Market Overview

Arrow Reports 11.9% Net Income Increase, Continued Strong Loan Growth

Share:

- Net income for the first three months of 2016 increased 11.9% year over year to $6.5 million.

- Diluted earnings per share (EPS) for the first quarter rose 11.1% year over year to $0.50 from $0.45.

- Period-end loan portfolio balances rose $187.9 million year over year, or 13.1%, hitting a record high.

- Record highs for period-end total assets, total deposits and total equity.

- Continued strong ratios for profitability, asset quality and capital.

GLENS FALLS, N.Y., April 20, 2016 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three-month period ended March 31, 2016. Net income for the first quarter of 2016 was $6.5 million, an increase of $694 thousand, or 11.9%, from net income of $5.9 million for the first quarter of 2015. Our key profitability ratios continue to remain strong as measured by a return on average equity (ROE) of 12.07% and a return on average assets (ROA) of 1.07% for the first quarter of 2016, up from 11.72% and 1.06%, respectively, from the prior-year first quarter.

Diluted earnings per share (EPS) for the first quarter was $0.50, an increase of 11.1% from the 2015 comparable quarter, when EPS was $0.45. Historical share and per share amounts have been restated to reflect our 2% stock dividend distributed on September 28, 2015.

Arrow President and CEO Thomas J. Murphy stated, "The first quarter of 2016 continued to build upon our record performance in 2015. We once again reported a double-digit increase in our loan portfolio, which was a key driver for strong net income growth, as compared to the first quarter last year. We also reached record highs at the end of the quarter for total assets, deposits and equity. We continued to expand our presence in the Capital District market, while maintaining high-performing long-term profitability objectives. Our dedicated team worked hard to deliver these results and I am pleased with our excellent performance."

The following expands upon our first-quarter results:

Net Interest Income: In the first quarter of 2016, on a tax-equivalent basis, our net interest income increased by $1.5 million, or 8.8%, compared to the first quarter of 2015, even though our tax-equivalent net interest margin decreased between the two quarters by 5 basis points. It decreased from 3.24% in the 2015 quarter to 3.19% in the 2016 quarter. The general decrease in net interest margin in recent periods reflected the fact that the average yield on our loan portfolio decreased more rapidly than the average cost of our interest-bearing liabilities. Intermediate and long-term interest rates remain very low and volatile. We expect this low interest rate environment to persist in upcoming periods, which will continue to place downward pressure on our net interest margins.

Loan Growth: Over the three-month period ended March 31, 2016, total loans increased by $48.8 million, or 3.1%, with increases in all three of our major loan segments: commercial, consumer, and residential real estate. At March 31, 2016, our total loan balance was up 13.1% to a record high as compared to March 31, 2015.

During the first quarter of 2016, we experienced an increase of $25 million, or 5.4%, in our consumer loan portfolio, which reached a record-high balance at period-end of $490 million, exceeding the March 31, 2015, balance by $48.6 million, or 11%. This increase was primarily a result of growth in our indirect automobile lending program. In the first quarter, we extended $76.1 million in new loans for new and used automobiles.

Additionally, total outstanding commercial loans increased 4.6% during the quarter, reaching a balance of $509.9 million on March 31, 2016, up $70.7 million, or 16.1%, from March 31, 2015. And finally, our residential real estate loan portfolio increased $1.4 million, or 0.2%. We originated approximately $24.2 million of residential real estate loans during the quarter, a decrease of $2.5 million from our originations in the comparable quarter of 2015.

Deposit Growth: At March 31, 2016, our deposit balances reached a record $2.1 billion, an increase of $96.4 million, or 4.8%, from the prior-year level. Successful execution of our strategic objective to expand our branch network in the Capital District in recent years has been effective in raising new deposits, as well as new loan opportunities. Noninterest-bearing deposits increased more rapidly than total deposits; at period-end, they were up $41.7 million, or 13.4%, from the prior-year level, which has positively impacted net interest margin. Noninterest-bearing demand deposits represent 16.7% of total deposits at March 31, 2016, an increase from 15.4% as of the prior-year level.

Assets Under Management and Related Noninterest Income: Assets under trust administration and investment management at March 31, 2016, decreased by $23.7 million, or 1.9%, from the total at March 31, 2015, primarily due to the performance of the equity markets. However, the related income from fiduciary activities between the respective three-month periods decreased only $2 thousand, or 0.1%.

Insurance Agency Operations: Insurance commission income increased 3.2% from $2.1 million for the first quarter of 2015 to $2.2 million for the first quarter of 2016. The increase was primarily attributable to an increase in the level of annual contingent commission income received from certain insurance carriers.

Asset Quality: Asset quality remained strong at March 31, 2016, as measured by our comparatively low levels of nonperforming assets and net charge-offs. Nonperforming assets at March 31, 2016, of $10.1 million were up $1.7 million from the prior-year level and up $1.2 million since year-end 2015. However, our nonperforming assets still represented only 0.41% of total assets at period-end, versus 0.36% at March 31, 2015. Net loan losses expressed as an annualized percentage of average loans outstanding were just 0.04% for the three-month period ended March 31, 2016, compared to 0.06% for the same period a year ago.

Our allowance for loan losses was $16.3 million at March 31, 2016, which represented 1% of loans outstanding, 9 basis points below our ratio one year earlier and 2 basis points below our ratio at December 31, 2015. Our provision for loan losses for the first quarter of 2016 was $401 thousand, an increase of $126 thousand from the provision for the comparable 2015 quarter. The increased size of our provision resulted from a combination of strong loan growth and a modest decrease in net charge-offs between the periods. Our coverage ratio at period-end continued to reflect the strong quality of our loan portfolio.

Cash and Stock Dividends: We distributed a cash dividend of $0.25 per share to shareholders in the first quarter of 2016. The cash dividend was 2% higher than the cash dividend paid in the first quarter of 2015 when adjusted for our 2% stock dividend distributed on September 28, 2015.

Capital: Total stockholders' equity was a record $220.7 million at period-end, an increase of $15.7 million, or 7.7%, above the March 31, 2015, amount. Arrow's capital grew at a faster pace than asset growth, and the capital ratios remained strong in 2016. At March 31, 2016, the Company's CET1 ratio was estimated to be 12.84% and total risk-based capital ratio was estimated to be 15.09%. The capital ratios of the Company and both its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standards, which places us in the highest current regulatory category.

Peer Group: Many of our key operating ratios have consistently compared favorably to our peer group, which we define as all U.S. bank holding companies having $1 billion to $3 billion in total assets, as identified in the Federal Reserve Bank's "Bank Holding Company Performance Report" (FRB Report). The most current peer data available in the FRB Report is for the 12-month period ended December 31, 2015, in which our return on average equity (ROE) was 11.86%, as compared to 8.54% for our peer group.

As of December 31, 2015, our ratio of loans 90 days past due and accruing, plus nonaccrual loans to total loans was 0.42%, as compared to 0.83% for our peer group, while our annualized ratio of net loan losses of 0.06% were below the peer result of 0.09%.

Industry Recognition: For the second consecutive year, the Company was awarded the Raymond James Community Bankers Cup for "superior financial performance." Arrow was evaluated alongside 301 community banks with assets between $500 million and $10 billion based on various profitability, operational efficiency and balance sheet metrics. The Community Bankers Cup was awarded to the top 10% of banks for their exceptional performance during 2015, as well as over time. Arrow was one of only two New York State financial institutions recognized.

In addition, the Company's two banking subsidiaries were each recognized as a 5-Star Superior Bank by BauerFinancial, Inc. based on the most recently available financial data. Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company have each earned this designation for the past 36 and 28 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.; two property and casualty insurance agencies: Upstate Agency, LLC, and McPhillips Insurance Agency, a division of Glens Falls National Insurance Agencies, LLC; and Capital Financial Group, Inc., an insurance agency 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.  Our 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 "Select 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, 2015, and our 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,



2016



2015


INTEREST AND DIVIDEND INCOME





Interest and Fees on Loans


$

15,024



$

13,650


Interest on Deposits at Banks


32



21


Interest and Dividends on Investment Securities:





Fully Taxable


2,087



1,944


Exempt from Federal Taxes


1,483



1,375


Total Interest and Dividend Income


18,626



16,990


INTEREST EXPENSE





NOW Accounts


310



330


Savings Deposits


222



167


Time Deposits of $100,000 or More


87



90


Other Time Deposits


169



202


Federal Funds Purchased and

  Securities Sold Under Agreements to Repurchase


5



5


Federal Home Loan Bank Advances


309



150


Junior Subordinated Obligations Issued to

  Unconsolidated Subsidiary Trusts


161



142


Total Interest Expense


1,263



1,086


NET INTEREST INCOME


17,363



15,904


Provision for Loan Losses


401



275


NET INTEREST INCOME AFTER PROVISION FOR

   LOAN LOSSES


16,962



15,629


NONINTEREST INCOME





Income From Fiduciary Activities


1,931



1,933


Fees for Other Services to Customers


2,237



2,239


Insurance Commissions


2,208



2,139


Net Gain on Securities Transactions




90


Net Gain on Sales of Loans


180



132


Other Operating Income


319



323


Total Noninterest Income


6,875



6,856


NONINTEREST EXPENSE





Salaries and Employee Benefits


8,122



7,692


Occupancy Expenses, Net


2,463



2,487


FDIC Assessments


313



280


Other Operating Expense


3,472



3,496


Total Noninterest Expense


14,370



13,955


INCOME BEFORE PROVISION FOR INCOME TAXES


9,467



8,530


Provision for Income Taxes


2,918



2,675


NET INCOME


$

6,549



$

5,855


Average Shares Outstanding 1:





Basic


12,954



12,886


Diluted


12,989



12,924


Per Common Share:





Basic Earnings


$

0.51



$

0.45


Diluted Earnings


0.50



0.45


1 Share and per share data have been restated for the September 28, 2015, 2% stock dividend.

 

 

 

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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














March 31, 2016



December 31, 2015



March 31, 2015


ASSETS






Cash and Due From Banks

$

30,663



$

34,816



$

37,941


Interest-Bearing Deposits at Banks

30,048



16,252



73,654


Investment Securities:






Available-for-Sale

388,247



402,309



393,133


Held-to-Maturity (Approximate Fair Value of $324,337 at March 31, 2016; $325,930 at December 31, 2015; and $312,500 at March 31, 2015)

315,284



320,611



305,175


Other Investments

5,149



8,839



4,806


Loans

1,622,728



1,573,952



1,434,794


Allowance for Loan Losses

(16,287)



(16,038)



(15,625)


Net Loans

1,606,441



1,557,914



1,419,169


Premises and Equipment, Net

27,142



27,440



28,381


Goodwill

21,873



21,873



22,003


Other Intangible Assets, Net

2,999



3,107



3,489


Other Assets

51,025



53,027



47,777


Total Assets

$

2,478,871



$

2,446,188



$

2,335,528


LIABILITIES






Noninterest-Bearing Deposits

352,624



$

358,751



$

310,878


NOW Accounts

962,103



887,317



967,537


Savings Deposits

611,178



594,538



541,750


Time Deposits of $100,000 or More

58,822



59,792



59,886


Other Time Deposits

130,334



130,025



138,653


Total Deposits

2,115,061



2,030,423



2,018,704


Federal Funds Purchased and

  Securities Sold Under Agreements to Repurchase

45,155



23,173



15,895


Federal Home Loan Bank Overnight Advances



82,000




Federal Home Loan Bank Term Advances

55,000



55,000



50,000


Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts

20,000



20,000



20,000


Other Liabilities

22,952



21,621



25,964


Total Liabilities

2,258,168



2,232,217



2,130,563


STOCKHOLDERS' EQUITY






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






Common Stock, $1 Par Value; 20,000,000 Shares Authorized (17,420,776 Shares Issued at March 31, 2016 and December 31, 2015 and 17,079,376 at March 31, 2015)

17,421



17,421



17,079


Additional Paid-in Capital

251,510



250,680



239,981


Retained Earnings

35,449



32,139



32,157


Unallocated ESOP Shares (47,090 Shares at March 31, 2016; 55,275 Shares at December 31, 2015; and 63,723 Shares at March 31, 2015)

(950)



(1,100)



(1,300)


Accumulated Other Comprehensive Loss

(5,436)



(7,972)



(6,256)


Treasury Stock, at Cost (4,402,128 Shares at March 31, 2016; 4,426,072 Shares at December 31, 2015; and 4,380,293 Shares at March 31, 2015)

(77,291)



(77,197)



(76,696)


Total Stockholders' Equity

220,703



213,971



204,965


Total Liabilities and Stockholders' Equity

$

2,478,871



$

2,446,188



$

2,335,528


 

 

 

Arrow Financial Corporation

Selected Quarterly Information

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





















Quarter Ended

3/31/2016



12/31/2015



9/30/2015



6/30/2015



3/31/2015


Net Income

6,549



6,569



5,933



6,305



5,855


Transactions Recorded in Net Income (Net of Tax):










Net Gain (Loss) on Securities Transactions



14





10



54












Share and Per Share Data:1










Period End Shares Outstanding

12,972



12,939



12,905



12,875



12,880


Basic Average Shares Outstanding

12,954



12,918



12,888



12,886



12,886


Diluted Average Shares Outstanding

12,989



12,979



12,929



12,922



12,924


Basic Earnings Per Share

$

0.51



$

0.51



$

0.46



$

0.49



$

0.45


Diluted Earnings Per Share

0.50



0.51



0.46



0.49



0.45


Cash Dividend Per Share

0.25



0.25



0.245



0.245



0.245












Selected Quarterly Average Balances:










  Interest-Bearing Deposits at Banks

21,166



44,603



17,788



37,303



30,562


  Investment Securities

716,523



716,947



711,830



701,329



673,753


  Loans

1,595,018



1,556,234



1,502,620



1,456,534



1,422,005


  Deposits

2,069,964



2,075,825



1,970,738



1,983,647



1,949,776


  Other Borrowed Funds

143,274



127,471



148,887



99,994



69,034


  Shareholders' Equity

218,307



213,219



209,334



206,831



202,552


  Total Assets

2,455,256



2,442,964



2,356,121



2,316,427



2,248,054


Return on Average Assets, annualized

1.07

%


1.07

%


1.00

%


1.09

%


1.06

%

Return on Average Equity, annualized

12.07

%


12.22

%


11.24

%


12.23

%


11.72

%

Return on Tangible Equity, annualized 2

13.62

%


13.86

%


12.79

%


13.94

%


13.42

%

Average Earning Assets

2,332,707



2,317,784



2,232,238



2,195,166



2,126,320


Average Paying Liabilities

1,867,455



1,854,549



1,772,156



1,770,023



1,713,253


Interest Income, Tax-Equivalent3

19,745



19,619



18,924



18,501



18,073


Interest Expense

1,263



1,231



1,253



1,243



1,086


Net Interest Income, Tax-Equivalent3

18,482



18,388



17,671



17,258



16,987


Tax-Equivalent Adjustment3

1,119



1,109



1,093



1,094



1,083


Net Interest Margin, annualized 3

3.19

%


3.15

%


3.14

%


3.15

%


3.24

%











Efficiency Ratio Calculation: 4










Noninterest Expense

14,370



14,242



14,850



14,383



13,955


Less: Intangible Asset Amortization

75



78



79



80



91


Net Noninterest Expense

14,295



14,164



14,771



14,303



13,864


Net Interest Income, Tax-Equivalent

18,482



18,388



17,671



17,258



16,987


Noninterest Income

6,875



6,687



7,137



7,444



6,856


Less: Net Securities (Gain) Loss



23





16



90


Net Gross Income

25,357



25,052



24,808



24,686



23,753


Efficiency Ratio

56.37

%


56.54

%


59.54

%


57.94

%


58.37

%











Period-End Capital Information:










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

220,703



213,971



211,142



206,947



204,965


Book Value per Share 1

17.01



16.54



16.36



16.07



15.91


Goodwill and Other Intangible Assets, net

24,872



24,980



25,266



25,372



25,492


Tangible Book Value per Share 1,2

15.10



14.61



14.40



14.10



13.93












Capital Ratios:5










Tier 1 Leverage Ratio

9.36

%


9.25

%


9.40

%


9.41

%


9.57

%

Common Equity Tier 1 Capital Ratio 

12.84

%


12.82

%


12.66

%


12.92

%


13.27

%

Tier 1 Risk-Based Capital Ratio

14.08

%


14.08

%


13.93

%


14.24

%


14.65

%

Total Risk-Based Capital Ratio

15.09

%


15.09

%


14.94

%


15.28

%


15.73

%











Assets Under Trust Administration

  and Investment Management

$

1,231,237



$

1,232,890



$

1,195,629



$

1,246,849



$

1,254,923


 

 

 

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, 2015, 2% 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.



3/31/2016


12/31/2015


9/30/2015


6/30/2015


3/31/2015


Total Stockholders' Equity (GAAP)

220,703



213,971



211,142



206,947



204,965



Less: Goodwill and Other Intangible assets, net

24,872



24,980



25,266



25,372



25,492



Tangible Equity (Non-GAAP)

$

195,831



$

188,991



$

185,876



$

181,575



$

179,473














Period End Shares Outstanding

12,972



12,939



12,905



12,875



12,880



Tangible Book Value per Share (Non-GAAP)

$

15.10



$

14.61



$

14.40



$

14.10



$

13.93













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.



3/31/2016


12/31/2015


9/30/2015


6/30/2015


3/31/2015


Net Interest Income (GAAP)

17,363



17,279



16,578



16,164



15,904



Add: Tax-Equivalent adjustment (Non-GAAP)

1,119



1,109



1,093



1,094



1,083



Net Interest Income - Tax Equivalent (Non-GAAP)

$

18,482



$

18,388



$

17,671



$

17,258



$

16,987



Average Earning Assets

2,332,707



2,317,784



2,232,238



2,195,166



2,126,320



Net Interest Margin (Non-GAAP)*

3.19

%


3.15

%


3.14

%


3.15

%


3.24

%












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, 2016 CET1 ratio listed in the tables (i.e., 12.80%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).



3/31/2016


12/31/2015


9/30/2015


6/30/2015


3/31/2015


Total Risk Weighted Assets

1,617,957



1,590,129



1,574,704



1,515,416



1,452,975



Common Equity Tier 1 Capital

207,777



213,970



199,377



195,800



192,865



Common Equity Tier 1 Ratio

12.84

%


12.82

%


12.66

%


12.92

%


13.27

%

















* Quarterly ratios have been annualized

 

 

 

Arrow Financial Corporation

Consolidated Financial Information

(Dollars in Thousands - Unaudited)













Quarter Ended:

03/31/2016


12/31/2015


3/31/2015

Loan Portfolio






Commercial Loans

$

106,077



$

102,587



$

99,910


Commercial Real Estate Loans

403,845



384,939



339,288


  Subtotal Commercial Loan Portfolio

509,922



487,526



439,198


Consumer Loans

489,509



464,523



440,901


Residential Real Estate Loans

623,297



621,903



554,695


Total Loans

$

1,622,728



$

1,573,952



$

1,434,794


Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Quarter

$

16,038



$

15,774



$

15,570


Loans Charged-off

217



271



290


Less Recoveries of Loans Previously Charged-off

65



70



70


Net Loans Charged-off

152



201



220


Provision for Loan Losses

401



465



275


Allowance for Loan Losses, End of Quarter

$

16,287



$

16,038



$

15,625


Nonperforming Assets






Nonaccrual Loans

$

7,445



$

6,433



$

6,998


Loans Past Due 90 or More Days and Accruing

552



187



580


Loans Restructured and in Compliance with Modified Terms

118



286



307


Total Nonperforming Loans

8,115



6,906



7,885


Repossessed Assets

165



140



106


Other Real Estate Owned

1,846



1,878



423


Total Nonperforming Assets

$

10,126



$

8,924



$

8,414


Key Asset Quality Ratios






Net Loans Charged-off to Average Loans,

   Quarter-to-date Annualized

0.04

%


0.05

%


0.06

%

Provision for Loan Losses to Average Loans,

  Quarter-to-date Annualized

0.10

%


0.12

%


0.08

%

Allowance for Loan Losses to Period-End Loans

1.00

%


1.02

%


1.09

%

Allowance for Loan Losses to Period-End Nonperforming Loans

200.70

%


232.23

%


198.16

%

Nonperforming Loans to Period-End Loans

0.50

%


0.44

%


0.55

%

Nonperforming Assets to Period-End Assets

0.41

%


0.36

%


0.36

%

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/arrow-reports-119-net-income-increase-continued-strong-loan-growth-300254561.html

SOURCE Arrow Financial Corporation

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