Market Overview

Arrow Reports Increase in Second Quarter Net Income, Record Loan Balances

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Arrow Reports Increase in Second Quarter Net Income, Record Loan Balances

- Second quarter net income increased 35.0% year-over-year to $9.7 million.

- Second quarter diluted earnings per share (EPS) rose 32.7% to $0.69.

- Period-end total loans reached a record high of $2.1 billion, up 9.5% year-over-year.

- Second quarter net interest income increased 9.0% over the prior-year comparable quarter.

- New record highs for total assets, total equity and assets under management and trust administration.

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

PR Newswire

GLENS FALLS, N.Y., July 23, 2018 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three-month period ended June 30, 2018. Net income for the second quarter of 2018 was $9.7 million, an increase of $2.5 million, or 35.0%, from net income of $7.2 million a year earlier. Diluted earnings per share (EPS) for the second quarter was $0.69, an increase of 32.7% from diluted EPS of $0.52 during the comparable 2017 quarter.

Annualized key profitability ratios also improved, as measured by a return on average equity (ROE) of 15.22% and a return on average assets (ROA) of 1.38% for the second quarter, compared to 12.08% and 1.08% a year earlier.

Arrow President and CEO Thomas J. Murphy said, "I am extremely proud of the Company's results, which are directly tied to the collective efforts of our team. Their commitment to driving results can be seen not only in our financial performance, but through countless hours of volunteer work for the benefit of our communities and service to local businesses and municipalities."

The following expands upon second quarter results:

Net Interest Income: Driven by strong loan growth and an increase in the net interest margin, second quarter 2018 net interest income increased to $21.0 million, up 9.0% from $19.2 million in the comparable quarter of 2017. The net interest margin was 3.11% for the quarter, as compared to 3.02% for the second quarter of 2017. This increase in net interest margin was the result of several factors, including higher market rates, an increase in the yield on earning assets and low deposit rate sensitivities on the funding side. On a tax equivalent (non-GAAP) basis, the net interest margin was 3.18%.

Loan Growth: During the second quarter of 2018, total loans grew by $64.8 million, or 3.3%, as compared to the first quarter of 2018, with the largest loan growth in the consumer and residential real estate segments. Over the 12 months ended June 30, 2018, total loans increased to a record high of $2.1 billion, up $179.2 million, or 9.5%, from the June 30, 2017 level.

The consumer loan portfolio grew by $83.2 million, or 14.4%, over the balance at June 30, 2017, primarily as a result of growth in the indirect automobile lending program. Total outstanding commercial loans were up $15.2 million, or 2.7%, from June 30, 2017. The residential real estate loan portfolio increased $80.9 million, or 11.1%, over the balance at June 30, 2017.

Deposit Growth: At June 30, 2018, deposit balances reached $2.3 billion, up $84.7 million, or 3.8%, from the prior-year level with growth in both personal and business balances. Noninterest-bearing deposits represented 20.3% of total deposits at June 30, 2018, compared to 19.5% at June 30, 2017.

Noninterest Income: Noninterest income for the three-month period ended June 30, 2018 increased 12.1% from the comparable 2017 quarter, mainly due to income from fiduciary activities, which increased during the quarter by $497 thousand, or 23.1%, over the amount for the second quarter of 2017. Additionally, net gain on equity securities of $223 thousand was the result of the change in fair value of marketable equity securities.

Assets Under Management: Assets under trust administration and investment management reached a record high of $1.5 billion at June 30, 2018, an increase of $123.5 million, or 9.1%, from the balance at June 30, 2017, driven by continued strength in equity markets.

Noninterest Expense: Noninterest expense for the second quarter of 2018 increased 3.5% to $16.2 million, from $15.6 million for the second quarter of 2017, primarily due to a 6.5% increase in salaries and employee benefits over the same 2017 quarter.

Provision for Income Taxes: The provision for income taxes was $2.3 million in the second quarter of 2018 versus $3.0 million in the same quarter of 2017. The effective income tax rates for the three-month periods ended June 30, 2018 and 2017 were 19.3% and 29.5%, respectively, which reflects the impact of the Tax Cuts and Jobs Act of 2017.

Asset Quality: Asset quality remained strong at June 30, 2018, as measured by continuing low levels of nonperforming assets and net charge-offs. Nonperforming assets at June 30, 2018 were $5.6 million, down $3.1 million, or 35.5%, from the level at June 30, 2017. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.01% for the three-month period ended June 30, 2018, down from the prior-year comparable quarter of 0.04%.

The allowance for loan losses was $19.6 million at June 30, 2018, which represented 0.95% of loans outstanding. The provision for loan losses for the second quarter of 2018 was $629 thousand, up $207 thousand from the provision for the comparable 2017 quarter, mainly due to growth in the loan portfolio.

Capital: Total stockholders' equity was a record $259.5 million at period-end, up $18.7 million, or 7.8%, from the prior year. Overall regulatory capital ratios also remain strong in 2018, with the Company's common equity tier 1 ratio estimated to be 13.01% and the total risk-based capital ratio estimated to be 15.06% at June 30, 2018. 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 second quarter of 2018. The cash dividend was 3% higher than the cash dividend paid in the second quarter of 2017 when adjusted for the 3.0% stock dividend distributed on September 28, 2017.

Industry Recognition: Both of the Company's 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 45 and 37 quarters, respectively. The Company was also included for the eighth consecutive year on American Banker's "Midtier Performers" list, ranking 31st out of more than 200 financial institutions. It is one of only three New York banks, and the only one from the Capital Region, to appear in the top 50.

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. 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. and Upstate Agency, LLC.

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). 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."

Safe Harbor Statement: 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 June 30,


Six Months Ended June 30,



2018


2017


2018


2017

INTEREST AND DIVIDEND INCOME









Interest and Fees on Loans


$

19,909



$

17,295



$

38,767



$

33,697


Interest on Deposits at Banks


158



78



292



138


Interest and Dividends on Investment Securities:









Fully Taxable


2,048



2,013



3,941



4,003


Exempt from Federal Taxes


1,475



1,540



3,008



3,085


Total Interest and Dividend Income


23,590



20,926



46,008



40,923


INTEREST EXPENSE









Interest-Bearing Checking Accounts


388



381



775



712


Savings Deposits


711



316



1,233



607


Time Deposits over $250,000


328



66



532



121


Other Time Deposits


282



233



541



461


Federal Funds Purchased and Securities Sold
  Under Agreements to Repurchase


16



9



32



16


Federal Home Loan Bank Advances


656



506



1,070



951


Junior Subordinated Obligations Issued to

  Unconsolidated Subsidiary Trusts


247



188



461



367


Total Interest Expense


2,628



1,699



4,644



3,235


NET INTEREST INCOME


20,962



19,227



41,364



37,688


Provision for Loan Losses


629



422



1,375



780


NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES


20,333



18,805



39,989



36,908


NONINTEREST INCOME









Income From Fiduciary Activities


2,647



2,150



4,844



4,168


Fees for Other Services to Customers


2,570



2,413



4,950



4,670


Insurance Commissions


2,192



2,115



4,095



4,313


Net Gain on Equity Securities


223





241




Net Gain on Sales of Loans


23



204



61



250


Other Operating Income


256



175



609



351


Total Noninterest Income


7,911



7,057



14,800



13,752


NONINTEREST EXPENSE









Salaries and Employee Benefits


9,812



9,211



19,181



18,358


Occupancy Expenses, Net


2,420



2,494



4,961



5,038


FDIC Assessments


223



228



440



454


Other Operating Expense


3,737



3,704



7,566



7,262


Total Noninterest Expense


16,192



15,637



32,148



31,112


INCOME BEFORE PROVISION FOR INCOME TAXES


12,052



10,225



22,641



19,548


Provision for Income Taxes


2,322



3,017



4,380



5,709


NET INCOME


$

9,730



$

7,208



$

18,261



$

13,839


Average Shares Outstanding 1:









Basic


13,975



13,890



13,955



13,889


Diluted


14,058



13,975



14,038



13,989


Per Common Share:









Basic Earnings


$

0.70



$

0.52



$

1.31



$

1.00


Diluted Earnings


0.69



0.52



1.30



0.99


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)














June 30,
2018


December 31,
2017


June 30,
2017

ASSETS






Cash and Due From Banks

$

38,552



$

42,562



$

39,105


Interest-Bearing Deposits at Banks

22,189



30,276



26,972


Investment Securities:






Available-for-Sale

325,387



300,200



327,392


Held-to-Maturity (Approximate Fair Value of $292,605 at June 30, 2018;
$335,901 at December 31, 2017; and $350,355 at June 30, 2017)

297,885



335,907



348,018


Equity Securities

1,802






Other Investments

11,089



9,949



11,035


Loans

2,057,862



1,950,770



1,878,632


Allowance for Loan Losses

(19,640)



(18,586)



(17,442)


Net Loans

2,038,222



1,932,184



1,861,190


Premises and Equipment, Net

28,104



27,619



26,565


Goodwill

21,873



21,873



21,873


Other Intangible Assets, Net

2,060



2,289



2,482


Other Assets

58,008



57,606



57,089


Total Assets

$

2,845,171



$

2,760,465



$

2,721,721


LIABILITIES






Noninterest-Bearing Deposits

$

467,048



$

441,945



$

433,480


Interest-Bearing Checking Accounts

861,959



907,315



905,624


Savings Deposits

735,217



694,573



679,320


Time Deposits over $250,000

70,950



38,147



33,630


Other Time Deposits

169,607



163,136



167,984


Total Deposits

2,304,781



2,245,116



2,220,038


Federal Funds Purchased and

  Securities Sold Under Agreements to Repurchase

60,248



64,966



40,892


Federal Home Loan Bank Overnight Advances

136,000



105,000



122,000


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

19,654



20,780



23,039


Total Liabilities

2,585,683



2,510,862



2,480,969


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 June 30, 2018; 18,481,301 at December 31, 2017 and 17,943,201 at June 30, 2017)

18,481



18,481



17,943


Additional Paid-in Capital

292,020



290,219



272,187


Retained Earnings

40,326



28,818



35,739


Unallocated ESOP Shares (9,643 Shares at June 30, 2018; 9,643 Shares at December 31, 2017 and 19,466 Shares at June 30, 2017)

(200)



(200)



(400)


Accumulated Other Comprehensive Loss

(11,804)



(8,514)



(6,200)


Treasury Stock, at Cost (4,467,909 Shares at June 30, 2018; 4,541,524 Shares at December 31, 2017 and 4,428,713 Shares at June 30, 2017)

(79,335)



(79,201)



(78,517)


Total Stockholders' Equity

259,488



249,603



240,752


Total Liabilities and Stockholders' Equity

$

2,845,171



$

2,760,465



$

2,721,721


 

Arrow Financial Corporation

Selected Quarterly Information

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





















Quarter Ended

6/30/2018



3/31/2018



12/31/2017



9/30/2017



6/30/2017


Net Income

9,730



8,531



8,071



7,416



7,208


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

14,004



13,950



13,930



13,891



13,900


Basic Average Shares Outstanding

13,975



13,936



13,905



13,889



13,890


Diluted Average Shares Outstanding

14,058



14,016



14,006



13,966



13,975


Basic Earnings Per Share

$

0.70



$

0.61



$

0.58



$

0.53



$

0.52


Diluted Earnings Per Share

0.69



0.61



0.58



0.53



0.52


Cash Dividend Per Share

0.250



0.250



0.250



0.243



0.243












Selected Quarterly Average Balances:










  Interest-Bearing Deposits at Banks

28,543



27,978



27,047



27,143



24,480


  Investment Securities

647,913



642,442



660,043



677,368



684,570


  Loans

2,026,598



1,971,240



1,930,590



1,892,766



1,842,543


  Deposits

2,325,202



2,305,736



2,284,206



2,193,778



2,206,365


  Other Borrowed Funds

219,737



184,613



187,366



262,864



207,270


  Shareholders' Equity

256,358



251,109



247,253



243,801



239,396


  Total Assets

2,823,061



2,763,706



2,744,180



2,725,653



2,677,843


Return on Average Assets, annualized

1.38

%


1.25

%


1.17

%


1.08

%


1.08

%

Return on Average Equity, annualized

15.22

%


13.78

%


12.95

%


12.07

%


12.08

%

Return on Average Tangible Equity, annualized

16.80

%


15.24

%


14.36

%


13.40

%


13.45

%

Average Earning Assets

2,703,054



2,641,660



2,617,680



2,597,277



2,551,593


Average Paying Liabilities

2,100,085



2,050,661



2,029,811



2,012,802



2,005,421


Interest Income

23,590



22,418



22,135



21,599



20,926


Tax-Equivalent Adjustment 3

468



491



980



966



949


Interest Income, Tax-Equivalent 3

24,058



22,909



23,115



22,565



21,875


Interest Expense

2,628



2,016



1,821



1,949



1,699


Net Interest Income

20,962



20,402



20,314



19,650



19,227


Net Interest Income, Tax-Equivalent 3

21,430



20,893



21,294



20,616



20,176


Net Interest Margin, annualized

3.11

%


3.13

%


3.08

%


3.00

%


3.02

%

Net Interest Margin, Tax-Equivalent, annualized 3

3.18

%


3.21

%


3.23

%


3.15

%


3.17

%











Efficiency Ratio Calculation: 4










Noninterest Expense

16,192



15,955



16,045



15,548



15,637


Less: Intangible Asset Amortization

66



67



69



69



70


Net Noninterest Expense

16,126



15,888



15,976



15,479



15,567


Net Interest Income, Tax-Equivalent

21,430



20,893



21,294



20,616



20,176


Noninterest Income

7,911



6,888



6,752



7,141



7,057


Less: Net (Loss) Gain on Sales of Securities





(458)



10




Less: Net Gain on Equity Securities

223



18








Net Gross Income

29,118



27,763



28,504



27,747



27,233


Efficiency Ratio

55.38

%


57.23

%


56.05

%


55.79

%


57.16

%











Period-End Capital Information:










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

259,488



252,734



249,603



244,648



240,752


Book Value per Share 1

18.53



18.12



17.92



17.61



17.32


Goodwill and Other Intangible Assets, net

23,933



24,045



24,162



24,268



24,355


Tangible Book Value per Share 1,2

16.82



16.39



16.18



15.86



15.57












Capital Ratios:5






Tier 1 Leverage Ratio

9.65

%


9.62

%


9.49

%


9.30

%


9.35

%

Common Equity Tier 1 Capital Ratio 

13.01

%


12.97

%


12.89

%


12.70

%


12.68

%

Tier 1 Risk-Based Capital Ratio

14.04

%


14.03

%


13.97

%


13.79

%


13.79

%

Total Risk-Based Capital Ratio

15.06

%


15.04

%


14.99

%


14.77

%


14.77

%











Assets Under Trust Administration and Investment Management

$

1,479,753



$

1,470,191



$

1,452,994



$

1,411,608



$

1,356,262


 

 

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.

Non-GAAP Financial Measures Reconciliation: 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.



6/30/2018


3/31/2018


12/31/2017


9/30/2017


6/30/2017


Total Stockholders' Equity (GAAP)

259,488



252,734



249,603



244,648



240,752



Less: Goodwill and Other Intangible assets, net

23,933



24,045



24,162



24,268



24,355



Tangible Equity (Non-GAAP)

$

235,555



$

228,689



$

225,441



$

220,380



$

216,397














Period End Shares Outstanding

14,004



13,950



13,930



13,891



13,900



Tangible Book Value per Share (Non-GAAP)

$

16.82



$

16.39



$

16.18



$

15.86



$

15.57













3.

Non-GAAP Financial Measures Reconciliation: Net Interest Margin, Tax-Equivalent 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.



6/30/2018


3/31/2018


12/31/2017


9/30/2017


6/30/2017


Net Interest Income (GAAP)

20,962



20,402



20,314



19,650



19,227



Add: Tax-Equivalent adjustment (Non-GAAP)

468



491



980



966



949



Net Interest Income, Tax-Equivalent (Non-GAAP)

$

21,430



$

20,893



$

21,294



$

20,616



$

20,176



Average Earning Assets

2,703,054



2,641,660



2,617,680



2,597,277



2,551,593



Net Interest Margin (Non-GAAP)*

3.18

%


3.21

%


3.23

%


3.15

%


3.17

%












4.

Non-GAAP Financial Measures: 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 June 30, 2018 CET1 ratio listed in the tables (i.e., 13.01%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).



6/30/2018


3/31/2018


12/31/2017


9/30/2017


6/30/2017


Total Risk Weighted Assets

1,934,890



1,889,719



1,856,242



1,830,730



1,802,455



Common Equity Tier 1 Capital

259,488



265,066



259,378



232,473



228,586



Common Equity Tier 1 Ratio

13.01

%


12.97

%


12.89

%


12.70

%


12.68

%


















* Quarterly ratios have been annualized








              

 

Arrow Financial Corporation

Consolidated Financial Information

(Dollars in Thousands - Unaudited)













Quarter Ended:

06/30/2018


12/31/2017


6/30/2017

Loan Portfolio






Commercial Loans

$

118,881



$

129,249



$

126,259


Commercial Real Estate Loans

464,394



444,248



441,809


  Subtotal Commercial Loan Portfolio

583,275



573,497



568,068


Consumer Loans

661,908



602,827



578,754


Residential Real Estate Loans

812,679



774,446



731,810


Total Loans

$

2,057,862



$

1,950,770



$

1,878,632


Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Quarter

$

19,057



$

17,695



$

17,216


Loans Charged-off

(264)



(363)



(305)


Less Recoveries of Loans Previously Charged-off

218



97



109


Net Loans Charged-off

(46)



(266)



(196)


Provision for Loan Losses

629



1,157



422


Allowance for Loan Losses, End of Quarter

$

19,640



$

18,586



$

17,442


Nonperforming Assets






Nonaccrual Loans

$

3,880



$

5,526



$

5,222


Loans Past Due 90 or More Days and Accruing

170



319



1,821


Loans Restructured and in Compliance with Modified Terms

106



105



101


Total Nonperforming Loans

4,156



5,950



7,144


Repossessed Assets

76



109



90


Other Real Estate Owned

1,412



1,738



1,523


Total Nonperforming Assets

$

5,644



$

7,797



$

8,757


Key Asset Quality Ratios






Net Loans Charged-off to Average Loans,

   Quarter-to-date Annualized

0.01

%


0.05

%


0.04

%

Provision for Loan Losses to Average Loans,

  Quarter-to-date Annualized

0.12

%


0.24

%


0.09

%

Allowance for Loan Losses to Period-End Loans

0.95

%


0.95

%


0.93

%

Allowance for Loan Losses to Period-End Nonperforming Loans

472.57

%


312.37

%


244.15

%

Nonperforming Loans to Period-End Loans

0.20

%


0.31

%


0.38

%

Nonperforming Assets to Period-End Assets

0.20

%


0.28

%


0.32

%

Six-Month Period Ended:






Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Year

$

18,586





$

17,012


Loans Charged-off

(634)





(574)


Less Recoveries of Loans Previously Charged-off

313





224


Net Loans Charged-off

(321)





(350)


Provision for Loan Losses

1,375





780


Allowance for Loan Losses, End of Period

$

19,640





$

17,442


Key Asset Quality Ratios






Net Loans Charged-off to Average Loans, Annualized

0.03

%




0.04

%

Provision for Loan Losses to Average Loans, Annualized

0.14

%




0.09

%

 

Cision View original content:http://www.prnewswire.com/news-releases/arrow-reports-increase-in-second-quarter-net-income-record-loan-balances-300684697.html

SOURCE Arrow Financial Corporation

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