GLENS FALLS, N.Y. (July 25, 2024) – Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow" or "the Company") announced financial results for the three-month period ended June 30, 2024. Net income for the second quarter of 2024 was $8.6 million and fully diluted earnings per share ("EPS") was $0.52, versus $6.0 million and EPS of $0.35, for the same period in 2023.
The Board of Directors of Arrow declared a quarterly cash dividend of $0.27 per share payable August 23, 2024 to shareholders of record as of August 12, 2024. This is Arrow's 45th consecutive quarterly cash dividend.
This Earnings Release and related commentary should be read in conjunction with the Company's July 25, 2024 Form 8-K and related Second Quarter 2024 Investor Presentation, which can also be found on Arrow's website: arrowfinancial.com/documents/investor-presentations.
Arrow President and CEO David S. DeMarco:
“We are pleased to report another quarter of solid performance, demonstrating the hard work and dedication of our team. We recently expanded our insurance business with the strategic acquisition of the assets of A&B Agency, Inc. We are also looking forward to the close of our branch acquisition in Whitehall, New York scheduled for early August.
In addition, on July 22nd, we received regulatory approval to combine our banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, into a single entity renamed Arrow Bank National Association, or Arrow Bank. This positions us to enhance our strategic growth while ensuring stability with the same dedicated leadership team, staff and branch locations. We are confident these initiatives will further strengthen our market position and drive long-term value for our shareholders.”
Second-Quarter Highlights and Key Metrics
- Gross loans grew $57.6 million1, or 7.1% on an annualized basis.
- Net interest margin improved to 2.67% (2.69% FTE2), up from 2.60% (2.62% FTE) in the prior quarter
- Average loan yields increased to 5.17% for 2Q24, up from 5.02% in the prior quarter
- Deposit balances were $3.7 billion
- Tangible Book Value increased to $21.54
- Return on Average Assets (ROA) improved to 0.82%, up from 0.73% in the previous quarter
- Received regulatory approval to acquire a branch in Whitehall, New York with approximately $35 million in deposits; transaction expected to close in August 2024
1 Excludes both $0.4 million fair value hedge adjustment at June 30, 2024 and $1.2 million fair value hedge adjustment at March 31, 2024
2 FTE Net interest margin is a non-GAAP measure. See reconciliation on Note 3 to the Selected Quarterly Information.
Income Statement
- Net Income: Net income for the second quarter of 2024 was $8.6 million, increasing from $7.7 million in the first quarter of 2024 and $6.0 million in the second quarter of 2023.
- As compared to the prior quarter, net income benefited from an increase of $0.7 million in net interest income as well as a decrease in non-interest expense of $0.7 million.
- As compared to the second quarter of 2023, net interest income increased $1.4 million. Non-interest income increased $1.0 million and non-interest expense decreased $0.8 million.
- Net Interest Income: Net interest income for the second quarter of 2024 was $27.2 million, increasing 2.6% from $26.5 million for the first quarter of 2024 and increasing 5.4% from $25.8 million in the second quarter of 2023.
- Total interest and dividend income was $48.0 million for the second quarter of 2024, an increase from $46.7 million in the first quarter of 2024 and from $40.0 million for the second quarter of 2023. These increases were primarily driven by loan growth and higher loan rates. Interest expense for the second quarter of 2024 was $20.8 million, an increase from $20.2 million for the first quarter of 2024 and from $14.2 million for the second quarter of 2023. The increases for both comparison periods were driven primarily by higher deposit rates and changes in deposit composition.
- Net Interest Margin: Net interest margin, on an FTE basis, for the second quarter of 2024 was 2.69% compared to 2.62% for the first quarter of 2024 and 2.63% for the second quarter of 2023. The increase in net interest margin compared to the first quarter in 2024 was primarily the result of continued yield expansion on earning assets combined with moderating increase in the cost of interest-bearing liabilities. As compared to the second quarter of 2023, the increase in net interest margin was primarily the result of yield on average earning assets increasing at a faster pace than costs of interest-bearing liabilities. Net interest margin is affected by deposits continuing to migrate to higher costs products, such as money market savings and time deposits.
| |
Three Months Ended |
| |
(Dollars in Thousands) |
| |
June 30, 2024 |
March 31, 2024 |
June 30, 2023 |
| Interest and Dividend Income |
$ 47,972 |
$ 46,677 |
$ 40,013 |
| Interest Expense |
20,820 |
20,222 |
14,241 |
| Net Interest Income |
27,152 |
26,455 |
25,772 |
| Average Earning Assets(A) |
4,083,813 |
4,085,398 |
3,953,642 |
| Average Interest-Bearing Liabilities |
3,127,417 |
3,108,093 |
2,924,743 |
| |
|
|
|
| Yield on Earning Assets(A) |
4.72% |
4.60% |
4.06% |
| Cost of Interest-Bearing Liabilities |
2.68 |
2.62 |
1.95 |
| Net Interest Spread |
2.04 |
1.98 |
2.11 |
| Net Interest Margin |
2.67 |
2.60 |
2.61 |
| Net Interest Margin - FTE |
2.69 |
2.62 |
2.63 |
| |
|
|
|
| (A) Includes Nonaccrual Loans. |
|
|
|
- Provision for Credit Losses: For the second quarter of 2024, the provision for credit losses was $0.8 million compared to $0.6 million in the first quarter of 2024 and $0.9 million in the second quarter of 2023. The key drivers for the provision for credit losses in the second quarter of 2024 were loan growth and replenishment of the allowance for charge-offs, partially offset by changes to the economic forecast factors embedded in the credit loss allowance model.
- Non-interest Income: Non-interest income for the three months ended June 30, 2024, was $7.9 million consistent with the first quarter of 2024 and an increase from $6.9 million in the second quarter of 2023 due to the other investment income and a small gain on a sale leaseback transaction.
- Non-interest Expense: Non-interest expense for the second quarter of 2024 was $23.3 million, a decrease from $24.0 million in the first quarter of 2024 and from $24.1 million for the second quarter of 2023. The decrease from the prior quarter and year was primarily due to elimination of elevated legal and professional expenses related to the delayed filings in 2023.
- Provision for Income Taxes: The provision for income taxes was 21.2%, or $2.3 million, for the second quarter of 2024, 20.9%, or $2.0 million, for the first quarter of 2024 and 20.9%, or $1.6 million, for the second quarter of 2023.
Balance Sheet
- Total Assets: Total assets were $4.2 billion at June 30, 2024, a decrease of $89.2 million, or 2.1%, as compared to March 31, 2024 and an increase of $140.8 million, or 3.4%, as compared to June 30, 2023. For the second quarter of 2024, overall change in balance sheet was attributable to seasonal changes of cash balances offset by growth in the loan portfolio.
- Investments: Total investments were $556.4 million as of June 30, 2024, a decrease of $63.6 million, or 10.3%, compared to March 31, 2024 and a decrease of $137.6 million, or 19.8%, compared to June 30, 2023. The decrease from March 31, 2024 was driven primarily by paydowns and maturities. The change from June 30, 2023 was also driven by paydowns and maturities as well as the fourth quarter 2023 repositioning of the investment portfolio, reducing the portfolio by approximately $25 million at the time of the transaction. There were no credit quality issues related to the investment portfolio.
- Loans3: Total loans reached $3.3 billion as of June 30, 2024. Loan growth for the second quarter of 2024 was $57.6 million, and $245.3 million since June 30, 2023. Loan growth was spread across all loan products. Please see the loan detail included in the Consolidated Financial Information table on page 12.
- Allowance for Credit Losses: The allowance for credit losses was $31.0 million as of June 30, 2024, which represented 0.94% of loans outstanding, as compared to $31.6 million, or 0.97%, at March 31, 2024 and $31.2 million, or 1.02%, at June 30, 2023. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.16% for the three-month period ended June 30, 20244, as compared to 0.04% for the three-month period ended March 31, 2024 and 0.07% for the three-month period ended June 30, 2023. Nonperforming assets were $21.3 million as of June 30, 2024, representing 0.50% of period-end assets, compared to 0.50% at March 31, 2024 and 0.17% at June 30, 2023. The increase from the second quarter of 2023 was primarily due to one large, well collateralized loan relationship of approximately $15 million, which moved into non-performing status during the fourth quarter of 2023.
- Deposits: At June 30, 2024, deposit balances were $3.7 billion, a decrease of $95.4 million from March 31, 2024 and an increase of $181.4 million from June 30, 2023. The decrease from the first quarter was primarily attributable to the seasonality of municipal deposits, expected to normalize in the third quarter. The increase from June 30, 2023 was partially attributable to $175 million of brokered CDs, primarily used to reduce borrowings by $160 million. Arrow simultaneously entered into three-year interest rate swaps to strategically manage its asset-liability profile and cost of funds. Please refer to page 7 for further details related to deposits.
- Capital: Total stockholders’ equity was $383.0 million at June 30, 2024, an increase of $5.0 million, or 1.3%, from March 31, 2024 and an increase of $21.6 million, or 6.0%, from the June 30, 2023 level of $361.4 million. The increase in capital from June 30, 2023, was primarily attributable to net income of $32 million, other comprehensive income of $16 million offset by dividends and stock repurchases of $27 million. Arrow's regulatory capital ratios remained strong. As of June 30, 2024, Arrow's Common Equity Tier 1 Capital Ratio was 12.88% and Total Risk-Based Capital Ratio was 14.57%. The capital ratios of Arrow's subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, continued to exceed the “well capitalized” regulatory standards.
3 Excludes both $0.4 million fair value hedge adjustment at June 30, 2024 and $1.2 million fair value hedge adjustment at March 31, 2024
4 Charge-offs for 2Q24 included 0.09% related to a previously specifically reserved amount for overdraft balances relating to one customer relationship
Additional Commentary
- Bauer Financial Ratings: Both Glens Falls National Bank and Saratoga National Bank continued to maintain their 5-Star Exceptional Performance ratings from Bauer Financial, for the 68th and 60th quarters, respectively.
- Subsidiary Bank Unification: On July 22 2024, Arrow received approval from the Office of the Comptroller of the Currency to combine its two subsidiary banks, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, into one bank that will be known as Arrow Bank National Association. The combination will create operational efficiencies, unify branding and enhance Arrow's ability to pursue its strategic growth objectives. The combination of the entities is anticipated to become effective December 31, 2024.
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). Some 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. These non-GAAP financial measures include: tangible equity, return on tangible equity, tax-equivalent adjustment and related net interest income, tax-equivalent, the efficiency ratio and net interest margin (FTE). Management believes that the non-GAAP financial measures disclosed by Arrow 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 in this document may contain statements based on management’s beliefs, assumptions, expectations, estimates and projections about the future. Such "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, as amended, involve a degree of uncertainty and attendant risk. Actual outcomes and results may differ, explicitly or by implication. We are not obligated to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with Arrow's 2023 Form 10-K and other filings with the SEC.
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