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

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

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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