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

Author: Shannon MacCue Kavanaugh/Monday, July 23, 2018/Categories: News Release

  • 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.

GLENS FALLS, N.Y. (July 23, 2018) – 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 Expenses: 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.

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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.

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