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Arrow Reports $12.6 million in Q1 Net Income, Loan Growth of $69.3 Million

Author: Shannon MacCue Kavanaugh/Tuesday, April 26, 2022/Categories: News Release

GLENS FALLS, N.Y. (April 26, 2022) – Arrow Financial Corporation (NasdaqGS® – AROW) announced financial results for the three-month period ended March 31, 2022. Net income for the first quarter of 2022 was $12.6 million and diluted earnings per share was $0.78.

Loan growth was strong in the first quarter of 2022, with gross loans increasing by $69 million. Excluding Paycheck Protection Program (PPP) loans, which decreased by $24 million, loans grew by $93 million in the quarter.

“We are pleased to start 2022 with another exceptional quarter with both strong earnings and notable organic loan growth,” said Arrow President and CEO Thomas J. Murphy. “I thank the entire Arrow Team for their dedication and hard work. We expect another challenging year, yet I am confident in our ability to meet these challenges and deliver strong results for our customers, our shareholders and our communities.”

For the first quarter of 2022, net income was $12.6 million compared to $13.3 million for the first quarter of 2021. The year-over-year change in first quarter net income was primarily due to:

  • A provision expense of $769 thousand for the first quarter of 2022 compared to a credit to the provision of $648 thousand in the first quarter of 2021.
  • Secondary market loan sale transactions were strategically curtailed in 2021, which reduced gain-on-sale income by $1.4 million when comparing year-over-year quarters.

Even with the reduction in loan sales, total revenue for Q1 2022 of nearly $36.0 million was still higher by $1.2 million, or 3.5%, when compared to Q1 2021 total revenue of $34.8 million. Net Interest Income increased by 6.4% in Q1 2022, when compared to Q1 2021.

First Quarter Highlights

Earnings:

  • Net income was $12.6 million.
  • Net interest margin was 2.90%.
  • Return on average assets (ROA) was 1.26%.
  • Return on average equity (ROE) was 13.77%.
  • Diluted earnings per share (EPS) was $0.78 for the first quarter.
  • First-quarter revenue increased $1.2 million, or 3.5%, over the prior-year comparative quarter.
  • Net charge-offs for the first quarter of 2022 were $389 thousand as compared to $444 thousand for the comparable 2021 quarter.

Balance Sheet:

  • Total assets were $4.2 billion as of March 31, 2022 representing a record high for Arrow.
  • Total loans were $2.7 billion as of March 31, 2022, also a record high for Arrow.
  • Deposit growth in the first quarter of 2022 was $164.9 million.
  • A Federal Home Loan Bank (FHLB) term advance of $20 million was prepaid during Q1 2022.

Additional Items:

  • $24 million of PPP loans were forgiven in the first quarter of 2022.
  • Book value per share was $22.31, up by 4.3% over the prior-year level.
  • Nonperforming assets of $10.1 million at March 31, 2022 represented 0.24% of period-end assets, up from 0.22% at March 31, 2021.
  • Following New York State guidelines, COVID-19 restrictions, including New York HERO safety protocols were lifted in the first quarter of 2022.
  • Arrow continued to respond in a socially-conscious manner, while meeting the needs of the low-to-moderate income population with the launch of our nationally certified Bank On Smart Steps checking account with no overdraft fees.
  • Arrow continues to advance its focus on technology enhancement with preparations for upgrading its core platform system later in 2022.

Income Statement

  • Net Interest Income: Net interest income for the first quarter was $27.8 million, up 6.4% from $26.2 million in the comparable quarter of 2021. Interest and fees on loans were $25.7 million for the first quarter of 2022, an increase of 2.2% from $25.2 million for the quarter ending March 31, 2021. Interest and fees related to PPP loans, included in the $25.7 million, were $1.1 million in the first quarter of 2022. Interest expense for the first quarter of 2022 was $1.1 million, a decrease of $0.4 million, or 27.1%, from the $1.5 million in expense for the comparable quarter ending March 31, 2021.
  • Net Interest Margin: Net interest margin was 2.90% for the quarter, compared to 2.99% for the first quarter of 2021. The decrease in net interest margin from the prior year was due to a variety of factors including an increase in cash and investments which impacted the yield of earning assets and a decrease in the amount of PPP loan interest and related fees. The cost of interest bearing liabilities was favorably impacted by the mix of deposits and lower deposit rates.
   Three Months Ended
March 31, 2022  March 31, 2021 
Interest and Dividend Income $         28,947 $         27,694
Interest Expense               1,122              1,539
Net Interest Income            27,825            26,155
Average Earning Assets(1)       3,886,787       3,546,339
Average Interest-Bearing Liabilities       2,855,884       2,639,240
     
Yield on Earning Assets(1)                3.02 %                3.17 %
Cost of Interest-Bearing Liabilities                0.16                0.24
Net Interest Spread                2.86                2.93
Net Interest Margin                2.90                2.99
     
Net Interest Income excluding PPP loans $         26,759 $         24,814
Net Interest Margin excluding PPP loans                2.81 %                2.94 %
     
 (1) Includes Nonaccrual Loans.    

     

  • Provision for Credit Losses: For the first quarter of 2022, the provision for credit losses was $769 thousand compared to a credit of $648 thousand in provision expense in the first quarter of 2021. The key drivers for the changes were strong loan growth and current forecasted economic conditions in Q1 2022 as compared to the economic conditions forecasted at the implementation of the current expected credit loss (CECL) model as of January 1, 2021.
  • Noninterest Income: Noninterest income for the three months ended March 31, 2022 was $8.2 million, compared to $8.6 million in the comparable 2021 quarter. Income from fiduciary activities for the three months ended March 31, 2022, increased by $218 thousand over the comparable quarter of 2021. Fees and other services to customers increased $186 thousand over the comparable quarter of 2021. Gain on sales of loans decreased $1.4 million from the first quarter of 2021 as a result of the strategic decision to retain more newly originated real estate loans. Other operating income increased $672 thousand over the comparable quarter of 2021 due to a variety of factors including bank-owned life insurance proceeds and gains on other assets.
  • Noninterest Expense: Noninterest expense for the first quarter of 2022 was $18.9 million, an increase from $18.7 million for the first quarter of 2021. The largest component of noninterest expense was salaries and benefits paid to our employees, which totaled $11.3 million for the first quarter of 2022. The expense for estimated credit losses on off-balance sheet credit exposures included in other expenses was a credit of $316 thousand.
  • Provision for Income Taxes: The provision for income taxes was $3.7 million for the first quarter of 2022, compared to $3.5 million for the same quarter of 2021. The effective income tax rates for the three-month periods ended March 31, 2022 and 2021, were 22.7% and 20.6%, respectively. The increase in the effective tax rate in the first quarter of 2022 compared to the first quarter of 2021 was primarily due to the reduction of tax exempt investments held and the related investment income.

Balance Sheet

  • Total Assets: Total assets were $4.2 billion at March 31, 2022 an increase of $252.7 million, or 6.5%, from March 31, 2021.
  • Investments: Total investments increased by $100.5 million, or 14.8%, compared to March 31, 2021.
  • Loans: Total loans were $2.7 billion as of March 31, 2022. Loan growth for the first quarter of 2022 was $69.3 million and increased $98.0 million, or 3.7%, from March 31, 2021. In the first quarter, total outstanding commercial loans decreased $7.5 million, or 0.9%. PPP loans, which are included in the commercial portfolio, decreased $24.9 million in the first quarter as a result of the continued loan forgiveness processed by the Small Business Administration. The consumer loan portfolio grew by $56.1 million, or 6.1% in the first quarter, primarily within the indirect automobile lending program. Total outstanding residential real estate loans increased $20.8 million, or 2.2%, for the first quarter of 2022.
  • Allowance for Credit Losses: The allowance for credit losses was $27.7 million on March 31, 2022, which represented 1.01% of loans outstanding, as compared to 1.02% at March 31, 2021. Asset quality remained solid at March 31, 2022, as evidenced by low levels of nonperforming assets and charge-offs. Net loan losses, expressed as an annualized percentage of average loans outstanding, were 0.06% for the three-month period ended March 31, 2022, a decrease from 0.07% for the three-month period ended March 31, 2021. Nonperforming assets of $10.1 million at March 31, 2022 represented 0.24% of period-end assets compared to 0.22% at March 31, 2021.
  • Deposit Growth: At March 31, 2022, deposit balances were $3.7 billion. Deposits increased in the first quarter of 2022 by $164.9 million and increased by $261.8 million, or 7.6%, from the prior year level. Municipal deposits increased $107.0 million in the first quarter and $68.0 million, or 7.4% from March 31, 2021. Non-municipal deposits increased $57.9 million for the quarter and $193.8 million, or 7.6% from March 31, 2021. Noninterest-bearing deposits represented 21.9% of total deposits at March 31, 2022, compared to 21.8% of total deposits at March 31, 2021. At March 31, 2022, total time deposits were $177.0 million, a decrease of $69.0 million, or 28.1%, compared to the prior year.
  • Capital: Total stockholders’ equity was $357.2 million on March 31, 2022, up $14.8 million, or 4.3%, from March 31, 2021. Arrow's regulatory capital ratios remained strong in the first quarter of 2022. As of March 31, 2022, Arrow's Common Equity Tier 1 Capital Ratio was 13.48% and Total Risk-Based Capital Ratio was 15.33%. The capital ratios of Arrow and both its subsidiary banks continued to exceed the “well capitalized” regulatory standards.

Additional Commentary

  • Cash and Stock Dividends: On March 15, 2022, Arrow distributed a cash dividend of $0.27 per share. The cash dividend was 7% higher than the cash dividend paid by Arrow in the first quarter of 2021 due to a one cent increase in the cash dividend rate and after adjusting for the 3% stock dividend distributed on September 24, 2021.
  • Industry Recognition: In the first quarter of 2022, both of Arrow's banking subsidiaries, Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company, earned BauerFinancial, Inc. 5-Star Exceptional Performance 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 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 in this document may contain statements based on management’s beliefs, assumptions, expectations, estimates and projections about the future. Such "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, as amended, involve a degree of uncertainty and attendant risk. Actual outcomes and results may differ, explicitly or by implication. We are not obliged to revise or update these statements to reflect unanticipated events. This document should be read in conjunction with Arrow’s Annual Report on Form 10-K for the year ended December 31, 2021 and other filings with the SEC.

To view the full tables for the earnings release, please Click Here.

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