Arrow Net Income Up 10.1%; Double-Digit Loan Growth Continues

Author: Shannon MacCue Kavanaugh/Monday, October 23, 2017/Categories: News Release

  • Third-quarter net income increased 10.1% year over year to $7.4 million.
  • Third-quarter diluted earnings per share (EPS) rose 10.4% to $0.53.
  • Period-end total loans reached a record high of $1.9 billion, up 11.8% year over year.
  • New record highs for total assets, total deposits, total equity and assets under administration.
  • Ongoing strong ratios for profitability, asset quality and capital.

GLENS FALLS, N.Y. (October 23, 2017) – Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three and nine-month periods ended September 30, 2017. Net income for the third quarter of 2017 was $7.4 million, an increase of $678 thousand, or 10.1%, from net income of $6.7 million a year earlier. Diluted earnings per share (EPS) for the third quarter was $0.53, an increase of 10.4% from diluted EPS of $0.48 during the comparable 2016 quarter.

Annualized 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 1.08% for the third quarter, compared to 11.75% and 1.06% a year earlier.

Arrow President and CEO Thomas J. Murphy stated, "Our solid performance on the lending side, as well as our strategic expansion into new markets, contributed again to new records for total assets, total deposits, total loans, total equity and assets under trust administration, all while maintaining healthy profitability and asset quality ratios. I am proud of the entire team for their contributions toward our success."

During the third quarter, Arrow subsidiary Saratoga National Bank and Trust Company completed the final steps toward establishing its 10th branch, located in Schenectady. The new office opened October 10, 2017 and expands the brand's presence in the Capital District. Also in the third quarter, Arrow's lead subsidiary, Glens Falls National Bank and Trust Company, legally merged its two property and casualty insurance agencies; they are now operating as one unified business line as Upstate Agency LLC.

The following expands upon third-quarter results:

Net Interest Income: In the third quarter of 2017, net interest income on a GAAP basis increased to $19.7 million, up 9.9% over the $17.9 million total in the comparable quarter of 2016. On a tax-equivalent (non- GAAP) basis, net interest income increased by 9.6%, compared to the third quarter of 2016. Net interest margin, measured on a tax-equivalent (non-GAAP) basis, increased slightly to 3.15% from 3.12% in the prior-year quarter.

Loan Growth: Over the 12 months ended September 30, 2017, total loans increased to a record high of $1.9 billion, up $201.6 million, or 11.8%, from the September 30, 2016 level. Over the nine-month period ended September 30, 2017, total loans grew $155.5 million, or 8.9%. During the third quarter of 2017, total loans grew by $30.2 million, or 1.6% as compared to the second quarter of 2017. There was growth in all three major loan segments: commercial, consumer and residential real estate.

During the third quarter of 2017, the consumer loan portfolio grew $13.3 million, or 2.3%, to $592 million at period-end. This balance exceeded the prior year's by $68.3 million, or 13.0%. The increase was primarily a result of growth in the indirect automobile lending program. Total outstanding commercial loans decreased 0.4% during the third quarter to $566.1 million on September 30, 2017, but was up $34.0 million, or 6.4%, from September 30, 2016. The residential real estate loan portfolio increased $18.9 million, or 2.6%, during the third quarter of 2017 to $750.7 million, up $99.2 million, or 15.2%, over the balance at September 30, 2016.

Deposit Growth: At September 30, 2017, deposit balances reached $2.3 billion, up $93.9 million, or 4.2%, from the prior-year level. Deposit growth was spread across both personal and business accounts. Noninterest-bearing demand deposits increased $66.8 million, or 17.5%, from the prior-year level, which had a positive impact on net interest margin. Noninterest-bearing demand deposits represented 19.4% of total deposits at September 30, 2017, compared to 17.2% at the 2016 quarter-end.

Assets Under Management: Assets under trust administration and investment management reached a record high of $1.4 billion at September 30, 2017. Assets under trust administration increased by $127.6 million, or 9.9%, from the balance at September 30, 2016, primarily due to the performance of the equity markets.

Asset Quality: Asset quality remained strong at September 30, 2017, as measured by continuing comparatively low levels of nonperforming assets and net charge-offs. Nonperforming assets at September 30, 2017, were $9.0 million, up $1.2 million, or 15.6%, from the prior-year level. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.11% for the three-month period ended September 30, 2017, up slightly from the prior-year quarter level of 0.07%.

Allowance for loan losses was $17.7 million at September 30, 2017, which represented 0.93% of loans outstanding. The provision for loan losses for the third quarter of 2017 was $800 thousand, up $320 thousand from the provision for the comparable 2016 quarter. The provision for loan losses for the year-to-date was $1.58 million, up $29.0 thousand from the prior year amount of $1.55 million.

Noninterest Income: Noninterest income for the three-month period ended September 30, 2017, increased 0.4% from the comparable 2016 quarter. Income from fiduciary activities increased during the quarter by $193 thousand, or 10.0%, over the amount for the third quarter of 2016. Income from fiduciary activities year to date increased $430 thousand, or 7.3%, over the year-to-date amount for September 30, 2016.

Noninterest Expenses: Salaries and employee benefits increased in the third quarter of 2017 by $558 thousand, or 6.4%, over the same 2016 quarter. This increase was driven primarily by a $376 thousand, or 5.8%, increase in the salary expense, due in part to staffing expansion as well as normal increases for existing employees. Employee benefit expenses increased by $184 thousand, or 10.2%, primarily due to increases in medical costs.

Cash and Stock Dividends: On September 15, 2017, we distributed a cash dividend to shareholders of $0.250 which was subsequently restated to $0.243 per share adjusting for the 3% stock dividend distributed on September 28, 2017. The cash dividend was 3% higher than the cash dividend paid in the third quarter of 2016 when adjusted for the 3% stock dividend.

Capital: Total stockholders’ equity was a record $244.6 million at period-end, up $15.4 million, or 6.7%, from the prior-year. This increase exceeded the 6.4% increase in total assets over the same period. Overall regulatory capital ratios also remained strong in 2017. At September 30, 2017, the Company's Common Equity Tier 1 Ratio was estimated to be 12.70% and the Total Risk-Based Capital Ratio was estimated to be 14.77%. These 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 nine-month periods ended September 30, 2017 and 2016 were 29.1% and 30.0%, 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 the effective tax rate from the prior year period. Under the previous accounting standards, the tax benefits would have impacted equity directly. The year-to-date impact on earnings per share was less than $0.01.

Industry Recognition: 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 42 and 34 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.; Upstate Agency, LLC, specializing in property and casualty insurance; and Capital Financial Group, Inc., 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. 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 other filings with the Securities and Exchange Commission.

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