- Key profitability ratios were strong in the second quarter with return on average assets (ROA) of 1.38% and return on average equity (ROE) of 15.21%.
- Second-quarter revenue increased $4.8 million, or 15.1%, over the prior year comparative quarter.
- Over $67 million of Small Business Administration Paycheck Protection Program (PPP) loans were forgiven in the second quarter of 2021.
- Net income was $13.3 million and diluted earnings per share (EPS) were $0.85 for the second quarter.
- As pandemic restrictions lift, Arrow is focused on continued optimization of digital and physical delivery channels to meet changing customer needs.
GLENS FALLS, N.Y. (July 27, 2021) – Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three and six-month periods ended June 30, 2021. Net income for the second quarter of 2021 was $13.3 million, compared to $9.2 million in the second quarter of 2020. Net interest income increased to $28.4 million in the second quarter of 2021, compared to $24.8 million for the comparable quarter of 2020. For the six-months ended June 30, 2021, net income and net interest income were $26.6 million and $54.5 million, respectively as compared to $17.3 million and $47.8 million for the six-months ended June 30, 2020.
Annualized key profitability ratios remained strong, as measured by a return on average equity (ROE) of 15.21% and a return on average assets (ROA) of 1.38% for the second quarter, compared to 11.64% and 1.07%, respectively, for the prior year quarter.
“Arrow delivered another solid quarter marked by both strong core earnings and profitability ratios," said Arrow President and CEO Thomas J. Murphy. “As the economy improves and pandemic-related restrictions are lifted, Arrow is well-positioned to provide both traditional banking for those eager to return to it, as well as digital banking for the growing group of customers who embraced our digital platform over the past year. We continue to make strategic investments in our digital customer experience and branch network to support changing customer needs."
Arrow announced plans to renovate a large portion of its Glens Falls headquarters, including workspace for support teams and the Main Office branch. Additionally, Saratoga National Bank announced plans to consolidate its Jones Road and Ballard Road Wilton branches this fall into a nearby office in a high-traffic commercial district. The new location and design will provide efficiencies and enhance our ability to develop relationships, even as routine transactions continue to migrate online.
Finally, Arrow's two banks rolled out digital enhancements in the second quarter, including a mobile app for business customers and SecureLOCKTM Equip, an addition to our consumer mobile apps that allows users to freeze their debit cards.
The following expands on our second-quarter financial results:
COVID-19 Response: In the second quarter, as restrictions were lifted by the state and CDC, Arrow likewise lifted the face covering requirement at its banking and insurance offices. Vaccination was and continues to be strongly encouraged for team members, and Arrow is monitoring vaccination rates of its employees. Personal protective equipment, including shields and hand sanitizing stations remain in place and our Business Continuity Task Force continues to meet regularly to address the latest guidance and to monitor the impact of the Delta variant of COVID-19.
In the second quarter, the Arrow lending team accelerated the forgiveness process for PPP borrowers, with about half of loans forgiven as of quarter-end.
Loan Growth: Total loans were $2.6 billion as of June 30, 2021. Loan growth for the second quarter of 2021 was $4.8 million and increased $82.2 million, or 3.2%, from June 30, 2020. Total outstanding commercial loans decreased $29.0 million, or 3.3%, in the second quarter. PPP loans, included in the commercial portfolio, decreased $46.0 million in the second quarter. The consumer loan portfolio grew by $31.4 million, or 3.6%, in the second quarter, primarily within the indirect automobile lending program. Total outstanding residential real estate loans, net of approximately $15.9 million of loans sold, increased $2.5 million for the second quarter of 2021.
Deposit Growth: At June 30, 2021, deposit balances were $3.4 billion. Deposits decreased in the second quarter of 2021 by $15.6 million and increased by $369.3 million, or 12.0%, from the prior-year level. Municipal deposits decreased $49.0 million in the second quarter consistent with seasonal municipal behavior. Non-municipal deposits increased $33.4 million for the quarter. Noninterest-bearing deposits represented 22.2% of total deposits at June 30, 2021, compared to 21.8% of total deposits at June 30, 2020. At June 30, 2021, other time deposits were $142.1 million, a decrease of $74.5 million compared to the prior year. Municipal deposits increased $138.9 million, or 19.1% from June 30, 2020.
Net Interest Income: Net interest income for the second quarter was $28.4 million, up 14.2% from $24.8 million in the comparable quarter of 2020. Interest and fees on loans were $27.0 million for the second quarter of 2021, an increase of 7.6% from $25.1 million for the quarter ending June 30, 2020. Interest and fees related to PPP loans, included in the $27.0 million, produced $3.1 million in revenue in the second quarter of 2021. Interest expense for the second quarter of 2021 was $1.3 million, a decrease of $1.8 million, or 57.8%, from the $3.2 million in expense for the comparable quarter ending June 30, 2020. The net interest margin was 3.08% for the quarter, compared to 3.05% for the second quarter of 2020. The increase in net interest margin from the prior year was due to a variety of factors, including the timing of the forgiveness of PPP loans offset by lower interest rates and increased cash balances.
Noninterest Income: Noninterest income for the three months ended June 30, 2021 was $8.5 million, compared to $7.2 million in the comparable 2020 quarter. Income from fiduciary activities for the three months ended June 30, 2021, increased by $454 thousand over the comparable quarter of 2020. Fees and other services to customers increased $641 thousand over the comparable quarter of 2020. Interchange fees related to increased customer activity of debit card usage was the largest driver of the increase.
Noninterest Expense: Noninterest expense for the second quarter of 2021 was $19.1 million, an increase from $17.2 million for the second quarter of 2020. The largest component of noninterest expense was salaries and benefits paid to our employees, which totaled $10.8 million for the second quarter of 2021. Technology expenses increased from the prior year in part due to variable costs related to increased utilization of consumer banking technology. Other non-interest expense included the expense for estimated credit losses on off-balance sheet credit exposures of $501 thousand in the second quarter.
Provision for Income Taxes: The provision for income taxes was $4.2 million for the second quarter of 2021, compared to $2.6 million for the same quarter of 2020. The effective income tax rates for the three- month periods ended June 30, 2021 and 2020, were 24.1% and 21.9%, respectively.
Asset Quality: Asset quality remained strong at June 30, 2021, as evidenced by low levels of nonperforming assets and charge-offs. Net loan losses, expressed as an annualized percentage of average loans outstanding, were 0.01% for the three-month period ended June 30, 2021, a decrease from 0.06% for the three-month period ended June 30, 2020. Nonperforming loans at June 30, 2021, were $7.8 million, up $1.3 million from June 30, 2020. Nonperforming assets of $8.0 million at June 30, 2021 represented 0.20% of period-end assets consistent with June 30, 2020.
For the second quarter of 2021, the provision for credit losses was $263 thousand and the expense for estimated credit losses on off-balance sheet credit exposures included in other liabilities was $501 thousand. The allowance for credit losses was $27.0 million on June 30, 2021, which represented 1.02% of loans outstanding, as compared to 1.03% on June 30, 2020.
Liquidity: As of June 30, 2021, Arrow’s liquidity position was strong with interest-bearing cash balances at June 30, 2021 of $433.5 million. Arrow continues to be positioned to address any unexpected volatility, which may affect cash flow and deposit balances. At June 30, 2021, contingent collateralized lines of credit were in place and available through the Federal Home Loan Bank of New York and the Federal Reserve Bank, totaling $1.4 billion. Arrow has additional liquidity options currently available, including access to unsecured lines of credit such as Fed funds and brokered markets.
Capital: Total stockholders’ equity was $353.0 million on June 30, 2021, up $35.3 million, or 11.1%, from June 30, 2020. Arrow's regulatory capital ratios remained strong in the second quarter of 2021. As of June 30, 2021, Arrow's Common Equity Tier 1 Capital Ratio was 13.79% and Total Risk-Based Capital Ratio was 15.78%. The capital ratios of Arrow and both its subsidiary banks continued to exceed the “well capitalized” regulatory standards.
Cash and Stock Dividends: On June 15, 2021, Arrow distributed a cash dividend of $0.26 per share. The cash dividend was 3% higher than the cash dividend paid by Arrow in the second quarter of 2020 when adjusted for the 3% stock dividend distributed on September 25, 2020.
Industry Recognition: Both of Arrow's banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, continue to hold BauerFinancial, Inc. 5-Star Superior Bank ratings. Additionally, in the second quarter of 2021, Arrow was named a Raymond James Community Bankers Cup winner, which recognizes the top 10% of community banks using various profitability, efficiency and balance sheet metrics.
About Arrow: Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York. Arrow is the parent of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company. Other subsidiaries include Upstate Agency, LLC and North Country Investment Advisers, Inc.
Non-GAAP Financial Measures Reconciliation: In addition to presenting information in conformity with accounting principles generally accepted in the United States of America (GAAP), this news release contains financial information determined by methods other than GAAP (non-GAAP). The following measures used in this release, which are commonly utilized by financial institutions, have not been specifically exempted by the Securities and Exchange Commission (SEC) and may constitute "non- GAAP financial measures" within the meaning of the SEC's rules. Certain non-GAAP financial measures include: tangible equity, return on tangible equity, tax-equivalent adjustment and related net interest income, tax-equivalent, and the efficiency ratio. Management believes that the non-GAAP financial measures disclosed by Arrow from time to time are useful in evaluating Arrow's performance and that such information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Non-GAAP financial measures may differ from similar measures presented by other companies. See the reconciliation of GAAP to non- GAAP measures in the section "Selected Quarterly Information."
Safe Harbor Statement: The information contained in this news release may contain statements that are not historical in nature but rather are based on management’s beliefs, assumptions, expectations, estimates and projections about the future, including, in particular, statements regarding the uncertainty surrounding the COVID-19 pandemic. These statements may be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, involving a degree of uncertainty and attendant risk. In the case of all forward-looking statements, actual outcomes and results may differ materially from what the statements predict or forecast, explicitly or by implication. Arrow undertakes no obligation to revise or update these forward-looking statements to reflect the occurrence of unanticipated events. This News Release should be read in conjunction with Arrow's Annual Report on Form 10-K for the year ended December 31, 2020, and other filings with the Securities and Exchange Commission.
To view the full tables for this earnings release, please Click Here»