Arrow Reports $5.6 Million Profit, Solid Third-Quarter Results

GLENS FALLS, N.Y., Oct. 21, 2013 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three- and nine-month periods ended September 30, 2013. Net income for the third quarter of 2013 was $5.6 million, a decrease of $125 thousand, or 2.2%, from net income of $5.7 million for the third quarter of 2012. Historical share and per share amounts have been restated to reflect our 2% stock dividend distributed in September 2013. Diluted earnings per share (EPS) for the quarter was $0.46, a 2.1% decrease from the comparable 2012 quarter, when diluted EPS was $0.47. Return on average assets for the third quarter of 2013 was 1.06%, and return on average equity for the 2013 third quarter was 12.42%. 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 nine months of 2013 was $16.0 million, a decrease of $619 thousand, or 3.7%, from net income of $16.6 million for the first nine months of 2012. Diluted earnings per share (EPS) for the nine-month period was $1.30, a 4.4% decrease from the comparable 2012 period, when diluted EPS was $1.36.

At September 30, 2013, Arrow reached record highs for total assets, loans, investments, deposits, equity and assets under trust administration and investment management. In addition, our lead subsidiary Glens Falls National Bank and Trust Company grew its branch network during the 2013 third quarter with the addition of a new office near Exit 18 of the Northway in Queensbury, New York.

Arrow President and CEO Thomas J. Murphy stated, "In spite of this low interest rate environment, Arrow ended the third quarter with solid returns on average assets and average equity, improved net interest margin as compared to the second quarter of 2013, record highs in six key areas, excellent asset quality and strong capital. We are committed to our conservative business model and continue to grow, regardless of actions by the Federal Reserve to keep short-term interest rates at historically low levels and also drive long-term rates to very low levels."

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

  • Cash and Stock Dividends: We distributed a 2% stock dividend and a cash dividend of $0.245 per share, when adjusted for the stock dividend, to shareholders in the third quarter of 2013. The cash dividend was 2% higher than the cash dividend paid in the third quarter of 2012. This quarter's dividend, based on the daily average of our closing stock price for the third quarter of 2013, represented an annualized yield of 3.94%.
  • Insurance Agency Operations: Insurance commission income rose from $2.1 million in the third quarter of 2012 to $2.4 million for the third quarter of 2013, an increase of 8.1%. For the first nine months of 2013, the increase was $389 thousand, or 6.3% over the 2012 period.
  • Trust Assets and Related Noninterest Income: Assets under trust administration and investment management at September 30, 2013, were a record $1.111 billion, an increase of $59.9 million, or 5.7%, from the September 30, 2012, balance of $1.051 billion. The growth in balances was generally attributable to the addition of new accounts and an increase in fair market value. Income from fiduciary activities increased by $234 thousand, or 4.9%, for the first nine months of 2013, as compared to the 2012 period.
  • Balance Sheet Changes: Total assets at September 30, 2013, reached a record high of $2.157 billion, an increase of $116.3 million, or 5.7%, from the $2.041 billion balance at September 30, 2012, and 6.6% above the total assets of $2.023 billion at December 31, 2012. Our loan portfolio also rose to a record high of $1.2 billion, up $90.4 million, or 7.8%, from the September 30, 2012, level, and an increase of $71.0 million, or 6.1%, from the level at December 31, 2012. During the first nine months of 2013, we originated approximately $97 million of residential real estate loans, an increase of 21.5% from approximately $79 million of residential real estate loans originated in the comparable period for 2012. The outstanding balance for our residential real estate loan portfolio at September 30, 2013, was higher than the outstanding balance at December 31, 2012, and September 30, 2012. For interest rate risk management purposes, we continued in the third quarter to sell many of these originations to the secondary market, primarily to a government-sponsored entity, the Federal Home Loan Mortgage Corporation. However, for the first time in several quarters, we retained more residential real estate loan originations than we sold. Accordingly, our gain on the sale of residential real estate loan originations in the third quarter of 2013 was significantly less than our gain on the sale of such originations in the comparable 2012 quarter. Consistent with past practice, we retained servicing rights on nearly all of the mortgages we sold, which will generate servicing fee income over the life of these loans and provide convenient payment options for our customers. We also experienced an increase in the outstanding balance of automobile loans during the first nine months of 2013. Although we experienced modest activity in our commercial loan portfolio in the first nine months of the year, the new commercial loan balances were essentially offset by repayments, principally due to the payoff of one large commercial loan in the first quarter of 2013.
  • Asset Quality: Asset quality remained strong at September 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 0.37% of period-end assets, down eight basis points from our 0.45% ratio as of December 31, 2012, due to the continued improving credit quality trends in our portfolio. Net loan losses for the third quarter of 2013, expressed as an annualized percentage of average loans outstanding, were 0.03%. These asset quality ratios continue to be significantly better than recently reported industry-wide averages.
    Overall loan delinquency rates remain very low and we do not expect to incur significant losses in our existing portfolio, including our residential real estate portfolio, even though we, like other area banks, serve a community in which some individual and small business customers continue to experience some financial stress. Our allowance for loan losses amounted to $14.6 million at September 30, 2013, which represented 1.17% of loans outstanding, fifteen basis points below our ratio one year earlier and thirteen basis points below our ratio at December 31, 2012.
  • Capital: Total shareholders' equity was a record $182.7 million at period-end, an increase of $6.4 million, or 3.6%, above the September 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 9.37% at quarter-end, down slightly from 9.41% at September 30, 2012. Arrow's total risk-based capital ratio was 15.69%, also down slightly from 16.45% 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 six-month period ended June 30, 2013, in which our return on average equity (ROE) was 11.68%, as compared to 8.33% for our peer group. Our ratio of loans 90 days past due and accruing plus nonaccrual loans to total loans was 0.53% as of June 30, 2013, as compared to 1.86% for our peer group. Our ratio of annualized net loan losses for the six-month period ending June 30, 2013, was 0.14%, well below the peer result of 0.29%, even though our net losses 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. As noted above, our ratio of net loan losses to average loans outstanding, annualized, for the third quarter was even lower at .03%. Overall, 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.
  • Net Interest Income and Margin: Like most banks, 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, where the cost of funds is extremely low but yields on loans and interest-bearing assets are also at historically low levels. On a tax-equivalent basis, our net interest income in the third quarter of 2013, as compared to the third quarter of 2012, decreased $240 thousand, or 1.5%. Our tax-equivalent net interest margin fell from 3.33% in the third quarter of 2012 to 3.06% for the third quarter of 2013. It should be noted, however, that we experienced a seven basis point increase in our net interest margin in the just-completed quarter, from 2.99% in the second quarter of 2013. Our average cost of funds in the third quarter of 2013 fell by 27 basis points to 0.43%, down from 0.70% in the third quarter of 2012, while our average yield on earning assets in the third quarter of 2013 decreased by 49 basis points to 3.41% from 3.90% in the third 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
September 30,


Nine Months Ended
September 30,


2013


2012


2013


2012

INTEREST AND DIVIDEND INCOME








Interest and Fees on Loans

$

12,846


$

13,569


$

38,279


$

41,155

Interest on Deposits at Banks

11


23


57


80

Interest and Dividends on Investment Securities:








Fully Taxable

1,556


2,191


4,991


7,309

Exempt from Federal Taxes

1,461


1,385


4,352


4,095

Total Interest and Dividend Income

15,874


17,168


47,679


52,639

INTEREST EXPENSE








NOW Accounts

423


675


1,987


2,710

Savings Deposits

240


319


785


1,005

Time Deposits of $100,000 or More

297


459


921


1,636

Other Time Deposits

470


855


1,529


3,075

Federal Funds Purchased and   Securities Sold Under Agreements to Repurchase

5


6


14


17

Federal Home Loan Bank Advances

167


174


539


543

Junior Subordinated Obligations Issued to   Unconsolidated Subsidiary Trusts

145


155


434


468

Total Interest Expense

1,747


2,643


6,209


9,454

NET INTEREST INCOME

14,127


14,525


41,470


43,185

Provision for Loan Losses


150


200


670

NET INTEREST INCOME AFTER PROVISION FOR   LOAN LOSSES

14,127


14,375


41,270


42,515

NONINTEREST INCOME








Income From Fiduciary Activities

1,688


1,563


5,020


4,786

Fees for Other Services to Customers

2,403


2,097


7,056


6,111

Insurance Commissions

2,404


2,223


6,608


6,219

Net Gain on Securities Transactions


64


540


709

Net Gain on Sales of Loans

166


600


1,271


1,494

Other Operating Income

278


288


689


883

Total Noninterest Income

6,939


6,835


21,184


20,202

NONINTEREST EXPENSE








Salaries and Employee Benefits

7,856


7,964


23,114


23,661

Occupancy Expenses, Net

1,882


1,779


6,277


5,773

FDIC Assessments

269


255


800


766

Other Operating Expense

3,126


2,924


9,627


8,519

Total Noninterest Expense

13,133


12,922


39,818


38,719

INCOME BEFORE PROVISION FOR INCOME TAXES

7,933


8,288


22,636


23,998

Provision for Income Taxes

2,310


2,540


6,625


7,368

NET INCOME

$

5,623


$

5,748


$

16,011


$

16,630

Average Shares Outstanding 1:








Basic

12,308


12,252


12,282


12,244

Diluted

12,344


12,273


12,302


12,262

Per Common Share:








Basic Earnings

$

0.46


$

0.47


$

1.30


$

1.36

Diluted Earnings

0.46


0.47


1.30


1.36


1 Share and per share data have been restated for the September 27, 2013, 2% stock dividend.



 


 

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts - Unaudited)













September 30,
2013


December 31,
2012


September 30,
2012

ASSETS






Cash and Due From Banks

$

47,513


$

37,076


$

43,990

Interest-Bearing Deposits at Banks

24,539


11,756


92,428

Investment Securities:






Available-for-Sale

486,888


478,698


425,416

Held-to-Maturity (Approximate Fair Value of $278,390 at September 30,
2013; $248,252 at December 31, 2012; and $254,936 at September 30, 2012)

273,626


239,803


244,949

Other Investments

3,896


5,792


4,487

Loans

1,243,370


1,172,341


1,152,951

Allowance for Loan Losses

(14,584)


(15,298)


(15,247)

Net Loans

1,228,786


1,157,043


1,137,704

Premises and Equipment, Net

29,386


28,897


26,645

Other Real Estate and Repossessed Assets, Net

499


1,034


834

Goodwill

22,003


22,003


22,003

Other Intangible Assets, Net

4,270


4,492


4,543

Accrued Interest Receivable

6,614


5,486


6,510

Other Assets

28,838


30,716


31,006

Total Assets

$

2,156,858


$

2,022,796


$

2,040,515

LIABILITIES






Noninterest-Bearing Deposits

$

280,326


$

247,232


$

259,943

NOW Accounts

839,213


758,287


769,107

Savings Deposits

516,010


442,363


443,053

Time Deposits of $100,000 or More

83,702


93,375


98,215

Other Time Deposits

176,124


189,898


201,143

Total Deposits

1,895,375


1,731,155


1,771,461

Federal Funds Purchased and   Securities Sold Under Agreements to Repurchase

15,977


12,678


18,042

Federal Home Loan Bank Overnight Advances


29,000


Federal Home Loan Bank Term Advances

20,000


30,000


30,000

Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts

20,000


20,000


20,000

Accrued Interest Payable

472


584


676

Other Liabilities

22,351


23,554


24,022

Total Liabilities

1,974,175


1,846,971


1,864,201

STOCKHOLDERS' EQUITY






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



Common Stock, $1 Par Value; 20,000,000 Shares Authorized (16,744,486
Shares Issued at September 30, 2013; 16,416,163 Shares Issued at December 31,
2012; and 16,416,163 Shares Issued at September 30, 2012)

16,744


16,416


16,416

Additional Paid-in Capital

228,622


218,650


217,756

Retained Earnings

24,755


26,251


23,697

Unallocated ESOP Shares (87,641 Shares at September 30, 2013; 102,890
Shares at December 31, 2012; and 107,315 Shares at September 30, 2012)

(1,800)


(2,150)


(2,150)

Accumulated Other Comprehensive Loss

(10,293)


(8,462)


(5,693)

Treasury Stock, at Cost (4,327,741 Shares at September 30, 2013; 4,288,617
Shares at December 31, 2012; and 4,274,972 Shares at September 30, 2012)

(75,345)


(74,880)


(73,712)

Total Stockholders' Equity

182,683


175,825


176,314

Total Liabilities and Stockholders' Equity

$

2,156,858


$

2,022,796


$

2,040,515

 


 





Arrow Financial Corporation

Selected Quarterly Information

(Dollars In Thousands, Except Per Share Amounts - Unaudited)






















Quarter Ended

9/30/2013



6/30/2013



3/31/2013



12/31/2012



9/30/2012


Net Income

$

5,623



$

5,207



$

5,181



$

5,549



$

5,748


Transactions Recorded in Net Income (Net of Tax):











Net Gain on Securities Transactions



8



318



94



39


Net Gain on Sales of Loans

100



301



367



476



362


Share and Per Share Data:1











Period End Shares Outstanding

12,329



12,284



12,251



12,265



12,275


Basic Average Shares Outstanding

12,308



12,261



12,272



12,254



12,252


Diluted Average Shares Outstanding

12,344



12,279



12,290



12,273



12,273


Basic Earnings Per Share

$

0.46



$

0.42



$

0.42



$

0.45



$

0.47


Diluted Earnings Per Share

0.46



0.42



0.42



0.45



0.47


Cash Dividend Per Share

0.25



0.25



0.25



0.25



0.24


Selected Quarterly Average Balances:











  Interest-Bearing Deposits at Banks

14,096



26,632



41,145



40,065



33,332


  Investment Securities

744,928



771,018



711,848



745,150



670,328


  Loans

1,224,840



1,185,041



1,169,870



1,160,226



1,148,771


  Deposits

1,800,181



1,801,346



1,773,126



1,781,778



1,701,599


  Other Borrowed Funds

92,073



94,596



64,622



80,357



68,667


  Shareholders' Equity

179,634



178,867



176,874



176,514



174,069


  Total Assets

2,095,017



2,099,138



2,039,314



2,064,602



1,971,215


Return on Average Assets

1.06

%


0.99

%


1.03

%


1.07

%


1.16

%

Return on Average Equity

12.42

%


11.68

%


11.88

%


12.51

%


13.14

%

Return on Tangible Equity2

14.55

%


13.70

%


13.97

%


14.72

%


15.50

%

Average Earning Assets

$

1,983,864



$

1,982,691



$

1,922,863



$

1,945,441



$

1,852,431


Average Paying Liabilities

1,614,873



1,641,300



1,590,401



1,612,959



1,511,634


Interest Income, Tax-Equivalent

17,032



16,989



17,059



17,787



18,168


Interest Expense

1,747



2,223



2,239



2,503



2,643


Net Interest Income, Tax-Equivalent

15,285



14,766



14,820



15,284



15,525


Tax-Equivalent Adjustment

1,158



1,180



1,063



1,047



1,000


Net Interest Margin 3

3.06

%


2.99

%


3.13

%


3.13

%


3.33

%

Efficiency Ratio Calculation:










Noninterest Expense

$

13,133



$

13,274



$

13,411



$

13,117



$

12,922


Less: Intangible Asset Amortization

(108)



(112)



(124)



(126)



(126)


Net Noninterest Expense

$

13,025



$

13,162



$

13,287



$

12,991



$

12,796


Net Interest Income, Tax-Equivalent

$

15,285



$

14,766



$

14,820



$

15,284



$

15,525


Noninterest Income

6,939



7,071



7,174



6,897



6,835


Less: Net Securities Gains



(13)



(527)



(156)



(64)


Net Gross Income

$

22,224



$

21,824



$

21,467



$

22,025



$

22,296


Efficiency Ratio

58.61

%


60.31

%


61.90

%


58.98

%


57.39

%

Period-End Capital Information:










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

$

182,683



$

177,607



$

177,803



$

175,825



$

176,314


Book Value per Share

14.82



14.46



14.51



14.34



14.36


Intangible Assets

26,273



26,387



26,460



26,495



26,546


Tangible Book Value per Share 2

12.69



12.31



12.35



12.18



12.20


Capital Ratios:










Tier 1 Leverage Ratio

9.37

%


9.19

%


9.30

%


9.10

%


9.41

%

Tier 1 Risk-Based Capital Ratio

14.59

%


14.82

%


15.15

%


15.02

%


15.20

%

Total Risk-Based Capital Ratio

15.69

%


15.96

%


16.34

%


16.26

%


16.45

%

Assets Under Trust Administration  and Investment Management

$

1,111,085



$

1,073,523



$

1,094,708



$

1,045,972



$

1,051,176




1

Share and Per Share Data have been restated for the September 27, 2013, 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:

9/30/2013


12/31/2012


9/30/2012

Loan Portfolio






Commercial Loans

$

87,117



$

105,536



$

100,423


Commercial Construction Loans

33,960



29,149



27,265


Commercial Real Estate Loans

263,104



245,177



235,181


Other Consumer Loans

7,570



6,684



6,857


Consumer Automobile Loans

392,352



349,100



343,230


Residential Real Estate Loans

459,267



436,695



439,995


Total Loans

$

1,243,370



$

1,172,341



$

1,152,951


Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Quarter

$

14,678



$

15,247



$

15,211


Loans Charged-off

183



178



170


Less Recoveries of Loans Previously Charged-off

89



54



56


Net Loans Charged-off

94



124



114


Provision for Loan Losses



175



150


Allowance for Loan Losses, End of Quarter

$

14,584



$

15,298



$

15,247


Nonperforming Assets






Nonaccrual Loans

$

6,171



$

6,633



$

6,088


Loans Past Due 90 or More Days and Accruing

927



920



150


Loans Restructured and in Compliance with Modified Terms

446



483



518


Total Nonperforming Loans

7,544



8,036



6,756


Repossessed Assets

18



64



37


Other Real Estate Owned

481



970



797


Total Nonperforming Assets

$

8,043



$

9,070



$

7,590


Key Asset Quality Ratios






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

0.03

%


0.04

%


0.04

%

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

%


0.06

%


0.05

%

Allowance for Loan Losses to Period-End Loans

1.17

%


1.30

%


1.32

%

Allowance for Loan Losses to Period-End Nonperforming Loans

193.32

%


190.37

%


225.68

%

Nonperforming Loans to Period-End Loans

0.61

%


0.69

%


0.59

%

Nonperforming Assets to Period-End Assets

0.37

%


0.45

%


0.37

%

Nine Month Period Ended






Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Year

$

15,298





$

15,003


Loans Charged-off

1,165





604


Less Recoveries of Loans Previously Charged-off

251





178


Net Loans Charged-off

914





426


Provision for Loan Losses

200





670


Allowance for Loan Losses, End of Period

$

14,584





$

15,247


Key Asset Quality Ratios






Net Loans Charged-off to Average Loans, Annualized

0.10

%




0.05

%

Provision for Loan Losses to Average Loans, Annualized

0.02

%




0.08

%

 

SOURCE Arrow Financial Corporation



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