- Key profitability ratios were strong in the first quarter with return on average assets (ROA) of 1.45% and return on average equity (ROE) of 15.81%.
- First-quarter provision for credit losses was ($648) thousand, due to improving economic forecasts.
- Deposits were $3.5 billion on March 31, 2021, up $218.9 million from the previous quarter.
- Over $70 million of additional Small Business Administration Paycheck Protection Program loans were funded in the first quarter of 2021, with over $210 million from inception of the program.
GLENS FALLS, N.Y. (April 27, 2021) – Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three-month period ended March 31, 2021. Net income for the first quarter of 2021 was $13.3 million, compared to $8.1 million in the first quarter of 2020. Net interest income increased to $26.2 million in the first quarter of 2021, compared to $23.0 million for the comparable quarter of 2020.
Annualized key profitability ratios remained strong, as measured by a return on average equity (ROE) of 15.81% and a return on average assets (ROA) of 1.45% for the first quarter, compared to 10.66% and 1.03%, respectively, for the prior year quarter.
“Arrow delivered a very strong first quarter. We continue to grow core deposits and provide support for our small business community with another $70 million in Paycheck Protection Program (PPP) loans," said Arrow President and CEO Thomas J. Murphy. “While the COVID-19 pandemic is ongoing, we had a very positive start to 2021 coupled with signs of broader economic improvement. Looking ahead, I believe our business and team are well-positioned to meet the changing needs of our customers and communities."
The following expands on our first quarter financial results:
COVID-19 Response: In the first quarter, Arrow's banking and insurance locations temporarily paused walk-in access to lobbies in response to a rise in community COVID-19 cases. Full access was restored in mid-March and we continue to use safety measures such as required face coverings, social distancing and personal protective equipment, including shields and hand sanitizing stations, along with frequent cleanings.
Also in the first quarter, Arrow reopened its PPP online portal for a new round of funding and saw continued demand from our customers. As of March 31, 2021, we had originated more than $212.8 million in PPP loans for more than 1,600 small businesses, $70.1 million of which occurred in the first quarter of 2021.
Arrow continues to monitor the impact of the pandemic on our business and closely watch local COVID-19 levels. Currently, remote work is encouraged whenever feasible for our employees, work- related travel remains paused and in-person meetings have been minimized.
Finally, Arrow is proud to share that its two banks were recently recognized as "Top Pandemic Performers" in a Rivel Banking Benchmark study of the Northeastern United States. Glens Falls National Bank ranked eighth in the state and Saratoga National Bank was in the top 25 based on customer feedback about 2020 pandemic performance.
Loan Growth: Total loans reached $2.6 billion as of March 31, 2021. Loan growth for the first quarter of 2021 was $44.2 million and increased $225.1 million, or 9.3%, from March 31, 2020. Total outstanding commercial loans increased $196.8 million, or 29.2%, as compared to March 31, 2020. The increase in commercial loans includes $162.8 million in outstanding PPP loans. The consumer loan portfolio grew by
$36.5 million, or 4.4%, as compared to March 31, 2020, primarily within the indirect automobile lending program. Total outstanding residential real estate loans, net of approximately $28.8 million of loans sold, decreased $14.9 million for the first quarter of 2021. Residential real estate loans decreased $8.2 million, or 0.9%, as compared to March 31, 2020.
Deposit Growth: At March 31, 2021, deposit balances reached $3.5 billion. Deposit growth for the first quarter of 2021 was $218.9 million and increased $642.6 million, or 22.9%, from the prior-year level. Noninterest-bearing deposits represented 21.8% of total deposits at March 31, 2021, compared to 17.4% of total deposits at March 31, 2020. At March 31, 2021, other time deposits were $145.8 million, a decrease of $100.1 million compared to the prior year. Municipal deposits increased $119.5 million, or 15.0% from March 31, 2020.
Net Interest Income: Net interest income for the first quarter increased to $26.2 million, up 13.7% from $23.0 million in the comparable quarter of 2020. Loan growth generated $25.2 million in interest and fees on loans for the first quarter of 2021, an increase of 1.3% from the $24.9 million from the quarter ending March 31, 2020. Interest and fees related to PPP loans produced $1.3 million in revenue in the first quarter of 2021. Interest expense for the first quarter of 2021 was $1.5 million, a decrease of $3.7 million, or 70.5%, from the $5.2 million in expense for the comparable quarter ending March 31, 2020. The net interest margin was 2.99% for the quarter, compared to 3.05% for the first quarter of 2020. The decrease in net interest margin from the prior year was due to a variety of factors, including lower interest rates and increased cash balances.
Noninterest Income: Noninterest income for the three months ended March 31, 2021 was $8.6 million, compared to $7.7 million in the comparable 2020 quarter. Favorable market conditions contributed to the net gain on the sale of loans of $1.4 million for the first quarter of 2021, an increase from $213 thousand for the comparable prior year quarter. In addition, income from fiduciary activities and fees for other services for the three months ended March 31, 2021 increased over the comparable quarter of 2020. Other operating income decreased in the first quarter of 2021 as compared to the first quarter of 2020 as a result of several factors, including the reduction of income related to interest rate swap agreements and the net difference of gains and losses from the sale of other real estate owned and fixed assets; partially offset by an increase in income related to bank-owned life insurance.
Noninterest Expense: Noninterest expense for the first quarter of 2021 increased 5.2% to $18.7 million, from $17.8 million for the first quarter of 2020. The largest component of noninterest expense is salaries and benefits paid to our employees, which totaled $11.1 million for the first quarter of 2021.
Provision for Income Taxes: The provision for income taxes was $3.5 million for the first quarter of 2021, compared to $2.0 million for the same quarter of 2020. The effective income tax rates for the three- month periods ended March 31, 2021 and 2020 were 20.6% and 20.1%, respectively.
Asset Quality: Asset quality remained solid at March 31, 2021, as evidenced by low levels of nonperforming assets and charge-offs. Net loan losses, expressed as an annualized percentage of average loans outstanding, were 0.07% for the three-month period ended March 31, 2021, an increase from 0.05% for the three-month period ended March 31, 2020. Nonperforming loans at March 31, 2021, were $8.4 million, up $2.9 million from the year-over-year level at March 31, 2020. Nonperforming assets of $8.7 million at March 31, 2021 represented 0.22% of period-end assets, an increase from 0.20% at March 31, 2020.
Arrow adopted the Current Expected Credit Losses (CECL) methodology effective January 1, 2021. Arrow recorded a net increase to retained earnings of $120 thousand upon adoption of the new accounting standard. The transition adjustment at January 1, 2021 included a $1.30 million decrease in the allowance for credit losses on loans, and a $1.14 million establishment of an allowance for estimated credit losses on off-balance sheet credit exposures, net of the corresponding $41 thousand increase in deferred tax liabilities. For the first quarter of 2021, the provision for credit losses was ($648) thousand reflecting improving economic forecasts. The allowance for loan losses was $26.8 million on March 31, 2021, which represented 1.02% of loans outstanding, as compared to 0.98% on March 31, 2020.
Liquidity: As of March 31, 2021, Arrow’s liquidity position was strong. Deposit growth for the first quarter of 2021 was $218.9 million and interest-bearing cash balances at March 31, 2021 were $406.6 million. Arrow continues to be positioned to address any unexpected volatility, which may affect cash flow and deposit balances. At March 31, 2021, contingent collateralized lines of credit were in place and available through the Federal Home Loan Bank of New York and Federal Reserve Bank (Fed), totaling $1.4 billion. Arrow has additional liquidity options currently available, including access to unsecured lines of credit such as Fed funds and brokered markets.
Capital: Total stockholders’ equity was $342.4 million on March 31, 2021, up $33.0 million, or 10.7%, from March 31, 2020. Arrow's regulatory capital ratios remained strong in the first quarter of 2021. As of March 31, 2021, Arrow's Common Equity Tier 1 Capital Ratio was 13.56% and Total Risk-Based Capital Ratio was 15.49%. The capital ratios of Arrow and both its subsidiary banks continued to significantly exceed the “well capitalized” regulatory standards.
Cash and Stock Dividends: On March 15, 2021, Arrow distributed a cash dividend of $0.26 per share. The cash dividend was 3% higher than the cash dividend paid by Arrow in the first quarter of 2020 when adjusted for the 3% stock dividend distributed on September 25, 2020.
Industry Recognition: Both of Arrow'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 ratings.
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. Arrow 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 Arrow from time to time are useful in evaluating Arrow'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. Arrow 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 Arrow's Annual Report on Form 10-K for the year ended December 31, 2020, and other filings with the Securities and Exchange Commission.
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