Arrow Reports Record Net Income of $36.3 Million and 12.6% Loan Growth for 2018

Author: Shannon MacCue Kavanaugh/Tuesday, January 29, 2019/Categories: News Release

  • Net income for 2018 reached a record high of $36.3 million, up 23.7% year-over-year.
  • Diluted Earnings Per Share (EPS) grew 22.5% to a record $2.50 for the year.
  • Period-end total loan balances reached a new record of $2.2 billion, achieving double-digit growth for the fifth consecutive year.
  • Record highs were also achieved at year-end for total assets and total equity.
  • Profitability, asset quality and capital ratios all remain strong.

GLENS FALLS, N.Y. (January 29, 2019) – Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three- and twelve-month periods ended December 31, 2018. For the fourth quarter of 2018, net income was $8.8 million, an increase of $687 thousand, or 8.5%, from the fourth quarter of 2017. For the year ended December 31, 2018, net income was a record $36.3 million, up 23.7% over net income of $29.3 million for 2017. Diluted EPS was $0.60 for the fourth quarter, up 7.1% from 0.56 from the comparable 2017 quarter, and $2.50 for 2018, up 22.5% from $2.04 in 2017.

Profitability ratios also improved in 2018, as return on average equity (ROE) and return on average assets (ROA) were 13.96% and 1.27%, respectively, for the year, as compared to 12.14% and 1.09%, respectively, for 2017.

Arrow President and CEO Thomas J. Murphy stated, “Arrow’s performance throughout 2018 was solid once again, as demonstrated by steady growth, improving profitability, excellent credit quality and our constant commitment to servicing our customers and their communities. I’m so proud of the impact that our company has had on our shareholders, our customers and the communities we serve. Arrow remains well-positioned heading into 2019, as our team continues to focus on long-term planning and responsible growth.”

Cash and Stock Dividends: On December 14, 2018, the Company distributed a cash dividend of $0.26 per share. This cash dividend reflected a $0.01 per share increase from the $0.25 cash dividend paid in the fourth quarter of 2017. Additionally, a 3% stock dividend was distributed on September 27, 2018. This is the tenth consecutive year the Company declared a stock dividend. The December 14, 2018 cash dividend was 7.1% higher than the cash dividend paid by the Company in the fourth quarter of 2017 when adjusted for the 3% stock dividend. All prior-period per-share data have been adjusted to reflect the September 27, 2018 stock dividend.

The following expands on our fourth quarter and 2018 results:

Loan Growth: At December 31, 2018, total loan balances reached a record high of $2.2 billion, up $245.4 million, or 12.6%, from the prior-year level. This represents the fifth consecutive year of double-digit loan growth. The growth was spread across all three of our major categories: consumer, residential real estate and commercial. The consumer loan portfolio grew by $116.7 million, or 19.4%, over the balance at December 31, 2017, primarily as a result of continued strength in the indirect automobile lending program. The residential real estate loan portfolio increased $80.8 million, or 10.4%, while commercial loans increased $47.9 million, or 8.4%, over the balances at December 31, 2017.

Deposit Growth: At December 31, 2018, total deposit balances reached $2.3 billion, up by $100.5 million, or 4.5%, from the prior-year level. Noninterest-bearing deposits grew by $30.8 million, or 7.0%, during 2018, and represented 20.2% of total deposits at year-end, up from the prior-year level of 19.7%. Higher market rates contributed to increased demand for savings and time deposits; as these balances increased by $123.5 million and $62.7 million, respectively.

Net Interest Income: The Net Interest Margin (NIM) increased to 3.07% for the year ending December 31, 2018, an increase of 0.05% from the 2017 level of 3.02%. The improved NIM, combined with loan growth generated $84.0 million in net interest income in 2018, a $6.4 million, or 8.2%, increase over 2017. NIM was 3.03% for the fourth quarter of 2018, as compared to 3.08% for the same quarter of 2017. For the fourth quarter of 2018, net interest income was $21.7 million, an increase of 6.6% as compared to the fourth quarter of 2017.

Noninterest Income: Noninterest income of $28.9 million for the year ended December 31, 2018 increased by 4.7% when compared to $27.6 million for the year ended December 31, 2017. Income generated from fiduciary activities increased by $838 thousand, or 10%, in 2018. Insurance revenue decreased in 2018 by $724 thousand, but still contributed $7.9 million in noninterest income. Meanwhile, service fee income increased in 2018 by $543 thousand, or 5.7%, over 2017, and all other noninterest income increased by $647 thousand. The increase in total other noninterest income in 2018 was positively impacted by a $213 thousand net gain on the fair value of equity securities. Noninterest income for the three-month period ended December 31, 2018 increased $47 thousand as compared to the fourth quarter of 2017.

Noninterest Expenses: Noninterest expense for the year ending December 31, 2018 increased by $2.4 million, or 3.7%, to $65.1 million compared to $62.7 million in 2017. The largest component of noninterest expense is salaries and benefits paid to our employees, which totaled $38.8 million in 2018. Noninterest expense for the three-month period ended December 31, 2018 increased $838 thousand, or 5.2%, as compared to the fourth quarter of 2017.

Provision for Income Taxes: The provision for income taxes for 2018 was $9.0 million compared to $10.5 million for 2017. The effective income tax rates for 2018 and 2017 were 19.9% and 26.4%, respectively, which reflects the impact of the Tax Cuts and Jobs Act of 2017.

Asset Quality: Asset quality remained strong, as evidenced by low levels of nonperforming assets and charge-offs. Net loan losses for the fourth quarter of 2018, expressed as an annualized percentage of average loans outstanding, were 0.08%. Net loan losses for the full year 2018 were 0.05% of average loans outstanding, down one basis point from the 2017 ratio of 0.06%. Nonperforming assets of $6.8 million at December 31, 2018, represented 0.23% of period-end assets, down from 0.28% at December 31, 2017.

The Company's allowance for loan losses was $20.2 million at December 31, 2018, which represented 0.92% of loans outstanding, a decrease of three basis points from the ratio of 0.95% at year-end 2017. This decrease was primarily driven by continued strong asset quality. When expressed as a percentage of nonperforming loans, the allowance for loan loss coverage ratio grew to 365.7% at year-end 2018, compared to 312.4% at year-end 2017.

Capital: Total shareholders’ equity grew to a record of $269.6 million at period-end, an increase of $20.0 million, or 8.0%, above the year-end 2017 balance. The Company's regulatory capital ratios remained strong in 2018. At December 31, 2018, the Company's Common Equity Tier 1 Capital Ratio was 12.89% and Total Risk-Based Capital Ratio was 14.86%. The capital ratios of the Company and both its subsidiary banks continued to significantly exceed the “well capitalized” regulatory standards.

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 47 and 39 quarters, respectively.


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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