Arrow Reports 3rd Quarter Net Income of $9.0 Million, or $0.53 per Share

GLENS FALLS, N.Y., Oct. 31, 2024 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS®, AROW) ("Arrow" or "the Company") announced financial results for the three-month period ended September 30, 2024. Net income for the third quarter of 2024 was $9.0 million and fully diluted earnings per share ("EPS") was $0.53, versus $7.7 million and EPS of $0.46 for the same period in 2023.

This Earnings Release and related commentary should be read in conjunction with the Company's October 31, 2024 Form 8-K and related Third 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 delivered a solid third quarter with strong net interest margin expansion, improved core profitability, increased return on average assets and continued strong credit metrics. Stabilizing funding costs, increasing asset yields, and continued expense discipline have positioned us for increased core operating leverage for the upcoming quarters. Our incredible teamwork was recently recognized by being named to the prestigious Piper Sandler Sm-All Stars: Class of 2024, a list of 30 top-performing small-cap banks and thrifts in the country.

Among our third-quarter accomplishments, we completed two small acquisitions. We expanded our insurance business with the strategic acquisition of the assets of A&B Agency, Inc. and acquired a branch in Whitehall, New York. Our team continues to prepare for the unification of 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, slated for December 31, 2024. Starting in early November, our customers will gain surcharge-free access to the Allpoint ATM Network of more than 55,000 locations. As we continue to strengthen our market position, we also rewarded our shareholders with an increase to the fourth-quarter cash dividend, which we announced in early October."

Third-Quarter Highlights and Key Metrics

EPS improved $0.07 to $0.53 versus the same period in 2023 and $0.01 over the previous quarter

Results included approximately $450 thousand of non-core expenses related to our insurance agency and branch acquisitions as well as unification efforts

Deposit balances were $3.8 billion, resulting in a Loan-to-Deposit ratio of 87.0%

Net Interest Margin improved to 2.78% (2.79% FTE1), up from 2.67% (2.69% FTE) in the prior quarter

Year-to-date loan growth reached $126.3 million2 (5.2% annualized)

Resumed mortgage loan sales into the secondary market

Average Loan Yields increased to 5.27% for 3Q24, up from 5.17% in the prior quarter

Net Charge-Offs for the quarter were 8bps on an annualized basis

Tangible Book Value increased to $21.95

Accumulated Other Comprehensive Loss improved $5.7 million, or 18%, from the prior quarter

Return on Average Assets (ROA) improved to 0.84%, up from 0.82% in the previous quarter

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1 FTE Net interest margin is a non-GAAP measure. See reconciliation on Note 3 to the Selected Quarterly Information.

2 Excludes both $6.5 million fair value hedge adjustment at September 30, 2024 and $5.8 million fair value hedge adjustment at December 31, 2023

Income Statement

Net Income: Net income for the third quarter of 2024 was $9.0 million, increasing from $8.6 million in the second quarter of 2024 and $7.7 million in the third quarter of 2023.

Compared to the prior quarter, net income benefited from an increase of $1.3 million in net interest income, partially offset by an increase in non-interest expense of $0.8 million.

Compared to the third quarter of 2023, net income growth was driven by an increase in net interest income of $3.1 million, partially offset by an increase in non-interest expense of $0.6 million.

Net Interest Income: Net interest income for the third quarter of 2024 was $28.4 million, increasing 4.7% from $27.2 million for the second quarter of 2024 and increasing 12.2% from $25.4 million in the third quarter of 2023.

Total interest and dividend income was $49.4 million for the third quarter of 2024, an increase from $48.0 million in the second quarter of 2024 and from $42.1 million for the third quarter of 2023. These increases were primarily driven by loan growth and higher loan yields. Interest expense for the third quarter of 2024 was $21.0 million, an increase from $20.8 million for the second quarter of 2024 and from $16.8 million for the third quarter of 2023. The increase from the prior year was driven primarily by higher deposit rates and changes in deposit composition.

Net Interest Margin: Net interest margin, on an FTE basis, for the third quarter of 2024 was 2.79% compared to 2.69% for the second quarter of 2024 and 2.55% for the third quarter of 2023. The increase in net interest margin compared to the second quarter in 2024 was primarily the result of continued yield expansion on earning assets combined with the moderating cost of interest-bearing liabilities. As compared to the third 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 costing products, such as money market savings and time deposits.

Three Months Ended

(Dollars in Thousands)

September 30, 2024

June 30, 2024

September 30, 2023

Interest and Dividend Income

$                 49,443

$                 47,972

$                 42,117

Interest Expense

21,005

20,820

16,764

Net Interest Income

28,438

27,152

25,353

Average Earning Assets(A)

4,075,162

4,083,813

3,973,747

Average Interest-Bearing Liabilities

3,085,066

3,127,417

2,920,518

Yield on Earning Assets(A)

4.83 %

4.72 %

4.20 %

Cost of Interest-Bearing Liabilities

2.71

2.68

2.28

Net Interest Spread

2.12

2.04

1.92

Net Interest Margin

2.78

2.67

2.53

Net Interest Margin - FTE

2.79

2.69

2.55

(A) Includes Nonaccrual Loans.

Provision for Credit Losses: For the third quarter of 2024, the provision for credit losses was $0.9 million compared to $0.8 million in the second quarter of 2024 and $0.4 million in the third quarter of 2023. The key drivers for the provision for credit losses in the third quarter of 2024 were replenishment of the allowance for charge-offs, growth in loan balances and changes to the economic forecast factors embedded in the credit loss allowance model.

Non-Interest Income: Non-interest income for the three months ended September 30, 2024, was $8.1 million, an increase from $7.9 million in the second quarter of 2024 and consistent with the third quarter of 2023. The increases from the prior periods are primarily the result of the resumption of loan sales from current loan originations, higher wealth management fees resulting from improved market valuations of assets under management and increased insurance commissions resulting from the A&B asset acquisition. The third quarter of 2023 included one-time proceeds from bank-owned life insurance in other income.

Non-Interest Expense: Non-interest expense for the third quarter of 2024 was $24.1 million, an increase from $23.3 million in the second quarter of 2024 and an increase from $23.5 million for the third quarter of 2023. The increase from the prior quarter was primarily attributable to several one-time non-core expenses related to the Whitehall and A&B asset acquisitions.

Provision for Income Taxes: The provision for income taxes and effective tax rate were $2.6 million and 22.2%, for the third quarter of 2024, $2.3 million and 21.2%, for the second quarter of 2024 and $1.8 million and 19.1%, for the third quarter of 2023. The increase in the effective tax rate from the second quarter of 2024 was primarily attributable to a decrease in the amount of tax advantaged earning assets as a percentage of total earning assets, while the increase in the effective tax rate from the third quarter of 2023 was primarily due to a change in pre-tax income combined with a decrease in the amount of tax advantaged earning assets as a percentage of total earning assets.

Balance Sheet

Total Assets: Total assets were $4.4 billion at September 30, 2024, an increase of $167.0 million, or 3.9%, as compared to June 30, 2024 and an increase of $138.5 million, or 3.2%, as compared to September 30, 2023. For the third quarter of 2024, overall growth in the balance sheet was attributable to changes in cash balances, primarily seasonal municipal and corporate deposits, as well as growth in the loan portfolio.

Investments: Total investments were $549.8 million as of September 30, 2024, a decrease of $6.6 million, or 1.2%, compared to June 30, 2024 and a decrease of $117.0 million, or 17.6%, compared to September 30, 2023. The decrease from June 30, 2024 was driven primarily by paydowns and maturities. The decrease from September 30, 2023 was also driven by paydowns and maturities as well as the fourth quarter 2023 repositioning of the investment portfolio, which reduced 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 were $3.3 billion as of September 30, 2024. Loan growth for the third quarter of 2024 was $24.2 million, and $201.2 million since September 30, 2023. Loan growth was spread across all loan products. Please see the loan detail included in the Consolidated Financial Information table on page 13.

Allowance for Credit Losses: The allowance for credit losses was $31.3 million as of September 30, 2024, which represented 0.94% of loans outstanding, as compared to $31.0 million, or 0.94%, at June 30, 2024, and $31.1 million, or 0.99%, at September 30, 2023. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.08% for the three-month period ended September 30, 2024, as compared to 0.16%4 for the three-month period ended June 30, 2024 and 0.05% for the three-month period ended September 30, 2023. Nonperforming assets were $22.3 million as of September 30, 2024, representing 0.51% of period-end assets, compared to 0.50% at June 30, 2024 and 0.16% at September 30, 2023.

Deposits: At September 30, 2024, deposit balances were $3.8 billion, an increase of $153.8 million from June 30, 2024 and an increase of $171.0 million from September 30, 2023. The increase from the second quarter was primarily attributable to the seasonality of municipal deposits. The increase from September 30, 2023 was partially attributable to $175 million of brokered CDs, primarily used to reduce borrowings and fund continued loan growth. Please refer to page 7 for further details related to deposits.

Capital: Total stockholders' equity was $393.3 million at September 30, 2024, an increase of $10.3 million, or 2.7%, from June 30, 2024 and an increase of $33.3 million, or 9.2%, from the September 30, 2023 level of $360.0 million. The increase from the second quarter was primarily attributable to net income of $9.0 million, other comprehensive income of $5.7 million offset by dividends of $4.5 million. The increase in stockholders' equity from September 30, 2023 was primarily attributable to income for the period of $32.9 million, other comprehensive income of $26.6 million and various capital items of $1.1 million offset by dividends of $18.1 million and stock repurchases of $9.2 million. Arrow's regulatory capital ratios remained strong. As of September 30, 2024, Arrow's Common Equity Tier 1 Capital Ratio was 12.77% and Total Risk-Based Capital Ratio was 14.46%. 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 Includes both $6.5 million fair value hedge adjustment at September 30, 2024 and $0.4 million fair value hedge adjustment at June 30, 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

Piper Sandler Sm-All Stars: Arrow was recently named to the prestigious Piper Sandler Sm-All Stars: Class of 2024, a list of 30 top-performing small-cap banks and thrifts in the country. Arrow is one of just three New York financial institutions on the list and the only bank in Upstate New York. Piper Sandler, an independent investment bank and research firm, evaluated more than 300 institutions that trade on a major exchange, narrowing the field to the top 30.

Bauer Financial Ratings: Both Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company continued to maintain their 5-Star Exceptional Performance ratings from Bauer Financial, for the 69th and 61st quarters, respectively.

Subsidiary Bank Unification: 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 Annual Report on Form 10-K for the year ended December 31, 2023 and other filings with the SEC.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts - Unaudited)

Three Months Ended September 30

Nine Months Ended September 30

2024

2023

2024

2023

INTEREST AND DIVIDEND INCOME

Interest and Fees on Loans

$            44,122

$            36,699

$     126,639

$     103,203

Interest on Deposits at Banks

2,103

1,805

6,735

3,958

Interest and Dividends on Investment Securities:

Fully Taxable

2,656

2,924

8,851

8,823

Exempt from Federal Taxes

562

689

1,867

2,256

Total Interest and Dividend Income

49,443

42,117

144,092

118,240

INTEREST EXPENSE

Interest-Bearing Checking Accounts

1,966

1,156

5,510

2,346

Savings Deposits

10,905

9,729

31,706

23,830

Time Deposits over $250,000

1,803

1,466

5,645

3,159

Other Time Deposits

4,934

2,051

15,091

3,721

Borrowings

1,177

2,143

3,439

5,309

Junior Subordinated Obligations Issued to

  Unconsolidated Subsidiary Trusts

173

173

514

513

Interest on Financing Leases

47

46

142

143

Total Interest Expense

21,005

16,764

62,047

39,021

NET INTEREST INCOME

28,438

25,353

82,045

79,219

Provision for Credit Losses

934

354

2,326

2,856

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

27,504

24,999

79,719

76,363

NON-INTEREST INCOME

Income From Fiduciary Activities

2,429

2,378

7,337

7,081

Fees for Other Services to Customers

2,881

2,761

8,130

8,073

Insurance Commissions

1,955

1,695

5,299

4,775

Net Gain (Loss) on Securities

94

71

165

(214)

Net Gain on Sales of Loans

126

21

135

25

Other Operating Income

648

1,124

2,781

1,893

Total Non-Interest Income

8,133

8,050

23,847

21,633

NON-INTEREST EXPENSE

Salaries and Employee Benefits

13,446

11,988

39,375

35,974

Occupancy Expenses, Net

1,754

1,517

5,299

4,728

Technology and Equipment Expense

4,692

4,371

14,246

13,150

FDIC Assessments

698

515

2,111

1,478

Other Operating Expense

3,510

5,088

10,399

14,528

Total Non-Interest Expense

24,100

23,479

71,430

69,858

INCOME BEFORE PROVISION FOR INCOME TAXES

11,537

9,570

32,136

28,138

Provision for Income Taxes

2,562

1,827

6,897

5,786

NET INCOME

$              8,975

$              7,743

$       25,239

$       22,352

Average Shares Outstanding:

Basic

16,710

17,050

16,746

17,049

Diluted

16,742

17,050

16,772

17,049

Per Common Share:

Basic Earnings

$                0.54

$                0.46

$           1.51

$           1.31

Diluted Earnings

0.53

0.46

1.50

1.31

 

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts - Unaudited)

September 30,2024

December 31, 2023

September 30,2023

ASSETS

Cash and Due From Banks

$                53,969

$                36,755

$                39,778

Interest-Bearing Deposits at Banks

286,119

105,781

254,961

Investment Securities:

Available-for-Sale at Fair Value

437,067

497,769

519,240

Held-to-Maturity (Fair Value of $101,929 at September 30, 2024; $128,837 at December 31, 2023; and $134,811 at September 30, 2023)

103,337

131,395

140,577

Equity Securities

5,089

1,925

1,960

Other Investments

4,352

5,049

5,110

Loans

3,339,937

3,212,908

3,138,617

Allowance for Credit Losses

(31,262)

(31,265)

(31,112)

Net Loans

3,308,675

3,181,643

3,107,505

Premises and Equipment, Net

59,932

59,642

60,311

Goodwill

23,789

21,873

21,873

Other Intangible Assets, Net

2,190

1,110

1,205

Other Assets

126,930

126,926

120,391

Total Assets

$          4,411,449

$          4,169,868

$          4,272,911

LIABILITIES

Noninterest-Bearing Deposits

740,170

758,425

798,392

Interest-Bearing Checking Accounts

875,365

799,785

920,250

Savings Deposits

1,544,868

1,466,280

1,496,193

Time Deposits over $250,000

177,990

179,301

167,614

Other Time Deposits

499,064

483,775

284,036

Total Deposits

3,837,457

3,687,566

3,666,485

Borrowings

103,600