Arrow Reports Increase in First-Quarter Net Income; Double Digit Loan Growth Continues

April 23, 2018

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GLENS FALLS, N.Y., April 23, 2018 /PRNewswire/ — Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three -month period ended March 31, 2018. Net income for the first quarter of 2018 was $8.5 million, an increase of $1.9 million, or 28.7%, from net income of $6.6 million a year earlier. Diluted earnings per share (EPS) for the first quarter was $0.61, an increase of 29.8% from diluted EPS of $0.47 during the comparable 2017 quarter.

Income before taxes for the first quarter of 2018 increased $1.3 million to $10.6 million, up 13.6% from $9.3 million in the same quarter of 2017. Additionally, first quarter 2018 results were further positively impacted by reduced tax rates pursuant to the Tax Cuts and Jobs Act of 2017 (“Tax Act”).

Annualized key profitability ratios continue to remain strong, as measured by a return on average equity (ROE) of 13.78% and a return on average assets (ROA) of 1.25% for the first quarter, compared to 11.43% and 1.02% a year earlier.

Arrow President and CEO Thomas J. Murphy stated, “Our first-quarter results demonstrate the forward momentum and strength of our Company. We continue to experience significant loan growth and strong asset quality, and again have set new records for total assets, total deposits, total equity and assets under management and administration. We are continuing to evaluate how we can best deliver the value created by the tax reform, based on our strategic plan and our commitment to our customers, our employees, our shareholders and the communities in which we do business.”

The following expands upon first-quarter results:

Net Interest Income: In the first quarter of 2018, net interest income on a GAAP basis increased to $20.4 million, up 10.5% over the $18.5 million total in the comparable quarter of 2017. Net interest margin for the first quarter of 2018 was 3.13%, up from 2.99% for the first quarter of 2017. On a tax equivalent (non-GAAP) basis, net interest income increased by 7.6% compared to the first quarter of 2017. Net interest margin, measured on a tax equivalent (non-GAAP) basis, increased to 3.21% from 3.15% in the prior year comparable quarter. Continued strong loan growth, in addition to higher market rates, were the primary drivers of the increase in interest income. Meanwhile, non-interest bearing deposit growth and low deposit rate sensitivities allowed us to maintain a relatively low cost of funds.

Loan Growth: Over the 12 months ended March 31, 2018, total loans increased to a record high of $2.0 billion, up $182.2 million, or 10.1%, from the March 31, 2017 level. During the first quarter of 2018, total loans grew by $42.3 million, or 2.2%, as compared to the fourth quarter of 2017. There was growth in all three major loan segments: commercial, consumer, and residential real estate.

During the first quarter of 2018, the consumer loan portfolio grew $23.8 million, or 4.0%, to $627 million at period-end. This balance exceeded the prior year’s balance by $74.7 million, or 13.5%. The increase was primarily a result of growth in the indirect automobile lending program. Total outstanding commercial loans increased 1.6% during the first quarter to $582.7 million, and were up $28.6 million, or 5.2%, from March 31, 2017. The residential real estate loan portfolio increased $9.2 million, or 1.2%, during the first quarter of 2018 to $783.7 million, up $79.0 million, or 11.2%, over the balance at March 31, 2017.

Deposit Growth: At March 31, 2018, deposit balances reached $2.4 billion, up $154.7 million, or 6.9%, from the prior-year level with growth in both personal and business accounts. Noninterest-bearing demand deposits increased $49.8 million, or 12.4%, from the prior-year level, which had a positive impact on the net interest margin. Noninterest-bearing demand deposits represented 18.8% of total deposits at March 31, 2018, compared to 17.8% at March 31, 2017. The first quarter increase in deposit balances also included seasonal municipal deposit growth and the use of brokered deposits to diversify balance sheet funding.

Noninterest Income: Noninterest income for the three-month period ended March 31, 2018, increased 2.9% from the comparable 2017 quarter. Income from fiduciary activities increased during the quarter by $179 thousand, or 8.9%, over the amount for the first quarter of 2017.

Assets Under Management: Assets under trust administration and investment management reached a record high of $1.5 billion at March 31, 2018, increasing by $136.5 million, or 10.2%, from the balance at March 31, 2017, primarily due to the performance of the equity markets.

Noninterest Expense: Noninterest expense for the first quarter of 2018 increased to $16.0 million, an increase of $480 thousand, or 3.1%, from $15.5 million for the first quarter of 2017. Salaries and employee benefits increased in the first quarter of 2018 by $222 thousand, or 2.4%, over the same 2017 quarter.

Provision for Income Taxes: The provision for income taxes was $2.1 million in the first quarter of 2018 versus $2.7 million in the same quarter of 2017. The effective income tax rates for the three-month periods ended March 31, 2018 and 2017 were 19.4% and 28.9%, respectively. The decrease in the effective income tax rate in the 2018 period reflects the impact of the Tax Act.

Asset Quality: Asset quality remained strong at March 31, 2018, as measured by continuing low levels of nonperforming assets and net charge-offs. Nonperforming assets at March 31, 2018, were $6.2 million, up $107 thousand, or 1.8%, from the prior-year level. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.06% for the three-month period ended March 31, 2018, up slightly from the prior year comparable quarter of 0.03%.

Allowance for loan losses was $19.1 million at March 31, 2018, which represented 0.96% of loans outstanding. The provision for loan losses for the first quarter of 2018 was $746 thousand, up $388 thousand from the provision for the comparable 2017 quarter.

Capital: Total stockholders’ equity was a record $252.7 million at period-end, up $16.6 million, or 7.0%, from the prior-year. This increase exceeded the 6.4% increase in total assets over the same period. Overall regulatory capital ratios also remain strong in 2018. At March 31, 2018, the Company’s Common Equity Tier 1 Ratio was estimated to be 12.97% and the Total Risk-Based Capital Ratio was estimated to be 15.04%. These capital levels at the Company and both its subsidiary banks continue to significantly exceed the “well capitalized” regulatory standard.

Cash and Stock Dividends: The Company distributed a cash dividend of $0.25 per share to shareholders in the first quarter of 2018. The cash dividend was 3% higher than the cash dividend paid in the first quarter of 2017 when adjusted for our 3.0% stock dividend distributed on September 28, 2017.

Industry Recognition: Both of the Company’s two banking subsidiaries maintained their BauerFinancial, Inc. 5-Star Superior Bank rating. Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company have continued to earn this designation for the last 44 and 36 quarters, respectively.

Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York. The Company is the parent of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company. Other subsidiaries include North Country Investment Advisers, Inc.; Upstate Agency, LLC, specializing in property and casualty insurance; and Capital Financial Group, Inc., specializing in the sale and servicing of group health plans.

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 the Company from time to time are useful in evaluating the Company’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.”

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. 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. The Company 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, and other filings with the Securities and Exchange Commission.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts – Unaudited

Three Months Ended March 31,

2018

2017

INTEREST AND DIVIDEND INCOME

Interest and Fees on Loans

$

18,858

$

16,402

Interest on Deposits at Banks

134

60

Interest and Dividends on Investment Securities:

Fully Taxable

1,893

1,990

Exempt from Federal Taxes

1,533

1,545

Total Interest and Dividend Income

22,418

19,997

INTEREST EXPENSE

Interest-Bearing Checking Accounts

387

331

Savings Deposits

522

291

Time Deposits over $250,000

204

55

Other Time Deposits

259

228

Federal Funds Purchased and

  Securities Sold Under Agreements to Repurchase

16

7

Federal Home Loan Bank Advances

414

445

Junior Subordinated Obligations Issued to

  Unconsolidated Subsidiary Trusts

214

179

Total Interest Expense

2,016

1,536

NET INTEREST INCOME

20,402

18,461

Provision for Loan Losses

746

358

NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES

19,656

18,103

NONINTEREST INCOME

Income From Fiduciary Activities

2,197

2,018

Fees for Other Services to Customers

2,380

2,256

Insurance Commissions

1,903

2,198

Net Unrealized Gain on Equity Securities

18

Net Gain on Sales of Loans

38

45

Other Operating Income

353

178

Total Noninterest Income

6,889

6,695

NONINTEREST EXPENSE

Salaries and Employee Benefits

9,369

9,147

Occupancy Expenses, Net

2,541

2,544

FDIC Assessments

217

226

Other Operating Expense

3,829

3,558

Total Noninterest Expense

15,956

15,475

INCOME BEFORE PROVISION FOR INCOME TAXES

10,589

9,323

Provision for Income Taxes

2,058

2,692

NET INCOME

$

8,531

$

6,631

Average Shares Outstanding 1:

Basic

13,936

13,889

Diluted

14,016

14,001

Per Common Share:

Basic Earnings

$

0.61

$

0.48

Diluted Earnings

0.61

0.47

1 Share and per share data have been restated for the September 28, 2017, 3% stock dividend.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

March 31,

2018

December 31,

2017

March 31,

2017

ASSETS

Cash and Due From Banks

$

29,525

$

42,562

$

50,158

Interest-Bearing Deposits at Banks

70,747

30,276

14,645

Investment Securities:

Available-for-Sale

307,168

300,200

347,159

Held-to-Maturity (Approximate Fair Value of $324,937 at March 31, 2018; $335,901 at December 31, 2017; and $335,105 at March 31, 2017)

330,124

335,907

335,211

Other Investments

4,780

9,949

6,826

Loans

1,993,037

1,950,770

1,810,805

Allowance for Loan Losses

(19,057)

(18,586)

(17,216)

Net Loans

1,973,980

1,932,184

1,793,589

Premises and Equipment, Net

27,815

27,619

26,585

Goodwill

21,873

21,873

21,873

Other Intangible Assets, Net

2,172

2,289

2,575

Other Assets

58,503

57,606

57,765

Total Assets

$

2,826,687

$

2,760,465

$

2,656,386

LIABILITIES

Noninterest-Bearing Deposits

$

452,347

$

441,945

$

402,506

Interest-Bearing Checking Accounts

944,161

907,315

959,170

Savings Deposits

762,220

694,573

696,625

Time Deposits over $250,000

85,403

38,147

30,993

Other Time Deposits

167,142

163,136

167,242

Total Deposits

2,411,273

2,245,116

2,256,536

Federal Funds Purchased and

  Securities Sold Under Agreements to Repurchase

74,957

64,966

32,035

Federal Home Loan Bank Overnight Advances

105,000

32,000

Federal Home Loan Bank Term Advances

45,000

55,000

55,000

Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts

20,000

20,000

20,000

Other Liabilities

22,723

20,780

24,704

Total Liabilities

2,573,953

2,510,862

2,420,275

STOCKHOLDERS’ EQUITY

Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized

Common Stock, $1 Par Value; 20,000,000 Shares Authorized (18,481,301 Shares Issued and Outstanding at March 31, 2018; 18,481,301 at
December 31, 2017 and 17,943,201 at March 31, 2017)

18,481

18,481

17,943

Additional Paid-in Capital

290,980

290,219

271,517

Retained Earnings

34,093

28,818

31,901

Unallocated ESOP Shares (9,643 Shares at March 31, 2018; 9,643 Shares at December 31, 2017 and 19,466 Shares at March 31, 2017)

(200)

(200)

(400)

Accumulated Other Comprehensive Loss

(11,285)

(8,514)

(6,680)

Treasury Stock, at Cost (4,516,444 Shares at March 31, 2018; 4,541,524 Shares at December 31, 2017 and 4,442,292 Shares at March 31, 2017)

(79,335)

(79,201)

(78,170)

Total Stockholders’ Equity

252,734

249,603

236,111

Total Liabilities and Stockholders’ Equity

$

2,826,687

$

2,760,465

$

2,656,386

Arrow Financial Corporation

Selected Quarterly Information

(Dollars In Thousands, Except Per Share Amounts – Unaudited)

Quarter Ended

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

Net Income

8,531

8,071

7,416

7,208

6,631

Transactions Recorded in Net Income (Net of Tax):

Net (Loss) Gain on Securities Transactions

(278)

6

Tax Benefit from Net Deferred Tax Liability Revaluation

1,116

Share and Per Share Data:1

Period End Shares Outstanding

13,950

13,930

13,891

13,900

13,886

Basic Average Shares Outstanding

13,936

13,905

13,889

13,890

13,889

Diluted Average Shares Outstanding

14,016

14,006

13,966

13,975

14,001

Basic Earnings Per Share

$

0.61

$

0.58

$

0.53

$

0.52

$

0.48

Diluted Earnings Per Share

0.61

0.58

0.53

0.52

0.47

Cash Dividend Per Share

0.250

0.250

0.243

0.243

0.243

Selected Quarterly Average Balances:

  Interest-Bearing Deposits at Banks

27,978

27,047

27,143

24,480

23,565

  Investment Securities

642,442

660,043

677,368

684,570

695,615

  Loans

1,971,240

1,930,590

1,892,766

1,842,543

1,781,113

  Deposits

2,305,736

2,284,206

2,193,778

2,206,365

2,161,798

  Other Borrowed Funds

184,613

187,366

262,864

207,270

205,436

  Shareholders’ Equity

251,109

247,253

243,801

239,396

235,257

  Total Assets

2,763,706

2,744,180

2,725,653

2,677,843

2,626,470

Return on Average Assets, annualized

1.25

%

1.17

%

1.08

%

1.08

%

1.02

%

Return on Average Equity, annualized

13.78

%

12.95

%

12.07

%

12.08

%

11.43

%

Return on Average Tangible Equity, annualized

15.24

%

14.36

%

13.40

%

13.45

%

12.76

%

Average Earning Assets

2,641,660

2,617,680

2,597,277

2,551,593

2,500,293

Average Paying Liabilities

2,050,661

2,029,811

2,012,802

2,005,421

1,977,628

Interest Income, Tax-Equivalent3

22,909

23,115

22,565

21,875

20,945

Interest Expense

2,016

1,821

1,949

1,699

1,536

Net Interest Income, Tax-Equivalent3

20,893

21,294

20,616

20,176

19,409

Tax-Equivalent Adjustment3

491

980

966

949

948

Net Interest Margin, annualized 3

3.21

%

3.23

%

3.15

%

3.17

%

3.15

%

Efficiency Ratio Calculation: 4

Noninterest Expense

15,955

16,045

15,548

15,637

15,475

Less: Intangible Asset Amortization

67

69

69

70

71

Net Noninterest Expense

15,888

15,976

15,479

15,567

15,404

Net Interest Income, Tax-Equivalent

20,893

21,294

20,616

20,176

19,409

Noninterest Income

6,888

6,752

7,141

7,057

6,695

Less: Net (Loss) Gain on Sales of Securities

(458)

10

Less: Net Unrealized Gain on Securities

18

Net Gross Income

27,763

28,504

27,747

27,233

26,104

Efficiency Ratio

57.23

%

56.05

%

55.79

%

57.16

%

59.01

%

Period-End Capital Information:

Total Stockholders’ Equity (i.e. Book Value)

252,734

249,603

244,648

240,752

236,111

Book Value per Share 1

18.12

17.92

17.61

17.32

17.00

Goodwill and Other Intangible Assets, net

24,045

24,162

24,268

24,355

24,448

Tangible Book Value per Share 1,2

16.39

16.18

15.86

15.57

15.24

Capital Ratios:5

Tier 1 Leverage Ratio

9.62

%

9.49

%

9.30

%

9.35

%

9.37

%

Common Equity Tier 1 Capital Ratio 

12.97

%

12.89

%

12.70

%

12.68

%

12.84

%

Tier 1 Risk-Based Capital Ratio

14.03

%

13.97

%

13.79

%

13.79

%

13.99

%

Total Risk-Based Capital Ratio

15.04

%

14.99

%

14.77

%

14.77

%

14.98

%

Assets Under Trust Administration

  and Investment Management

$

1,470,191

$

1,452,994

$

1,411,608

$

1,356,262

$

1,333,690

Arrow Financial Corporation
Selected Quarterly Information – Continued
(Dollars In Thousands, Except Per Share Amounts – Unaudited)

Footnotes:

1.

Share and Per Share Data have been restated for the September 28, 2017, 3% stock dividend.

2.

Tangible Book Value and Tangible Equity exclude goodwill and other intangible assets, net from total equity.  These are non-GAAP financial measures which we believe provide investors with information that is useful in understanding our financial performance.

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

Total Stockholders’ Equity (GAAP)

252,734

249,603

244,648

240,752

236,111

Less: Goodwill and Other Intangible assets, net

24,045

24,162

24,268

24,355

24,448

Tangible Equity (Non-GAAP)

$

228,689

$

225,441

$

220,380

$

216,397

$

211,663

Period End Shares Outstanding

13,950

13,930

13,891

13,900

13,886

Tangible Book Value per Share (Non-GAAP)

$

16.39

$

16.18

$

15.86

$

15.57

$

15.24

3.

Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which we believe provides investors with information that is useful in understanding our financial performance.

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

Net Interest Income (GAAP)

20,402

20,314

19,650

19,227

18,461

Add: Tax-Equivalent adjustment (Non-GAAP)

491

980

966

949

948

Net Interest Income – Tax Equivalent (Non-GAAP)

$

20,893

$

21,294

$

20,616

$

20,176

$

19,409

Average Earning Assets

2,641,660

2,617,680

2,597,277

2,551,593

2,500,293

Net Interest Margin (Non-GAAP)*

3.21

%

3.23

%

3.15

%

3.17

%

3.15

%

4.

Financial Institutions often use the “efficiency ratio”, a non-GAAP ratio, as a measure of expense control. We believe the efficiency ratio provides investors with information that is useful in understanding our financial performance. We define our efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals our tax-equivalent net interest income plus noninterest income, as adjusted).

5.

For the current quarter, all of the regulatory capital ratios in the table above, as well as the Total Risk-Weighted Assets and Common Equity Tier 1 Capital amounts listed in the table below, are estimates based on, and calculated in accordance with, bank regulatory capital rules. All prior quarters reflect actual results. The March 31, 2018 CET1 ratio listed in the tables (i.e., 12.97%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

Total Risk Weighted Assets

1,889,719

1,856,242

1,830,730

1,802,455

1,747,318

Common Equity Tier 1 Capital

265,066

259,378

232,473

228,586

224,369

Common Equity Tier 1 Ratio

12.97

%

12.89

%

12.70

%

12.68

%

12.84

%

* Quarterly ratios have been annualized

                     

Arrow Financial Corporation

Consolidated Financial Information

(Dollars in Thousands – Unaudited)

Quarter Ended:

03/31/2018

12/31/2017

3/31/2017

Loan Portfolio

Commercial Loans

$

127,674

$

129,249

$

118,842

Commercial Real Estate Loans

455,059

444,248

435,316

  Subtotal Commercial Loan Portfolio

582,733

573,497

554,158

Consumer Loans

626,639

602,827

551,963

Residential Real Estate Loans

783,665

774,446

704,684

Total Loans

$

1,993,037

$

1,950,770

$

1,810,805

Allowance for Loan Losses

Allowance for Loan Losses, Beginning of Quarter

$

18,586

$

17,695

$

17,012

Loans Charged-off

(370)

(363)

(270)

Less Recoveries of Loans Previously Charged-off

95

97

116

Net Loans Charged-off

(275)

(266)

(154)

Provision for Loan Losses

746

1,157

358

Allowance for Loan Losses, End of Quarter

$

19,057

$

18,586

$

17,216

Nonperforming Assets

Nonaccrual Loans

$

4,470

$

5,526

$

4,273

Loans Past Due 90 or More Days and Accruing

319

Loans Restructured and in Compliance with Modified Terms

100

105

101

Total Nonperforming Loans

4,570

5,950

4,374

Repossessed Assets

120

109

103

Other Real Estate Owned

1,525

1,738

1,631

Total Nonperforming Assets

$

6,215

$

7,797

$

6,108

Key Asset Quality Ratios

Net Loans Charged-off to Average Loans,

   Quarter-to-date Annualized

0.06

%

0.05

%

0.03

%

Provision for Loan Losses to Average Loans,

  Quarter-to-date Annualized

0.15

%

0.24

%

0.08

%

Allowance for Loan Losses to Period-End Loans

0.96

%

0.95

%

0.95

%

Allowance for Loan Losses to Period-End Nonperforming Loans

417.00

%

312.37

%

393.60

%

Nonperforming Loans to Period-End Loans

0.23

%

0.31

%

0.24

%

Nonperforming Assets to Period-End Assets

0.22

%

0.28

%

0.23

%

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SOURCE Arrow Financial Corporation

Related Links

http://www.arrowfinancial.com

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