Arrow Reports Increased Net Income; Strong Loan Growth Continues

Author: Shannon MacCue Kavanaugh/Thursday, April 20, 2017/Categories: News Release

  • First-quarter net income increased to $6.6 million.
  • First-quarter diluted earnings per share (EPS) were $0.49.
  • Period-end total loans reached a record high of $1.8 billion, up 11.6% year over year.
  • Record highs recorded 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, 2017) – Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three-month period ended March 31, 2017. Net income for the first quarter of 2017 was $6.6 million, an increase of $82 thousand, or 1.3%, from net income of $6.5 million a year earlier. Diluted earnings per share (EPS) for the first quarter was $0.49, the same as the 2016 comparable quarter.

Our annualized key profitability ratios continue to remain strong, as measured by a return on average equity (ROE) of 11.43% and a return on average assets (ROA) of 1.02% for the first quarter, compared to 12.07% and 1.07% a year earlier. Historical and per share amounts have been restated to reflect our 3% stock dividend distributed on September 29, 2016.

Arrow President and CEO Thomas J. Murphy stated, "Arrow started 2017 as it ended 2016, with continued strong loan growth in all areas: commercial, consumer and residential real estate. Total deposits, total assets and total equity continue to grow and set new record highs. Our strategic expansion of our branch network in the Capital District, along with efforts to deepen relationships in our existing market to the north, has been effective in providing new loan opportunities and growing deposits."

The following expands upon our first-quarter results:

Net Interest Income: In the first quarter of 2017, our net interest income on a GAAP basis increased 6.3% to $18.5 million, compared to $17.4 million in 2016. On a non-GAAP (tax-equivalent) basis, our net interest income increased 6.1%, compared to the first quarter of 2016. Our net interest margin, measured on a non-GAAP (tax-equivalent) basis, was unchanged at 3.15%. It has stabilized over recent periods due to a change in asset mix, with an increase in loans as a percentage of assets and an increase in demand deposits. The increase in the yield on average earning assets was offset by an increase in the cost of average interestbearing liabilities. Since loan growth remained stronger than deposit growth, overnight borrowings from the Federal Home Loan Bank increased during the first quarter 2017 and drove the increase in the related interest expense on those advances.

Loan Growth: At March 31, 2017, our total loan balance increased $188.1 million, or 11.6%, from a year earlier to a record high of $1.8 billion. Over the three-month period ended March 31, 2017, total loans grew $57.5 million, or 3.3%. We experienced growth in all three of our major loan segments: commercial, consumer and residential real estate.

During the first three months of 2017, our consumer loan portfolio grew $15 million, or 2.7%, to $552 million at period-end. This balance exceeded that of the prior year by $62.5 million, or 12.8%. This increase was primarily a result of growth in our indirect automobile lending program, which had $74.6 million in new originations in the first quarter. Additionally, total outstanding commercial loans increased 3.2% during the first three months, reaching a balance of $554.2 million on March 31, 2017, up $44.2 million, or 8.7%, from the prior year. Finally, our residential real estate loan portfolio increased $25.6 million, or 3.8%, during the first three months of 2017, reaching a period-end balance of $704.7 million, up $81.4 million, or 13.1% over the prior year balance. We originated approximately $42.5 million of residential real estate loans during the quarter, up $18.3 million, or 75.5% over the comparable 2016 quarter.

Deposit Growth: At March 31, 2017, deposit balances reached $2.3 billion, an increase of $141.5 million, or 6.7%, from the prior-year level. Noninterest-bearing demand deposits increased $49.9 million, or 14.1%, from the prior-year level, which has positively impacted net interest margin. Noninterest-bearing demand deposits represented 17.8% of total deposits at March 31, 2017, an increase from 16.7% as of March 31, 2016. The strategic expansion of our branch network in the Capital District in recent years has been effective in providing new loan opportunities and growing deposits.

Assets Under Management and Related Noninterest Income: Assets under trust administration and investment management reached a record high of $1.3 billion at March 31, 2017. The balances of assets under trust administration and investment management were up $102.5 million, or 8.3%, from the total at March 31, 2016, primarily due to the performance of the equity markets. The related income from fiduciary activities between the respective three-month periods increased $87 thousand, or 4.5% to $2.0 million.

Asset Quality: Asset quality remained strong at March 31, 2017, as measured by our comparatively low levels of nonperforming assets and net charge-offs. Nonperforming assets at March 31, 2017, of $6.1 million were down by $4.0 million, or 39.7%, from the prior-year level and down $1.1 million from year-end 2016, while we experienced during each of these intervening periods a substantial increase in total assets. Our nonperforming assets represented only 0.23% of total assets at period-end, down from 0.41% at March 31, 2016. Net charge-offs expressed as an annualized percentage of average loans outstanding were 0.04% for the three-month period ended March 31, 2017, the same ratio as we experienced in the prior-year quarter.

Our allowance for loan losses was $17.2 million at March 31, 2017, which represented 0.95% of loans outstanding. Our provision for loan losses for the first quarter of 2017 was $358 thousand, down $43 thousand from the provision for the comparable 2016 quarter. The decrease was primarily a result of our improved asset quality ratios.

Noninterest Income: Our noninterest income for the three-month period ended March 31, 2017 declined by 2.6% from the comparable 2016 quarter. A principal factor in the decline was $118 thousand of losses in the 2017 quarter related to annual tax reporting from various partnership investments, which in the comparable 2016 quarter generated $105 thousand of income. Our total investment in the related partnerships was $1.2 million at March 31, 2017. In addition, net gains recognized from the sale of loans declined from $180 thousand to $45 thousand as a result of lower premiums on sales and a significant reduction in the volume of loans sold in the secondary market. In the first quarter of 2017, we elected to sell approximately 5% of newly originated residential mortgage loans in the secondary market. During the first quarter of 2016, we sold approximately 20% of newly originated loans in the secondary market.

Noninterest Expenses: Salaries and employee benefits, which are the largest components of noninterest expense, increased by 10.9% between first quarter 2016 and 2017. Salary expenses increased by 9% and were primarily attributable to increased staffing levels as we expanded in our southern market area and to normal salary increases. Employee benefit expenses increased by $356 thousand or 15.9% primarily related to increases in medical claims under our health benefit plans.

Cash and Stock Dividends: We distributed a cash dividend of $0.25 per share to shareholders in the first quarter of 2017. The cash dividend was 3% higher than the cash dividend paid in the first quarter of 2016 when adjusted for our 3% stock dividend distributed on September 29, 2016.

Capital: Total stockholders’ equity was a record $236.1 million at period-end, up $15.4 million, or 7.0%, above the prior-year amount. This increase essentially mirrored the 7.2% increase in total assets over the same 12-month period. Our capital ratios remained strong in 2017. At March 31, 2017, the Company's Common Equity Tier 1 ratio was estimated to be 12.84% and the Total Risk-Based Capital Ratio was estimated to be 14.98%. The Company and both its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standard.

Provisions for Income Taxes: In accordance with current accounting standards for equity compensation, income tax benefits from stock options exercised in the period reduced our effective tax rate for the quarter ended March 31, 2017. The impact on earnings per share was less than $0.01. Under the previous accounting standards the tax benefits would have impacted equity directly.

Industry Recognition: Arrow's lead subsidiary, Glens Falls National Bank and Trust Company was recently recognized on Seifried & Brew's "Top 15th Percentile of Community Banks" list based on its performance in 2016. To create the list, Seifried & Brew measured how institutions with assets between $10 million and $30 billion balanced risk and reward, using its S&B Composite scoring system. According to the report, this designation indicates that Glens Falls National "demonstrates exemplary management and safety as an institution."

Additionally, 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 each earned this designation for the past 40 and 32 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 "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, 2016, and our other filings with the Securities and Exchange Commission.

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