Arrow Financial Corporation
Annual Report 2017

Plain-text annual report

250 Glen Street, PO Box 307, Glens Falls, NY 12801 | (518) 745-1000 | arrowfinancial.com Performance Comparisons $2.10 $1.91 $1.80 $2,760 $2,605 $2,164 $2,217 $2,446 $1.71 $1.60 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 DILUTED EARNINGS PER SHARE For the 12 Months Ended December 31* ASSETS As of December 31 ($ in Millions) $.91 $.93 $.89 $.98 $.95 $1,842 $1,903 $2,030 $2,117 $2,245 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 CASH DIVIDENDS PAID PER SHARE DEPOSITS For the 12 Months Ended December 31* As of December 31 ($ in Millions) $17.92 $16.77 $14.72 $15.58 $14.08 $214 $201 $192 $250 $233 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 BOOK VALUE PER SHARE SHAREHOLDERS’ EQUITY As of December 31* As of December 31 ($ in Millions) *Per share amounts have been restated for stock dividends distributed. Fellow Shareholders: 2017 FINANCIAL HIGHLIGHTS I am proud to report that 2017 was another outstanding year of record financial perfor- mance and remarkable accomplishments for Arrow Financial Corporation. Through hard work, we were again able to deliver growth in key markets, while maintaining strong profitability ratios and asset quality. Some of the highlights from this past year included: Double-digit growth in our loan portfolio for the fourth consecutive year, reaching a record high of $1.95 billion in total loan balances at year-end. New records for net income, year- end total assets and total equity, as well as assets under trust administration and investment management as of December 31, 2017. Our Company was named one of America’s “Most Trustworthy” financial companies by Forbes for the sixth con- secutive year and made Bank Director Magazine’s top-performer list for the third year in a row. Both Glens Falls National Bank and Saratoga National Bank maintained 5-Star Superior ratings from BauerFinancial. Saratoga National continued to expand its footprint into the Capital Region with the opening of its 10th location, in Sche- nectady. And the Company combined decades of expertise in the property and casualty in- surance industry by bringing its insurance agencies together under the Upstate Agency brand. Net income: $29.3 million, up 10.5% Total Loans: $1.95 billion, up 11.3% Total Deposits: $2.25 billion, up 6.1% Total Assets: $2.76 billion, up 5.9% Return on Average Equity: 12.1% Return on Average Assets: 1.09% Return on Tangible Equity: 13.5% Stock Dividend: 3% distributed in Sept. Quarterly Cash Dividend: $0.25 Book Value Per Share: Increase of 6.8% Shareholders’ Equity: Increase of 7.2% None of these accomplishments would have been possible without the efforts of our Arrow Team. I’d like to personally share my thanks for their continued dedi- cation and efforts. As we look ahead, we remain committed to driving our business forward. We will do that by focusing on strategic growth priorities in target markets and advancing our brand, with the long-term mission of delivering value to our customers, our communities, our employees and our shareholders. Thank you for your continued trust, sup- port and partnership. You are the reason we are Arrow Strong. Sincerely, Tom Murphy President and Chief Executive Officer       Consolidated Statements of Income (Unaudited) Years Ended December 31 (in thousands, except per share amounts) 2013 2014 2015 2016 2017 Interest and Dividend Income Interest Expense $ 64,138 7,922 $ 66,861 5,767 $ 70,738 4,813 $ 76,915 5,356 $ 84,657 7,006 Net Interest Income Provision for Loan Losses Net Interest Income after Provision for Loan Losses Total Noninterest Income Total Noninterest Expense Income Before Taxes Provision for Income Taxes 56,216 200 56,016 28,061 53,203 30,874 9,079 61,094 1,848 59,246 28,316 54,028 33,534 10,174 65,925 1,347 64,578 28,124 57,430 35,272 10,610 71,559 2,033 69,526 27,832 59,609 37,749 11,215 77,651 2,736 74,915 27,645 62,705 39,855 10,529 Net Income $ 21,795 $ 23,360 $ 24,662 $ 26,534 $ 29,326 Share and Per Share Data Diluted Average Shares Outstanding Diluted Earnings Per Share Cash Dividends Per Share Book Value Per Share Tangible Book Value Per Share Key Earnings Ratios Return on Average Assets Return on Average Equity Return on Tangible Equity Net Interest Margin Capital Ratios Tier 1 Leverage Ratio Total Risk-Based Capital Ratio Asset Quality Ratios Nonperforming Assets to Period-End Assets Allowance for Loan Losses to Period-End Loans 13,606 $ 1.60 $ .89 $ 14.08 $ 12.1 7 13,670 $ 1 . 7 1 $ .91 $ 14.72 $ 12.83 13,730 $ 1.80 $ .93 $ 15.58 $ 13.77 13,880 $ 1.91 $ .95 $ 16.77 $ 15.00 13,986 $ 2.10 $ .98 $ 17.92 $ 16.18 1.04% 12.11% 14.19% 3.06% 1.07% 11.79% 13.56% 3.17% 1.05% 11.86% 13.50% 3. 1 7% 1.06% 11.79% 13.25% 3.15% 1.09% 12.14% 13.51% 3.17% 9.24% 15.77% 9.44% 15.54% 9.25% 15.09% 9.47% 15.15% 9.49% 14.98% 0.37% 0.37% 0.36% 0.28% 0.28% 1.14% 1.10% 1.02% 0.97% 0.95% The Tax Cuts and Jobs Act reduced tax expense by $1.1 million in 2017. Share and per share amounts have been restated for stock dividends distributed. Consolidated Balance Sheets (Unaudited) As of December 31 (in thousands) 2013 2014 2015 2016 2017 Assets Cash and Due from Banks Interest-Bearing Deposits at Banks Investment Securities Loans Allowance for Loan Losses Net Loans Premises and Equipment, Net Goodwill and Intangible Assets, Net Other Assets $ 37,275 $ 35,081 $ 34,816 $ 43,024 $ 42,562 12,705 763,148 1,266,472 (14,434) 11,214 673,014 1,413,268 (15,570) 16,252 731,759 1,573,952 (16,038) 14,331 703,335 1,753,268 (17,012) 30,276 646,056 1,950,770 (18,586) 1,252,038 29,154 1,397,698 28,488 1,557,914 27,440 1,736,256 26,938 1,932,184 27,619 26,143 43,235 25,628 46,297 24,980 53,027 24,569 56,789 24,162 57,606 Total Assets $ 2,163,698 $2,217,420 $2,446,188 $2,605,242 $2,760,465 Liabilities and Shareholders’ Equity Noninterest-Bearing Deposits Interest-Bearing Checking and Savings Deposits $ 278,958 $ 300,786 $ 358,751 $ 387,280 $ 441,945 1,316,145 1,396,319 1,481,855 1,529,953 1,601,888 Time Deposits 247,227 205,843 189,817 199,313 201,283 Total Deposits 1,842,330 1,902,948 2,030,423 2,116,546 2,245,116 Short-Term Borrowings Federal Home Loan Bank Term Advances Other Long-Term Debt Other Liabilities 64,777 60,421 105,173 158,836 169,966 20,000 20,000 24,437 10,000 20,000 23,125 55,000 20,000 21,621 55,000 20,000 22,008 55,000 20,000 20,780 Total Liabilities 1,971,544 2,016,494 2,232,217 2,372,390 2,510,862 Total Shareholders’ Equity 192,154 200,926 213,971 232,852 249,603 Total Liabilities and Shareholders’ Equity $2,163,698 $2,217,420 $2,446,188 $2,605,242 $2,760,465 Total Return Performance Comparison of Five-Year Cumulative Total Return • Assumes Initial Investment of $100 Arrow Financial Corporation NASDAQ Banks Index Russell 2000 Index Zacks $1B-$5B Bank Assets Index 2012 100.00 100.00 100.00 100.00 2013 112.83 143.13 138.82 130.65 2014 123.65 150.40 145.62 138.51 2015 129.28 163.81 139.19 150.87 2016 204.86 221.79 168.85 214.90 2017 182.13 236.29 193.58 228.54 Comparison of 15-Year Cumulative Total Return • Assumes Initial Investment of $100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Arrow Financial Corporation NASDAQ Banks Index Russell 2000 Index 100.00 116.64 138.31 124.30 126.20 118.13 144.56 154.31 182.46 167.25 189.09 213.35 233.81 244.45 387.37 344.38 100.00 128.64 147.32 143.90 161.58 127.88 93.23 77.58 92.25 82.51 98.71 141.28 148.46 161.69 218.92 233.24 100.00 147.25 174.40 182.27 215.75 212.37 140.62 178.82 226.85 217.37 252.91 351.10 368.29 352.03 427.04 489.59 Zacks $1B-$5B Bank Assets Index 100.00 135.63 158.83 152.55 171.18 141.30 125.61 100.29 115.98 110.87 134.99 176.37 186.98 203.66 290.10 308.52 Source: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980–2018. Arrow Financial Corporation Board of Directors Thomas L. Hoy (Chairman) Retired President and CEO Arrow/Glens Falls National Bank David G. Kruczlnicki Retired President and CEO Glens Falls Hospital Mark L. Behan President Behan Communications, Inc. Elizabeth A. Miller President and CEO Miller Mechanical Services, Inc. Tenée R. Casaccio, AIA President JMZ Architects and Planners, P.C. David L. Moynehan Retired President Riverside Gas & Oil Company, Inc. Michael B. Clarke Retired President and CEO Lone Star Industries Thomas J. Murphy President and CEO Arrow/Glens Falls National Bank Gary C. Dake President Stewart’s Shops Corp. Raymond F. O’Conor Chairman and Retired President and CEO Saratoga National Bank William L. Owens, Esq. Partner Stafford, Owens, Piller, Murnane, Kelleher & Trombley, PLLC Colin L. Read, PhD Mayor, City of Plattsburgh Professor of Economics and Finance SUNY Plattsburgh Richard J. Reisman, DMD Chairman - Section of Dentistry Glens Falls Hospital Director Emeriti Herbert O. Carpenter John J. Carusone, Jr. Mary-Elizabeth T. FitzGerald Herbert A. Heineman, Jr. Elizabeth O’Connor Little Corporate Officers Thomas J. Murphy President and CEO Michael F. Massiano (Chairman Emeritus) John J. Murphy Doris E. Ornstein In Memoriam: George C. Frost Dr. Edward F. Huntington David S. DeMarco Senior Vice President and Chief Banking Officer Andrew J. Wise Senior Vice President and Chief Operating Officer Edward J. Campanella Senior Vice President, Treasurer and Chief Financial Officer David D. Kaiser Senior Vice President Shareholder Information 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 convenient 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: (888) 444-0058 or astfinancial.com Source: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980–2018. 250 Glen Street, PO Box 307, Glens Falls, NY 12801 (518) 745-1000 arrowfinancial.com 

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