Arrow Reports $5.2 Million Profit, Solid Second Quarter Results

GLENS FALLS, N.Y., July 18, 2013 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three- and six-month periods ended June 30, 2013. Net income for the second quarter of 2013 was $5.2 million, a decrease of $387 thousand, or 6.9%, from net income of $5.6 million for the second quarter of 2012. Diluted earnings per share (EPS) for the quarter was $0.43, an 8.5% decrease from the comparable 2012 quarter, when diluted EPS was $0.47. Return on average assets for the second quarter of 2013 was 0.99%, and return on average equity for the 2013 second quarter was 11.68%. Both of these key profitability ratios have consistently compared very favorably to our peer group, which we define as all U.S. bank holding companies having $1.0 to $3.0 billion in total assets. Net income for the first six months of 2013 was $10.4 million, a decrease of $494 thousand, or 4.5%, from net income of $10.9 million for the first six months of 2012. Diluted earnings per share (EPS) for the six-month period was $0.86, a 5.5% decrease from the comparable 2012 period, when diluted EPS was $0.91.

At June 30, 2013, Arrow reached record highs for total loans and demand deposits, and remained near the record highs for total assets, total deposits, total equity, and assets under trust administration set at March 31, 2013. In addition, both of our subsidiary banks are growing their branch networks. Saratoga National Bank and Trust Company opened a new office in the Clifton Park area of southern Saratoga County, New York, on April 1, and Glens Falls National Bank and Trust Company will open a new branch near Exit 18 of the Northway in Queensbury, New York, this fall.

Arrow President and CEO Thomas J. Murphy stated, "Actions by the Federal Reserve to keep short-term interest rates at historically low levels and drive long-term rates down as well have presented an ongoing challenge for community banks. Given the very low interest rate environment, we are pleased with these results, particularly the solid returns on average assets and average equity, our excellent asset quality, strong capital, and record highs in total loans and demand deposits. While our net interest margin narrowed in the second quarter, we are committed to our conservative business model and continue to grow."

The following list presents highlights of our second-quarter results:

  • Cash Dividend: A cash dividend of $.25 per share was paid to shareholders in the second quarter of 2013, 2% higher than the cash dividend paid in the second quarter of 2012. That dividend, based on the daily average of our closing stock price for the second quarter of 2013, represented an annualized yield of over 4.0%.
  • Trust Assets and Related Noninterest Income: Assets under trust administration and investment management at June 30, 2013, were $1.074 billion, an increase of $53.8 million, or 5.3%, from the June 30, 2012, balance of $1.020 billion. The growth in balances was generally attributable to the addition of new accounts and positive investment returns. Income from fiduciary activities increased by $109 thousand, or 3.4%, for the first six months of 2013, as compared to the 2012 period.
  • Balance Sheet Changes: Total assets at June 30, 2013, were $2.083 billion, an increase of $116.2 million, or 5.9%, from the $1.967 billion balance at June 30, 2012, and 3.0% above the total assets of $2.023 billion at December 31, 2012. Our loan portfolio rose to a record $1.2 billion, up $58.1 million, or 5.1%, from the June 30, 2012, level, and an increase of $32.4 million, or 2.8%, from the level at December 31, 2012. During the first six months of 2013, we originated over $62 million of residential real estate loans, an increase of 20.7% from approximately $51 million of residential real estate loans originated in the comparable period for 2012. However, for interest rate risk management purposes, we continued to sell most of these originations to the secondary market, primarily to a government-sponsored entity, the Federal Home Loan Mortgage Corporation. Therefore, the outstanding balance for our residential real estate loan portfolio at June 30, 2013, although higher than the outstanding balance in December 31, 2012, was actually lower than our balance at June 30, 2012. We retained servicing rights on the mortgages we sold, which will generate servicing fee income over the life of these loans. Our gain on the sale of residential real estate loan originations in the second quarter of 2013 was slightly less than our gain on sale of such originations in the comparable 2012 quarter. We experienced an increase in the outstanding balance of automobile loans during the first six months of 2013. And although we experienced modest activity in our commercial loan portfolio in the first half of the year, the new commercial loan balances were essentially offset by repayments principally due to the payoff of one large commercial loan.
  • Asset Quality: Asset quality remained strong at June 30, 2013, as measured by our low level of nonperforming assets and low level of net charge-offs. Nonperforming assets of $8.0 million at quarter-end represented only 0.38% of period-end assets, far below recent industry averages, and down six basis points from our 0.44% ratio as of June 30, 2012. Net loan losses for the second quarter of 2013, expressed as an annualized percentage of average loans outstanding, were 0.01%, These asset quality ratios continue to be significantly better than recently reported industry averages.

    Overall loan delinquency rates remain very low and, unlike many of our peers, we have not incurred and do not expect to incur significant losses in our existing residential real estate portfolio, even though we, like other area banks, serve a community in which some customers are experiencing financial stress. Our allowance for loan losses amounted to $14.7 million at June 30, 2013, which represented 1.22% of loans outstanding, eleven basis points below our ratio one year earlier and eight basis points below our ratio at December 31, 2012.
  • Capital: Total shareholders' equity was $177.6 million at period-end, an increase of $5.7 million, or 3.3%, above the June 30, 2012, balance. Arrow's capital ratios continued to remain strong, as reflected by a Tier 1 leverage ratio at the holding company level of 9.19% at quarter-end, up from 9.09% at June 30, 2012. Arrow's total risk-based capital ratio was 15.98%, down slightly from 16.34% a year ago. The capital ratios of the Company and its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standard, which is the highest current regulatory category.
  • Peer Group: Many of our key operating ratios have consistently compared very favorably to our peer group, which we define as all U.S. bank holding companies having $1.0 to $3.0 billion in total assets, as identified in the Federal Reserve Bank's "Bank Holding Company Performance Report" (FRB Report). The most current peer data available in the FRB Report is for the three-month period ended March 31, 2013, in which our return on average equity (ROE) was 11.72%, as compared to 8.11% for our peer group. Our ratio of loans 90 days past due and accruing plus nonaccrual loans to total loans was 0.47% as of March 31, 2013, as compared to 2.01% for our peer group. Our annualized net loan losses for the quarter ending March 31, 2013, were 0.27%, which was slightly higher than the peer result of 0.25%, but included one large commercial charge-off of $753 thousand in the first quarter of 2013 that was individually evaluated for impairment and fully reserved within our allowance for loan losses at December 31, 2012. Moreover, our annualized loss ratio for the first six months, even including the large charge-off in the first quarter, was down to 0.14%, which we expect will return us to the category of above-average performers for this metric. Our operating results and asset quality ratios have withstood the economic stress of recent years much better than most banks in our national peer group.
  • Securities Transactions: We recognized securities gains in both the 2013 and 2012 periods. Included in our 2013 second quarter results were securities gains of $8 thousand, net of tax, while our 2012 second quarter results included securities gains of $86 thousand, net of tax. In both periods, the net gains represented less than $0.01 per share for the respective quarter. For the year-to-date periods, net securities gains represented $0.027 and $0.032 per share for the respective 2013 and 2012 periods.
  • Net Interest Income and Margin: Similar to most institutions within the banking industry, the Company has experienced decreases in its net interest income and margin in recent periods as a result of operating in this historically low interest rate environment. On a tax-equivalent basis, our net interest income in the second quarter of 2013, as compared to the second quarter of 2012, decreased $463 thousand, or 3.0%. Our tax-equivalent net interest margin fell from 3.26% in the second quarter of 2012 to 2.99% for the second quarter of 2013. Net interest margin for the second quarter of 2013 was also down from the 3.13% margin for the first quarter of 2013. While the cost of our interest-bearing liabilities decreased significantly from the second quarter of 2012 to the second quarter of 2013, our yield on earning assets decreased by an even greater degree. Our average cost of funds in the second quarter of 2013 fell by 0.30% basis points to 0.54%, down from 0.84% in the second quarter of 2012, while our average yield on earning assets in the second quarter of 2013 decreased by 0.52% basis points, to 3.44% from 3.96% in the second quarter of 2012.

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.

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, 2012, 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,


2013


2012


2013


2012

INTEREST AND DIVIDEND INCOME








Interest and Fees on Loans

$

12,650


$

13,628


$

25,433


$

27,586

Interest on Deposits at Banks

19


36


46


57

Interest and Dividends on Investment Securities:








Fully Taxable

1,639


2,480


3,435


5,118

Exempt from Federal Taxes

1,501


1,389


2,891


2,710

Total Interest and Dividend Income

15,809


17,533


31,805


35,471

INTEREST EXPENSE








NOW Accounts

786


976


1,564


2,035

Savings Deposits

277


329


545


686

Time Deposits of $100,000 or More

305


569


624


1,177

Other Time Deposits

505


1,074


1,059


2,220

Federal Funds Purchased and Securities
  Sold Under Agreements to Repurchase

6


5


9


11

Federal Home Loan Bank Advances

199


172


372


369

Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts

145


154


289


313

Total Interest Expense

2,223


3,279


4,462


6,811

NET INTEREST INCOME

13,586


14,254


27,343


28,660

Provision for Loan Losses

100


240


200


520

NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES

13,486


14,014


27,143


28,140

NONINTEREST INCOME








Income From Fiduciary Activities

1,758


1,601


3,332


3,223

Fees for Other Services to Customers

2,371


2,054


4,653


4,014

Insurance Commissions

2,176


2,107


4,204


3,996

Net Gain on Securities Transactions

13


143


540


645

Net Gain on Sales of Loans

498


537


1,105


894

Other Operating Income

255


366


411


595

Total Noninterest Income

7,071


6,808


14,245


13,367

NONINTEREST EXPENSE








Salaries and Employee Benefits

7,637


7,794


15,258


15,697

Occupancy Expenses, Net

2,119


1,970


4,395


3,994

FDIC Assessments

267


256


531


511

Other Operating Expense

3,251


2,631


6,501


5,595

Total Noninterest Expense

13,274


12,651


26,685


25,797

INCOME BEFORE PROVISION
  FOR INCOME TAXES

7,283


8,171


14,703


15,710

Provision for Income Taxes

2,076


2,577


4,315


4,828

NET INCOME

$

5,207


$

5,594


$

10,388


$

10,882

Average Shares Outstanding 1:








Basic

12,021


11,994


12,026


12,000

Diluted

12,038


12,009


12,044


12,019

Per Common Share:








Basic Earnings

$

0.43


$

0.47


$

0.86


$

0.91

Diluted Earnings

0.43


0.47


0.86


0.91

1 Share and per share data have been restated for the September 27, 2012 2% stock dividend.

 






ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts - Unaudited)











June 30,
2013


December 31,
2012


June 30,
2012

ASSETS






Cash and Due From Banks

$

32,706


$

37,076


$

31,391

Interest-Bearing Deposits at Banks

11,894


11,756


26,360

Investment Securities:






Available-for-Sale

501,574


478,698


431,010

Held-to-Maturity (Approximate Fair Value of $252,691 at June 30, 
2013, $248,252 at December 31, 2012, and $261,574 at June 30, 2012)

248,914


239,803


252,902

Other Investments

6,136


5,792


4,479

Loans

1,204,734


1,172,341


1,146,641

Allowance for Loan Losses

(14,678)


(15,298)


(15,211)

Net Loans

1,190,056


1,157,043


1,131,430

Premises and Equipment, Net

29,301


28,897


24,823

Other Real Estate and Repossessed Assets, Net

1,175


1,034


837

Goodwill

22,003


22,003


22,003

Other Intangible Assets, Net

4,384


4,492


4,608

Accrued Interest Receivable

5,708


5,486


5,712

Other Assets

29,318


30,716


31,421

Total Assets

$

2,083,169


$

2,022,796


$

1,966,976

LIABILITIES






Noninterest-Bearing Deposits

$

261,910


$

247,232


$

248,224

NOW Accounts

754,371


758,287


691,001

Savings Deposits

494,586


442,363


437,568

Time Deposits of $100,000 or More

87,369


93,375


108,277

Other Time Deposits

181,669


189,898


219,813

Total Deposits

1,779,905


1,731,155


1,704,883

Federal Funds Purchased and   
  Securities Sold Under Agreements to Repurchase

14,738


12,678


16,097

Federal Home Loan Bank Overnight Advances

40,000


29,000


Federal Home Loan Bank Term Advances

30,000


30,000


30,000

Junior Subordinated Obligations Issued to
  Unconsolidated Subsidiary Trusts

20,000


20,000


20,000

Accrued Interest Payable

493


584


898

Other Liabilities

20,426


23,554


23,158

Total Liabilities

1,905,562


1,846,971


1,795,036

STOCKHOLDERS' EQUITY






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



Common Stock, $1 Par Value; 20,000,000 Shares Authorized
(16,416,163 Shares Issued at June 30, 2013 and December 31,
2012 and 16,094,277 Shares Issued at June 30, 2012)

16,416


16,416


16,094

Additional Paid-in Capital

219,772


218,650


209,354

Retained Earnings

30,625


26,251


28,951

Unallocated ESOP Shares (95,172 Shares at June 30, 2013, 102,890
Shares at December 31, 2012 and 105,211 Shares at June 30, 2012)

(1,900)


(2,150)


(2,250)

Accumulated Other Comprehensive Loss

(11,739)


(8,462)


(6,289)

Treasury Stock, at Cost (4,277,680 Shares at June 30, 2013, 4,288,617
Shares at December 31, 2012, and 4,223,388 Shares at June 30, 2012)

(75,567)


(74,880)


(73,920)

Total Stockholders' Equity

177,607


175,825


171,940

Total Liabilities and Stockholders' Equity

$

2,083,169


$

2,022,796


$

1,966,976


 

 


 

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
















Quarter Ended

6/30/2013


3/31/2013


12/31/2012


9/30/2012


6/30/2012

Net Income

$

5,207


$

5,181


$

5,549


$

5,748


$

5,594

Transactions Recorded in Net Income (Net of Tax):










Net Gain on Securities Transactions

8


318


94


39


86

Net Gain on Sales of Loans

301


367


476


362


324

Reversal of VISA Litigation Reserve





178

Share and Per Share Data:1










Period End Shares Outstanding

12,043


12,010


12,025


12,034


12,001

Basic Average Shares Outstanding

12,021


12,031


12,014


12,012


11,994

Diluted Average Shares Outstanding

12,038


12,049


12,032


12,032


12,009

Basic Earnings Per Share

$

0.43


$

0.43


$

0.46


$

0.48


$

0.47

Diluted Earnings Per Share

0.43


0.43


0.46


0.48


0.47

Cash Dividend Per Share

0.25


0.25


0.25


0.25


0.25

Selected Quarterly Average Balances:










    Interest-Bearing Deposits at Banks

$

26,552


$

41,145


$

40,065


$

33,332


$

55,023

    Investment Securities

771,345


711,848


745,150


670,328


682,589

    Loans

1,185,125


1,169,870


1,160,226


1,148,771


1,143,666

    Deposits

1,801,501


1,773,126


1,781,778


1,701,599


1,733,320

    Other Borrowed Funds

94,761


64,622


80,357


68,667


66,022

    Shareholders' Equity

178,878


176,874


176,514


174,069


170,199

    Total Assets

2,099,468


2,039,314


2,064,602


1,971,215


1,994,883

Return on Average Assets

0.99%


1.03%


1.07%


1.16%


1.13%

Return on Average Equity

11.68%


11.88%


12.51%


13.14%


13.22%

Return on Tangible Equity2

13.70%


13.97%


14.72%


15.50%


15.67%

Average Earning Assets

$

1,983,022


$

1,922,863


$

1,945,441


$

1,852,431


$

1,881,278

Average Paying Liabilities

1,641,580


1,590,401


1,612,959


1,511,634


1,565,692

Interest Income, Tax-Equivalent

16,989


17,059


17,787


18,168


18,508

Interest Expense

2,223


2,239


2,503


2,643


3,279

Net Interest Income, Tax-Equivalent

14,766


14,820


15,284


15,525


15,229

Tax-Equivalent Adjustment

1,180


1,063


1,047


1,000


975

Net Interest Margin 3

2.99%


3.13%


3.13%


3.33%


3.26%

Efficiency Ratio Calculation:










Noninterest Expense

$

13,274


$

13,411


$

13,117


$

12,922


$

12,651

Less: Intangible Asset Amortization

(112)


(124)


(126)


(126)


(127)

Net Noninterest Expense

$

13,162


$

13,287


$

12,991


$

12,796


$

12,524

Net Interest Income, Tax-Equivalent

$

14,766


$

14,820


$

15,284


$

15,525


$

15,229

Noninterest Income

7,071


7,174


6,897


6,835


6,808

Less: Net Securities Gains

(13)


(527)


(156)


(64)


(143)

Net Gross Income

$

21,824


$

21,467


$

22,025


$

22,296


$

21,894

Efficiency Ratio

60.31%


61.90%


58.98%


57.39%


57.20%

Period-End Capital Information:










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

$

177,607


$

177,803


$

175,825


$

176,314


$

171,940

Book Value per Share

14.75


14.80


14.62


14.65


14.33

Intangible Assets

26,387


26,460


26,495


26,546


26,611

Tangible Book Value per Share 2

12.56


12.60


12.42


12.45


12.11

Capital Ratios:










Tier 1 Leverage Ratio

9.19%


9.30%


9.10%


9.41%


9.09%

Tier 1 Risk-Based Capital Ratio

14.83%


15.15%


15.02%


15.20%


15.08%

Total Risk-Based Capital Ratio

15.98%


16.34%


16.26%


16.45%


16.34%

Assets Under Trust Administration and Investment Management

$

1,073,523


$

1,094,708


$

1,045,972


$

1,051,176


$

1,019,702





















1 Share and Per Share Data have been restated for the September 27, 2012 2% stock dividend.

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

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.


 


Arrow Financial Corporation
Consolidated Financial Information

(Dollars in Thousands - Unaudited)













Quarter Ended:

6/30/2013


12/31/2012


6/30/2012

Loan Portfolio






Commercial Loans

$

87,549


$

105,536


$

101,294

Commercial Construction Loans

30,980


29,149


17,628

Commercial Real Estate Loans

259,799


245,177


235,861

Other Consumer Loans

7,456


6,684


6,543

Consumer Automobile Loans

375,060


349,100


334,098

Residential Real Estate Loans

443,890


436,695


451,217

Total Loans

$

1,204,734


$

1,172,341


$

1,146,641

Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Quarter

$

14,603


$

15,247


$

15,053

Loans Charged-off

92


178


136

Less Recoveries of Loans Previously Charged-off

67


54


54

Net Loans Charged-off

25


124


82

Provision for Loan Losses

100


175


240

Allowance for Loan Losses, End of Quarter

$

14,678


$

15,298


$

15,211

Nonperforming Assets






Nonaccrual Loans

$

5,591


$

6,633


$

6,822

Loans Past Due 90 or More Days and Accruing

760


920


504

Loans Restructured and in Compliance with Modified Terms

461


483


510

Total Nonperforming Loans

6,812


8,036


7,836

Repossessed Assets

34


64


25

Other Real Estate Owned

1,141


970


812

Total Nonperforming Assets

$

7,987


$

9,070


$

8,673

Key Asset Quality Ratios






Net Loans Charged-off to Average Loans,   
  Quarter-to-date Annualized

0.01%


0.04%


0.03%

Provision for Loan Losses to Average Loans,  
  Quarter-to-date Annualized

0.03%


0.06%


0.08%

Allowance for Loan Losses to Period-End Loans

1.22%


1.30%


1.33%

Allowance for Loan Losses to Period-End Nonperforming Loans

215.47%


190.37%


194.11%

Nonperforming Loans to Period-End Loans

0.57%


0.69%


0.68%

Nonperforming Assets to Period-End Assets

0.38%


0.45%


0.44%

Six Month Period Ended






Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Year

$

15,298




$

15,003

Loans Charged-off

982




433

Less Recoveries of Loans Previously Charged-off

162




121

Net Loans Charged-off

820




312

Provision for Loan Losses

200




520

Allowance for Loan Losses, End of Period

$

14,678




$

15,211

Key Asset Quality Ratios






Net Loans Charged-off to Average Loans, Annualized

0.14%




0.06%

Provision for Loan Losses to Average Loans, Annualized

0.03%




0.09%


 

SOURCE Arrow Financial Corporation



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