- Net income was $13.0 million and diluted earnings per share (EPS) was $0.81 for the third quarter.
- Key profitability ratios were strong in the third quarter with return on average assets (ROA) of 1.32% and return on average equity (ROE) of 14.34%.
- Third-quarter revenue increased $2.7 million, or 8.1%, over the prior-year comparative quarter.
- Over $56 million of Small Business Administration Paycheck Protection Program (PPP) loans were forgiven in the third quarter of 2021.
- Arrow continues to focus on optimization of digital and physical delivery channels to meet changing customer needs.
GLENS FALLS, N.Y. (October 26, 2021) – Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three- and nine-month periods ended September 30, 2021. Net income for the third quarter of 2021 was $13.0 million, compared to $11.0 million in the third quarter of 2020. Net interest income increased to $28.6 million in the third quarter of 2021, compared to $24.9 million for the comparable quarter of 2020. For the nine months ended September 30, 2021, net interest income and net income were $83.2 million and $39.5 million, respectively, as compared to $72.7 million and $28.3 million for the nine months ended September 30, 2020.
Annualized key profitability ratios remained strong, as measured by a return on average equity (ROE) of 14.34% and a return on average assets (ROA) of 1.32% for the third quarter, compared to 13.55% and 1.23%, respectively, for the prior-year quarter.
“Arrow delivered another quarter of solid earnings, strong profitability ratios, and asset growth to a new record of more than $4 billion," said Arrow President and CEO Thomas J. Murphy. “I commend our team members for their dedication to continuous improvement and exceptional service for our customers during these challenging times. I am thankful for and humbled by their unwavering commitment to achieve our mission."
In the third quarter, Arrow advanced its focus on technology and digital experience with the launch of a new mortgage application platform and upgrades to our Business Online Banking platform. Additionally, branch network enhancement plans continued. Glens Falls National Bank announced the consolidation of two branches in Fort Edward located less than a mile apart before year-end, with the remaining full-service branch undergoing improvements; Saratoga National Bank likewise renovated a new full-service location in Wilton, which will open in the fourth quarter and replace its smaller Jones and Ballard road branches.
The following expands on our third-quarter financial results:
COVID-19 Response: In the third quarter, our lending team further advanced the forgiveness process for PPP borrowers, with about three quarters of loans forgiven as of September 30, 2021. Frontline teams
also assisted customers with additional stimulus programs and provided fraud education around pandemic-related scams.
Arrow also complied with the New York State HERO Act by implementing required face coverings for employees. The Arrow Business Continuity Plan Committee continues to meet regularly to evaluate pandemic metrics and our response, including our plan for pending OSHA guidance on vaccination requirements for large employers.
Additionally, Arrow recognized the team's outstanding performance and tremendous dedication during this pandemic with a special recognition bonus, following a similar bonus in 2020.
Loan Growth: Total loans were $2.7 billion as of September 30, 2021. Loan growth for the third quarter of 2021 was $10.7 million and increased $62.3 million, or 2.4%, from September 30, 2020. In the third quarter, total outstanding commercial loans decreased $37.8 million, or 4.5%. PPP loans, included in the commercial portfolio, decreased $56.7 million in the third quarter as a result of the continued loan forgiveness processed by the Small Business Administration. The consumer loan portfolio grew by $28.6 million, or 3.2% in the third quarter, primarily within the indirect automobile lending program. Total outstanding residential real estate loans, net of approximately $4.0 million of loans sold, increased $19.8 million, or 2.2%, for the third quarter of 2021.
Deposit Growth: At September 30, 2021, deposit balances were $3.6 billion. Deposits increased in the third quarter of 2021 by $167.5 million and increased by $340.7 million, or 10.4%, from the prior-year level. Municipal deposits increased $118.4 million in the third quarter and $134.0 million, or 15.8% from September 30, 2020. Non-municipal deposits increased $49.1 million for the quarter and $206.7 million, or 8.6% from September 30, 2020. Noninterest-bearing deposits represented 23.4% of total deposits at September 30, 2021, compared to 21.1% of total deposits at September 30, 2020. At September 30,
2021, other time deposits were $138.7 million, a decrease of $55.4 million compared to the prior year.
Net Interest Income: Net interest income for the third quarter was $28.6 million, up 15.0% from $24.9 million in the comparable quarter of 2020. Interest and fees on loans were $27.2 million for the third quarter of 2021, an increase of 9.9% from $24.7 million for the quarter ending September 30, 2020. Interest and fees related to PPP loans, included in the $27.2 million, were $2.5 million in the third quarter of 2021. Interest expense for the third quarter of 2021 was $1.2 million, a decrease of $1.2 million, or 51.2%, from the $2.4 million in expense for the comparable quarter ending September 30, 2020. The net interest margin was 3.04% for the quarter, compared to 2.90% for the third quarter of 2020. The increase in net interest margin from the prior year was due to a variety of factors, including the timing of the forgiveness of PPP loans partially offset by lower interest rates and increased cash balances.
Noninterest Income: Noninterest income for the three months ended September 30, 2021 was $7.7 million, compared to $8.7 million in the comparable 2020 quarter. Income from fiduciary activities for the three months ended September 30, 2021, increased by $306 thousand over the comparable quarter of 2020. Fees and other services to customers increased $347 thousand over the comparable quarter of 2020. Interchange fees related to increased customer activity of debit card usage was the largest driver of the increase. Gain on sales of loans decreased $1.2 million from the third quarter of 2020 as a result of the strategic decision to retain more newly originated real estate loans.
Noninterest Expense: Noninterest expense for the third quarter of 2021 was $19.4 million, an increase from $17.5 million for the third quarter of 2020. The largest component of noninterest expense was salaries and benefits paid to our employees, which totaled $11.4 million for the third quarter of 2021. The increase is primarily due to a special recognition bonus of approximately $510 thousand which was paid in the third quarter. Technology expenses increased from the prior year in part due to variable costs related to increased utilization of consumer banking technology. Other non-interest expense included the expense for estimated credit losses on off-balance sheet credit exposures of $300 thousand in the third quarter.
Provision for Income Taxes: The provision for income taxes was $3.8 million for the third quarter of 2021, compared to $2.8 million for the same quarter of 2020. The effective income tax rates for the three-month periods ended September 30, 2021 and 2020, were 22.7% and 20.2%, respectively.
Asset Quality: Asset quality remained solid at September 30, 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 0.02% for the three-month period ended September 30, 2021, consistent with the three-month period ended September 30, 2020. Nonperforming loans at September 30, 2021 were $11.3 million, up $5.1 million from September 30, 2020 which was primarily the result of two commercial real estate loans being classified as nonaccrual during 2021. Nonperforming assets of $11.7 million at September 30, 2021 represented 0.29% of period-end assets up from 0.17% at September 30, 2020.
For the third quarter of 2021, the provision for credit losses was $99 thousand and the expense for estimated credit losses on off-balance sheet credit exposures included in other liabilities was $300 thousand. The allowance for credit losses was $27.0 million on September 30, 2021, which represented 1.02% of loans outstanding, as compared to 1.10% at September 30, 2020.
Liquidity: As of September 30, 2021, Arrow’s liquidity position remained strong with interest-bearing cash balances of $548.9 million. Arrow continues to be well-positioned to address any unexpected volatility, which may affect cash flow and deposit balances. At September 30, 2021, contingent collateralized lines of credit were in place and available through the Federal Home Loan Bank of New York (FHLB) and the Federal Reserve Bank, 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 $360.2 million on September 30, 2021, up $34.5 million, or 10.6%, from September 30, 2020. Arrow's regulatory capital ratios remained strong in the third quarter of 2021. As of September 30, 2021, Arrow's Common Equity Tier 1 Capital Ratio was 13.71% and Total Risk-Based Capital Ratio was 15.66%. The capital ratios of Arrow and both its subsidiary banks continued to exceed the “well capitalized” regulatory standards.
Cash and Stock Dividends: On September 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 third quarter of 2020 when adjusted for the 3% stock dividend distributed on September 25, 2020. Additionally, a 3% stock dividend was distributed on September 24, 2021. This is the 13th consecutive year Arrow has declared a stock dividend.
Industry Recognition: In the third quarter of 2021, Arrow was selected as one of the top 35 banks and thrifts that comprise the Piper Sandler Sm-All Stars Class of 2021. Arrow is one of just five New York financial institutions on the list, and the only one headquartered locally. Additionally, 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). Some 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. These 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 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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