Business Overview
Arrow Financial Corporation, headquartered in Glens Falls, New York, was incorporated on March 21, 1983, as a bank holding company. The company's banking subsidiaries, Glens Falls National Bank and Trust Company (GFNB) and Saratoga National Bank and Trust Company (SNB), have long been recognized for their commitment to personalized service and deep community roots. GFNB's main office is located in Glens Falls, New York, while SNB's main office is situated in Saratoga Springs, New York. These two subsidiary banks provide a full range of services to individuals and small to mid-size businesses in northeastern New York State.
In July 2024, Arrow took a significant step forward by announcing plans to undertake the unification of its two subsidiary banks, GFNB and SNB, into a single entity to be renamed Arrow Bank National Association. This strategic unification was designed to simplify the bank's brand identity and strengthen its market presence, further solidifying its position in the region.
Despite its overall success, Arrow has faced some challenges in recent years. In 2023, the company disclosed material weaknesses in its internal control over financial reporting related to monitoring controls, the completeness and accuracy of information presented to the Audit Committee, and the impact of the core banking system conversion. While Arrow has been working diligently to remediate these issues, they were not considered fully resolved as of September 30, 2024.
Additionally, in June 2023, Arrow encountered a legal challenge when a shareholder filed a putative class action lawsuit against the company and certain executives, alleging they made materially false and misleading statements. The parties reached a settlement subject to court approval in June 2024, resolving this temporary distraction for the company.
Notwithstanding these challenges, Arrow has continued to pursue growth opportunities. In 2024, the company expanded its insurance business with the strategic acquisition of the assets of AB Agency, Inc., further diversifying its revenue streams and enhancing its service offerings.
Throughout its history, Arrow has maintained a strong capital position, demonstrating its commitment to shareholder value by regularly paying quarterly cash dividends. This consistent performance has helped the company weather various economic cycles and positioned it for continued success in the evolving financial landscape.
Financial Performance
Financials
Despite the challenges posed by the pandemic and ongoing economic uncertainties, Arrow Financial has demonstrated its resilience and ability to navigate turbulent waters. In the most recent fiscal year ended December 31, 2023, the company posted annual revenue of $142.7 million and net income of $30.1 million, or $1.77 per diluted share, compared to $29.7 million, or $1.77 per diluted share, in the previous year. While the top-line performance showed improvement, the company's emphasis on prudent risk management and cost optimization enabled it to maintain a solid financial footing.
For the nine months ended September 30, 2024, Arrow Financial reported net interest income of $82.05 million, representing a 3.6% increase compared to the same period in 2023. The company's net interest margin, on a tax-equivalent basis, was 2.69% for the first nine months of 2024, a slight decrease from 2.70% in the prior-year period.
Noninterest income for the first nine months of 2024 was $23.85 million, up 10.2% from the first nine months of 2023, driven by increases in income from fiduciary activities, insurance commissions, and net gains on the sale of loans. Noninterest expense for the same period was $71.43 million, a 2.3% increase from the prior year, primarily due to higher salaries and employee benefits, occupancy expenses, and FDIC assessments.
In the most recent quarter ended September 30, 2024, Arrow Financial reported revenue of $50.9 million and net income of $4.47 million. The increase in revenue and net income for the third quarter of 2024 compared to the prior year was primarily driven by growth in the loan portfolio and higher net interest margin.
Arrow Financial's balance sheet remains strong, with total assets reaching $4.17 billion as of December 31, 2023, up from $3.97 billion a year earlier. The company's loan portfolio experienced steady growth, climbing to $3.21 billion, a 2.2% increase from the prior year. This expansion was driven by robust demand across the company's commercial, commercial real estate, and residential real estate lending segments.
Liquidity
The company's funding profile remains well-diversified, with total deposits reaching $3.69 billion as of the end of 2023, up from $3.59 billion in the previous year. Arrow Financial has maintained a strong liquidity position, with cash and cash equivalents totaling $142.5 million as of December 31, 2023, providing ample flexibility to support its ongoing operations and strategic initiatives.
Arrow Financial's debt-to-equity ratio stood at 0.14 as of December 31, 2023, indicating a conservative capital structure. The company has access to various credit facilities, including $28 million in unsecured federal funds lines of credit with correspondent banks, $557 million available borrowing capacity at the Federal Home Loan Bank of New York (FHLBNY), and $774 million available borrowing capacity at the Federal Reserve Bank of New York.
Operational Highlights
The centerpiece of Arrow Financial's recent strategic initiatives has been the unification of its two banking subsidiaries, GFNB and SNB, into a single entity, Arrow Bank National Association. This move, completed in late 2024, was designed to align the company's mission, vision, and values across all areas of the business, streamlining operations and enhancing the customer experience.
In addition to the unification, Arrow Financial has been proactive in expanding its footprint and service offerings. In 2024, the company completed the acquisition of the Whitehall, New York branch from Berkshire Bank, adding $37.5 million in deposits and $3 million in loans to its balance sheet. This strategic acquisition has strengthened Arrow Financial's presence in Washington County, providing a platform for further growth and expansion in the region.
Furthermore, the company has made notable investments in its digital capabilities, enhancing its online and mobile banking platforms to better serve the evolving needs of its customer base. These initiatives have been well-received, as evidenced by the steady growth in the company's deposit base and the increasing adoption of its digital offerings.
Product Segments and Services
Arrow Financial Corporation offers a diverse range of financial products and services through its subsidiaries, catering to the needs of individuals and businesses in upstate New York. The company's product segments include:
Commercial and Commercial Real Estate Loans
Arrow Financial provides various commercial loan options, including term loans, time notes, and lines of credit, typically used for working capital needs, business expansion, and equipment purchases. These loans are generally secured by collateral such as equipment or other assets owned by the borrower. The company also offers commercial real estate loans for the purchase, refinancing, expansion, and improvement of commercial properties. As of September 30, 2024, commercial and commercial real estate loans comprised 27.7% of Arrow Financial's total loan portfolio.
Consumer Loans
The consumer loan portfolio primarily consists of automobile loans, originated indirectly through dealer relationships in upstate New York and Vermont. Arrow Financial also offers other consumer installment loans, personal lines of credit, and overdraft protection. Consumer loans accounted for 33.6% of the company's total loan portfolio as of September 30, 2024.
Residential Real Estate Loans
Arrow Financial originates fixed-rate and adjustable-rate one-to-four-family residential real estate loans for construction, purchase, or refinancing of properties. The company also offers fixed home equity loans and home equity lines of credit. Residential real estate loans, including home equity loans, represented 38.7% of Arrow Financial's total loan portfolio at the end of the third quarter of 2024.
Other Products and Services
In addition to its lending activities, Arrow Financial's subsidiaries provide a range of other financial products and services, including:
- Fiduciary activities
- Insurance services through Upstate Agency, LLC
- Wealth management services through North Country Investment Advisers, Inc.
- Investment advice for Arrow Financial's proprietary mutual fund
These diverse offerings contribute to the company's noninterest income and help strengthen customer relationships.
Risk Management and Regulatory Oversight
As a financial institution operating in a heavily regulated industry, Arrow Financial places a strong emphasis on risk management and maintaining robust compliance standards. The company's conservative approach to lending and its disciplined underwriting practices have contributed to its ability to navigate economic cycles and mitigate credit risk.
Arrow Financial's capital ratios remain well above the regulatory minimums, with a Common Equity Tier 1 (CET1) ratio of 13.00% as of December 31, 2023, significantly exceeding the well-capitalized threshold of 6.50%. This strong capital position provides the company with the flexibility to support its growth initiatives, pursue strategic acquisitions, and withstand potential economic headwinds.
The company's management team and board of directors maintain a strong focus on corporate governance, ensuring that appropriate risk management frameworks and internal controls are in place to safeguard the interests of shareholders and other stakeholders. Arrow Financial's commitment to transparency and responsible banking practices has earned it the trust of its customers and the respect of its peers within the industry.
Outlook and Growth Strategies
As Arrow Financial navigates the evolving financial landscape, the company has outlined a comprehensive set of strategic priorities aimed at driving long-term sustainable growth. These initiatives include:
1. Enhancing Operational Efficiency: The unification of GFNB and SNB into Arrow Bank National Association is expected to generate synergies and streamline operations, allowing the company to optimize its cost structure and improve profitability.
2. Accelerating Digital Transformation: Arrow Financial is committed to further enhancing its digital capabilities, investing in cutting-edge technology to provide customers with a seamless and user-friendly banking experience. This digital focus is expected to drive increased customer engagement and loyalty.
3. Expanding Lending and Deposit Capabilities: The company will continue to focus on growing its commercial, commercial real estate, and residential real estate lending portfolios, leveraging its strong market presence and deep customer relationships. Additionally, Arrow Financial will work to expand its deposit base, diversifying its funding sources and strengthening its liquidity position.
4. Pursuing Strategic Acquisitions: Arrow Financial will selectively evaluate acquisition opportunities that align with its strategic objectives, allowing the company to extend its geographic reach, enhance its product offerings, and drive shareholder value.
5. Maintaining a Strong Balance Sheet: The company's unwavering commitment to prudent risk management and disciplined capital allocation will remain a top priority, ensuring that Arrow Financial is well-positioned to navigate future economic challenges and capitalize on emerging opportunities.
Conclusion
Arrow Financial Corporation has demonstrated a remarkable ability to adapt and thrive in a rapidly changing financial landscape. With its recent unification of subsidiary banks, strategic acquisitions, and investments in digital capabilities, the company is well-positioned to continue delivering value to its shareholders, customers, and the communities it serves. As Arrow Financial embarks on this new era of growth and innovation, investors can take comfort in the company's strong financial foundation, experienced management team, and unwavering commitment to responsible banking practices. The diverse product offerings, ranging from commercial and residential lending to wealth management and insurance services, provide a solid foundation for sustained growth and profitability in the years to come.