods ended March 31, 2026 and 2025:
Employees'Select ExecutivePostretirement
PensionRetirementBenefit
PlanPlanPlans
Net Periodic Benefit Cost
For the Three Months Ended March 31, 2026:
Service Cost (1)
$447 $25 $8 
Interest Cost (2)
590 65 67 
Expected Return on Plan Assets (2)
(1,065)— — 
Amortization of Prior Service Cost (2)
46 10 15 
Amortization of Net (Gain) (2)
— — (117)
Net Periodic Cost (Benefit)$18 $100 $(27)
Plan Contributions During the Period$— $116 $41 
Estimated Future Contributions in the Current Fiscal Year$— $349 $123 
For the Three Months Ended March 31, 2025:
Service Cost (1)
$400 $26 $11 
Interest Cost (2)
584 72 79 
Expected Return on Plan Assets (2)
(1,009)— — 
Amortization of Prior Service Cost (2)
47 10 26 
Amortization of Net (Gain) (2)
— — (96)
Net Periodic Cost$22 $108 $20 
Plan Contributions During the Period$— $120 $57 
(1) Included in Salaries and Employee Benefits on the Consolidated Statements of Income
(2) Included in Other Operating Expense on the Consolidated Statements of Income

A contribution to the qualified pension plan was not required during the three month period ended March 31, 2026 and currently, additional contributions in 2026 are not expected. Arrow makes contributions to its other post-retirement benefit plans in an amount equal to benefit payments for the year.

28

Note 10.    EARNINGS PER COMMON SHARE (In Thousands, Except Per Share Amounts)

The following table presents a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per common share ("EPS") for the three month periods ended March 31, 2026 and 2025.
Earnings Per Share
Three Months Ended
March 31, 2026March 31, 2025
Earnings Per Share - Basic:
Net Income$13,485 $6,310 
Less: income attributable to unvested stock based compensation awards(93)(24)
Net earnings allocated to common shareholders13,392 6,286 
Weighted Average Shares - Basic 16,381,922 16,665,138 
Earnings Per Share - Basic
$0.82 $0.38 
Earnings Per Share - Diluted:
Net earnings allocated to common shareholders$13,392 $6,286 
Weighted Average Shares - Basic
16,381,922 16,665,138 
Dilutive Average Shares attributable to stock based compensation awards20,689 7,714 
Weighted Average Shares - Diluted
16,402,611 16,672,852 
Earnings Per Share - Diluted$0.82 $0.38 

29

Note 11.    FAIR VALUES (Dollars In Thousands)

FASB defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. There are no nonfinancial assets or liabilities measured at fair value on a recurring basis. The only assets or liabilities that Arrow measured at fair value on a recurring basis at March 31, 2026 and December 31, 2025 were AFS securities, equity securities and derivatives. Arrow held no securities or liabilities for trading on such dates.
The table below presents the financial instrument's fair value and the amounts within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement:
Fair Value of Assets and Liabilities Measured on a Recurring and Nonrecurring Basis
Fair Value Measurements at Reporting Date Using:
Fair ValueQuoted Prices
In Active Markets for Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
Fair Value of Assets and Liabilities Measured on a Recurring Basis:
March 31, 2026
Assets:
Securities Available-for-Sale:
   U.S. Treasuries$79,802 $79,802 $— $— 
   U.S. Government & Agency Obligations24,802 — 24,802 $— 
   State and Municipal Obligations200 — 200 — 
   Mortgage-Backed Securities387,475 — 387,475 — 
   Corporate and Other Debt Securities26,524 — 26,524 — 
Total Securities Available-for-Sale518,803 79,802 439,001 — 
Equity Securities5,742 — 5,742 — 
Total Securities Measured on a Recurring Basis524,545 79,802 444,743 — 
Derivative Assets8,996 — 8,996 — 
Total Measured on a Recurring Basis$533,541 $79,802 $453,739 $— 
Liabilities:
Derivative Liabilities3,341 — 3,341 — 
Total Measured on a Recurring Basis$3,341 $— $3,341 $— 
December 31, 2025
Assets:
Securities Available-for Sale:
   U.S. Treasuries$80,563 $80,563 $— $— 
   U.S. Government & Agency Obligations24,816 — 24,816 — 
   State and Municipal Obligations200 — 200 — 
   Mortgage-Backed Securities366,681 — 366,681 — 
   Corporate and Other Debt Securities23,608 — 23,608 — 
Total Securities Available-for-Sale495,868 80,563 415,305 — 
Equity Securities5,597 — 5,597 — 
Total Securities Measured on a Recurring Basis501,465 80,563 420,902 — 
Derivative Assets 7,935 — 7,935 — 
Total Measured on a Recurring Basis$509,400 $80,563 $428,837 $— 
Liabilities:
Derivative Liabilities3,484 — 3,484 — 
Total Measured on a Recurring Basis$3,484 $— $3,484 $— 
30

Fair ValueQuoted Prices
In Active Markets for Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Gains (Losses) Recognized in Earnings
Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis:
March 31, 2026
Collateral Dependent Evaluated Loans$— $— $— $— 
Other Real Estate Owned and Repossessed Assets, Net522 — — — 522 
December 31, 2025
Collateral Dependent Impaired Loans$— $— $— $— 
Other Real Estate Owned and Repossessed Assets, Net280 — — — 280 

The fair value of financial instruments is determined under the following hierarchy:
•Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and,
•Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Fair Value Methodology for Assets and Liabilities Measured on a Recurring Basis

The fair value of Level 1 AFS securities are based on unadjusted, quoted market prices from exchanges in active markets. The fair value of Level 2 AFS securities are based on an independent bond and equity pricing service for identical assets or significantly similar securities and an independent equity pricing service for equity securities not actively traded.  The pricing services use a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models.  Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. The fair value of Level 2 equities are based on the last observable price in open markets.  The fair value of Level 2 derivatives is determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes.

Fair Value Methodology for Assets and Liabilities Measured on a Nonrecurring Basis

The fair value of collateral dependent individually evaluated loans and other real estate owned is based on the fair value of the underlying collateral which is based on the appraised value less costs to sell. Significant unobservable inputs used in this valuation technique include capitalization rates which ranged from 7% - 10%. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. Arrow evaluates each of these assets for impairment at least annually, with no impairment recognized for these assets at March 31, 2026 and December 31, 2025.

Fair Value Methodology for Financial Instruments Not Measured on a Recurring or Nonrecurring Basis

The fair value for securities held-to-maturity is determined utilizing an independent bond pricing service for identical assets or significantly similar securities.  The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models.  Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.
Local municipal held-to-maturity securities are recorded at cost on the financial statements. That determination is due to several factors including that there is no reliable external pricing available, the vast majority of maturities are under 1-year, and each are guaranteed by their respective municipalities, who are in turn guaranteed by the State of New York.
ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" requires that the fair value for loans must be disclosed using the "exit price" notion which is a reasonable estimate of what another party might pay in an orderly transaction. Fair values for loans are calculated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, commercial real estate, residential mortgage, indirect auto and other consumer loans.  Each loan category is further segmented into fixed and adjustable interest rate terms and by performing and nonperforming categories.  The fair value of performing loans is calculated by determining the estimated future cash flow, which is the contractual cash flow adjusted for estimated prepayments. The discount rate is determined by starting with current market yields, and first adjusting for a liquidity premium. This premium is separately determined for each loan type. Then a credit loss component is determined utilizing the credit loss assumptions used in the allowance for credit loss model. Finally, a discount spread is applied separately for consumer loans vs. commercial loans based on market information and utilization of the swap curve. 
31

The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rates are estimated using the FHLBNY yield curve, which is considered representative of Arrow’s time deposit rates.
The fair value of FHLBNY advances is calculated by the FHLBNY.
The carrying amount of FHLBNY and FRB stock approximates fair value. If the stock was redeemed, Arrow will receive an amount equal to the par value of the stock.

Fair Value by Balance Sheet Grouping

The following table presents a summary of the carrying amount, the fair value (exit price) or an amount approximating fair value and the fair value hierarchy of Arrow’s financial instruments:
Schedule of Fair Values by Balance Sheet Grouping
Fair Value Hierarchy
Carrying ValueFair ValueLevel 1Level 2Level 3
March 31, 2026
Cash and Cash Equivalents$285,606 $285,606 $285,606 $— $— 
Securities Available-for-Sale518,803 518,803 79,802 439,001 — 
Securities Held-to-Maturity65,646 65,321 — 36,176 29,145 
Equity Securities5,742 5,742 — 5,742 — 
Federal Home Loan Bank and Federal
  Reserve Bank Stock		4,375 4,375 — 4,375 — 
Net Loans3,404,911 3,281,645 — — 3,281,645 
Accrued Interest Receivable15,831 15,831 — 15,831 — 
Derivative Assets8,996 8,996 8,996 
Deposits4,013,939 4,011,322 — 4,011,322 — 
Borrowings4,265 4,016 — 4,016 — 
Junior Subordinated Obligations Issued
  to Unconsolidated Subsidiary Trusts		20,000 18,968 — 18,968 — 
Accrued Interest Payable4,470 4,470 — 4,470 — 
Derivative Liabilities3,341 3,341 — 3,341 — 
December 31, 2025
Cash and Cash Equivalents$214,183 $214,183 $214,183 $— $— 
Securities Available-for-Sale495,868 495,868 80,563 415,305 — 
Securities Held-to-Maturity66,975 66,569 — 37,566 29,003 
Equity Securities5,597 5,597 5,597 
Federal Home Loan Bank and Federal
  Reserve Bank Stock		4,372 4,372 — 4,372 — 
Net Loans3,418,771 3,275,415 — — 3,275,415 
Accrued Interest Receivable15,520 15,520 — 15,520 — 
Derivative Assets7,935 7,935 — 7,935 — 
Deposits3,939,469 3,937,255 — 3,937,255 — 
Borrowings4,265 3,998 — 3,998 — 
Junior Subordinated Obligations Issued
  to Unconsolidated Subsidiary Trusts		20,000 20,000 — 20,000 — 
Accrued Interest Payable4,910 4,910 — 4,910 — 
Derivative Liabilities3,484 3,484 — 3,484 — 
32

Note 12.    LEASES (Dollars In Thousands)

Arrow leases real property, primarily for financial services locations, and corporate vehicles. These leases generally require Arrow to pay third-party expenses on behalf of the Lessor, which are referred to as variable payments. Under some leases, Arrow pays the variable payments to the lessor, and in other leases, Arrow pays the variable payments directly to the applicable third party. None of Arrow's current leases include any residual value guarantees or any subleases, and there are no significant rights and obligations of Arrow for leases that have not commenced as of the reporting date.

The following includes quantitative data related to Arrow's leases as of and for the three months ended March 31, 2026 and March 31, 2025:
Three Months Ended
Finance Lease Amounts:ClassificationMarch 31, 2026March 31, 2025
Right-of-Use AssetsPremises and Equipment, Net$4,061 $4,239 
Lease LiabilitiesFinance Leases4,908 4,979 
Operating Lease Amounts:
Right-of-Use AssetsOther Assets$4,752 $4,834 
Lease LiabilitiesOther Liabilities4,940 5,029 
Other Information:
Cash Paid For Amounts Included In The Measurement Of Lease Liabilities:
Operating Outgoing Cash Flows From Finance Leases$47 $47 
Operating Outgoing Cash Flows From Operating Leases169 188 
Financing Outgoing Cash Flows From Finance Leases21 26 
Right-of-Use Assets Obtained In Exchange For New Finance Lease Liabilities— — 
Right-of-Use Assets Obtained In Exchange For New Operating Lease Liabilities716 376 
Weighted-average Remaining Lease Term - Finance Leases (Yrs.)24.1425.09
Weighted-average Remaining Lease Term - Operating Leases (Yrs.)9.329.86
Weighted-average Discount Rate—Finance Leases3.75 %3.75 %
Weighted-average Discount Rate—Operating Leases3.49 %3.45 %

Lease cost information for Arrow's leases is as follows:
Three Months Ended
March 31, 2026March 31, 2025
Lease Cost:
Finance Lease Cost:
   Reduction of Right-of-Use Assets$44 $44 
   Interest on Lease Liabilities47 47 
Operating Lease Cost210 215 
Short-term Lease Cost21 9 
Variable Lease Cost51 37 
Total Lease Cost$373 $352 
Future Lease Payments at March 31, 2026 are as follows:
Operating
Leases
Financing
Leases
Twelve Months Ended:
3/31/2027$882 $267 
3/31/2028833 268 
3/31/2029689 268 
3/31/2030626 280 
3/31/2031611 292 
Thereafter2,198 6,356 
Total Undiscounted Cash Flows$5,839 $7,731 
Less: Net Present Value Adjustment(899)(2,823)
   Lease Liability$4,940 $4,908 

33


Note 13.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (In Thousands)

Arrow is exposed to certain risks arising from both its business operations and economic conditions. Arrow principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Arrow manages economic risks, including interest rate, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative instruments. Specifically, Arrow enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Arrow's derivative financial instruments are used to manage differences in the amount, timing and duration of known or expected cash receipts and its known or expected cash payments principally related to certain fixed rate borrowings. Arrow also has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in Arrow's assets or liabilities. Arrow's goal is to have a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

Derivatives Not Designated as Hedging Instruments
Arrow enters into interest rate swap agreements with its commercial customers to provide them with a long-term fixed rate, while simultaneously entering into offsetting interest rate swap agreements with a counterparty to swap the fixed rate to a variable rate to manage interest rate exposure.
These interest rate swap agreements are not designated as a hedge for accounting purposes. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not present material interest rate exposure to Arrow's consolidated statements of income. Arrow records its interest rate swap agreements at fair value and is presented on a gross basis within other assets and other liabilities on the consolidated balance sheets. Changes in the fair value of assets and liabilities arising from these derivatives are included, net, in other income in the consolidated statement of income.

The following table depicts the fair value adjustment recorded related to the notional amount of derivatives, not designated as hedging instruments, outstanding as well as the notional amount of the interest rate swap agreements:

Derivatives Not Designated as Hedging Instruments - Interest Rate Swap Agreements
March 31, 2026March 31, 2025
Fair value adjustment included in other assets $3,341 $4,538 
Fair value adjustment included in other liabilities3,341 4,538 
Notional amount117,485 103,846 

Derivatives Designated as Hedging Instruments
In the third quarter of 2024, Arrow entered into a forward interest rate swap agreement which commenced in the first quarter of 2025, designated as hedging instruments, to add stability to interest expense and to manage its exposure to the variability of the future cash flows attributable to the contractually specified interest rates. The notional amount is $125 million and will synthetically fix the variable rate interest payments. The effective fixed rate is 3.29% until maturity. Arrow entered into pay-fixed interest rate swaps to convert rolling 90 days brokered deposits.
For derivatives that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period during which the hedge transaction affects earnings.
The following table indicates the effect of cash flow hedge accounting on accumulated other comprehensive income (“AOCI”) and on the consolidated statement of income.

Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
Three Months EndedThree Months Ended
March 31, 2026March 31, 2025
Fair value adjustment included in other assets$427 $979 
Amount of gain (loss) recognized in AOCI408 (591)
Amount of gain reclassified from AOCI interest expense130 187 

In the fourth quarter of 2023, Arrow entered into two interest rate swaps, designated as hedging instruments, to add stability to interest expense and to manage its exposure to the variability of the future cash flows attributable to the contractually specified interest rates. The notional amounts were $100 million and $75 million, respectively. Arrow entered into pay-fixed interest rate swaps to convert rolling 90 days brokered deposits.
In the third quarter of 2025, Arrow voluntarily terminated these swaps as part of Arrow's ongoing interest-rate risk management and concurrently entered into two new pay-fixed, receive-variable longer termed swaps with lower fixed rates and identical notional amounts. The benefit of the lower fixed rates will be partially offset by early termination fees of $1.4 million that will be amortized over the life of the terminated swaps.
For derivatives that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period in which the hedged forecasted transaction affects earnings.
The following table indicates the effect of cash flow hedge accounting on AOCI and on the consolidated statement of income.
34

Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
Three Months EndedThree Months Ended
March 31, 2026March 31, 2025
Fair value adjustment included in other liabilities$— $1,580 
Fair value adjustment included in other assets789 — 
Amount of gain (loss) recognized in AOCI1,072 (699)
Amount of (loss) gain reclassified from AOCI interest expense
(152)26 

In 2019, Arrow entered into interest rate swaps to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities. These agreements are designated as cash flow hedges.
The following table indicates the effect of cash flow hedge accounting on AOCI and on the consolidated statement of income.

Derivatives Designated as Hedging Instruments - Cash Flow Hedge Agreements
Three Months EndedThree Months Ended
March 31, 2026March 31, 2025
Fair value adjustment included in other assets$4,439 $4,901 
Amount of (loss) recognized in AOCI(264)(264)
Amount of (loss) gain reclassified from AOCI to interest expense(269)217 

For derivatives that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period during which the hedge transaction affects earnings.

Note 14:    Segment Reporting

The Company's revenue is primarily derived from community banking. Arrow's Chief Executive Officer ("CEO") is considered to be the Company's Chief Operating Decision Maker ("CODM"). The CEO manages its operations and monitors its financial performance on a consolidated basis. The Executive Management Team includes the following officers of the Company:
•President and CEO,
•Senior Executive Vice President, Chief Financial Officer, Treasurer & Chief Accounting Officer,
•Senior Executive Vice President, Chief Risk Officer,
•Senior Executive Vice President, Chief Banking Officer,
•Executive Vice President, Chief Information Officer, and
•Executive Vice President, Chief Human Resources Officer.

Financial performance is reported to the CODM monthly. Net consolidated income and EPS are the primary measures used by the Executive Management Team to evaluate Arrow's performance. Secondary measures include metrics like return on average assets and Net Interest Margin. All measures are reviewed and either affirmed or changed annually by the CODM and the Board of Directors. The presentation of financial performance to the CODM is consistent with the amounts and financial statement captions shown on the Company's consolidated balance sheets and consolidated statements of income. Significant expenses of the Company are adequately segmented in the consolidated statements of income to include all significant items when considering both quantitative and qualitative factors. These significant expenses include salaries and employee benefits, occupancy expense, technology and equipment expense, FDIC assessments and other operating expense.
All of the Company's financial results are considered by the Executive Management Team to be aggregated into one reportable segment which is community banking. While the Company does designate management responsibilities by certain business-lines, the Company's CODM evaluates financial performance on a Company-wide basis. The primary source of Arrow's revenue is from its community banking operation. All of Arrow's designated business lines have either similar characteristics, products and services, or are complementary products. Therefore, the operations of the Company are managed and considered by the Executive Management Team as one reportable segment.


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Note 15. ACQUISITION (In Thousands)

On February 25, 2026, Arrow and Adirondack Bancorp, Inc. (“Adirondack”), the parent company of Adirondack Bank, entered into a definitive agreement that Adirondack and Adirondack Bank will merge with and into Arrow and Arrow Bank, respectively (the "Merger").
Adirondack Bank is a New York state-chartered financial institution headquartered in Utica, New York. Adirondack Bank operates 19 branch locations spanning Oneida, Herkimer, Franklin, Essex and Clinton counties, and a loan production office in Onondaga County. As of December 31, 2025, Adirondack reported total consolidated assets of $942 million, total deposits of $848 million, total loans of $624 million and total equity of $67 million.
Upon the terms and subject to the conditions of the Agreement, Adirondack shareholders will receive a combination of stock and cash upon closing of the Merger with Arrow. Each outstanding share of Adirondack common stock will be converted into 1.8610 shares of Arrow common stock plus $18.72 in cash.
Closing of the transaction is expected early in the third quarter of 2026 following receipt of approvals from regulatory authorities, the approval of Adirondack shareholders, and the satisfaction of other customary closing conditions.
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Item 2.
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2026

NOTE ON TERMINOLOGY
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.

THE COMPANY AND ITS SUBSIDIARIES

Arrow was incorporated on March 21, 1983 and is registered as a bank holding company within the meaning of the Bank Holding Company Act of 1956.  Through Arrow Bank, Arrow indirectly owns various non-bank subsidiaries, including an insurance agency, a registered investment adviser and a REIT.
Arrow’s business consists primarily of the ownership, supervision and control of Arrow Bank, including the bank's subsidiaries.  Arrow provides various advisory and administrative services and coordinates the general policies and operation of Arrow Bank. Arrow Bank engages in a wide range of lending activities, including commercial and industrial lending primarily to small and mid-sized companies; mortgage lending for residential and commercial properties; and consumer installment and home equity financing. Arrow Bank also provides retirement planning, trust and estate administration services for individuals, and pension, profit-sharing and employee benefit plan administration for corporations and, through its insurance subsidiary, sells property and casualty insurance and sells and services group health care policies and life insurance.
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.

Adirondack Bancorp, Inc. Merger: On February 25, 2026, Arrow and Adirondack, the parent company of Adirondack Bank, entered into a definitive agreement pursuant to which Adirondack and Adirondack Bank will merge with and into into Arrow and Arrow Bank, respectively.
Adirondack Bank is a New York state-chartered financial institution headquartered in Utica, New York. Adirondack Bank operates 19 branch locations spanning Oneida, Herkimer, Franklin, Essex and Clinton counties, and a loan production office in Onondaga County. As of December 31, 2025, Adirondack reported total consolidated assets of $942 million, total deposits of $848 million, total loans of $624 million and total equity of $67 million.
Upon the terms and subject to the conditions of the Agreement, Adirondack shareholders will receive a combination of stock and cash upon closing of the Merger with Arrow. Each outstanding share of Adirondack common stock will be converted into 1.8610 shares of Arrow common stock plus $18.72 in cash.
Closing of the transaction is expected early in the third quarter of 2026 following receipt of approvals from regulatory authorities, the approval of Adirondack shareholders, and the satisfaction of other customary closing conditions.

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "Report") contains statements that are not historical in nature but rather are based on Arrow's beliefs, assumptions, expectations, estimates and projections about the future. These statements are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"), as amended, and involve a degree of uncertainty and attendant risk. Words such as "may," "will," "expect," "believe," "anticipate," "estimate," "continue," and variations of such words and similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements include statements regarding Arrow's asset quality, the level of allowance for credit losses, the sufficiency of liquidity sources, interest rate change exposure, changes in accounting standards, and Arrow's tax plans and strategies. Some of these statements, such as those included in the interest rate sensitivity analysis in Part I, Item 3, entitled "Quantitative and Qualitative Disclosures About Market Risk," are merely presentations of what future performance or changes in future performance would look like based on hypothetical assumptions and on simulation models. Other forward-looking statements are based on Arrow's general perceptions of market conditions and trends in business activity, both Arrow's and in the banking industry generally, as well as current management strategies for future operations and development.

These forward-looking statements may not be exhaustive, are not guarantees of future performance and involve certain risks and uncertainties that are difficult to quantify or, in some cases, to identify. You should not place undue reliance on any such forward-looking statements. In the case of all forward-looking statements, actual outcomes and results may differ materially from what the statements predict or forecast. Factors that could cause or contribute to such differences include, but are not limited to the following:  

•Arrow remains subject to inflationary risk which could adversely impact our business and our customers.
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•Market conditions could present significant challenges to the U.S. commercial banking industry and its core business of making and servicing loans. Any substantial downturn in the regional markets in which Arrow operates or in the U.S. economy generally could adversely affect Arrow's ability to maintain and/or grow earnings.
•Any future economic or financial downturn, including any significant correction in the equity markets, could adversely affect Arrow's volume of income attributable to, and demand for, fee-based services of Arrow Bank, including the Company's fiduciary business, which could negatively impact Arrow's financial condition and results of operations.
•Arrow operates in a highly competitive industry and market areas that could negatively affect growth and profitability.
•The financial services industry is faced with technological advances and changes on a continuing basis, and failure to adapt to these advances and changes could have a material adverse impact on Arrow's business.
•Problems encountered by other financial institutions could adversely affect Arrow.
•Geopolitical and other external events, such as severe weather, natural disasters, public health emergencies and pandemics, acts of war or terrorism, and other external events could impact Arrow Bank’s ability to conduct business.
•The market price of Arrow’s common stock may decline as a result of the Merger.
•Combining Arrow and Adirondack may be more difficult, costly or time-consuming than expected, and Arrow may fail to realize the anticipated benefits of the Merger.
•The Agreement may be terminated in accordance with its terms and the Merger may not be completed.
•Arrow faces continuing and growing security risks to its information base including the information maintained relating to customers, and any breaches in the security systems implemented to protect this information could have a material negative effect on Arrow's business operations and financial condition.
•Arrow Bank is subject to risks and losses resulting from fraudulent activities that could adversely impact its financial performance and results of operations.
•Business could suffer if Arrow loses key personnel unexpectedly.
•Arrow is subject to interest rate risk, which could adversely affect profitability.
•Arrow Bank's allowance for possible credit losses may be insufficient, and an increase in the allowance would reduce earnings.
•The increasing complexity of Arrow's operations presents varied risks that could affect earnings and financial condition.
•Arrow’s financial condition and the results of its operations could be negatively impacted by changes in its liquidity position.
•Arrow could recognize losses on securities held in its securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.
•Arrow Bank’s commercial and commercial real estate loans increase its exposure to credit risks.
•Arrow Bank’s indirect and consumer lending involves risk elements in addition to normal credit risk.
•Arrow may not pay or may reduce the dividends paid on shares of its common stock, and its ability to pay dividends is subject to certain restrictions.
•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.
•Capital and liquidity standards require banks and bank holding companies to maintain more and higher quality capital and greater liquidity than has historically been the case.
•Non-compliance with the Patriot Act, Bank Secrecy Act, or other anti-money laundering laws and regulations could result in fines or sanctions and restrictions on conducting acquisitions or establishing new branches.
•Arrow, through Arrow Bank, is subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.

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").

USE OF NON-GAAP FINANCIAL MEASURES
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.

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
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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.

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.

Tangible Book Value per Share: Tangible equity is total stockholders’ equity less intangible assets.  Tangible book value per share is tangible equity divided by total shares issued and outstanding.  Tangible book value per share is often regarded as a more meaningful comparative ratio than book value per share as calculated under GAAP, that is, total stockholders’ equity including intangible assets divided by total shares issued and outstanding.  

































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Non-GAAP Reconciliations and Financial Measures
Non-GAAP Financial Measures Reconciliation: Tangible Equity, Tangible Book Value per Share and Return on Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which Arrow believes provide investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 38.
3/31/20263/31/2025
Total Stockholders' Equity (GAAP)$440,143 $404,409 
Less: Goodwill and Other Intangible assets, net25,481 25,743 
Tangible Equity (Non-GAAP)$414,662 $378,666 
Period End Shares Outstanding16,527 16,670 
Tangible Book Value per Share
     (Non-GAAP)		$25.09 $22.72 
Net Income13,485 6,310 
Return on Average Tangible Equity (Net Income/Tangible Equity - Annualized)13.23 %6.76 %
Non-GAAP Financial Measures Reconciliation: Net Interest Margin, Tax-Equivalent is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which Arrow believes provides investors with information that is useful in understanding our financial performance. See "Use of Non-GAAP Financial Measures" on page 38.
3/31/20263/31/2025
Interest Income (GAAP)$53,794 $50,366 
Add: Tax-Equivalent adjustment
     (Non-GAAP)		123 155 
Interest Income - Tax Equivalent
     (Non-GAAP)		$53,917 $50,521 
Net Interest Income (GAAP)$36,130 $31,357 
Add: Tax-Equivalent adjustment
     (Non-GAAP)		123 155 
Net Interest Income - Tax Equivalent
     (Non-GAAP)		$36,253 $31,512 
Average Earning Assets4,222,574 4,143,939 
Net Interest Margin (Non-GAAP)*3.48 %3.08 %
* Quarterly ratios have been annualized.
Non-GAAP Financial Measures: Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. Arrow believes that the efficiency ratio provides investors with information that is useful in understanding our financial performance. Arrow defines efficiency ratio as the ratio of our non-interest expense to our net gross income (which equals tax-equivalent net interest income plus non-interest income, as adjusted). There is no GAAP financial measure that is closely comparable to the efficiency ratio. See "Use of Non-GAAP Financial Measures" on page 38.
Efficiency Ratio Calculation: 3/31/20263/31/2025
Non-Interest Expense$26,865 $26,045 
Less: Intangible Asset Amortization72 81 
Net Non-Interest Expense$26,793 $25,964 
Net Interest Income, Tax-Equivalent$36,253 $31,512 
Non-Interest Income8,628 7,839 
Less: Net Gain (Loss) on Securities145 317 
Net Gross Income$44,736 $39,034 
Efficiency Ratio59.89 %66.52 %

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
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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.


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OVERVIEW
    
The following discussion and analysis focuses on and reviews the results of operations for the three-month periods ended March 31, 2026 and March 31, 2025 and the financial conditions as of March 31, 2026 and December 31, 2025. 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.

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.
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.
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.
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.
Non-interest expense for the first quarter of 2026 was $26.9 million, an increase from $26.0 million in the first quarter of 2025. The first quarter of 2026 included approximately $800 thousand of expenses related to the announced acquisition of Adirondack Bancorp, Inc. which is expected to close early in the third quarter of 2026.
The provision for income taxes and effective tax rate were $3.9 million and 22.3%, respectively, for the first quarter of 2026, and $1.8 million and 22.4%, respectively, for the first quarter of 2025. The effective tax rate does not reflect the anticipated implementation of certain tax strategies that are expected to lower the tax rate for the rest of 2026. The March 31, 2026 Consolidated Statements of Cash Flows reflects the settlement of the remaining $4 million balance on the energy production tax credits which had been purchased in 2025 and reflected in the 2025 tax rate.
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.
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.
Total loans were $3.4 billion as of March 31, 2026. Loans outstanding decreased in the first quarter of 2026 by $14.1 million. Loan growth was negatively impacted by severe winter weather, which slowed indirect auto and residential loan originations.
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.
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.

Regulatory Capital and Change in Stockholders' Equity: At March 31, 2026, Arrow continued to exceed all required minimum capital ratios under the current bank regulatory capital rules as implemented under Dodd-Frank (the "Capital Rules") at both the holding company and bank levels.  At that date, Arrow Bank continues to qualify as "well-capitalized" under the capital classification guidelines as defined by the Capital Rules. Because of continued profitability and strong asset quality, the regulatory capital levels throughout recent years have consistently remained well in excess of the various required regulatory minimums in effect.
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.
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.
In the first quarter of 2026, Arrow paid a quarterly cash dividend of $0.30 per share.

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.
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.
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.

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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.

•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.
•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.
•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.

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.


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Average Consolidated Balance Sheets and Net Interest Income Analysis
(GAAP Basis)
(Dollars In Thousands)
Quarter Ended:March 31, 2026March 31, 2025
InterestRateInterestRate
AverageIncome/Earned/AverageIncome/Earned/
BalanceExpensePaidBalanceExpensePaid
Interest-Earning Deposits at Banks$183,252 $1,675 3.71 %$146,023 $1,621 4.50 %
Investment Securities:
Fully Taxable536,293 4,529 3.42 499,903 3,608 2.93 
Exempt from Federal Taxes62,524 464 3.01 91,938 587 2.59 
Loans (1)
3,440,505 47,126 5.56 3,406,075 44,550 5.30 
Total Earning Assets (1)
4,222,574 53,794 5.17 4,143,939 50,366 4.93 
Allowance for Credit Losses(34,370)(33,691)
Cash and Due From Banks30,253 31,515 
Other Assets221,376 183,154 
Total Assets$4,439,833 $4,324,917 
Deposits:
Interest-Bearing Checking Accounts$859,054 2,100 0.99 $840,571 1,803 0.87 
Savings Deposits1,570,598 8,716 2.25 1,515,961 9,483 2.54 
Time Deposits over $250
147,425 1,196 3.29 186,159 1,811 3.95 
Other Time Deposits638,451 5,436 3.45 593,130 5,529 3.78 
Total Interest-Bearing Deposits3,215,528 17,448 2.20 3,135,821 18,626 2.41 
Borrowings4,265 — — 23,378 167 2.90 
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts20,000 169 3.43 20,000 169 3.43 
Finance Leases4,916 47 3.88 4,997 47 3.81 
Total Interest-Bearing Liabilities3,244,709 17,664 2.21 3,184,196 19,009 2.42 
Noninterest-Bearing Deposits713,233 689,303 
Other Liabilities43,045 47,024 
Total Liabilities4,000,987 3,920,523 
Stockholders’ Equity438,846 404,394 
Total Liabilities and Stockholders’ Equity$4,439,833 $4,324,917 
Net Interest Income$36,130 $31,357 
Net Interest Spread2.96 %2.51 %
Net Interest Margin3.47 %3.07 %
(1) Includes Nonaccrual Loans.


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Net Interest Income Rate and Volume Analysis
(GAAP Basis)
(Dollars In Thousands)
Quarter ended March 31, 2026 compared to quarter ended March 31, 2025 Increase (Decrease)
Interest and Dividend Income:VolumeRateTotal
Interest-Bearing Bank Balances$1,502 $(1,448)$54 
Investment Securities:
Fully Taxable(1,707)2,628 921 
Exempt from Federal Taxes(386)263 (123)
Loans(6,369)8,945 2,576 
Total Interest and Dividend Income(6,960)10,388 3,428 
Interest Expense:
Deposits:
Interest-Bearing Checking Accounts(734)1,031 297 
Savings Deposits3,788 (4,555)(767)
Time Deposits over $250
358 (973)(615)
Other Time Deposits2,014 (2,107)(93)
Total Deposits5,426 (6,604)(1,178)
Borrowings and Finance Leases973 (973)— 
Long-Term Debt(43)(124)(167)
Finance Leases(3)3 — 
Total Interest Expense6,353 (7,698)(1,345)
Net Interest Income(13,313)18,086 4,773 
45

CHANGE IN FINANCIAL CONDITION
Summary of Selected Consolidated Balance Sheet Data
(Dollars in Thousands)
At Period-End
3/31/202612/31/2025$ Change
From December		% Change
From December (not annualized)
Interest-Earning Bank Balances$256,504 $185,051 $71,453 38.6 %
Securities Available-for-Sale518,803 495,868 22,935 4.6 %
Securities Held-to-Maturity65,646 66,975 (1,329)(2.0)%
Equity Securities 5,742 5,597 145 2.6 %
Loans (1)
3,438,966 3,453,093 (14,127)(0.4)%
Allowance for Credit Losses34,055 34,322 (267)(0.8)%
Earning Assets (1)
4,290,036 4,210,956 79,080 1.9 %
Total Assets$4,522,019 $4,445,862 $76,157 1.7 %
Noninterest-Bearing Deposits$721,734 $722,374 $(640)(0.1)%
Interest-Bearing Checking
  Accounts		898,168 862,192 35,976 4.2 %
Savings Deposits1,618,309 1,557,638 60,671 3.9 %
Time Deposits over $250
140,899 155,802 (14,903)(9.6)%
Other Time Deposits634,829 641,463 (6,634)(1.0)%
Total Deposits$4,013,939 $3,939,469 $74,470 1.9 %
Borrowings$4,265 $4,265 $— — %
Junior Subordinated Obligations Issued to Unconsolidated
  Subsidiary Trusts		20,000 20,000 — — %
Stockholders' Equity440,143 431,852 8,291 1.9 %
(1) Includes Nonaccrual Loans.
    
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:
•Commercial and commercial real estate loans: This segment of the loan portfolio decreased by $2.6 million, or 0.3%, during the first three months of 2026. In the first three months of 2026, loans decreased due to various factors including, general rate environment, and pricing discipline.
•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.
•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.

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.

Municipal Deposits: Municipal deposits have historically averaged between 20% to 30% of total deposits. Municipal deposits are typically placed in interest-bearing checking, savings and various time deposit accounts.
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.
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.

46

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.

FINANCIAL CONDITION
Investment Portfolio Trends
The table below presents the changes in the period-end balances for AFS and HTM securities from December 31, 2025 to March 31, 2026 (in thousands):
(Dollars in Thousands)
Fair Value at Period-EndNet Unrealized Gains (Losses)
For Period Ended
3/31/202612/31/2025Change3/31/202612/31/2025Change
Securities Available-for-Sale:
U.S. Treasury Securities$79,802 $80,563 $(761)$1,279 $2,127 $(848)
U.S. Agency Securities24,802 24,816 (14)(198)(184)(14)
State and Municipal Obligations200 200 — — — — 
Mortgage-Backed Securities
387,475 366,681 20,794 (20,828)(19,085)(1,743)
Corporate and Other Debt Securities26,524 23,608 2,916 274 108 166 
Total$518,803 $495,868 $22,935 $(19,473)$(17,034)$(2,439)
Securities Held-to-Maturity:
State and Municipal Obligations$61,835 $62,546 $(711)$(246)$(324)$78 
Mortgage-Backed Securities3,486 4,023 (537)(79)(82)3 
Total$65,321 $66,569 $(1,248)$(325)$(406)$81 

The table below presents the weighted average yield for AFS and HTM securities, at amortized cost, as of March 31, 2026 (in thousands).
March 31, 2026
Within One YearAfter One But Within Five YearsAfter Five But Within Ten YearsAfter Ten YearsTotal
AmountYieldAmountYieldAmountYieldAmountYieldAmountYield
Securities Available-for-Sale:
U.S. Treasury Securities$— — %$73,465 4.4 %$5,058 4.1 %$— — %$78,523 4.4 %
U.S. Agency Securities15,000 2.7 %10,000 3.3 %— — %— — %25,000 2.9 %
State and Municipal Obligations— — %200 6.8 %— — %— — %200 6.8 %
Mortgage-Backed Securities
111 2.4 %39,287 3.5 %64,801 1.5 %304,103 3.4 %408,302 3.1 %
Corporate and Other Debt Securities— — %1,000 6.7 %25,250 6.8 %— — %26,250 6.8 %
Total$15,111 2.7 %$123,952 4.1 %$95,109 3.1 %$304,103 3.4 %$538,275 3.5 %
Securities Held-to-Maturity:
State and Municipal Obligations$46,161 3.7 %$14,560 3.5 %$1,360 4.5 %$— — %$62,081 3.6 %
Mortgage-Backed Securities— — %2,261 2.4 %— — %1,304 2.5 %3,565 2.4 %
Total$46,161 3.7 %$16,821 3.3 %$1,360 4.5 %$1,304 2.5 %$65,646 3.6 %

At March 31, 2026, Arrow's securities portfolios did not include, directly or indirectly, obligations of foreign governments or governmental agencies of foreign issuers.
In the periods referenced above, mortgage-backed securities consisted solely of mortgage pass-through securities and collateralized mortgage obligations (CMOs) issued or guaranteed by U.S. federal agencies or by government-sponsored enterprises (GSEs). Mortgage pass-through securities provide the investor monthly portions of principal and interest pursuant to the contractual obligations of the underlying mortgages. CMOs are pools of mortgage-backed securities, the repayments on which have generally been separated into two or more components (tranches), where each tranche has a separate estimated life and yield. Arrow's practice has been to purchase pass-through securities and CMOs that are issued or guaranteed by U.S. federal agencies or GSEs, and the tranches of CMOs purchased generally have shorter average lives and/or durations. Lower market interest rates and/or payment deferrals on underlying loans that make up mortgage-backed security collateral may impact cashflows.
U.S. Government & Agency Obligations consisted solely of agency bonds issued by GSEs. These securities generally pay fixed semi-annual coupons with principal payments at maturity. For some, callable options are included that may impact the timing of these
47

principal payments. Arrow's practice has been to purchase agency securities that are issued or guaranteed by GSEs with limited embedded optionality (call features). Final maturities are generally less than 5 years.
Changes in net unrealized gains or losses during recent periods have been primarily attributable to changes in market rates during the periods in question and not due to the credit-worthiness of the issuers.

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

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:
(In Thousands)
Three Months Ended
Purchases:3/31/20263/31/2025
Available-for-Sale Portfolio
U.S. Agency Securities$— $— 
Mortgage-Backed Securities40,402 — 
Other2,750 — 
Total Purchases$43,152 $— 
Maturities & Calls$17,945 $26,172 

(In Thousands)Three Months Ended
Purchases:3/31/20263/31/2025
Held-to-Maturity Portfolio
State and Municipal Obligations$752 $2,899 
Maturities & Calls$2,070 $3,629 

Loan Trends
The following three tables present the quarterly average balances by loan type, the percentage of total loans represented by each loan type and the annualized yield of each loan category for each specified period:

Quarterly Average Loan Balances
(Dollars in Thousands)
Quarter Ended
3/31/202612/31/2025
Commercial$166,681 $163,818 
Commercial Real Estate816,177 814,772 
Consumer1,068,720 1,084,715 
Residential Real Estate1,388,927 1,381,100 
Total Loans$3,440,505 $3,444,405 

Percentage of Total Quarterly Average Loans
Quarter Ended
3/31/202612/31/2025
Commercial4.8 %4.8 %
Commercial Real Estate23.7 %23.7 %
Consumer31.1 %31.4 %
Residential Real Estate40.4 %40.1 %
Total Loans100.0 %100.0 %

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Quarterly Yield on Loans
Quarter Ended
3/31/20263/31/2025
Commercial5.78 %5.71 %
Commercial Real Estate5.42 %5.15 %
Consumer6.33 %6.06 %
Residential Real Estate4.85 %4.71 %
Total Loans5.56 %5.30 %
    
Market rates have fluctuated which impacts new loan yields for fixed rate loans, and variable loan yields as these loans reach their repricing dates.

The table below shows the maturity schedule of loans outstanding as of March 31, 2026 classified according to fixed interest rates and variable interest rates (in thousands):
March 31, 2026
Within One YearAfter One But Within Five YearsAfter Five But Within 15 YearsAfter 15 YearsTotal
Commercial$47,871 $81,001 $40,639 $88 $169,599 
Commercial Real Estate234,705 384,299 189,001 3,765 811,770 
Consumer11,075 583,398 476,624 446 1,071,543 
Residential Real Estate151,584 222,487 319,028 692,955 1,386,054 
Total$445,235 $1,271,185 $1,025,292 $697,254 $3,438,966 
After One But Within Five YearsAfter Five But Within 15 YearsAfter 15 YearsTotal
Loans maturing with:
Fixed Interest Rates$750,061 $769,655 $693,489 $2,213,205 
Variable Interest Rates521,124 255,637 3,765 780,526 
Total$1,271,185 $1,025,292 $697,254 $2,993,731 

Maintenance of High Quality Credit in the Loan Portfolio: There have been no material fluctuations in the quality of the loan portfolio. In general, residential real estate loans have historically been underwritten to secondary market standards and Arrow has not engaged in subprime mortgage lending. Similarly, high underwriting standards have been applied to the commercial, commercial real estate and indirect lending program as well.

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.

Consumer Loans: At March 31, 2026, consumer loans continue to be a significant component of Arrow's business, comprising approximately one third of the total loan portfolio.
For credit quality purposes, Arrow assigns automobile loan customers into one of four tiers, ranging from lower to higher quality in terms of anticipated credit risk. Arrow's experienced lending staff not only utilizes credit evaluation software tools but also reviews and evaluates each loan individually prior to the loan being funded. Arrow believes that this disciplined approach to evaluating credit risk has contributed to maintaining the strong credit quality in this portfolio.

Residential Real Estate Loans: Demand for residential real estate has continued to remain strong. Arrow may sell a portion of its residential real estate originations into the secondary market. Overall economic conditions, including the level of interest rates, can impact future origination levels.

Deposit Trends
The following tables provide information on trends in the quarterly average balances and mix of the deposit portfolio by deposit type and the percentage of total deposits represented by each deposit type.

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Quarterly Average Deposit Balances
(Dollars in Thousands)
Quarter Ended
3/31/202612/31/2025
Noninterest-Bearing Deposits$713,233 $750,568 
Interest-Bearing Checking Accounts859,054 850,602 
Savings Deposits1,570,598 1,584,844 
Time Deposits over $250
147,425 173,996 
Other Time Deposits638,451 642,211 
Total Deposits$3,928,761 $4,002,221 
Quarter Ended
3/31/202612/31/2025
Non-Municipal Deposits$3,062,727 $3,113,778 
Municipal Deposits866,034 888,443 
Total Deposits$3,928,761 $4,002,221 

Percentage of Total Quarterly Average Deposits
Quarter Ended
3/31/202612/31/2025
Noninterest-Bearing Deposits18.2 %18.8 %
Interest-Bearing Checking Accounts21.9 %21.3 %
Savings Deposits39.8 %39.6 %
Time Deposits over $250
3.8 %4.3 %
Other Time Deposits16.3 %16.0 %
Total Deposits100.0 %100.0 %
    
Quarterly Cost of Deposits
Quarter Ended
3/31/20263/31/2025
Demand Deposits— %— %
Interest-Bearing Checking Accounts0.99 %0.87 %
Savings Deposits2.25 %2.54 %
Time Deposits over $250
3.29 %3.95 %
Other Time Deposits3.45 %3.78 %
Total Deposits1.80 %1.97 %
    
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.
Non-Deposit Sources of Funds
$20 million of Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts listed on the consolidated balance sheet as of March 31, 2026 (i.e., previously issued TRUPs) will, subject to certain limits, continue to qualify as Tier 1 regulatory capital for Arrow until such TRUPs mature or are redeemed. This is further discussed under "Capital Resources" beginning on page 52 of this Report.
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ASSET QUALITY
The following table presents information related to the allowance for credit losses:

Summary of the Allowance for Credit Losses
(Dollars in Thousands, Loans Stated Net of Unearned Income)
3/31/202612/31/20253/31/2025
Loan Balances:
Period-End Loans$3,438,966 $3,453,093 $3,416,868 
Average Loans, Year-to-Date3,440,505 3,422,737 3,406,075 
Average Loans, Quarter-to-Date3,440,505 3,444,505 3,406,075 
Period-End Assets4,522,019 4,445,862 4,448,885 
Allowance for Credit Losses, Quarter-to-Date:
Allowance for Credit Losses, Beginning of Period$34,322 $34,176 $33,598 
Provision for Credit Losses, QTD548 846 5,019 
Loans Charged-off, QTD(1,574)(1,477)(1,550)
Recoveries of Loans Previously Charged-off759 777 704 
Net Charge-offs, QTD(815)(700)(846)
Allowance for Credit Losses, End of Period$34,055 $34,322 $37,771 
Nonperforming Assets, at Period-End:
Nonaccrual Loans$3,802 $6,415 $18,612 
Loans Past Due 90 or More Days
  and Still Accruing Interest		621 2,040 405 
Restructured and in Compliance with
  Modified Terms		— — 16 
Total Nonperforming Loans4,423 8,455 19,033 
Repossessed Assets522 280 426 
Other Real Estate Owned— — — 
Total Nonperforming Assets$4,945 $8,735 $19,459 
Asset Quality Ratios:
Allowance to Nonperforming Loans769.95 %405.94 %198.45 %
Allowance to Period-End Loans0.99 %0.99 %1.11 %
Provision to Average Loans (Quarter) (1)
0.06 %0.10 %0.60 %
Net Charge-offs to Average Loans (Quarter) (1)
0.10 %0.08 %0.10 %
Nonperforming Loans to Total Loans0.13 %0.24 %0.56 %
Nonperforming Assets to Total Assets0.11 %0.20 %0.44 %
  (1) Annualized

Allowance for Credit Losses
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. The overall change in the allowance from December 31, 2025 was primarily driven by charge-offs, the decrease in loan balances and changes to the economic forecast factors embedded in the credit loss allowance model. Further, during the first quarter of 2026, the Company performed an annual update to its prepayment and curtailment model assumptions.
See Note 2. Accounting Policies to the Consolidated Financial Statements for additional discussion related to CECL.

51

Risk Elements
Nonperforming assets at March 31, 2026 amounted to $4.9 million, a decrease from $8.7 million at December 31, 2025 and from $19.5 million at March 31, 2025. Historically, ratios of nonperforming assets to total assets have remained fairly consistent to the average ratios for our peer group (see page 37 for a discussion of the peer group). At December 31, 2025, the ratio of loans past due 90 or more days plus nonaccrual loans plus other real estate owned to total assets was 0.20% as compared to the 0.56% ratio of the peer group (the latest date for which peer group information is available). At March 31, 2026 the ratio was 0.11%.
The following table presents the balance of other non-current loans at period-end as to which interest income was being accrued (i.e., loans 30 to 89 days past due, as defined in bank regulatory guidelines). These non-current loans are not included in nonperforming assets, but entail heightened risk:
Loans Past Due 30-89 Days and Accruing Interest
($ in 000's)
3/31/202612/31/2025
Commercial Loans$689 $839 
Commercial Real Estate Loans— 2,888 
Residential Real Estate Loans6,292 4,171 
Consumer Loans - Primarily Indirect Automobile18,161 20,965 
   Total Loans Past Due 30-89 Days
   and Accruing Interest		$25,142 $28,863 
    
At March 31, 2026, the loans in the above-referenced category totaled $25.1 million, a decrease from the $28.9 million of such loans at December 31, 2025. The March 31, 2026 total of non-current loans equaled 0.73% of loans then outstanding, compared to 0.84% at December 31, 2025.
The number and dollar amount of performing loans that demonstrate characteristics of potential weakness from time-to-time (potential problem loans) typically is a very small percentage of the loan portfolio. See the table of Credit Quality Indicators in Note 4. Loans to the Consolidated Financial Statements. Arrow considers all performing commercial and commercial real estate loans classified as substandard or lower (as reported in Note 4. Loans to the Consolidated Financial Statements) to be potential problem loans. These loans will continue to be closely monitored and Arrow currently expects to collect all contractual principal and interest payments in full on these classified loans.
As of March 31, 2026, Arrow held no other real estate owned properties.

CAPITAL RESOURCES

Regulatory Capital Standards
Capital Adequacy Requirements. An important area of banking regulation is the federal banking system's promulgation and enforcement of minimum capitalization standards for banks and bank holding companies. The banking regulators have established guidelines for capital requirements, expressed in terms of Tier 1, or core capital, as a percentage of average assets, to measure the financial health of the institution. Banking regulators have also established risk-based capital guidelines for U.S. banking organizations.

Capital Ratio2025
Minimum CET1 Ratio4.500 %
Capital Conservation Buffer ("Buffer")2.500 %
Minimum CET1 Ratio Plus Buffer7.000 %
Minimum Tier 1 Risk-Based Capital Ratio6.000 %
Minimum Tier 1 Risk-Based Capital Ratio Plus Buffer8.500 %
Minimum Total Risk-Based Capital Ratio8.000 %
Minimum Total Risk-Based Capital Ratio Plus Buffer10.500 %
Minimum Leverage Ratio4.000 %


Current Capital Ratios: The table below sets forth the regulatory capital ratios of Arrow and Arrow Bank under the current Capital Rules, as of March 31, 2026:

52

Common Equity Tier 1 Capital RatioTier 1 Risk-Based Capital RatioTotal Risk-Based Capital RatioTier 1 Leverage Ratio
Arrow Financial Corporation13.30 %13.93 %15.04 %10.02 %
Arrow Bank13.41 %13.41 %14.53 %9.62 %
FDICIA's Prompt Corrective Action - "Well-Capitalized" Standard (2019)6.50 %8.00 %10.00 %5.00 %
Regulatory Minimum7.00 %8.50 %10.50 %4.00 %

At March 31, 2026, Arrow Bank exceeded the minimum regulatory capital ratios established under the current Capital Rules and qualified as "well-capitalized", the highest category in the capital classification scheme established by federal bank regulatory agencies under the "prompt corrective action" standards, as described above.

Capital Components and Stock Repurchases
Stockholders' Equity: 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, (ii) other comprehensive loss of $0.7 million, and (iii) the issuance of $0.6 million of common stock through employee benefit plans, reduced by (iv) cash dividends of $5.0 million.

Trust Preferred Securities: In each of 2003 and 2004, Arrow issued $10 million of TRUPs in a private placement. Under the FRB's regulatory capital rules then in effect, TRUPs proceeds qualified as Tier 1 capital for bank holding companies such as Arrow, but only in amounts up to 25% of Tier 1 capital, net of goodwill less any associated deferred tax liability. For Arrow, TRUPs outstanding prior to the grandfathering cutoff date set forth in Dodd-Frank (May 19, 2010) would continue to qualify as Tier 1 capital until maturity or redemption, subject to limitations.
In the first quarter of 2020, Arrow entered into interest rate swap agreements to synthetically fix the variable rate interest payments associated with $20 million in outstanding subordinated trust securities. The effective fixed rate is 3.43% until maturity. These agreements are designated as cash flow hedges.

Stock Repurchases:
On April 24, 2024, the Board authorized management, in its discretion, to repurchase from time to time, in the open market or in privately negotiated transactions, up to $5 million of Arrow common stock. On April 30, 2025, the Board authorized management, in its discretion, to repurchase from time to time, in the open market or in privately negotiated transactions, an additional $5 million of Arrow common stock. On July 23, 2025, the Board increased management's share repurchase authority by another $5 million.
In the first quarter of 2026, there were no repurchases under this authorization.
From time to time, Arrow may establish a written trading plan in accordance with Rule 10b5-1 of the Exchange Act, pursuant to which it may repurchase shares of its common stock. Repurchases may be made by Arrow, at times and in amounts as it deems appropriate, and may be made through open market transactions in compliance with Rule 10b-18 of the Exchange Act, subject to market conditions, applicable legal requirements, and other factors.
LIQUIDITY
The objective of effective liquidity management is to ensure that Arrow has the ability to raise cash when needed at a reasonable cost. This includes the capability of meeting expected and unexpected obligations to Arrow's customers at any time. Given the uncertain nature of customer demands and the need to maximize earnings, Arrow maintains reasonably priced sources of funds, both on- and off-balance sheet, that can be accessed quickly in times of need. Arrow’s liquidity position provides the Company with the necessary flexibility to address any unexpected near-term disruptions such as reduced cash flows from the investment and loan portfolio, unexpected deposit runoff, or increased loan originations.
Arrow's primary sources of available liquidity are overnight investments in federal funds sold, interest-earning bank balances at the FRBNY, and cash flow from investment securities and loans.  Certain investment securities are categorized as available-for-sale at time of purchase. The available-for-sale portfolio was $518.8 million at March 31, 2026, an increase of $22.9 million from the year-end 2025 level. Due to the potential for volatility in market values, Arrow may not always be able to sell securities on short notice at their carrying value, even to provide needed liquidity. Arrow also held interest-earning cash balances at March 31, 2026 of $256.5 million compared to $185.1 million at December 31, 2025.
In addition to liquidity from cash, short-term investments, investment securities and loans, Arrow has supplemented available operating liquidity with additional off-balance sheet sources such as a federal funds lines of credit with correspondent banks and credit lines with the FHLBNY. The federal funds lines of credit are with two correspondent banks totaling $23 million which were not drawn on during 2025 or the three months ended March 31, 2026.
To support the borrowing relationship with the FHLBNY, Arrow has pledged collateral, including residential mortgage, home equity and commercial real estate loans. At March 31, 2026, Arrow had outstanding collateralized obligations with the FHLBNY of $4 million; as of that date, the unused borrowing capacity at the FHLBNY was approximately $720 million. Brokered deposits are another source of funding accessible in a relatively short time period. At March 31, 2026, Arrow had $300 million in brokered CD deposits. In addition, Arrow Bank has established a borrowing facility with the FRBNY, pledging certain consumer loans as collateral for potential "discount window" advances, which are maintained for contingency liquidity purposes. At March 31, 2026, the amount available under this facility was approximately $718 million in the aggregate, and there were no advances outstanding.
53

Arrow performs regular liquidity stress tests and tests of the contingent liquidity plan to ensure that an adequate amount of available funds can be generated to meet a wide variety of potential liquidity events. Additionally, Arrow continually monitors levels and composition of uninsured deposits. Uninsured deposit balances in excess of the FDIC insurance limit at March 31, 2026, were less than 30% of the total deposit base.
Arrow measures and monitors basic liquidity as a ratio of liquid assets to total short-term liabilities, both with and without the availability of borrowing arrangements. Based on the level of overnight investments, available liquidity from the investment securities portfolio, cash flows from the loan portfolio, the stable retail deposit base and the significant borrowing capacity, Arrow believes that the available liquidity is sufficient to meet all reasonably likely events. At March 31, 2026, Arrow's primary liquidity ratio was approximately 11.3% of total assets, well in excess of the internal policy limit of 5%. Total primary liquidity was approximately $513 million, comprised of $256 million of unencumbered cash and $257 million in unencumbered securities.
Arrow did not experience any liquidity constraints in the three month period ended March 31, 2026, in 2025 or in any recent prior period. Arrow has not at any time during such periods been forced to pay above-market rates to obtain retail deposits or other funds from any source.

54

RESULTS OF OPERATIONS
Three Months Ended March 31, 2026 Compared With
Three Months Ended March 31, 2025

Summary of Earnings Performance
(Dollars in Thousands, Except Per Share Amounts)
Three Months Ended
March 31, 2026March 31, 2025Change% Change
Net Income$13,485 $6,310 $7,175 113.7 %
Diluted Earnings Per Share0.82 0.38 0.44 115.8 %
Return on Average Assets1.23 %0.59 %0.64 %108.5 %
Return on Average Equity12.46 %6.33 %6.13 %96.8 %
        
The following narrative discusses the quarter-to-quarter changes in net interest income, non-interest income, non-interest expense and income taxes:

Net Interest Income
Summary of Net Interest Income
(Dollars in Thousands)
Three Months Ended
March 31, 2026March 31, 2025Change% Change
Interest and Dividend Income$53,794 $50,366 $3,428 6.8 %
Interest Expense17,664 19,009 (1,345)(7.1)%
Net Interest Income36,130 31,357 4,773 15.2 %
Average Earning Assets(1)
4,222,574 4,143,939 78,635 1.9 %
Average Interest-Bearing Liabilities3,244,709 3,184,196 60,513 1.9 %
Average Yield on Earning Assets(1)
5.17 %4.93 %0.24 %4.9 %
Average Cost of Interest-Bearing Liabilities2.21 2.42 (0.21)(8.7)%
Net Interest Spread2.96 2.51 0.45 17.9 %
Net Interest Margin3.47 3.07 0.40 13.0 %
(1) Includes Nonaccrual Loans.

Net interest income for the quarter increased by $4.8 million, or 15.2%, from the first quarter of 2025. Interest and fees on loans were $47.1 million for the first quarter of 2026, an increase from $44.6 million for the quarter ended March 31, 2025, primarily due to loan growth and higher loan yields. Interest expense for the first quarter of 2025 was $17.7 million, a decrease of $1.3 million versus the comparable quarter ended March 31, 2025, primarily due to active management of deposit rates. Net interest margin increased 40 basis points in the first quarter of 2026 to 3.47%, from 3.07% during the first quarter of 2025. Average earning asset yields were 24 basis points higher as compared to the first quarter of 2025. The average cost of interest-bearing liabilities decreased 21 basis points from the quarter ended March 31, 2025. Arrow defines net interest margin as net interest income divided by average earning assets, annualized. Further detailed information is presented above under the section entitled "Average Consolidated Balance Sheets and Net Interest Income Analysis" on page 44 and 45. The impact of recent interest rate changes on Arrow's deposit and loan portfolios are discussed above in this Report under the sections entitled "Deposit Trends" on page 49 and "Loan Trends" on page 48.
The provision for credit losses for the first quarter of 2026 was $0.5 million, compared to a provision of $5.0 million for the first quarter of 2025. The decrease was primarily due to a specific reserve of $3.75 million on a $15 million commercial real estate loan participation in the first quarter of 2025.




55

Non-interest Income
Summary of Non-interest Income
(Dollars in Thousands)
Three Months Ended
March 31, 2026March 31, 2025Change% Change
Income From Fiduciary Activities$2,713 $2,535 $178 7.0 %
Fees for Other Services to Customers2,727 2,600 127 4.9 %
Insurance Commissions2,113 1,826 287 15.7 %
Net Gain on Securities145 317 (172)(54.3)%
Net Gain on the Sale of Loans290 101 189 187.1 %
Other Operating Income640 460 180 39.1 %
Total Non-interest Income$8,628 $7,839 $789 10.1 %
    
Total non-interest income in the current quarter was $8.6 million, an increase of $789 thousand from the first quarter of 2025. Insurance commissions increased during the three months ended March 31, 2026 compared to the three months ended March 31, 2025 due to contingency income, which is from lower than anticipated claim losses on the insured pool. The increase in fiduciary activity income was primarily due to additions of new wealth management accounts. The first quarter of 2026 included approximately $800 thousand of expenses related to the announced acquisition of Adirondack Bancorp, Inc.

Non-interest Expense
Summary of Non-interest Expense
(Dollars in Thousands)
Three Months Ended
March 31, 2026March 31, 2025Change% Change
Salaries and Employee Benefits$14,922 $13,555 $1,367 10.1 %
Occupancy Expense of Premises, Net2,459 2,022 437 21.6 %
Technology and Equipment Expense5,052 5,087 (35)(0.7)%
FDIC and FICO Assessments585 670 (85)(12.7)%
Amortization72 78 (6)(7.7)%
Other Operating Expense3,775 4,633 (858)(18.5)%
Total Non-interest Expense$26,865 $26,045 $820 3.1 %
Efficiency Ratio59.89 %66.52 %(6.6)%(9.9)%
    
Non-interest expense for the first quarter of 2026 was $26.9 million, an increase of $0.8 million, or 3.1%, from the first quarter of 2025. Salaries and benefit expenses increased $1.4 million, or 10.1%, from the prior year comparable quarter as a result of overall growth in the organization, increased benefits cost and a competitive labor market. Technology expenses in the first quarter decreased $35 thousand, or 0.7%, from the first quarter of 2025. The first quarter of 2025 included Unification expenses of approximately $600 thousand. Occupancy expenses increased $437 thousand due to increases in utility and building maintenance costs.

Income Taxes
Summary of Income Taxes
(Dollars in Thousands)
Three Months Ended
March 31, 2026March 31, 2025Change% Change
INCOME BEFORE PROVISION FOR INCOME TAXES$17,345 $8,132 $9,213 113.3 %
Provision for Income Taxes$3,860 $1,822 $2,038 111.9 %
Effective Tax Rate22.3 %22.4 %(0.1)%(0.4)%

The Company's effective tax rate differs from the statutory federal rate of 21.0% primarily due to the effects of state income taxes net of federal benefit and non-deductible expenses offset by the benefit related to tax exempt income.

56

Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General: Arrow's largest component of market risk remains interest rate risk. Arrow is not subject to foreign currency exchange or commodity price risk.

Asset/Liability Management: Market risk is the possibility that changes in future market rates (interest rates) or prices (market value of financial instruments) will make Arrow's position (i.e., assets and operations) less valuable.  Arrow's primary market risk is interest rate volatility. The ongoing monitoring and management of interest rate risk is an important component of the asset/liability management process, which is governed by policies that are reviewed and approved annually by the Board of Directors.  The Board of Directors delegates responsibility for carrying out asset/liability oversight and control to management's Asset/Liability Committee (ALCO).  In this capacity ALCO develops guidelines and strategies impacting the asset/liability profile based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends.  
Changes in market interest rates, whether increases or decreases, can trigger repricing and changes in the pace of payments for both assets and liabilities (prepayment risk). This may individually or in combination affect net interest income, net interest margin, and ultimately net income, either positively or negatively. ALCO utilizes the results of a detailed and dynamic simulation model to quantify this interest rate risk by projecting net interest income in various interest rate scenarios.

Interest Rate Risk Exposure Analysis: Economic Value of Equity ("EVE") Analysis. Arrow simulates the impact of interest rate volatility upon EVE using several interest rate scenarios. EVE is the difference between the present value of the expected future cash flows of Arrow's assets and liabilities and the value of any off-balance sheet items, such as derivatives, if applicable.
Traditionally, the fair value of fixed-rate instruments fluctuates inversely with changes in interest rates. Increases in interest rates thus result in decreases in the fair value of interest-earning assets, which could adversely affect Arrow's consolidated results of operations in the event they were to be sold, or, in the case of interest-earning assets classified as available-for-sale, reduce Arrow's consolidated stockholders’ equity, if retained. The changes in the value of assets and liabilities due to fluctuations in interest rates measure the interest rate sensitivity of those assets and liabilities.
In order to measure Arrow's sensitivity to changes in interest rates, EVE is calculated under market interest rates prevailing at a given quarter-end ("Pre-Shock Scenario"), and under various other interest rate scenarios ("Rate Shock Scenarios") representing immediate, permanent, parallel shifts in the term structure of interest rates from the actual term structure observed in the Pre-Shock Scenario, with this shift occurring equally across all points on the yield curve. An increase in the EVE is considered favorable, while a decline is considered unfavorable. The changes in EVE between the Pre-Shock Scenario and various Rate Shock Scenarios due to fluctuations in interest rates reflect the interest rate sensitivity of Arrow's assets, liabilities, and off-balance sheet items that are included in the EVE. Management reports the EVE results to the Board of Directors on a quarterly basis. The report compares Arrow's estimated Pre-Shock Scenario EVE to the estimated EVE calculated under the various Rate Shock Scenarios.
Arrow's valuation model makes various estimates regarding cash flows from principal repayments on loans and deposit decay rates at each level of interest rate change. Arrow's estimates for loan repayment levels are influenced by the recent history of prepayment activity in its loan portfolio, as well as the interest rate composition of the existing portfolio, especially in relation to the existing interest rate environment. Regarding deposit decay rates, Arrow tracks and analyzes the decay rate of its deposits over time, with the assistance of a reputable third-party, and over various interest rate scenarios. Such results are utilized in determining estimates of deposit decay rates in the valuation model. Arrow also generates a series of spot discount rates that are integral to the valuation of the projected monthly cash flows of its assets and liabilities. The valuation model employs discount rates that it considers representative of prevailing market rates of interest with appropriate adjustments it believes are suited to the heterogeneous characteristics of the Company’s various asset and liability portfolios. No matter the care and precision with which the estimates are derived, actual cash flows could differ significantly from Arrow's estimates resulting in significantly different EVE calculations.
The analysis that follows presents, as of March 31, 2026 and December 31, 2025, the estimated EVE at both the Pre-Shock Scenario and the -200 Basis Point Rate, -100 Basis Point Rate, +100 Basis Point Rate and +200 Basis Point Rate Shock Scenarios.


March 31, 2026December 31, 2025
(Dollars in thousands)EVEDollar ChangePercentage ChangeEVEDollar ChangePercentage Change
Rate Shock Scenarios
+200 Basis Points$672,559 $(65,425)(8.9)%$690,737 $5,772 0.8 %
+100 Basis Points$709,725 $(28,259)(3.8)%$693,641 $8,676 1.3 %
Pre-Shock Scenarios$737,984 $— — %$684,965 $— — %
-100 Basis Points$750,471 $12,487 1.7 %$661,166 $(23,799)(3.5)%
-200 Basis Points$746,913 $8,929 1.2 %$620,217 $(64,748)(9.5)%

Arrow's Pre-Shock Scenario EVE increased from $685.0 million at December 31, 2025, to $738.0 million at March 31, 2026. The primary factors contributing to the increase in EVE were core deposit growth that occurred during the quarter, coupled with an increase in the value of the Bank’s loan and investment portfolios.
57

Arrow's EVE in the +100 Basis Point Rate and +200 Basis Point Rate Shock Scenarios changed from $693.6 million and $690.7 million, respectively, at December 31, 2025, to $709.7 million and $672.6 million, respectively, at March 31, 2026. In the -100 Basis Point Rate and -200 Basis Point Rate Shock Scenarios Arrow's EVE increased from $661.2 million and $620.2 million, respectively, at March 31, 2025, to $750.5 million and $746.9 million, respectively, at March 31, 2026.

Income Simulation Analysis: Arrow's standard simulation model applies a parallel shift in interest rates, ramped over a 12-month period, to capture the impact of changing interest rates on net interest income.  The results are compared to ALCO policy limits which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth and a 100 and 200 basis point downward and a 200 basis point upward shift in interest rates. Additional tools to monitor potential longer-term interest rate risk, including periodic stress testing involving hypothetical sudden and significant interest rate spikes, are also evaluated.
The following table summarizes the percentage change in net interest income as compared to the base scenario, which assumes no change in market interest rates as generated from the standard simulation model. The results are presented for each of the first two years of the simulation period for the 100 and 200 basis point decreases in interest rate scenario and the 200 basis point increase in interest rate scenario. These results are well within the ALCO policy limits.

As of March 31, 2026:

Change in Interest RateCalculated change in Net Interest Income - Year 1Calculated change in Net Interest Income - Year 2
- 200 basis points3.4%6.1%
- 100 basis points1.8%6.4%
+200 basis points(4.7)%(0.3)%

The hypothetical estimates underlying the sensitivity analysis are based upon numerous assumptions, including: the nature and timing of changes in interest rates including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, Arrow cannot make any assurance as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate changes on caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, unanticipated shifts in the yield curve and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates.
58


Item 4.
CONTROLS AND PROCEDURES
Management, under the supervision and with the participation of the Chief Executive Officer ("CEO") (who is our principal executive officer) and Chief Financial Officer ("CFO") (who is our principal financial officer), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act, as of March 31, 2026. Disclosure controls and procedures are controls and other procedures of a company that are designed to ensure the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (2) is accumulated and communicated to management, including the principal executive and principal financial officers, or persons and committees performing similar functions, such as the Audit Committee, as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation, management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of March 31, 2026.

Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended March 31, 2026 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


59

PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
Arrow, including its subsidiaries, is not currently the subject of any material pending legal proceedings, other than ordinary routine litigation occurring in the normal course of business. On an ongoing basis, Arrow is often the subject of, or a party to, various legal claims by other parties against Arrow, by Arrow against other parties, or involving Arrow, which arise in the normal course of business. Legal expenses incurred in connection with loss contingencies are expensed as incurred.

Item 1.A.
Risk Factors
There have been no material changes in the risk factors set forth in Arrow's Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may adversely affect our business, financial condition, or results of operations.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.

Issuer Purchases of Equity Securities
The following table presents information about repurchases by Arrow during the three months ended March 31, 2026 of Arrow's common stock (the only class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934). On April 24, 2024, the Board authorized management, in its discretion, to repurchase from time to time, in the open market or in privately negotiated transactions up to $5 million of Arrow common stock. On July 23, 2025, the Board increased the available amount for share repurchase by $5 million.The repurchase authorization has no expiration date.
No shares were purchased during the quarter ended March 31, 2026 under the most recent authorization for the repurchase of shares and as of March 31, 2026, $5,066,228 remained available.
First Quarter
2026
Calendar Month
(A)
Total Number of
Shares Purchased 1
(B)
Average Price
Paid Per Share 1
(C)
Total Number of
Shares Purchased as
Part of Publicly
Announced
Plans or Programs2
(D)
Maximum
Approximate Dollar
Value of Shares that
May Yet be
Purchased Under the
Plans or Programs 2
January 1-31— $— — $5,066,228 
February 1-28— — — 5,066,228 
March 1-31— — — 5,066,228 
   Total— — — 
1 No shares were purchased in the open market under the ESOP on behalf of the participants under the ESOP by the
administrator of the ESOP or by Arrow pursuant to the Company's most recent authorization for the repurchase of shares.
2 No shares were acquired under the most recent authorization for the repurchase of shares in January, February or March 2026.

Item 3.
Defaults Upon Senior Securities - None
Item 4.
Mine Safety Disclosures - None

60

Item 5.
Other Information
Rule 10b5-1 Trading Arrangements
During the three months ended March 31, 2026, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

61




Item 6.
Exhibits
Exhibit NumberExhibit
3.(i)
Certificate of Incorporation of the Registrant as Amended through June 3, 2019, incorporated by reference from the Registrant's Current Report on Form 8-K filed June 5, 2019, Exhibit 3.1
3.(ii)
By-laws of the Registrant, as amended, incorporated herein by reference from the Registrant’s Current Report on Form 8-K filed on February 1, 2024, Exhibit 3.1

The following exhibits are submitted herewith:
Exhibit NumberExhibit
10.1*
Change in Control Agreement dated February 1, 2026 between the Registrant and Michael J. Jacobs
10.2*
Change in Control Agreement dated February 1, 2026 between the Registrant and Brooke M. Pancoe
31.1
31.2
32
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Labels Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Management contracts or compensation plans required to be filed as an exhibit.


62


SIGNATURES
    Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
ARROW FINANCIAL CORPORATION
Registrant
May 8, 2026/s/ David S. DeMarco
DateDavid S. DeMarco
President and Chief Executive Officer
(Principal Executive Officer)
May 8, 2026/s/ Penko Ivanov
DatePenko Ivanov
Chief Financial Officer
(Principal Financial and Accounting Officer)


63

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