Arrow Reports $8.1 million in Q1 Net Income and Year-Over-Year Loan Growth of 8.0%

Author: Shannon MacCue Kavanaugh/Friday, April 24, 2020/Categories: News Release

  • Total loans grew by $28.1 million in the first quarter of 2020.
  • First quarter net income was $8.1 million.
  • First quarter provision for loan losses was $2.8 million reflecting the uncertainty of the COVID-19 pandemic.
  • First quarter diluted earnings per share (EPS) of $0.54.
  • First quarter net interest income increased 8.9% over the prior-year comparable quarter.
  • COVID-19 response and update.

GLENS FALLS, N.Y. (April 24, 2020) – Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three-month period ended March 31, 2020. Net income for the first quarter of 2020 was $8.1 million, compared to $8.7 million in the first quarter of 2019. Steady loan growth continued in the first quarter of 2020, as total loans grew by $28.1 million from December 31, 2019 to $2.4 billion. Net interest income increased to $23.0 million in the first quarter of 2020, compared to $21.1 million for the comparable quarter of 2019.

In February 2020, Arrow's Business Continuity Task Force deployed its pandemic plan for the impending arrival of the novel coronavirus (COVID-19) to Upstate New York. Since then, a team of more than 25 members, representing leadership from across our organization and chaired by our Chief Operating Officer, has overseen a robust and expansive effort to protect our employees, customers and communities while continuing to deliver essential banking services. Our efforts have included limiting access to our facilities, the incorporation of social distancing and remote work for a large portion of our personnel.

Arrow remains fully engaged in its COVID-19 response, with a growing focus on hardship assistance and relief programs.

“While the full impact of COVID-19 remains to be seen, we remain committed in our mission to connect meaningfully with our customers and deliver essential financial services during this pandemic,” said Thomas J. Murphy, President and CEO. “Throughout our history, in periods of planned growth and unexpected adversity, our Company has remained true to its community banking roots. In these uncertain times, we return to those core values and enter this crisis with a strong financial position from which we will manage our response.”

The following expands on our COVID-19 response:

COVID-19 Safety Measures: In mid-March, Arrow limited access at all facilities to appointment-only, encouraging customers to use no-contact alternatives such as digital banking, drive-ins and ATMs. Also in March, Arrow expanded remote work arrangements for a large portion of its employee base, discontinued employee travel, minimized in-person meetings, and implemented social distancing for essential employees who remained on-site. In addition, we have increased cleaning and sanitizing of our locations. We believe these measures have helped to keep our workforce healthy and aided in community efforts to slow the spread of the COVID-19 virus.

COVID-19 Customer Support: Another significant and growing aspect of Arrow’s COVID-19 response has been support for customers experiencing financial hardship due to the mandated closure of non-essential businesses in New York State and resulting rise in unemployment. As of the date of this press release, we continue to work with individuals and businesses seeking temporary financial assistance.

Demand for the Small Business Administration’s Paycheck Protection Program has been significant. Both of our subsidiary banks are proudly participating in the program as a way to deliver relief for small businesses in our markets. The effort involves the processing of a large volume of Paycheck Protection Program applications in a narrow window of time. As a result, we have reinforced our lending team with resources and support from across the Company in order to rapidly deliver funding for our customers.

COVID-19 Operational Impact: While COVID-19 did not have a material adverse effect on our first quarter 2020 financial results, we are actively monitoring the impact of the pandemic on our business and results of operations. Currently, all of our locations, including our subsidiary banks' branches, remain open and capable of meeting our customer needs. However, the Company expects with the slowing economy and deteriorating economic outlook, increased unemployment and decreased consumer and commercial spending, that there may be adverse effects on, among other things, our customer deposits, the ability of our borrowers to satisfy their obligations, a decline in the demand for loans and our other financial products and services which may negatively impact the Company. Although the Company has, and will continue to take steps to mitigate against the impact of the pandemic on its operations, it cannot provide any assurance that these actions will be successful.

The following expands upon our first-quarter results:

Cash and Stock Dividends: On March 13, 2020, 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 first quarter of 2019 when adjusted for the 3% stock dividend distributed on September 27, 2019.

Loan Growth: Total loans reached $2.4 billion as of March 31, 2020, which represents an increase of $179.0 million, or 8.0% from March 31, 2019. The consumer loan portfolio grew by $77.9 million, or 10.4%, as compared to March 31, 2019, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased $54.5 million, or 6.3%, as compared to March 31, 2019. Total outstanding commercial loans increased $46.6 million, or 7.4%, as compared to March 31, 2019.

Deposit Growth: At March 31, 2020, deposit balances reached $2.8 billion, up $320.9 million, or 12.9%, from the prior-year level. Noninterest-bearing deposits represented 17.4% of total deposits at March 31, 2020, compared to 18.2% of total deposits on March 31, 2019. At March 31, 2020, other time deposits were $245.9 million, a decrease of $17.1 million compared to the prior year. Municipal deposits increased $174.7 million, or 28.1% from March 31, 2019. Total combined Federal Home Loan Bank Overnight and Term Advances declined $110.0 million from December 31, 2019.

Net Interest Income: First quarter 2020 net interest income increased to $23.0 million, up 8.9% from $21.1 million in the comparable quarter of 2019. The net interest margin was 3.05% for the quarter, compared to 3.01% for the first quarter of 2019. The increase in net interest margin from the prior year was primarily the result of the increase in the deposit balances as described above, combined with the decrease in market rates. The yield on earning assets has been consistent between years, with increased loan yields offset by declining yields on investments.

Noninterest Income: Noninterest income for the three months ended March 31, 2020 was $7.7 million, compared to $6.9 million in the comparable 2019 quarter. For the first quarter of 2020, the fair value of equity securities at March 31, 2020 decreased $374 thousand. In addition, income of $866 thousand related to commercial loan originations was recorded in the first quarter of 2020.

Noninterest Expense: Noninterest expense for the first quarter of 2020 increased 6.6% to $17.8 million, from $16.7 million for the first quarter of 2019. Salaries and benefits increased $1.1 million, which was primarily the result of increased cost of health insurance benefits.

Provision for Income Taxes: The provision for income taxes was $2.0 million for the first quarter of 2020, compared to $2.2 million for the same quarter of 2019. The effective income tax rates for the three-month periods ended March 31, 2020 and 2019 were 20.1% and 19.8%, respectively.

Asset Quality: Asset quality remained strong at March 31, 2020, with continued low levels of nonperforming loans and net charge-offs. Nonperforming loans at March 31, 2020, were $5.5 million, up $168 thousand from the level at March 31, 2019. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.05% for the three-month period ended March 31, 2020, consistent with March 31, 2019. The allowance for loan losses was $23.6 million at March 31, 2020, which represented 0.98% of loans outstanding, as compared to 0.91% at March 31, 2019. Loan loss provision expense for the first quarter of 2020 was $2.8 million, up $2.3 million from the provision for loan losses for the comparable 2019 quarter. Although credit quality remains very strong, the increase in loss provision for loan losses reflects the uncertainty resulting from the COVID-19 pandemic. As permitted by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, Arrow has elected to defer the adoption of the Current Expected Credit Losses ("CECL") methodology in determining credit losses.

Liquidity: At March 31, 2020, Arrow’s liquidity position was strong, and provides flexibility to address unexpected near-term disruptions that may develop as a result of the COVID-19 pandemic, such as: reduced cash-flows from the investment and loan portfolios and aggressive funding of programs associated with response efforts, including the Small Business Administration’s Paycheck Protection Program. Interest- bearing cash balances at March 31, 2020 were $106.0 million compared to $25.0 million at March 31, 2019. Contingent collateralized lines of credit are established and available through the FHLBNY and FRB, totaling $1.2 billion. Arrow also has additional liquidity options available to it including unsecured lines of credit, such as Fed Funds and brokered markets.

Capital: Total stockholders’ equity was $309.4 million at March 31, 2020, up $32.8 million, or 11.9%, from the comparable quarter of 2019. Arrow's capital reserves are well positioned to address the uncertainties related to the COVID-19 pandemic. Arrow's consistent earnings and measured dividend practices have created strong capital reserves. Since Arrow adopted the Community Bank Leverage Ratio (CBLR) framework for the first quarter of 2020 and Arrow's CBLR ratio of 9.87% exceeded the 9.0% regulatory minimum rate, Arrow is no longer required to compute or report any other capital ratios. Because the Company and both its subsidiary banks report a CBLR in excess of 9.0%, it is considered to have met the "well capitalized" regulatory standard.

Industry Recognition: Both of the Company's banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, continue to hold BauerFinancial, Inc. 5-Star Superior Bank rating.


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, including, in particular, statements regarding the uncertainty surrounding the COVID-19 pandemic. 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, 2019, and other filings with the Securities and Exchange Commission.

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