Arrow's Second-Quarter Net Income Up 14.1%, Asset Quality Remains Strong

-- Second-quarter net income rose $781 thousand, or 14.1%, year over year.

-- Diluted earnings per share (EPS) rose $0.06, or 13.6%, from the prior-year quarter.

-- Record high period-end loan portfolio balances - growth of $135.5 million, or 10.1%, year over year.

-- Continued strong ratios for asset quality and capital.

Jul 21, 2015, 10:55 ET from Arrow Financial Corporation

GLENS FALLS, N.Y., July 21, 2015 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three- and six-month periods ended June 30, 2015. Net income for the second quarter of 2015 was $6.31 million, an increase of $781 thousand, or 14.1%, from net income of $5.52 million for the second quarter of 2014. Diluted earnings per share (EPS) for the quarter were $0.50, a 13.6% increase from the comparable 2014 quarter, when diluted EPS was $0.44. Return on average assets was 1.09%, and return on average equity was 12.23% for the 2015 second quarter, representing increases of 7.9% and 8.4%, respectively, from the prior-year second quarter.

Arrow President and CEO Thomas J. Murphy stated, "We are pleased to report a double-digit increase in net income for the second quarter, driven in part by continued strong loan growth. Our lending team has experienced increased activity and opportunities, especially in our southern market, producing results across all major loan segments: commercial, consumer, and residential real estate. At the same time, we have continued to maintain strong ratios for asset quality and capital. I am very proud of our team for achieving these excellent results."

The following list expands upon our second-quarter results:

Net Interest Income and Margin: In the second quarter of 2015, on a tax-equivalent basis, our net interest income increased $976 thousand, or 6.0%, compared to the second quarter of 2014. Our tax-equivalent net interest margin decreased by 2 basis points, from 3.17% in the second quarter of 2014 to 3.15% for the second quarter of 2015. The decrease in net interest margin reflected the fact that the average yield on our loan portfolio decreased more rapidly than the average cost of our interest-bearing liabilities.

Trust Assets and Related Noninterest Income: Assets under trust administration and investment management at June 30, 2015, were $1.25 billion, an increase of $32.0 million, or 2.6%, from the June 30, 2014, balance of $1.21 billion. The growth in asset balances was generally attributable to a rise in the equity markets between the periods and the addition of new accounts. Income from fiduciary activities increased by $205 thousand, or 5.4%, from $3.78 million for the first six months of 2014, to $3.98 million for the first six months of 2015.

Loan Growth: Over the six-month period ended June 30, 2015, our total loans increased by $66.4 million, or 4.7%, with increases in all three of our major loan segments: commercial, consumer, and residential real estate. At June 30, 2015, our total loan balance was up 10.1% as compared to June 30, 2014.

During the second quarter of 2015, our residential real estate loan portfolio grew $21.0 million, or 3.8%. We originated approximately $34 million of residential real estate loans during the quarter, nearly $6 million more than our originations in the comparable quarter of 2014. We also experienced continuing growth during the quarter in our consumer loan portfolio, reaching a record-high balance at period-end of $454.9 million, exceeding the June 30, 2014 balance, by $37.7 million, or 9.0%. This was primarily a result of our indirect automobile lending program. In the second quarter, we extended $52.7 million in new loans for new and used automobiles. Total outstanding commercial loans continued to grow, reaching a balance of $449.1 million on June 30, 2015, an increase of $15.9 million, or 3.7% from June 30, 2014.

Asset Quality and Loan Loss Provision: Asset quality remained strong at June 30, 2015, as measured by our comparatively low levels of nonperforming assets and net charge-offs. Nonperforming assets at June 30, 2015 were $9.1 million, an increase of $819 thousand, or 9.9%, from the prior year level. However, our nonperforming assets represented only 0.39% of total assets at period-end, versus 0.38% at June 30, 2014. Net loan losses expressed as an annualized percentage of average loans outstanding, were just 0.03% for the three-month period ended June 30, 2015, unchanged from the 2014 three-month period.

Our allowance for loan losses was $15.6 million at June 30, 2015, which represented 1.05% of loans outstanding, seven basis points below our ratio one year earlier and five basis points below our ratio at December 31, 2014. Our provision for loan losses for the second quarter of 2015 was $70 thousand, down by $435 thousand from the provision for the comparable 2014 quarter. The decreased size of our provision and reduction in our coverage ratio reflect the strong quality of our loan portfolio.

Cash and Stock Dividends: We distributed a cash dividend of $0.25 per share to stockholders in the second quarter of 2015. The cash dividend was 2% higher than the cash dividend paid in the second quarter of 2014, as adjusted for our 2% stock dividend distributed in September 2014.

Insurance Agency Operations: Insurance commission income increased from $2.3 million for the second quarter of 2014 to $2.4 million for the second quarter of 2015, or 4.3%.

Capital: Total stockholders' equity was a record $206.9 million at period-end, an increase of $9.3 million, or 4.7%, above the June 30, 2014, amount. Effective January 1, 2015, the new bank regulatory capital standards for U.S. banking organizations revised the risk weighting of certain assets and added a new risk-weighted capital measure Common Equity Tier 1 (CET1). These new regulatory standards did not have a material impact on our capital ratios, which remained strong at quarter-end. We estimate that Arrow's regulatory capital ratios at June 30, 2015, calculated under the new standards were as follows: Tier 1 leverage ratio 9.41%; CET1 ratio 13.12%; Tier 1 risk-based capital ratio 14.46%; and total risk-based capital ratio 15.51%. All of our regulatory capital ratios, at the holding company and subsidiary bank levels, as calculated under the new standards, continue to significantly exceed the new regulatory thresholds for "well capitalized" institutions, which is the highest current regulatory category.

Industry Recognition: The Company was recently included on American Banker's "Midtier Performers" list, ranking 31st out of almost 200 financial institutions based on three-year return on average equity (ROAE). Arrow had a three-year ROAE of 12.26% and was the only New York State Capital Region bank to appear in the top 40. The list included 191 public and private financial institutions with assets between $2 billion and $10 billion.

In addition, Arrow's two banking subsidiaries were each recognized again as a 5-Star Superior Bank by BauerFinancial, Inc., a national bank rating and research firm, based on March 31, 2015, financial data. Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company have each earned this designation for the past 33 and 25 quarters, respectively.

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.; three property and casualty insurance agencies: Loomis & LaPann, Inc., Upstate Agency, LLC, and McPhillips Insurance Agency, a division of Glens Falls National Insurance Agencies, LLC; and Capital Financial Group, Inc., an insurance agency specializing in the sale and servicing of group health plans. www.arrowfinancial.com

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. Our 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 "Select Quarterly Information."

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, 2014, and our other filings with the Securities and Exchange Commission.

 

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts - Unaudited)

 




















Three Months Ended June 30,


Six Months Ended June 30,



2015


2014


2015


2014

INTEREST AND DIVIDEND INCOME









Interest and Fees on Loans


$

13,939



$

13,202



$

27,589



$

25,976


Interest on Deposits at Banks


26



16



47



29


Interest and Dividends on Investment Securities:









Fully Taxable


2,013



2,041



3,957



4,049


Exempt from Federal Taxes


1,429



1,436



2,804



2,907


Total Interest and Dividend Income


17,407



16,695



34,397



32,961


INTEREST EXPENSE









NOW Accounts


338



495



668



959


Savings Deposits


182



226



349



445


Time Deposits of $100,000 or More


88



201



178



431


Other Time Deposits


185



359



387



750


Federal Funds Purchased and

Securities Sold Under Agreements to Repurchase


5



5



10



9


Federal Home Loan Bank Advances


301



127



451



272


Junior Subordinated Obligations Issued to

Unconsolidated Subsidiary Trusts


144



142



286



283


Total Interest Expense


1,243



1,555



2,329



3,149


NET INTEREST INCOME


16,164



15,140



32,068



29,812


Provision for Loan Losses


70



505



345



963


NET INTEREST INCOME AFTER PROVISION FOR

LOAN LOSSES


16,094



14,635



31,723



28,849


NONINTEREST INCOME









Income From Fiduciary Activities


2,051



1,906



3,984



3,779


Fees for Other Services to Customers


2,334



2,377



4,573



4,571


Insurance Commissions


2,367



2,293



4,506



4,737


Net Gain (loss) on Securities Transactions


16



(27)



106



(27)


Net Gain on Sales of Loans


120



166



252



289


Other Operating Income


556



304



879



556


Total Noninterest Income


7,444



7,019



14,300



13,905


NONINTEREST EXPENSE









Salaries and Employee Benefits


8,186



7,880



15,878



15,522


Occupancy Expenses, Net


2,344



2,316



4,831



4,657


FDIC Assessments


296



282



576



555


Other Operating Expense


3,557



3,259



7,053



6,469


Total Noninterest Expense


14,383



13,737



28,338



27,203















INCOME BEFORE PROVISION FOR INCOME TAXES


9,155



7,917



17,685



15,551


Provision for Income Taxes


2,850



2,393



5,525



4,707


NET INCOME


$

6,305



$

5,524



$

12,160



$

10,844











Average Shares Outstanding 1:









Basic


12,633



12,595



12,633



12,599


Diluted


12,669



12,616



12,670



12,621


Per Common Share:









Basic Earnings


$

0.50



$

0.44



$

0.96



$

0.86


Diluted Earnings


0.50



0.44



0.96



0.86




1 Share and per share data have been restated for the September 29, 2014, 2% stock dividend.


 

 

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts - Unaudited)














June 30, 2015


December 31,
2014


June 30, 2014

ASSETS






Cash and Due From Banks

$

31,438



$

35,081



$

35,351


Interest-Bearing Deposits at Banks

13,699



11,214



16,459


Investment Securities:






Available-for-Sale

391,817



366,139



366,848


Held-to-Maturity (Approximate Fair Value of $328,361 at June 30, 2015; $308,566 at December 31, 2014; and $304,259 at June 30, 2014)

324,116



302,024



297,437


Other Investments

6,470



4,851



4,583


Loans

1,479,670



1,413,268



1,344,124


Allowance for Loan Losses

(15,574)



(15,570)



(15,036)


Net Loans

1,464,096



1,397,698



1,329,088


Premises and Equipment, Net

28,570



28,488



28,465


Goodwill

22,003



22,003



22,003


Other Intangible Assets, Net

3,369



3,625



3,865


Other Assets

47,793



46,297



48,952


Total Assets

$

2,333,371



$

2,217,420



$

2,153,051


LIABILITIES






Noninterest-Bearing Deposits

$

325,046



$

300,786



$

286,735


NOW Accounts

904,893



871,671



820,589


Savings Deposits

547,706



524,648



523,626


Time Deposits of $100,000 or More

58,284



61,797



70,600


Other Time Deposits

136,555



144,046



159,116


Total Deposits

1,972,484



1,902,948



1,860,666


Federal Funds Purchased and

Securities Sold Under Agreements to Repurchase

24,273



19,421



16,896


Federal Home Loan Bank Overnight Advances

29,500



41,000



24,000


Federal Home Loan Bank Term Advances

55,000



10,000



10,000


Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts

20,000



20,000



20,000


Other Liabilities

25,167



23,125



23,873


Total Liabilities

2,126,424



2,016,494



1,955,435


STOCKHOLDERS' EQUITY






Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized








Common Stock, $1 Par Value; 20,000,000 Shares Authorized (17,079,376 Shares Issued at June 30, 2015 and at December 31, 2014 and 16,744,486 Shares Issued June 30, 2014)

17,079



17,079



16,744


Additional Paid-in Capital

240,243



239,721



230,131


Retained Earnings

35,303



29,458



32,132











Unallocated ESOP Shares (58,606 Shares at June 30, 2015; 71,748 Shares at December 31, 2014; and 74,845 Shares at June 30, 2014)

(1,200)



(1,450)



(1,550)


Accumulated Other Comprehensive Loss

(7,171)



(7,166)



(3,489)


Treasury Stock, at Cost (4,397,740 Shares at June 30, 2015; 4,386,001 Shares at December 31, 2014; and 4,319,587 Shares at June 30, 2014)

(77,307)



(76,716)



(76,352)


Total Stockholders' Equity

206,947



200,926



197,616


Total Liabilities and Stockholders' Equity

$

2,333,371



$

2,217,420



$

2,153,051


 

 

Arrow Financial Corporation

Selected Quarterly Information

(Dollars In Thousands, Except Per Share Amounts - Unaudited)





















Quarter Ended

6/30/2015



3/31/2015



12/31/2014



9/30/2014



6/30/2014


Net Income

$

6,305



$

5,855



$

6,369



$

6,147



$

5,524


Transactions Recorded in Net Income (Net of Tax):










Net Gain (Loss) on Securities Transactions

10



55





83



(16)












Share and Per Share Data:1










Period End Shares Outstanding

12,623



12,635



12,622



12,605



12,597


Basic Average Shares Outstanding

12,633



12,633



12,614



12,606



12,595


Diluted Average Shares Outstanding

12,669



12,671



12,655



12,621



12,616


Basic Earnings Per Share

$

0.50



$

0.46



$

0.50



$

0.49



$

0.44


Diluted Earnings Per Share

0.50



0.46



0.50



0.49



0.44


Cash Dividend Per Share

0.25



0.25



0.25



0.25



0.25












Selected Quarterly Average Balances:










  Interest-Bearing Deposits at Banks

37,303



30,562



58,048



15,041



22,486


  Investment Securities

701,329



673,753



664,334



653,702



712,088


  Loans

1,456,534



1,422,005



1,401,601



1,361,347



1,328,639


  Deposits

1,983,647



1,949,776



1,962,698



1,861,115



1,900,399


  Other Borrowed Funds

99,994



69,034



56,185



67,291



60,900


  Shareholders' Equity

206,831



202,552



202,603



199,518



196,478


  Total Assets

2,316,427



2,248,054



2,247,576



2,154,307



2,183,611


Return on Average Assets, annualized

1.09

%


1.06

%


1.12

%


1.13

%


1.01

%

Return on Average Equity, annualized

12.23

%


11.72

%


12.47

%


12.22

%


11.28

%

Return on Tangible Equity, annualized 2

13.94

%


13.42

%


14.28

%


14.04

%


12.99

%

Average Earning Assets

$

2,195,166



$

2,126,320



$

2,123,983



$

2,030,090



$

2,063,213


Average Paying Liabilities

1,770,023



1,713,253



1,716,699



1,626,327



1,680,149


Interest Income, Tax-Equivalent3

18,501



18,073



18,213



17,834



17,837


Interest Expense

1,243



1,086



1,219



1,399



1,555


Net Interest Income, Tax-Equivalent3

17,258



16,987



16,994



16,435



16,282


Tax-Equivalent Adjustment3

1,094



1,083



1,073



1,074



1,142


Net Interest Margin, annualized 3

3.15

%


3.24

%


3.17

%


3.21

%


3.17

%











Efficiency Ratio Calculation: 4










Noninterest Expense

$

14,383



$

13,955



$

13,299



$

13,526



$

13,737


Less: Intangible Asset Amortization

(80)



(91)



(94)



(94)



(94)


Net Noninterest Expense

$

14,303



$

13,864



$

13,205



$

13,432



$

13,643


Net Interest Income, Tax-Equivalent

$

17,258



$

16,987



$

16,994



$

16,435



$

16,282


Noninterest Income

7,444



6,856



7,060



7,351



7,019


Less: Net Securities (Gain) Loss

(16)



(90)





(137)



27


Net Gross Income

$

24,686



$

23,753



$

24,054



$

23,649



$

23,328


Efficiency Ratio

57.94

%


58.37

%


54.90

%


56.80

%


58.48

%











Period-End Capital Information:










Total Stockholders' Equity (i.e. Book Value)

$

206,947



$

204,965



$

200,926



$

200,089



$

197,616


Book Value per Share

16.39



16.22



15.92



15.87



15.69


Goodwill and Other Intangible Assets, net

25,372



25,492



25,628



25,747



25,868


Tangible Book Value per Share 2

14.38



14.20



13.89



13.83



13.63












Capital Ratios:5










Tier 1 Leverage Ratio

9.41

%


9.57

%


9.44

%


9.68

%


9.39

%

Common Equity Tier 1 Capital Ratio 

13.12

%


13.27

%


N/A



N/A



N/A


Tier 1 Risk-Based Capital Ratio

14.46

%


14.65

%


14.47

%


14.41

%


14.49

%

Total Risk-Based Capital Ratio

15.51

%


15.73

%


15.54

%


15.48

%


15.57

%











Assets Under Trust Administration

and Investment Management

$

1,246,849



$

1,254,823



$

1,227,179



$

1,199,930



$

1,214,841


 

 

Arrow Financial Corporation
Selected Quarterly Information - Continued
(Dollars In Thousands, Except Per Share Amounts - Unaudited)






















Footnotes:




















1.

Share and Per Share Data have been restated for the September 29, 2014, 2% stock dividend.



2.

Tangible Book Value and Tangible Equity exclude goodwill and other intangible assets, net from total equity. These are non-GAAP financial measures which we believe provide investors with information that is useful in understanding our financial performance.





6/30/2015


3/31/2015


12/31/2014


9/30/2014


6/30/2014


Total Stockholders' Equity (GAAP)

$

206,947



$

204,965



$

200,926



$

200,089



$

197,616



Less: Goodwill and Other Intangible assets, net

25,372



25,492



25,628



25,747



25,868



Tangible Equity (Non-GAAP)

$

181,575



$

179,473



$

175,298



$

174,342



$

171,748














Period End Shares Outstanding

12,623



12,635



12,622



12,605



12,597



Tangible Book Value per Share (Non-GAAP)

$

14.38



$

14.20



$

13.89



$

13.83



$

13.63













3.

Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which we believe provides investors with information that is useful in understanding our financial performance.



6/30/2015


3/31/2015


12/31/2014


9/30/2014


6/30/2014


Net Interest Income (GAAP)

$

16,164



$

15,904



$

15,921



$

15,361



$

15,140



Add: Tax-Equivalent adjustment (Non-GAAP)

1,094



1,083



1,073



1,074



1,142



Net Interest Income - Tax Equivalent (Non-GAAP)

$

17,258



$

16,987



$

16,994



$

16,435



$

16,282



Average Earning Assets

2,195,166



2,126,320



2,123,983



2,030,090



2,063,213



Net Interest Margin (Non-GAAP)*

3.15

%


3.24

%


3.17

%


3.21

%


3.17

%












4.

Financial Institutions often use the "efficiency ratio", a non-GAAP ratio, as a measure of expense control. We believe the efficiency ratio provides investors with information that is useful in understanding our financial performance. We define our efficiency ratio as the ratio of our noninterest expense to our net gross income (which equals our tax-equivalent net interest income plus noninterest income, as adjusted).












5.

Common Equity Tier 1 Capital Ratio (CET1) is a new regulatory capital measure applicable to financial institutions, effective January 1, 2015. For the current quarter, all of the regulatory capital ratios in the table above, as well as the Total Risk-Weighted Assets and Common Equity Tier 1 Capital amounts listed in the table below, are estimates based on, and calculated in accordance with, these new bank regulatory capital rules. All prior quarters reflect actual results. The June 30, 2015 CET1 ratio listed in the tables (i.e., 13.12%) exceeds the sum of the required minimum CET1 ratio plus the fully phased-in Capital Conservation Buffer (i.e., 7.00%).





6/30/2015


3/31/2015


12/31/2014


9/30/2014


6/30/2014


Total Risk Weighted Assets

$

1,492,284



$

1,452,975



N/A



N/A



N/A



Common Equity Tier 1 Capital

$

195,800



$

192,865



N/A



N/A



N/A



Common Equity Tier 1 Ratio

13.12

%


13.27

%


N/A



N/A



N/A


 

* Quarterly ratios have been annualized

 

 

Arrow Financial Corporation

Consolidated Financial Information

(Dollars in Thousands - Unaudited)













Quarter Ended:

6/30/2015


12/31/2014


6/30/2014

Loan Portfolio






Commercial Loans

$

112,022



$

118,326



$

123,592


Commercial Real Estate Loans

337,106



321,297



309,646


Subtotal Commercial Loan Portfolio

449,128



439,623



433,238


Consumer Loans

454,879



437,041



417,164


Residential Real Estate Loans

575,663



536,604



493,722


Total Loans

$

1,479,670



$

1,413,268



$

1,344,124














Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Quarter

$

15,625



$

15,293



$

14,636


Loans Charged-off

165



251



168


Less Recoveries of Loans Previously Charged-off

44



87



63


Net Loans Charged-off

121



164



105


Provision for Loan Losses

70



441



505


Allowance for Loan Losses, End of Quarter

$

15,574



$

15,570



$

15,036














Nonperforming Assets






Nonaccrual Loans

$

6,931



$

6,899



$

6,185


Loans Past Due 90 or More Days and Accruing

1,570



537



1,325


Loans Restructured and in Compliance with Modified Terms

283



333



398


Total Nonperforming Loans

8,784



7,769



7,908


Repossessed Assets

75



81



40


Other Real Estate Owned

234



312



326


Total Nonperforming Assets

$

9,093



$

8,162



$

8,274














Key Asset Quality Ratios






Net Loans Charged-off to Average Loans,

Quarter-to-date Annualized

0.03

%


0.05

%


0.03

%

Provision for Loan Losses to Average Loans,

Quarter-to-date Annualized

0.02

%


0.12

%


0.15

%

Allowance for Loan Losses to Period-End Loans

1.05

%


1.10

%


1.12

%

Allowance for Loan Losses to Period-End Nonperforming Loans

177.30

%


200.41

%


190.14

%

Nonperforming Loans to Period-End Loans

0.59

%


0.55

%


0.59

%

Nonperforming Assets to Period-End Assets

0.39

%


0.37

%


0.38

%

Six-Month Period Ended:












Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Year

$

15,570





$

14,434


Loans Charged-off

455





504


Less Recoveries of Loans Previously Charged-off

114





143


Net Loans Charged-off

341





361


Provision for Loan Losses

345





963


Allowance for Loan Losses, End of Period

$

15,574





$

15,036


Key Asset Quality Ratios












Net Loans Charged-off to Average Loans, Annualized

0.05

%




0.06

%

Provision for Loan Losses to Average Loans, Annualized

0.05

%




0.15

%

 

 

SOURCE Arrow Financial Corporation



RELATED LINKS

http://www.arrowfinancial.com