- Total loans grew by $55.3 million in the third quarter of 2019 to a record high.
- Third quarter net income was $10.1 million.
- Third quarter diluted earnings per share (EPS) of $0.67.
- Third quarter net interest income increased 6.2% over the prior-year comparable quarter.
- Continued strong profitability, asset quality and capital ratios.
GLENS FALLS, N.Y. (October 22, 2019) – Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three-month period ended September 30, 2019. Net income for the third quarter of 2019 was $10.1 million, compared to $9.3 million in the third quarter of 2018. Steady loan growth continued in the third quarter of 2019, as total loans grew by $55.3 million from June 30, 2019 to $2.3 billion. Driven primarily by this growth, net interest income increased to $22.3 million in the third quarter of 2019, compared to $21.0 million for the comparable quarter of 2018.
Annualized key profitability ratios remained strong, as measured by a return on average equity of 13.82% and a return on average assets of 1.32% for the third quarter, compared to 13.96% and 1.28%, respectively, a year earlier.
"Arrow delivered another strong quarter, demonstrated by $55.3 million of loan growth in the quarter, total assets above $3.0 billion and continued stable asset quality," said President and CEO Thomas J. Murphy. “Alongside organic growth, we remain focused on the customer experience through strategic investments in technology as well as our branch network. I am proud of our team and these results."
In the third quarter, Glens Falls National Bank completed a yearlong optimization of its three-branch Plattsburgh presence, which included relocations, renovations and the debut of a newly built facility at Smithfield Boulevard in September. In addition, Glens Falls National Bank reopened its fully renovated Exit 18 Office in Queensbury, and Saratoga National Bank is targeting to open its 12th branch in Latham in early 2020.
The following expands on our third-quarter results:
Cash and Stock Dividends: On September 13, 2019, the Company distributed a cash dividend of $0.26 per share. The cash dividend was 3% higher than the cash dividend paid by the Company in the third quarter of 2018 when adjusted for the 3% stock dividend distributed on September 27, 2018. Additionally, a 3% stock dividend was distributed on September 27, 2019. This is the 11th consecutive year the Company declared a stock dividend.
Loan Growth: Total loans reached $2.3 billion as of September 30, 2019, which represents an increase of $209.5 million, or 9.9% as compared to September 30, 2018. The consumer loan portfolio grew by $111.6 million, or 16.1%, as compared to September 30, 2018, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased $54.9 million, or 6.6%, as compared to September 30, 2018. Total outstanding commercial loans increased $43.0 million, or 7.2%, as compared to September 30, 2018.
Deposit Growth: At September 30, 2019, deposit balances reached $2.6 billion, up $206.7 million, or 8.6%, from the prior-year level. Noninterest-bearing deposits represented 19.8% of total deposits at September 30, 2019, a decrease from 20.4% of total deposits a year prior. At September 30, 2019, other time deposits were $269.8 million, an increase of $86.9 million compared to the prior year. Time deposits include brokered deposits acquired to diversify funding with more favorable rates as compared to wholesale borrowings. Total combined Federal Home Loan Bank Overnight and Term Advances declined $98.0 million from September 30, 2018.
Net Interest Income: Third quarter 2019 net interest income increased to $22.3 million, up 6.2% from $21.0 million in the comparable quarter of 2018. The net interest margin was 3.07% for the quarter, compared to 3.02% for the third quarter of 2018. The increase in net interest margin from the prior year was primarily the result of an improved balance sheet mix, with loans and deposits increasing and investments and borrowings decreasing.
Noninterest Income: Noninterest income for the three months ended September 30, 2019 was $7.7 million, compared to $7.4 million in the comparable 2018 quarter. For the third quarter of 2019, income from fiduciary activities and insurance combined to generate 13.8% of total revenue. For the third quarter of 2018, income from fiduciary activities and insurance combined to generate 15.1% of total revenue.
Noninterest Expense: Noninterest expense for the third quarter of 2019 increased 4.8% to $16.8 million, from $16.0 million for the third quarter of 2018. Technology and equipment expense increased $546 thousand, and other operating expense increased $481 thousand from the comparable quarter in 2018. The FDIC provided Small Bank Assessment Credits of $687 thousand, which were fully recorded in the third quarter of 2019.
Provision for Income Taxes: The provision for income taxes was $2.6 million for the third quarter of 2019 compared to $2.5 million for the same quarter of 2018. The effective income tax rates for the three-month periods ended September 30, 2019 and 2018 were 20.6% and 21.1%, respectively.
Asset Quality: Asset quality remained strong at September 30, 2019, with continued low levels of nonperforming loans and net charge-offs. Nonperforming loans at September 30, 2019, were $4.7 million, down $1.1 million from the level at September 30, 2018. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.05% for the three-month period ended September 30, 2019, up from the prior-year comparable quarter of 0.04%. The allowance for loan losses was $20.9 million at September 30, 2019, which represented 0.90% of loans outstanding, as compared to 0.94% at September 30, 2018. The loss provision expense for the third quarter of 2019 was $518 thousand, down $68 thousand from the provision for the comparable 2018 quarter.
Capital: Total stockholders’ equity was a record $292.2 million at September 30, 2019, up $27.4 million, or 10.4%, from the comparable quarter of 2018. Overall regulatory capital ratios also remained strong in 2019, with the Company's common equity tier 1 ratio estimated to be 12.93% and the total risk-based capital ratio estimated to be 14.81% at September 30, 2019. These capital levels at the Company and both its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standard.
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 50 and 42 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 Upstate Agency, LLC and North Country Investment Advisers, Inc.
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, 2018, and other filings with the Securities and Exchange Commission.
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