Arrow Reports Annual Net Income of $49.9 million and Total Assets Over $4 Billion

Author: Amanda Derway/Thursday, January 27, 2022/Categories: News Release

  • Net income for 2021 was $49.9 million, up 22.1% year over year.
  • Diluted Earnings Per Share (EPS) grew to $3.10 for the year.
  • Return on average equity (ROE) was 14.09% and return on average assets (ROA) was 1.28%.
  • Record highs were achieved at year-end for total assets, equity and assets under management by Arrow's Wealth Management Division.

GLENS FALLS, N.Y. (January 27, 2022) – Arrow Financial Corporation (NasdaqGS® – AROW) reported for the year ended December 31, 2021, that net income reached a record $49.9 million, up 22.1% over net income of $40.8 million for 2020. For 2021, revenue increased by $10.9 million and the provision for credit losses decreased by $9.0 million, which was partially offset by higher operating expenses and income taxes. For the fourth quarter of 2021, net income was $10.3 million, a decrease of $2.2 million, or 17.5%, from the fourth quarter of 2020. Diluted EPS was $3.10 for 2021, up 21.2% from $2.56 in 2020, and $0.63 for the fourth quarter of 2021, down 19.2% from $0.78 from the comparable 2020 quarter.

Return on average equity (ROE) and return on average assets (ROA) were 14.09% and 1.28%, respectively, as compared to 12.77% and 1.17%, respectively, for 2020. ROE was 11.22% for the fourth quarter, down from 14.98% from the fourth quarter of 2020. ROA was 1.01% for the fourth quarter, which represents a decrease from 1.34% for the comparable 2020 quarter.

“Arrow Financial Corporation delivered another year of strong financial results in 2021, with exceptional earnings, strong profitability ratios and asset growth to a record $4 billion, all while weathering a second year of pandemic-related issues," said Arrow President and CEO Thomas J. Murphy. “In addition to driving shareholder value in 2021, I am proud to say we advanced many continuous improvement initiatives with key investments in our Team, our branch network and our technology to position us for the future. Arrow also gave back to the communities it serves through increased charitable support to meet increasing and evolving needs. I commend the Arrow Team for their stellar performance, commitment and dedication to our company, our customers and our communities."

In the fourth quarter, Arrow continued its branch optimization initiative. In November, Saratoga National Bank consolidated two smaller branches into one larger, fully renovated branch in nearby Wilton Square. In December, Glens Falls National Bank consolidated two branches within a mile of each other in Fort Edward, allowing our Team to serve the community from one central, updated location. Throughout the year, a combination of renovation, consolidation and relocation has allowed us to deliver an enhanced customer experience while streamlining expenses.

On the technology front, the Team prepared a new online account opening platform, which launched earlier this month for Saratoga National Bank and will be followed later in 2022 at Glens Falls National Bank. Work also began in late 2021 on replacing our core technology in preparation for an upgrade this summer.

The following expands on fourth quarter and 2021 results:

COVID-19 Response: We continue to monitor the impact of the pandemic variants and all the challenges they present on our business and operations and the health and safety of our employees and customers are at the forefront of related decisions.

We continue to comply with Federal and New York State guidelines and regulations. All employees and directors are vaccinated, subject to appropriate health and religious exemptions. We continue to encourage remote work and minimize work-related travel and in-person meetings. A pandemic bonus to eligible employees, the second in two years, was awarded in recognition of the Team's enduring and exceptional pandemic performance. Arrow managed to avoid widespread lobby closures for the majority of the year. We are working through the current spike in cases by implementing temporary changes to branch availability by location as needed. On the lending side, we are well under way with the forgiveness process for the second round of Small Business Administration Paycheck Protection Program (PPP) loans, with the first round of loans already forgiven. As of December 31, 2021, $43.6 million of the total $234.2 million PPP loans funded are outstanding.

Loan Growth: At December 31, 2021, total loan balances reached $2.7 billion, up $73 million, or 2.8%, from the prior-year level. Net of $70.1 million of PPP loans forgiven by the Small Business Administration in 2021, loans grew by $143.1 million for the year. Loan growth for the fourth quarter was $13.2 million. Net of $16.4 million PPP loans forgiven in the quarter, loans grew by $29.6 in the fourth quarter. The consumer loan portfolio grew by $60.8 million, or 7.1%, over the balance at December 31, 2020, primarily as a result of continued strength in the indirect automobile lending program. Net of approximately $52.1 million of loans sold in 2021, the residential real estate loan portfolio increased $23.0 million, or 2.5% from the prior year. Commercial loans, including commercial real estate, decreased $10.9 million, or 1.3%, over the balances at December 31, 2020. The decrease in commercial loans includes $70.1 million of PPP loans forgiven by the Small Business Administration in 2021.

Deposit Growth: At December 31, 2021, total deposit balances reached $3.6 billion, up by $315.8 million, or 9.8%, from the prior-year level. Deposits decreased in the fourth quarter by $55.1 million. Non-municipal deposits grew by $53.3 million and municipal deposits seasonally contracted by $108.4 million as compared to September 30, 2021. Noninterest-bearing deposits grew by $108.9 million, or 15.5%, during 2021, and represented 22.8% of total deposits at year-end, as compared to the prior- year level of 21.7%. At December 31, 2021, total time deposits decreased $63.0 million from the prior- year level.

Net Interest Income: Net interest income for the year ending December 31, 2021, was $110.4 million, an increase of $11.2 million, or 11.2%, from the prior year. Interest and fees on loans were $105.0 million, an increase of 4.5% from the $100.5 million for the year ending December 31, 2020. Interest and fees related to PPP loans included in the $105.0 million, were $7.8 million. Interest expense for the year ending December 31, 2021 was $5.2 million. This is a decrease of $7.5 million, or 59.1%, from the $12.7 million in expense for the prior year period. The net interest margin was 2.97% for the year ending December 31, 2021, as compared to 2.99% for the year ended December 31, 2020. In the fourth quarter of 2021, the net interest margin was 2.77%, as compared to 2.96% for the fourth quarter of 2020.

Noninterest Income:Noninterest income was $32.4 million for the year ending December 31, 2021, a decrease of 0.9% as compared to $32.7 million for the year ending December 31, 2020. Income from fiduciary activities in 2021 was $10.1 million, an increase of $1.3 million from 2020. Fees and other services to customers increased $1.5 million to $11.5 million in 2021. Interchange fees related to increased customer activity of debit card usage was the largest driver of the increase. Gain on sales of loans decreased $1.5 million from 2020 to $2.4 million in 2021 as a result of the strategic decision in the second half of 2021 to retain more newly originated residential real estate loans. The decrease in other operating income from 2020 was primarily driven by a $1.4 million decrease in income related to interest rate swap agreements.

Noninterest Expense: Noninterest expense for the year ending December 31, 2021, increased by $7.4 million, or 10.5%, to $78.1 million, as compared to $70.7 million in 2020. The largest component of noninterest expense is salaries and benefits paid to our employees, which totaled $44.8 million in 2021. Noninterest expense for the fourth quarter of 2021 increased $2.7 million, or 14.7%, as compared to the fourth quarter of 2020. Other operating expenses increased from the prior comparable quarter as a result of $1.4 million in non-recurring litigation reserve expense.

Provision for Income Taxes: The provision for income taxes for 2021 was $14.5 million, compared to $11.0 million for 2020. The effective income tax rates for 2021 and 2020 were 22.6% and 21.3%, respectively.

Asset Quality: Asset quality remained strong in 2021, as evidenced by low levels of nonperforming assets and charge-offs. Net loan losses for 2021, expressed as an annualized percentage of average loans outstanding, were 0.03% of average loans outstanding, a decrease from 0.05% for 2020. Net loan losses for the fourth quarter of 2021 were 0.03%, a decrease from 0.07% for the fourth quarter of 2020. Nonperforming assets of $11.8 million at December 31, 2021, represented 0.29% of period-end assets, an increase from 0.18% at December 31, 2020. The increase in nonperforming assets from the prior year was primarily the result of two commercial real estate loans being classified as nonaccrual during 2021.

Arrow's allowance for credit losses was $27.3 million at December 31, 2021, which represented 1.02% of loans outstanding, a decrease from 1.13% at year-end 2020. When expressed as a percentage of nonperforming loans, the allowance for credit loss coverage ratio was 233.9% at year-end 2021. Arrow adopted the Current Expected Credit Losses (CECL) accounting standard as of January 1, 2021. The provision of credit losses related to the loan portfolio was $272 thousand and the expense for estimated credit losses on off-balance sheet credit exposures included in other liabilities was $685 thousand for 2021.

Liquidity: Interest-bearing cash balances at December 31, 2021, were $430.7 million. Arrow continues to be well-prepared to address any unexpected volatility, which may affect cash flow and deposit balances. At December 31, 2021, contingent collateralized lines of credit were established and available through the Federal Home Loan Bank of New York and the Federal Reserve Bank of New York, totaling $1.3 billion. Arrow has additional liquidity options currently available, including unsecured lines of credit such as Fed Funds and brokered markets.

Capital: Total shareholders’ equity grew to a record of $371.2 million at period-end, an increase of $36.8 million, or 11.0%, above the year-end 2020 balance. Arrow's regulatory capital ratios remained strong in 2021. At December 31, 2021, Arrow's Common Equity Tier 1 Capital Ratio was 13.77% and Total Risk-Based Capital Ratio was 15.69%. The capital ratios of Arrow and both its subsidiary banks continued to significantly exceed the “well capitalized” regulatory standards.

Cash and Stock Dividends: On December 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 fourth quarter of 2020 when adjusted for the 3% stock dividend distributed on September 24, 2021.

Industry Recognition: In the fourth quarter, both of Arrow's banking subsidiaries, Glens Falls National Bank and Saratoga National Bank, maintained their BauerFinancial, Inc. 5-Star "Exceptional Performance" Bank ratings for the 14th and 12th consecutive years, respectively. Other awards during 2021 included the Raymond James Community Bankers Cup, which recognizes the top 10% of community banks using various profitability, efficiency and balance sheet metrics; and the Piper Sandler Sm-All Stars Class of 2021, which includes the top 35 banks and thrifts.


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 North Country Investment Advisers, Inc. and Upstate Agency, LLC.

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, 2020, and other filings with the Securities and Exchange Commission.

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