Arrow Net Income Up 8.4%; Loans Increase 12.3%

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

  • Second-quarter net income increased 8.4% year over year to $7.2 million.
  • Second-quarter diluted earnings per share (EPS) rose 8.2% to $0.53.
  • Period-end total loans reached a record high of $1.9 billion, up 12.3% year over year.
  • Record high for period-end total assets of $2.7 billion.
  • Continued strong ratios for profitability, asset quality and capital.

GLENS FALLS, N.Y. (July 20, 2017) – Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three-month period ended June 30, 2017. Net income for the second quarter of 2017 was $7.2 million, an increase of $561 thousand, or 8.4%, from net income of $6.6 million a year earlier. Diluted earnings per share (EPS) for the second quarter was $0.53, an increase from $0.49 during the comparable 2016 quarter.

Our annualized key profitability ratios continue to remain strong, as measured by a return on average equity (ROE) of 12.08% and a return on average assets (ROA) of 1.08% for the second quarter, compared to 11.98% and 1.07% a year earlier.

Arrow President and CEO Thomas J. Murphy stated, "We're proud to again report a strong quarter for Arrow, including: loan growth; record highs for equity and assets; and healthy profitability and asset quality ratios. Our approach to community banking and insurance continues to deliver great results in the markets we serve, thanks to the efforts and commitment of our team."

The following expands upon our second-quarter results:

Net Interest Income: In the second quarter of 2017, our net interest income on a GAAP basis increased 7.1% to $19.2 million, compared to $18.0 million in the comparable quarter of 2016. On a tax-equivalent (non-GAAP) basis, our net interest income increased 6.9%, compared to the second quarter of 2016. Our net interest margin, measured on a tax-equivalent (non-GAAP) basis, decreased slightly to 3.17% from 3.20% in the prior-year quarter.

Loan Growth: Over the 12 months ended June 30, 2017, our total loan balance increased to a record high of $1.9 billion, up $206.1 million, or 12.3%, from a year earlier. Over the six-month period ended June 30, 2017, total loans grew $125.4 million, or 7.2%. During the second quarter of 2017, total loans grew by $67.8 million, or 3.7% as compared to the first quarter of 2017. We experienced growth in all three of our major loan segments: commercial, consumer and residential real estate.

During the second quarter of 2017, our consumer loan portfolio grew $26.8 million, or 4.9%, to $579 million at period-end. This balance exceeded the balance at June 30, 2016 by $70.2 million, or 13.8%. The increase was primarily a result of growth in our indirect automobile lending program, which generated $85.4 million in new originations in the second quarter of 2017. Total outstanding commercial loans increased 2.5% during the second quarter to $568.1 million on June 30, 2017, up $43.8 million, or 8.4%, from the balance at June 30, 2016. Our residential real estate loan portfolio increased $27.1 million, or 3.8%, during the second quarter of 2017 to $731.8 million, up $92.1 million, or 14.4% over the balance at June 30, 2016. We originated approximately $44.6 million of residential real estate loans during the second quarter of 2017, up $6.5 million, or 17.2%, over the comparable 2016 quarter.

Deposit Growth: At June 30, 2017, deposit balances reached $2.2 billion, an increase of $147.7 million, or 7.1%, from the year-earlier level. Noninterest-bearing demand deposits increased $65.1 million, or 17.7%, from the year-earlier level, which had a positive impact on net interest margin. Noninterest-bearing demand deposits represented 19.5% of total deposits at June 30, 2017, a record high and an increase of 9.6% from the June 30, 2016 level. This deposit growth is due, in part, to the strategic expansion of our branch network to the Capital District in recent years.

Assets Under Management and Related Noninterest Income: Assets under trust administration and investment management reached a record high of $1.4 billion at June 30, 2017. Assets under trust administration increased of $105.5 million, or 8.4%, from the balance at June 30, 2016, was primarily due to the performance of the equity markets. The related income from fiduciary activities between the respective six month periods increased $237 thousand, or 6.0% to $4.2 million.

Asset Quality: Asset quality remained strong at June 30, 2017, as measured by our comparatively low levels of nonperforming assets and net charge-offs. Nonperforming assets at June 30, 2017, were $8.8 million, up $0.6 million, or 6.7%, from the year-earlier level, following the 7.1% increase in total assets over the period. The period end total was up $1.6 million, or 21.9%, from the year-end 2016 level as certain categories of our portfolio, particularly automobile loans, continued to experience modest fluctuations in nonperforming loans, which, however, remain at very low levels. Our nonperforming assets remain very low, representing only 0.32% of total assets at period-end, equal to the year-earlier ratio. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.04% for the three-month period ended June 30, 2017, the same ratio as the prior-year quarter.

Our allowance for loan losses was $17.4 million at June 30, 2017, which represented 0.93% of loans outstanding. Our provision for loan losses for the second quarter of 2017 was $422 thousand, down $247 thousand from the provision for the comparable 2016 quarter.

Noninterest Income: Our noninterest income for the three-month period ended June 30, 2017 declined by 1.9% from the comparable 2016 quarter. This decline was partially driven by a write-down in the 2017 period on Other Real Estate Owned of $84 thousand. In addition, net gain on the sale of securities for the second quarter of 2017 decreased by $144 thousand. Due to strategic planning reasons, we did not sell any securities in the second quarter of 2017.

Noninterest Expenses: Consistent with the 2016 period, salaries and employee benefits were the largest components of noninterest expense in the second quarter of 2017. Salaries and employee benefits increased 8.0% over the same 2016 quarter primarily as a result of a $409 thousand, or 6.5% increase in the salary expense. The increase in salary increase expense was due in part to staffing expansion and normal increases. Employee benefit expenses increased by $229 thousand or 13.6% primarily due to increases in medical plan claims.

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

Capital: Total stockholders’ equity was a record $240.8 million at period-end, up $15.4 million, or 6.8%, above the prior-year amount. This increase matched the 7.1% increase in total assets over the same period. Our capital ratios remained strong in 2017. At June 30, 2017, the Company's Common Equity Tier 1 Ratio was estimated to be 12.68% and the Total Risk-Based Capital Ratio was estimated to be 14.77%. The capital levels at the Company and both its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standard.

Provisions for Income Taxes: The effective income tax rates for the six month periods ended June 30, 2017 and 2016 were 29.2% and 30.8%, respectively. The decrease in the 2017 period relates primarily to current accounting standards for equity compensation under which income tax benefits from stock options exercised in the period reduced our effective tax rate from the prior year period. The year to date 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 was again named by Forbes as one of "America's 50 Most Trustworthy Financial Companies" for its accounting and governance practices in 2017. This is the sixth year Arrow has received a "Most Trustworthy" designation from Forbes.

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 41 and 33 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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