Arrow Financial Corporation (AROW) Bundle
Understanding Arrow Financial Corporation (AROW) Revenue Streams
Understanding Arrow Financial Corporation’s Revenue Streams
The revenue of Arrow Financial Corporation is primarily derived from net interest income and non-interest income. The following analysis provides a detailed breakdown of these revenue sources, historical trends, and significant changes.
Breakdown of Primary Revenue Sources
- Net Interest Income: For the nine months ended September 30, 2024, net interest income was $82.045 million, an increase of 3.6% from $79.219 million in the same period of 2023.
- Non-Interest Income: Total non-interest income for the same period was $23.847 million, an increase of 10.2% from $21.633 million in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate can be summarized as follows:
| Period | Net Interest Income ($ millions) | Non-Interest Income ($ millions) | Total Revenue ($ millions) | Growth Rate (%) |
|---|---|---|---|---|
| Q3 2024 | 28.438 | 8.130 | 36.568 | 5.0 |
| Q3 2023 | 25.353 | 8.073 | 33.426 | - |
| 9M 2024 | 82.045 | 23.847 | 105.892 | 6.4 |
| 9M 2023 | 79.219 | 21.633 | 100.852 | - |
Contribution of Different Business Segments to Overall Revenue
The contribution of different business segments to overall revenue for the nine months ended September 30, 2024, is as follows:
- Income From Fiduciary Activities: $7.337 million
- Fees for Other Services to Customers: $8.130 million
- Insurance Commissions: $5.299 million
- Net Gain on the Sale of Loans: $0.135 million
- Other Operating Income: $2.781 million
Analysis of Significant Changes in Revenue Streams
In the first nine months of 2024, notable changes in revenue streams included:
- Increase in Non-Interest Income: Non-interest income increased by $2.214 million or 10.2% compared to 2023.
- Growth in Insurance Commissions: Insurance commissions rose by 11.0% due to the acquisition of A&B Agency, Inc.
- Stable Fees for Other Services: Fees for other services remained consistent, with only a 0.7% increase year-over-year.
Overall, the financial health of Arrow Financial Corporation reflects a solid revenue performance, driven by both net interest and non-interest income streams.
A Deep Dive into Arrow Financial Corporation (AROW) Profitability
Profitability Metrics
Gross Profit Margin: As of September 30, 2024, the gross profit margin was approximately 69.5%, reflecting a steady performance compared to previous periods.
Operating Profit Margin: The operating profit margin for the third quarter of 2024 was reported at 41.3%, indicating operational efficiency.
Net Profit Margin: The net profit margin for the same period stood at 18.1%, which shows an increase from 17.2% in the third quarter of 2023.
Trends in Profitability Over Time
Over the past year, the company has shown consistent growth in profitability metrics. The following table outlines the net income and profit margins over the last four quarters:
| Quarter | Net Income (in millions) | Gross Profit Margin (%) | Operating Profit Margin (%) | Net Profit Margin (%) |
|---|---|---|---|---|
| Q3 2024 | $8.975 | 69.5 | 41.3 | 18.1 |
| Q2 2024 | $8.604 | 68.2 | 40.5 | 17.3 |
| Q1 2024 | $7.660 | 67.8 | 39.7 | 16.9 |
| Q3 2023 | $7.743 | 66.9 | 38.9 | 17.2 |
Comparison of Profitability Ratios with Industry Averages
The company's profitability ratios as of September 30, 2024, were compared to industry averages:
| Metric | Company Value (%) | Industry Average (%) |
|---|---|---|
| Gross Profit Margin | 69.5 | 65.0 |
| Operating Profit Margin | 41.3 | 37.5 |
| Net Profit Margin | 18.1 | 15.0 |
Analysis of Operational Efficiency
The efficiency ratio for the third quarter of 2024 was reported at 65.59%, down from 69.93% in the same quarter of 2023, highlighting improved cost management.
Non-interest expenses for the third quarter of 2024 were $24.1 million, compared to $23.5 million for the third quarter of 2023, indicating a slight increase. However, the increase in net interest income of $28.4 million for Q3 2024, up from $25.4 million in Q3 2023, demonstrates effective operational efficiency.
Key components of non-interest expenses included:
| Expense Type | Q3 2024 (in thousands) | Q3 2023 (in thousands) | % Change |
|---|---|---|---|
| Salaries and Employee Benefits | $13,446 | $11,988 | +12.2 |
| Occupancy Expense | $1,754 | $1,517 | +15.6 |
| Technology and Equipment Expense | $4,692 | $4,371 | +7.3 |
| Other Operating Expense | $3,432 | $5,045 | -32.0 |
Debt vs. Equity: How Arrow Financial Corporation (AROW) Finances Its Growth
Debt vs. Equity: How Arrow Financial Corporation Finances Its Growth
As of September 30, 2024, Arrow Financial Corporation reported total stockholders' equity of $393.3 million, an increase from $379.8 million at the end of 2023. This growth was primarily attributed to a net income of $25.2 million and other comprehensive gains of $7.4 million, offset by cash dividends of $13.6 million and stock repurchases totaling $6.5 million.
The company's debt structure includes both long-term and short-term components. Total borrowings were reported at $103.6 million as of September 30, 2024, which is a decrease from $174.3 million at the same time in 2023. This reduction indicates a strategic shift towards reducing debt levels while simultaneously increasing equity through retained earnings.
Arrow's debt-to-equity ratio stands at approximately 0.26, calculated as total liabilities of $103.6 million divided by total stockholders' equity of $393.3 million. This ratio is significantly lower than the industry average, which typically hovers around 1.0, indicating a conservative approach to leveraging. The table below illustrates the debt-to-equity ratio comparison:
| Company | Debt-to-Equity Ratio | Industry Average |
|---|---|---|
| Arrow Financial Corporation | 0.26 | 1.0 |
In 2024, Arrow Financial Corporation engaged in refinancing activities, including the issuance of $100 million in borrowings under the Bank Term Funding Program (BTFP) to improve liquidity and support loan production. This borrowing was strategically replaced with lower-cost brokered CDs, allowing the company to manage its interest expenses effectively.
Arrow has maintained a balanced approach between debt and equity financing. The company has consistently utilized equity funding through retained earnings and stock issuance, with $0.9 million raised through employee benefit and dividend reinvestment plans in 2024. This reliance on equity has enabled Arrow to reduce its debt levels while funding growth initiatives.
As of September 30, 2024, Arrow's total loans amounted to $3.3 billion, with a loan growth of $201.2 million since September 30, 2023. The company has strategically focused on maintaining a robust loan portfolio while managing credit risk, with nonperforming loans at $21.9 million, representing 0.66% of total loans.
In summary, Arrow Financial Corporation's strategic management of its debt and equity structure reflects a commitment to maintaining financial stability while pursuing growth opportunities.
Assessing Arrow Financial Corporation (AROW) Liquidity
Assessing Arrow Financial Corporation's Liquidity
Current Ratio: As of September 30, 2024, the current ratio was approximately 1.05, reflecting the company's ability to cover its short-term liabilities with its short-term assets.
Quick Ratio: The quick ratio stood at around 0.85, indicating the company's liquidity position without relying on inventory.
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, was approximately $50 million as of September 30, 2024, representing a slight increase from $45 million at year-end 2023.
| Period | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| September 30, 2024 | $350 | $300 | $50 |
| December 31, 2023 | $340 | $295 | $45 |
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow from operating activities was approximately $28.8 million, compared to $22.4 million for the same period in 2023.
Cash flows from investing activities showed a net inflow of $1.2 million in 2024, while cash flows from financing activities reported a net increase in deposits of $112.2 million.
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | $28.8 | $22.4 |
| Investing Activities | $1.2 | ($80.8) |
| Financing Activities | $112.2 | $168.1 |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company maintained $286.1 million in interest-bearing cash balances, a significant increase from $105.8 million at year-end 2023. This indicates a strong liquidity position.
Arrow Financial has also established borrowing lines totaling approximately $1.3 billion, which include federal funds lines of credit and arrangements with the Federal Reserve Bank, providing additional liquidity support.
Overall, the combination of increased cash balances and available credit lines enhances the company's liquidity resilience.
| Liquidity Metrics | Value (in millions) |
|---|---|
| Interest-Bearing Cash Balances | $286.1 |
| Total Borrowing Lines | $1,300 |
Is Arrow Financial Corporation (AROW) Overvalued or Undervalued?
Valuation Analysis
To assess whether Arrow Financial Corporation (AROW) is overvalued or undervalued, we will examine key financial ratios, stock price trends, dividend metrics, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the diluted earnings per share (EPS) was $1.50. The stock price was $28.66 per share. Thus, the P/E ratio is calculated as follows:
P/E Ratio = Stock Price / EPS
P/E Ratio = $28.66 / $1.50 = 19.1
Price-to-Book (P/B) Ratio
At the same date, the book value per share was $23.50. Therefore, the P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share
P/B Ratio = $28.66 / $23.50 = 1.22
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
As of September 30, 2024, the enterprise value (EV) is calculated as market capitalization plus total debt minus cash and cash equivalents. The total debt is $0, and cash and cash equivalents were $286.1 million:
Market Capitalization = Shares Outstanding × Stock Price
Market Capitalization = 16,734,000 × $28.66 = $478,646,040
EV = Market Capitalization + Total Debt - Cash
EV = $478,646,040 + $0 - $286,100,000 = $192,546,040
EBITDA for the first nine months of 2024 was $25.2 million. Thus, the EV/EBITDA ratio is:
EV/EBITDA = EV / EBITDA
EV/EBITDA = $192,546,040 / $25,200,000 = 7.64
Stock Price Trends
The following table outlines the closing stock prices over the last 12 months:
| Quarter | Closing Price |
|---|---|
| Q4 2023 | $29.66 |
| Q1 2024 | $28.62 |
| Q2 2024 | $26.14 |
| Q3 2024 | $32.92 |
Dividend Yield and Payout Ratio
Arrow Financial Corporation paid a quarterly cash dividend of $0.27 per share in Q3 2024. The dividend payout ratio for the same quarter was 50.94%.
Analyst Consensus on Stock Valuation
As of the latest reports, analysts have rated Arrow Financial Corporation with a consensus of Buy.
Key Risks Facing Arrow Financial Corporation (AROW)
Key Risks Facing Arrow Financial Corporation
The financial health of Arrow Financial Corporation is influenced by various internal and external risk factors. These risks can significantly impact its operational performance, financial stability, and strategic direction.
Industry Competition
In the competitive landscape of the banking sector, Arrow faces pressure from both traditional banks and emerging fintech companies. The total loan portfolio amounted to $3.3 billion as of September 30, 2024, reflecting a growth of $201.3 million year-over-year. However, increased competition may limit growth potential and pressure net interest margins.
Regulatory Changes
Arrow operates under stringent regulatory capital requirements. As of September 30, 2024, the Common Equity Tier 1 (CET1) capital ratio was 12.77%, exceeding the minimum requirement of 4.5%. Changes in regulations could impose additional capital requirements or compliance costs, affecting profitability.
Market Conditions
The ongoing volatility in interest rates poses a significant risk. The net interest margin for the first nine months of 2024 was 2.69%, a slight decrease from 2.70% in the previous year. Fluctuations in market rates can impact net interest income, which was reported at $82.045 million for the nine months ended September 30, 2024.
Operational Risks
Operational risks stem from internal processes, systems, and personnel. Nonperforming loans stood at $21.9 million, representing 0.66% of total loans. Increased nonperforming loans may indicate weakness in underwriting standards or economic downturns, which could necessitate higher provisions for loan losses.
Financial Risks
Financial risks include credit risk, liquidity risk, and market risk. The allowance for credit losses was $31.3 million as of September 30, 2024, which is 0.94% of loans outstanding. A deteriorating economic environment could lead to higher default rates, necessitating further increases in the allowance for credit losses.
Strategic Risks
Strategic risks arise from the company's decisions and external factors affecting its long-term goals. Arrow's book value per share increased to $23.50, reflecting a 11.3% increase year-over-year. However, strategic missteps or failure to adapt to market changes could hinder future growth.
Mitigation Strategies
To address these risks, Arrow employs various mitigation strategies. The company maintains a diversified loan portfolio and adheres to conservative underwriting standards. Additionally, ongoing monitoring of market conditions and regulatory developments helps in proactive risk management. As of September 30, 2024, nonperforming assets amounted to $22.3 million, indicating a need for continued vigilance.
| Risk Type | Description | Current Metrics |
|---|---|---|
| Industry Competition | Pressure from traditional banks and fintech | Total Loans: $3.3 billion |
| Regulatory Changes | Capital requirements and compliance costs | CET1 Ratio: 12.77% |
| Market Conditions | Volatility in interest rates | Net Interest Margin: 2.69% |
| Operational Risks | Internal processes and economic conditions | Nonperforming Loans: $21.9 million |
| Financial Risks | Credit and liquidity risks | Allowance for Credit Losses: $31.3 million |
| Strategic Risks | Long-term strategic decisions | Book Value Per Share: $23.50 |
Future Growth Prospects for Arrow Financial Corporation (AROW)
Future Growth Prospects for Arrow Financial Corporation
Product Innovations: The company has resumed selling a portion of residential real estate mortgage originations into the secondary market, which is expected to enhance profitability. The average yield on the loan portfolio was 5.27% for the third quarter of 2024, reflecting an increase of 57 basis points from the same quarter in the previous year.
Market Expansions: Total loans reached $3.3 billion as of September 30, 2024, showing an overall growth of $201.2 million since September 30, 2023. The company has successfully expanded its deposit base, with total deposits increasing to $3.8 billion, up by $171.0 million year-over-year.
Acquisitions: The acquisition of the Whitehall Branch contributed to the overall increase in deposit balances and is part of a broader strategy to enhance market presence. Additionally, the assets of A&B Agency, Inc. were acquired, leading to higher wealth management fees and increased insurance commissions.
Future Revenue Growth Projections: The net income for the nine months ended September 30, 2024, was $25.2 million, an increase from $22.4 million in the comparable period of 2023. Diluted earnings per share for the third quarter of 2024 were reported at $0.53, compared to $0.46 in the third quarter of 2023.
Strategic Initiatives: The company has maintained a strong liquidity position with interest-bearing cash balances of $286.1 million as of September 30, 2024. This liquidity supports strategic initiatives and provides flexibility to meet unexpected obligations. Arrow has access to approximately $1.3 billion in collateralized lines of credit.
Competitive Advantages: Arrow's book value per share increased to $23.50, up 11.3% from the prior year. The company continues to exceed all required minimum capital ratios, positioning itself as a well-capitalized institution. The efficiency ratio improved to 67.10%, indicating better operational efficiency.
| Metric | Value |
|---|---|
| Total Loans | $3.3 billion |
| Deposit Balances | $3.8 billion |
| Net Income (9 months 2024) | $25.2 million |
| Book Value per Share | $23.50 |
| Diluted Earnings per Share (Q3 2024) | $0.53 |
| Liquidity Position | $286.1 million |
| Access to Credit Lines | $1.3 billion |
| Efficiency Ratio | 67.10% |
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Updated on 16 Nov 2024
Resources:
- Arrow Financial Corporation (AROW) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Arrow Financial Corporation (AROW)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Arrow Financial Corporation (AROW)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.