Arrow Financial Corporation
Annual Report 2015

Plain-text annual report

2 0 1 5 A N N UA L R E V I EW Saratoga National Bank Expands to Troy Saratoga National Bank opened an office in Troy last September, marking our entry into Rensselaer County and further strengthening our position in the Capital Region. The branch is Saratoga National’s ninth overall and third to open in the last three years. Glens Falls National Helps Launch the “Saratoga” Quarter Glens Falls National Bank was proud to be selected by the National Park Service as bank sponsor for the 2015 Saratoga National Historical Park quarter’s ceremonial release in November. This coin is part of the U.S. Mint’s America the Beautiful Quarters® program and is available for purchase at select branches. Cover Photo: Aerial of Glens Falls National Bank’s Main Office complex, Glens Falls, New York To Our Shareholders, Our Team and Our Friends: Thank you for taking the time to read our Annual Review, featuring a brief summary of Arrow Financial Corporation’s financial performance and accomplishments in 2015. Thanks to the efforts of our dedicated team, we reported double-digit growth in our loan portfolio, which reached a re- cord high at year-end. We also set new re- cords for net income and diluted earnings per share for the year, and total equity as of December 31, 2015. Our profitability measurements remained strong and our asset quality ratios continued to be better than our peer group. Among other highlights, our Company was again named one of “America’s 50 Most Trustworthy Companies” by Forbes. Arrow also appeared on top-performer lists for American Banker and Bank Director magazines and was awarded the Raymond James Community Bankers Cup. In addition, both subsidiary banks maintained 5-Star Superior ratings from BauerFinancial, and Saratoga National was recognized as the Capital Region’s No. 1 Small Community Lender by the Small Business Administration for the second year running. Finally, our proprietary mutual fund, the North Country Equity Growth Fund, appeared twice in the Wall Street Journal’s “Category of Kings” as a top-performer in the Large-Cap Core Equity Category. We continue to expand in the Capital District, which has proven to be a key market for Arrow’s growth. During 2015, Saratoga National Bank opened its ninth office in Troy, New York. 2015 Financial HigHligHts • Record net income of $24.7 million • Strong profitability, represented by 11.86% return on average equity (ROE), 1.05% return on average assets (ROA), and 13.50% return on tangible equity • 2% stock dividend distributed in September effectively increasing cash dividends by 2% • Continued strong levels of capital, includ- ing increases in book value per share of 5.96% and shareholders’ equity of 6.5% • Record assets of $2.45 billion at year-end • Total loans increased by 11.4% • $144.2 million in mortgage loans originated • Strong asset quality, represented by non- performing assets at year-end of only 0.36% and loans charged-off just 0.06% of average loans outstanding. Looking ahead, our Company will con- tinue to pursue banking and insurance opportunities, and our management team will continue to do what it does best: Strive to increase shareholder value by following our tried-and-true conservative business model. I am very pleased with our performance and the team that made it happen. I am proud of our employees and their service to our customers, our communities and our shareholders. Thank you for your continued support. Sincerely, Tom Murphy President and Chief Executive Officer PerFormance comParisons $1.91 $1.81 $2,217 $2,446 $2,164 $1.72 $1.74 $1.70 $2,023 $1,963 2012 2015 2013 2011 DILUTED EARNINGS PER SHARE 2014 For the 12 Months Ended December 31* 2011 2012 2014 2015 2013 ASSETS As of December 31 ($ in Millions) $.90 $.93 $.95 $.97 $.99 $1,731 $1,644 $1,842 $1,903 $2,030 2012 2015 2013 2011 CASH DIVIDENDS PAID PER SHARE 2014 For the 12 Months Ended December 31* 2011 2012 2013 DEPOSITS 2014 2015 As of December 31 ($ in Millions) $14.94 $13.78 $13.07 $15.61 $16.54 $192 $201 $214 $176 $166 2011 2012 2013 BOOK VALUE PER SHARE 2014 2015 2011 2012 2013 SHAREHOLDERS’ EQUITY 2014 2015 As of December 31* As of December 31 ($ in Millions) *Per share amounts have been restated for stock dividends distributed. total return PerFormance Comparison of 5-Year Cumulative Total Return Assumes Initial Investment of $100 Comparison of 5-Year Cumulative Total Return Assumes Initial Investment of $100 December 2015 December 2015 250.00 250.00 200.00 200.00 150.00 150.00 100.00 100.00 50.00 50.00 0.00 0.00 2010 2010 Arrow Financial Corporation Arrow Financial Corporation 2011 2011 2012 2012 NASDAQ Banks Index NASDAQ Banks Index 2013 2013 Russell 2000 Index Russell 2000 Index 2014 2014 2015 2015 Zacks $1B-$5B Bank Assets Index Zacks $1B-$5B Bank Assets Index Arrow Financial Corporation Arrow Financial Corporation NASDAQ Banks Index NASDAQ Banks Index Russell 2000 Index Russell 2000 Index Zacks $1B-$5B Bank Assets Index Zacks $1B-$5B Bank Assets Index 2010 2010 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 2011 2011 91.47 91.47 89.43 89.43 95.82 95.82 93.98 93.98 2012 2012 103.50 103.50 107.00 107.00 111.49 111.49 111.99 111.99 2013 2013 116.93 116.93 153.14 153.14 154.78 154.78 159.46 159.46 2014 2014 128.33 128.33 160.92 160.92 162.35 162.35 166.25 166.25 2015 2015 134.33 134.33 175.27 175.27 155.18 155.18 184.07 184.07 Comparison of 10-Year Cumulative Total Return Assumes Initial Investment of $100 Comparison of 10-Year Cumulative Total Return Assumes Initial Investment of $100 December 2015 December 2015 2005 2005 Arrow Financial Corporation 2006 2006 2007 2007 2009 2008 2008 2009 NASDAQ Banks Index 2010 2010 2011 2011 Russell 2000 Index 2012 2012 2013 2013 Zacks $1B-$5B Bank Assets Index 2014 2014 2015 2015 250.00 250.00 200.00 200.00 150.00 150.00 100.00 100.00 50.00 50.00 0.00 0.00 Arrow Financial Corporation NASDAQ Banks Index Russell 2000 Index Zacks $1B-$5B Bank Assets Index Arrow Financial Arrow Corporation Financial NASDAQ Corporation Banks Index NASDAQ Russell 2000 Banks Index Index Russell 2000 Zacks $1B- Index $5B Bank Zacks $1B- Assets Index $5B Bank Assets Index 2005 2005 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 2006 2006 101.28 101.28 112.29 112.29 118.37 118.37 115.68 115.68 2007 2007 94.59 94.59 88.87 88.87 116.51 116.51 89.15 89.15 2008 2008 115.50 115.50 64.79 64.79 77.15 77.15 87.23 87.23 2009 2009 123.08 123.08 53.91 53.91 98.11 98.11 62.63 62.63 2010 2010 145.18 145.18 64.11 64.11 124.46 124.46 72.79 72.79 2011 2011 132.80 132.80 57.34 57.34 119.26 119.26 68.40 68.40 2012 2012 150.27 150.27 68.60 68.60 138.76 138.76 81.52 81.52 2013 2013 169.77 169.77 98.18 98.18 192.63 192.63 116.07 116.07 2014 2014 186.31 186.31 103.17 103.17 202.06 202.06 121.01 121.01 2015 2015 195.02 195.02 112.37 112.37 193.14 193.14 133.99 133.99 Source: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980 - 2016 consolidated statements oF income (unaudited) (in thousands, except per share amounts) 2011 2012 2013 2014 2015 Interest and Dividend Income $ 76,791 $ 69,379 $ 64,138 $ 66,861 $ 70,738 Years Ended December 31 Interest Expense 18,679 11,957 7,922 5,767 4,813 _______ _______ _______ _______ _______ Net Interest Income 58,112 57,422 56,216 61,094 65,925 Provision for Loan Losses 845 845 200 1,848 1,347 _______ _______ _______ _______ _______ Net Interest Income After Provision for Loan Losses Total Noninterest Income Total Noninterest Expense 57,267 56,577 56,016 59,246 64,578 25,928 27,099 28,061 28,316 28,124 51,548 51,836 53,203 54,028 57,430 _______ _______ _______ _______ _______ Income Before Taxes 31,647 31,840 30,874 33,534 35,272 Provision for Income Taxes 9,714 9,661 9,079 10,174 10,610 _______ _______ _______ _______ _______ Net Income $ 21,933 $ 22,179 $ 21,795 $ 23,360 $ 24,662 _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ Share and Per Share Data Diluted Average Shares Outstanding 12,715 12,752 12,825 12,886 12,942 Diluted Earnings Per Share $ 1.72 $ 1.74 $ 1.70 $ 1.81 $ 1.91 Cash Dividends Per Share .90 .93 .95 .97 .99 Book Value Per Share 13.07 13.78 14.94 15.61 16.54 Tangible Book Value Per Share 10.97 11.70 12.91 13.62 14.61 Key Earnings Ratios Return on Average Assets 1.13% 1.11% 1.04% 1.07% 1.05% Return on Average Equity 13.45% 12.88% 12.11% 11.79% 11.86% Return on Tangible Equity 15.84% 15.24% 14.19% 13.56% 13.50% Net Interest Margin 3.36% 3.26% 3.06% 3.17% 3.17% Capital Ratios Tier 1 Leverage Ratio 8.95% 9.10% 9.19% 9.44% 9.59% Total Risk-Based Capital Ratio 15.96% 16.26% 15.77% 15.54% 15.09% Asset Quality Ratios Nonperforming Assets to Period-End Assets Allowance for Loan Losses to Period-End Loans 0.41% 0.45% 0.37% 0.37% 0.36% 1.33% 1.30% 1.14% 1.10% 1.02% Share and per share amounts have been restated for stock dividends distributed. consolidated Balance sHeets (unaudited) (in thousands) Assets As of December 31 2011 2012 2013 2014 2015 Cash and Due from Banks $ 29,598 $ 37,076 $ 37,275 $ 35,081 $ 34,816 Interest-Bearing Deposits 14,138 11,756 12,705 11,214 16,252 at Banks Investment Securities 713,948 724,293 763,148 673,014 731,759 Loans 1,131,457 1,172,341 1,266,472 1,413,268 1,573,952 Allowance for Loan Losses (15,003) (15,298) (14,434) (15,570) (16,038) ________ ________ ________ ________ ________ Net Loans 1,116,454 1,157,043 1,252,038 1,397,698 1,557,914 Premises and Equipment, Net 22,629 28,897 29,154 28,488 27,440 Goodwill and Intangible Assets, Net 26,752 26,495 26,143 25,628 24,980 Other Assets 39,165 37,236 43,235 46,297 53,027 ________ ________ ________ ________ ________ Total Assets $1,962,684 $2,022,796 $2,163,698 $2,217,420 $2,446,188 ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ Liabilities and Shareholders' Equity Noninterest-Bearing Deposits $ 232,038 $ 247,232 $ 278,958 $ 300,786 $ 358,751 NOW and Savings Deposits 1,059,350 1,200,650 1,316,145 1,396,319 1,481,855 Time Deposits of $100,000 or More 123,668 93,375 78,928 61,797 59,792 Other Time Deposits 228,990 189,898 168,299 144,046 130,025 ________ ________ ________ ________ ________ Total Deposits 1,644,046 1,731,155 1,842,330 1,902,948 2,030,423 Short-Term Borrowings 68,293 41,678 64,777 60,421 105,173 Federal Home Loan Bank Term Advances 40,000 30,000 20,000 10,000 55,000 Other Long-Term Debt 20,000 20,000 20,000 20,000 20,000 Other Liabilities 23,960 24,138 24,437 23,125 21,621 ________ ________ ________ ________ ________ Total Liabilities 1,796,299 1,846,971 1,971,544 2,016,494 2,232,217 Total Shareholders' Equity 166,385 175,825 192,154 200,926 213,971 ________ ________ ________ ________ ________ Total Liabilities and Shareholders' Equity $1,962,684 $ 2,022,796 $2,163,698 $ 2,217,420 $2,446,188 ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ Boards oF directors Arrow Financial Corporation Thomas L. Hoy (Chairman) Retired President and CEO John J. Carusone, Jr. Attorney Carusone & Carusone Tenée R. Casaccio, AIA President JMZ Architects and Planners, P.C. Michael B. Clarke Retired President and CEO Lone Star Industries Gary C. Dake President Stewart’s Shops Corp. Director Emeriti Jan-Eric O. Bergstedt Herbert O. Carpenter David G. Kruczlnicki Retired President and CEO Glens Falls Hospital Elizabeth O’Connor Little New York State Senator 45th District David L. Moynehan Retired President Riverside Gas & Oil Company, Inc. John J. Murphy Retired Executive Vice President, Treasurer and CFO Thomas J. Murphy, CPA President and CEO William L. Owens, Esq. Partner Stafford, Owens, Piller, Murnane, Kelleher & Trombley, PLLC Dr. Colin L. Read Professor of Economics and Finance SUNY Plattsburgh Richard J. Reisman, DMD Chairman - Section of Dentistry Glens Falls Hospital George C. Frost Michael F. Massiano (Chairman Emeritus) Herbert A. Heineman, Jr. Doris E. Ornstein Mary-Elizabeth T. FitzGerald Dr. Edward F. Huntington Glens Falls National Bank and Trust Company Thomas L. Hoy (Chairman) Retired President and CEO Mark L. Behan President Behan Communications, Inc. Tenée R. Casaccio, AIA President JMZ Architects and Planners, P.C. Michael B. Clarke Retired President and CEO Lone Star Industries Elizabeth O’Connor Little New York State Senator 45th District Elizabeth A. Miller President Miller Mechanical Services, Inc. David L. Moynehan Retired President Riverside Gas & Oil Company, Inc. Thomas J. Murphy, CPA President and CEO William L. Owens, Esq. Partner Stafford, Owens, Piller, Murnane, Kelleher & Trombley, PLLC Dr. Colin L. Read Professor of Economics and Finance SUNY Plattsburgh Richard J. Reisman, DMD Chairman - Section of Dentistry Glens Falls Hospital Saratoga National Bank and Trust Company Raymond F. O’Conor (Chairman) Retired President and CEO David S. DeMarco President and CEO John J. Carusone, Jr. Attorney Carusone & Carusone Gary C. Dake President Stewart’s Shops Corp. James M. Dawsey President MLB Industries, Inc. David G. Kruczlnicki Retired President and CEO Glens Falls Hospital Marianne Pompa LaRoche Vice President Pompa Bros. Frank J. Parillo President Saratoga Prime Properties and Wilton Travel Plaza Mary L. Passaretti, MS Principal Aztech Technologies, Inc. management team Arrow Financial Corporation Thomas J. Murphy, CPA President and CEO David S. DeMarco Senior Vice President Terry R. Goodemote, CPA Executive Vice President and CFO David D. Kaiser Senior Vice President Glens Falls National Bank and Trust Company Thomas J. Murphy, CPA President and CEO Terry R. Goodemote, CPA Senior Executive Vice President and CFO David D. Kaiser Executive Vice President and Chief Credit Officer Kathleen Kelleher Executive Vice President and Chief Information Officer Donna M. Perkett Executive Vice President Retail Banking Timothy C. Badger Senior Vice President Marketing Suzanna M. Bernd Senior Vice President Customer/Shareholder Relations Corporate Secretary Katherine M. Dier Senior Vice President Branch Services Karen E. Guiseppe Senior Vice President Director of Internal Audit Michael J. Jacobs Senior Vice President Information Technology Peter J. Lareau Senior Vice President and Chief Risk Officer Peter F. Luciano Senior Vice President Consumer Loan Administration Debra A. Meier Senior Vice President Human Resources Kurt E. Moser Senior Vice President Corporate Banking Kevin T. O’Brien Senior Vice President Insurance Division Mickey S. Orta Senior Vice President Wealth Management Division Saratoga National Bank and Trust Company David S. DeMarco President and CEO Thomas E. Ratsep Senior Vice President Corporate Banking sHareHolder inFormation Richard J. Ferguson Senior Vice President Corporate Secretary and Community Development Arrow Stock Arrow’s common stock trades on the NASDAQ Global Select MarketSM under the symbol “AROW”. Dividend Reinvestment Plan The Arrow Financial Corporation Dividend Reinvestment Plan offers participants a conven- ient and economical way to acquire common stock of Arrow Financial Corporation without payment of any brokerage commission or service charge. Participants may reinvest all cash dividends in additional shares as well as make optional cash contributions to buy shares. Since the Plan is entirely voluntary, you may join at any time and terminate whenever you wish. For more information, please contact: American Stock Transfer and Trust Company 6201 15th Avenue Brooklyn, NY 11219 Tel: (800) 278-4353 or amstock.com our locations Glens Falls National Bank and Trust Company gfnational.com Main Office 250 Glen Street Glens Falls, NY 12801 (518) 793-4121 Argyle Office 93 Main Street Argyle, NY 12809 (518) 638-8261 Aviation Road Office 339 Aviation Road Queensbury, NY 12804 (518) 793-5386 Bay Road Office 402 Bay Road Queensbury, NY 12804 (518) 743-8349 Broad Street Plaza Office Four Broad Street Plaza Glens Falls, NY 12801 (518) 793-8844 Cambridge Office 25 West Main Street Cambridge, NY 12816 (518) 677-2642 Chestertown Office 6353 State Route 9 Chestertown, NY 12817 (518) 494-2691 Cornelia Street Office 308 Cornelia Street Plattsburgh, NY 12901 (518) 566-6650 Exit 18 Office 221 Corinth Road Queensbury, NY 12804 (518) 636-3146 Fort Ann Office 110 George Street Fort Ann, NY 12827 (518) 639-5591 Fort Edward Office 159 Broadway Fort Edward, NY 12828 (518) 747-4165 Granville Office 8646 State Route 22 Granville, NY 12832 (518) 642-2206 Greenwich Office 132 Main Street Greenwich, NY 12834 (518) 692-2201 Greenwich Drive-In Office 1153 State Route 29 Greenwich, NY 12834 (518) 692-9021 Kingsbury Office 3019 State Route 4 Hudson Falls, NY 12839 (518) 747-2061 Lake George Office 2252 State Route 9 Lake George, NY 12845 (518) 668-5461 Lake Luzerne Office 15 Main Street Lake Luzerne, NY 12846 (518) 696-5819 Margaret Street Office 25 Margaret Street Plattsburgh, NY 12901 (518) 561-3101 Port Henry Office 4307 Main Street Port Henry, NY 12974 (518) 546-3312 Queensbury Office 696 Upper Glen Street Queensbury, NY 12804 (518) 793-9656 Rt.9 - Queensbury Office 1002 State Route 9 Queensbury, NY 12804 (518) 798-7201 Salem Office 212 Main Street Salem, NY 12865 (518) 854-3500 Schroon Lake Office 1080 Main Street Schroon Lake, NY 12870 (518) 532-7121 Schuylerville Office 73 Broad Street Schuylerville, NY 12871 (518) 695-3224 South Glens Falls Office 147 Saratoga Avenue South Glens Falls, NY 12803 (518) 793-4431 Ticonderoga Office 123 Montcalm Street Ticonderoga, NY 12883 (518) 585-9025 Ticonderoga Drive-In Office 1127 Wicker Street Ticonderoga, NY 12883 (518) 585-3621 U.S. Avenue Office 5023 U.S. Avenue Plattsburgh, NY 12903 (518) 324-4362 Warrensburg Office 3853 Main Street Warrensburg, NY 12885 (518) 623-3036 Washington County Office 343 Broadway Fort Edward, NY 12828 (518) 747-0601 Saratoga National Bank and Trust Company saratoganational.com Main Office 171 South Broadway Saratoga Springs, NY 12866 (518) 583-3114 Ballard Road Office 227 Ballard Road Wilton, NY 12831 (518) 587-4051 Colonie Office 501 New Karner Road Albany, NY 12205 (518) 608-1044 Corinth Office 238 Main Street Corinth, NY 12822 (518) 654-9001 Route 9 Wilton Office 3 Carpenter Lane Saratoga Springs, NY 12866 (518) 584-8120 Troy Office 120 Hoosick Street Troy, NY 12180 (518) 953-0109 Clifton Park Office 386 Clifton Park Center Road Clifton Park, NY 12065 (518) 935-2707 Jones Road Office 4208 Route 50 Saratoga Springs, NY 12866 (518) 587-8484 West Avenue Office 91 West Avenue Saratoga Springs, NY 12866 (518) 583-6504 Capital Financial Group, Inc. capitalfinancialgroupinc.com 89 Saratoga Avenue South Glens Falls, NY 12803 (518) 793-2885 Upstate Insurance Agency, LLC upstateagency.com Chestertown Office 93 Riverside Drive Chestertown, NY 12817 (518) 494-2417 Elizabethtown Office 223 Water Street, Suite 2 Elizabethtown, NY 12932 (518) 873-2149 Schroon Lake Office 1072 State Route 9 Schroon Lake, NY 12870 (518) 532-7396 South Glens Falls Office 89 Saratoga Avenue South Glens Falls, NY 12803 (518) 793-5806 Ticonderoga Office 98 Montcalm Street Ticonderoga, NY 12883 (518) 585-6774 Warrensburg Office 3857 Main Street Warrensburg, NY 12885 (518) 623-2710 McPhillips Insurance Agency – A Division of Glens Falls National Insurance Agencies, LLC mcpins.com Glens Falls Office 20 East Washington Street Glens Falls, NY 12801 (518) 792-5841 Greenwich Office 132 Main Street Greenwich, NY 12834 (518) 692-2831 Lake Luzerne Office 15 Main Street Lake Luzerne, NY 12846 (518) 696-2000 Saratoga Springs Office 171 South Broadway Saratoga Springs, NY 12866 (518) 306-2771 Warrensburg Office 3857 Main Street Warrensburg, NY 12885 (518) 623-3151 The Thoroughbred of Banks A Subsidiary of Glens Falls National Bank and Trust Company LLC Arrow Financial Corporation 250 Glen Street • P. O. Box 307 Glens Falls, NY 12801 Tel: (518) 745-1000 arrowfinancial.com 

Continue reading text version or see original annual report in PDF format above