Arrow Financial Corporation
Annual Report 2020

Plain-text annual report

ANNUAL REVIEW Performance Comparisons $2.36 $2.43 $2.64 $2,605 $2,760 $3,689 $3,184 $2,988 $1.92 $1.75 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 DILUTED EARNINGS PER SHARE ASSETS For the 12 Months Ended December 31* As of December 31 ($ in Millions) $1.02 $.99 $.94 $2,245 $2,346 $2,117 $3,235 $2,616 $.89 $.86 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 CASH DIVIDENDS PAID PER SHARE DEPOSITS For the 12 Months Ended December 31* As of December 31 ($ in Millions) $17.55 $19.53 $21.55 $334 $302 $15.35 $16.40 $233 $250 $270 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 BOOK VALUE PER SHARE SHAREHOLDERS’ EQUITY As of December 31* As of December 31 ($ in Millions) *Per share amounts have been restated for stock dividends distributed. Fellow Shareholders: 2020 FINANCIAL HIGHLIGHTS Arrow Financial Corporation remained strong through 2020, rising to meet challenges presented by the COVID-19 pandemic. Through it all, Arrow Financial Corporation and its Family of Companies have been here for our customers, our employees and the communities we serve. As we look back, we are proud to have delivered temporary financial assistance, stimulus program support, Paycheck Protection Program loans and charitable contributions when it was most needed. We continued to operate with a focus on health and safety, ensuring that essential banking services were available, even as we were all socially distant. Additionally, 2020 was a year of continued shareholder value with record earnings, steady growth, sustained profitability and credit quality. Our measured and thoughtful approach keeps us focused on long-term opportunities that will help us maintain our strong organic growth as we continue to face an uncertain future. Among the highlights from 2020, we: • Provided PPP loans to more than 1,500 small businesses, allowing them to remain open, or reopen, which helped them pay their employees • Opened our 12th Saratoga National Bank branch in Latham, New York and optimized our Glens Falls National Bank branch network by consolidating overlapping offices in Queensbury and Greenwich, giving us 40 branches in eight counties within our combined banking network • Opened a Capital Region Business Develop- ment Office in Latham, New York • Enhanced our customer experience with website upgrades and the formation of a Cus- tomer Experience Unit of Retail Banking during these very difficult times Net Income: $40.8 million, up 8.9% Total Loans: $2.6 billion, up 8.8% Total Deposits: $3.2 billion, up 23.6% Total Assets: $3.69 billion, up 15.8% Return on Average Equity: 12.77% Return on Average Assets: 1.17% Return on Tangible Equity: 13.78% Stock Dividend: 3% distributed in Sept. Current Quarterly Cash Dividend: $0.26 Book Value Per Share: Increase of 10.3% Shareholders’ Equity: Increase of 10.8% • Maintained 5-Star “Superior” ratings from BauerFinancial for both Glens Falls National Bank and Saratoga National Bank. • Gave back almost $470,000 in charitable con- tributions and our Arrow Team donated more than 3,300 volunteer hours to our communities. As these challenging times continue into 2021, I need to thank our Team for their commitment to safety while also demonstrating flexibility in adapting to the changing needs of our cus- tomers. The dedication of our Arrow Team is the driving force behind all of our accomplishments. Their passion for improving our customer expe- rience, serving our communities, and delivering value for shareholders keeps us competitive and strong. Thank you for your investment in Arrow Financial Corporation. We appreciate your trust and sup- port and will continue to work in partnership with you toward creating value for your investment. Tom Murphy President and CEO Consolidated Statements of Income (Unaudited) Years Ended December 31 (in thousands, except per-share amounts) 2016 2017 2018 2019 2020 Interest and Dividend Income Interest Expense $ 76,915 5,356 $ 84,657 7,006 $ 96,503 12,485 $ 109,759 21,710 $ 111,896 12,694 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 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 84,018 2,607 81,411 28,949 65,055 45,305 9,026 88,049 2,079 99,202 9,319 85,970 28,555 67,450 47,075 9,600 89,883 32,658 70,678 51,863 11,036 Net Income $ 26,534 $ 29,326 $ 36,279 $ 37,475 $ 40,827 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 15,168 1.75 .86 15.35 13.73 15,283 1.92 .89 16.40 14.82 $ $ $ $ 15,370 2.36 . 94 17.55 16.01 $ $ $ $ 15,433 2.43 .99 19.53 18.01 $ $ $ $ 15,479 2.64 $ 1.02 $ $ 21.55 $ 20.02 $ $ $ $ 1.06% 11.79% 13.25% 3.00% 1.09% 12.14% 13.51% 3.02% 1 .27% 13.96% 15.38% 3.07% 1.24% 13.17% 14.36% 3.05% 1.17% 12.77% 13.78% 2.99% 9.47% 15.15% 9.49% 14.98% 9. 6 1 % 14.86% 9.98% 14.78% 9.07% 15.48% 0.28% 0.28% 0.23% 0.18% 0.18% 0.97% 0.95% 0.92% 0.89% 1.13% Consolidated Balance Sheets (Unaudited) As of December 31 (in thousands) 2016 2017 2018 2019 2020 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 $ 43,024 $ 42,562 $ 56,529 $ 47,035 $ 42,116 14,331 703,335 1,753,268 (17,012) 30,276 646,056 1,950,770 (18,586) 27,710 618,291 2,196,215 (20,196) 23,186 614,779 2,386,120 (21,187) 338,875 590,677 2,595,030 (29,232) 1,736,256 26,938 1,932,184 27,619 2,176,019 30,446 2,364,933 40,629 2,565,798 42,612 24,569 56,789 24,162 57,606 23,725 55,614 23,534 70,179 23,823 84,735 Total Assets $ 2,605,242 $ 2,760,465 $ 2,988,334 $ 3,184,275 $ 3,688,636 Liabilities and Shareholders’ Equity Noninterest-Bearing Deposits Interest-Bearing Checking and Savings Deposits $ 387,280 $ 441,945 $ 472,768 $ 484,944 $ 701,341 1,529,953 1,601,888 1,608,829 1,735,789 2,255,792 Time Deposits 199,313 201,283 263,987 395,321 277,593 Total Deposits 2,116,546 2,245,116 2,345,584 2,616,054 3,234,726 Short-Term Borrowings Federal Home Loan Bank Term Advances Other Long-Term Debt Other Liabilities 158,836 169,966 288,659 181,099 17,486 55,000 20,000 22,008 55,000 20,000 20,780 45,000 20,000 19,507 30,000 20,000 35,394 45,000 20,000 37,032 Total Liabilities 2,372,390 2,510,862 2,718,750 2,882,547 3,354,244 Total Shareholders’ Equity 232,852 249,603 269,584 301,728 334,392 Total Liabilities and Shareholders’ Equity $ 2,605,242 $ 2,760,465 $ 2,988,334 $ 3,184,275 $ 3,688,636 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 2015 100.00 100.00 100.00 100.00 2016 158.47 135.40 121.31 135.72 2017 140.88 144.24 139.08 148.54 2018 140.81 119.76 123.76 135.24 2019 176.56 150.57 155.35 156.49 2020 148.98 141.32 186.36 133.30 Comparison of 15-Year Cumulative Total Return • Assumes Initial Investment of $100 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Arrow Financial Corporation NASDAQ Banks Index Russell 2000 Index 100.00 101.53 95.03 116.30 124.14 146.78 134.55 152.12 171.64 188.10 196.65 311.63 277.05 276.90 347.21 292.97 100.00 112.29 88.87 64.79 53.91 64.11 57.34 68.60 98.18 103.17 112.37 152.14 162.08 134.57 169.18 158.79 100.00 118.37 116.51 77.14 98.10 124.44 119.24 138.74 192.59 202.01 193.10 234.25 268.57 239.00 300.01 359.89 Zacks $1B-$5B Bank Assets Index 100.00 111.25 96.06 73.51 63.62 69.27 66.86 78.77 99.79 111.03 120.98 164.19 179.70 163.61 189.32 161.27 Source: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980–2021. Arrow Financial Corporation Board of Directors Thomas L. Hoy (Chairman) Retired President and CEO Arrow Financial Corporation/ Glens Falls National Bank Mark L. Behan President Behan Communications, Inc. Tenée R. Casaccio, AIA President JMZ Architects and Planners, PC Michael B. Clarke Retired President and CEO Lone Star Industries Directors Emeriti Herbert O. Carpenter John J. Carusone, Jr. Mary-Elizabeth T. FitzGerald Corporate Officers Thomas J. Murphy President and CEO Edward J. Campanella Senior Vice President, Treasurer and Chief Financial Officer Gary C. Dake President Stewart’s Shops Corp. Raymond F. O’Conor Chairman, Retired President and CEO Saratoga National Bank David G. Kruczlnicki Retired President and CEO Glens Falls Hospital Elizabeth A. Miller President and CEO Miller Mechanical Services, Inc. Thomas J. Murphy President and CEO Arrow Financial Corporation/ Glens Falls National Bank William L. Owens, Esq. Partner Stafford, Owens, Piller, Murnane, Kelleher and Trombley, PLLC Colin L. Read, PhD Professor of Economics/Finance SUNY Plattsburgh Richard J. Reisman, DMD Chairman - Section of Dentistry Glens Falls Hospital Herbert A. Heineman, Jr. David L. Moynehan Elizabeth O’Connor Little Michael F. Massiano (Chairman Emeritus) John J. Murphy Doris E. Ornstein David S. DeMarco Senior Vice President and Chief Banking Officer David D. Kaiser Senior Vice President and Chief Credit Officer Andrew J. Wise Senior Vice President and Chief Operating Officer 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 charges. 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 & Trust Company 6201 15th Avenue Brooklyn, NY 11219 Tel: (888) 444-0058 or astfinancial.com 250 Glen Street, PO Box 307, Glens Falls, NY 12801 (518) 745-1000 | arrowfinancial.com 

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