Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three-month period ended June 30, 2019. Net income for the second quarter of 2019 was $8.9 million, compared to $9.7 million in the second quarter of 2018. Steady loan growth continued in the second quarter of 2019, as total loans grew by $45.1 million from March 31, 2019 to $2.3 billion. Driven primarily by this growth, net interest income increased to $21.7 million in the second quarter of 2019, compared to $21.0 million for the comparable quarter of 2018.
Annualized key profitability ratios remained strong, as measured by a return on average equity of 12.79%and a return on average assets of 1.20% for the second quarter, compared to 15.22% and 1.38%, respectively, a year earlier.
"Thanks to the efforts of our team, Arrow continued its solid performance with steady loan growth and strong asset quality through the second quarter of the year," said President and CEO Thomas J. Murphy. “Our Company is well-positioned to adapt to the continuing changes in a complex rate environment. Additionally, we are making strategic lending decisions within our communities that will help our region thrive, and we are making important investments that will help us provide an enhanced customer experience.”
The Company continued its forward momentum and expansion in the Capital Region with the opening of a new Saratoga National Bank and Trust Company office in Rotterdam, New York in the second quarter. Additionally, the company announced plans for the opening of its 12th Saratoga National Bank office, in Latham, New York, anticipated in early 2020.
The following expands on our second-quarter results:
Cash Dividend: On June 14, 2019, the Company distributed a cash dividend of $0.26 per share. The June 14, 2019 cash dividend was 7.1% higher than the $0.25 cash dividend paid by the Company in the second quarter of 2018, when adjusted for the 3% stock dividend distributed on September 27, 2018. The 2018 increase from $0.25 per share to $0.26 per share was the first increase in per share dividend amount since 2008.
Loan Growth: Total loans reached $2.3 billion as of June 30, 2019, which represents an increase of $222.4 million, or 10.8% as compared to June 30, 2018. The consumer loan portfolio grew by $117.1 million, or 17.7%, as compared to June 30, 2018, primarily within the indirect automobile lending program. The total residential real estate loan portfolio increased $60.0 million, or 7.4%, as compared to June 30, 2018. Total outstanding commercial loans increased $45.3 million, or 7.8%, as compared to June 30, 2018.
Deposit Growth: At June 30, 2019, deposit balances reached $2.5 billion, up $199.0 million, or 8.6%, from the prior-year level. Noninterest-bearing deposits represented 18.7% of total deposits at June 30, 2019. At June 30, 2019, other time deposits were $289.3 million, an increase of $119.7 million compared to the prior year. Time deposits include brokered deposits acquired to diversify source of funds to more favorable rates as compared to other borrowings.
Net Interest Income: Driven by strong loan growth, second quarter 2019 net interest income increased to $21.7 million, up 3.6% from $21.0 million in the comparable quarter of 2018. The net interest margin was 3.04% for the quarter, compared to 3.11% for the second quarter of 2018. The decrease in net interest margin from the prior year was the result of the migration to higher yielding deposit accounts due to rise in short-term market rates.
Noninterest Income: Noninterest income for the three months ended June 30, 2019, was $6.9 million, compared to $7.9 million in the comparable 2018 quarter. Despite the decline from the prior year, total noninterest income represented 24.1% of total revenues in the second quarter of 2019.
Noninterest Expense: Noninterest expense for the second quarter of 2019 increased 4.4% to $16.9 million, from $16.2 million for the second quarter of 2018. Technology and equipment expense increased $394 thousand, and other operating expense increased $409 thousand from the comparable quarter in 2018.
Provision for Income Taxes: The provision for income taxes was $2.3 million for the second quarter of both 2019 and 2018. The effective income tax rates for the three-month periods ended June 30, 2019 and 2018 were 20.5% and 19.3%, respectively.
Asset Quality: Asset quality remained strong at June 30, 2019, with continued low levels of nonperforming loans and net charge-offs. Nonperforming loans at June 30, 2019, were $5.5 million, up $26.0 thousand from the level at December 31, 2018. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.02% for the three-month period ended June 30, 2019, up from the prior-year comparable quarter of 0.01%. The allowance for loan losses was $20.7 million at June 30, 2019, which represented 0.91% of loans outstanding, as compared to 0.95% at June 30, 2018. The loss provision expense for the second quarter of 2019 was $455 thousand, down $174 thousand from the provision for the comparable 2018 quarter.
Capital: Total stockholders’ equity was a record $284.6 million at June 30, 2019, up $25.2 million, or 9.7%, from the comparable quarter of 2018. Overall regulatory capital ratios also remained strong in 2019, with the Company's common equity tier 1 ratio estimated to be 12.99% and the total risk-based capital ratio estimated to be 14.91% at June 30, 2019. These capital levels at the Company and both its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standard.
Industry Recognition: Both of the Company's banking subsidiaries maintained their BauerFinancial, Inc. 5-Star Superior Bank rating. Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company have continued to earn this designation for the last 49 and 41 quarters, respectively. In May, Seifried & Brew named Glens Falls National and Saratoga National to the top 15th percentile of Community Banks based on their performance in 2018.
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, 2018, and other filings with the Securities and Exchange Commission.