2014

Arrow Reports Increased Earnings and Strong Asset Quality Ratios

GLENS FALLS, N.Y., Jan. 22, 2013 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three- and twelvemonth periods ended December 31, 2012. Net income for the fourth quarter of 2012 was $5.5 million, an increase of $118 thousand or 2.17% from net income of $5.4 million for the fourth quarter of 2011. Diluted earnings per share (EPS) for the quarter was $.46, an increase of 2.22% from the comparable 2011 quarter, when diluted EPS was $.45. For the twelve-month period ended December 31, 2012, net income reached a record high of $22.2 million, as compared to net income of $21.9 million for the 2011 year, while diluted EPS increased by $.02, from $1.83 in 2011 to $1.85 for 2012.

Thomas J. Murphy, President and CEO, succeeding Thomas L. Hoy who retired at year end, stated, "Our record earnings for 2012 included an increase of $1.2 million in noninterest income for the year, while our noninterest expense increased by only $288 thousand. Loan balances outstanding at year end 2012 grew to a record high of nearly $1.2 billion. Key asset quality and profitability measurements continue to be excellent. We are pleased with these results during this extended and challenging period of historically low interest rates."

The following list presents highlights of our fourth-quarter and year-to-date periods:

  • Increased Earnings: Our net income for the twelve-month period ended December 31, 2012, reached a record high of $22.2 million, marking the fifth consecutive year of increased earnings.
  • Cash and Stock Dividends: A cash dividend of $.25 per share was paid to shareholders in the fourth quarter of 2012, effectively 2% higher than the cash dividend paid in the fourth quarter of 2011. This represents the 19th consecutive year of an increased cash dividend. In September 2012, we distributed a 2% stock dividend. All prior period share and per share data have been adjusted accordingly.
  • Insurance Agencies Operations: For the 2012 twelve-month period, insurance commission income rose $873 thousand, or 11.8%, to $8.2 million in 2012 from $7.4 million in 2011. This growth is primarily attributable to our expansion of insurance agency operations. Our most recent insurance agency acquisition was on August 1, 2011, when we acquired the McPhillips Insurance Agencies, two longstanding property and casualty insurance agencies located in our service area.
  • Asset Quality: Asset quality remained strong at December 31, 2012, as measured by our low level of nonperforming assets and charge-offs. Nonperforming assets of $9.1 million represented only 0.45% of period-end assets, far below industry averages, although up slightly from our 0.41% ratio at December 31, 2011. Net loan losses for the fourth quarter of 2012, expressed as an annualized percentage of average loans outstanding, were 0.04%, a decrease of three basis points from the 2011 comparable period. Our year-to-year ratios of nonperforming assets and net loan losses were similarly stable and at very low levels. These asset quality ratios continue to be significantly better than all recently reported industry peer averages. However, our commercial borrowers, like many businesses, continue to experience financial challenges and difficulties in this slow economic growth environment.
    Overall loan delinquency rates remain very low and, unlike many of our peers, we have not and do not expect to incur significant losses in our existing residential real estate portfolio, even though some borrowers may be experiencing stress due to the continuing weakness in the regional economy. Our allowance for loan losses was $15.3 million at December 31, 2012, which represented 1.30% of loans outstanding, a decrease of three basis points from our ratio at December 31, 2011.
  • Capital: Total shareholders' equity grew to $175.8 million at period-end, an increase of $9.4 million, or 5.7%, above the December 31, 2011 balance. Arrow's capital ratios, which were strong in 2011, strengthened further in 2012. At December 31, 2012, the Tier 1 leverage ratio at the holding company level was 9.10% and total risk-based capital ratio was 16.26%, up from 8.95% and 15.96%, respectively, at December 31, 2011. The capital ratios of the Company and both of its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standards, which places us in the highest category from a regulatory capital perspective.
  • Trust Assets and Related Noninterest Income: Assets under trust administration and investment management at December 31, 2012 rose to $1.046 billion, an increase of $72 million, or 7.4%, from the December 31, 2011 balance of $973.6 million. The growth in balances was generally attributable to both new business and a favorable movement within the financial markets between the periods. Income from fiduciary activities of $1.5 million rose by 0.87% for the 2012 fourth quarter as compared to the comparable 2011 period.
  • Securities Transactions: Securities gains had a smaller impact on earnings in 2012 than in 2011, although a larger impact in the 2012 fourth quarter than in the 2011 fourth quarter. Included in the 2012 results of operations were net securities gains of $94 thousand for the fourth quarter and $522 thousand for the year, net of tax, which represented approximately $.01 and $.04 per share, respectively. There were no net securities gains for the fourth quarter of 2011 but gains for the 2011 year amounted to $1.7 million, net of tax, which represented $.14 per share.
  • FHLB Debt: In the third quarter of 2011, we deleveraged our balance sheet by prepaying four of our long-term Federal Home Loan Bank (FHLB) advances totaling $40 million. The prepayment penalties for these higher-costing advances amounted to $989 thousand, net of tax, which was reported as a component of noninterest expense for the 2011 third quarter and represented $.08 per share. No prepayment penalties were incurred during 2012.
  • Balance Sheet Changes: Total assets at December 31, 2012, reached $2.023 billion, an increase of $60.1 million, or 3.06%, from the $1.963 billion balance at December 31, 2011. At December 31, 2012 our loan portfolio was $1.172 billion, up $40.9 million, or 3.61%, from the December 31, 2011 level. During 2012, we originated over $109.1 million of residential real estate loans. However, for interest rate risk management purposes, we continued to follow the practice we adopted in recent years of selling a substantial portion of the residential real estate loans we originate 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 December 31, 2012, was actually lower than our balance at December 31, 2011. We continue to retain servicing rights on most all the mortgages we sold, generating servicing fee income on these loans. As long-term interest rates continued to decline during 2012, we experienced significant gains on our sales of residential loans totaling $2.3 million for the year, which was substantially higher than our gains on such sales in 2011 of $866 thousand. We also experienced an increase in the volume of new automobile loans in 2012, as well as modest growth in our commercial loan portfolio which, combined, more than offset the decrease in our residential real estate loan portfolio.
  • Net Interest Income: Similar to most institutions within the banking industry, Arrow has experienced decreases in its net interest margin in recent periods as a result of operating in this historically low interest rate environment. Nevertheless, on a tax-equivalent basis, our net interest income in the fourth quarter of 2012, as compared to the fourth quarter of 2011, increased $127 thousand, or 0.8%, due to an increase in the average level of interest-earning assets between the periods. Our tax-equivalent net interest margin fell from 3.25% in the fourth quarter of 2011 to 3.13% for the fourth quarter of 2012. Both our yield on earning assets and the cost of our interest-bearing liabilities decreased significantly from the fourth quarter of 2011 to the fourth quarter of 2012. Our cost of funds in the fourth quarter of 2012, as compared to the fourth quarter of 2011, fell by 41 basis points, from 1.03% to 0.62%, while our yield on earning assets decreased by 47 basis points from 4.11% in the fourth quarter of 2011 to 3.64% in the just completed quarter.
  • 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 nine-month period ended September 30, 2012, in which our return on average equity (ROE) was 13.01%, as compared to 7.93% for our peer group. For the year ended December 31, 2012, ROE was 12.88%, verses 13.45% for the prior year. Our ratio of loans 90 days past due and accruing, plus nonaccrual loans to total loans was 0.54% as of September 30, 2012, as compared to 2.48% for our peer group, while our annualized net loan losses of 0.05% for the year-to-date period ending September 30, 2012 were well below the peer result of 0.58%. Our net loan losses for the full year were 0.05% for both 2012 and 2011. Our operating results and asset quality ratios have consistently withstood the economic stress of recent years much better than most banks in our national peer group.

Mr. Murphy further added, "Arrow Financial Corporation has delivered shareholder value by adhering to a conservative business model that emphasizes a strong capital position, high loan quality, knowledge of our market and responsiveness to our customers. We remain committed to these core values, which have served the Company and its shareholders well. However, Arrow, like other banking organizations, faces challenges in this difficult period of historically low interest rates, slow economic growth and increasing regulation."

Other highlights from the 2012 fiscal year included:

  • Industry Recognition: Our commitment to excellence was acknowledged in 2012 by numerous banking industry publications. Arrow appeared in Bank Director Magazine's annual "Bank Performance Scorecard"; American Banker Magazine's "Top 200 Community Banks" list; the ABA Banking Journal's "25 Top Performing Mid-Sized Banks" list; and American Banker newspaper's "Banks of the Year" list. We have detailed these recognitions in previous releases.
  • Executive Retirements: Two of the Company's longest-serving and most dedicated Executive Officers retired at year-end 2012. Thomas L. Hoy stepped down as CEO of Arrow and Glens Falls National Bank on December 31, 2012, although he continues to serve as the Chairman of the Board of Directors of both entities. Raymond F. O'Conor retired on December 31, 2012 as CEO of our other subsidiary bank, Saratoga National Bank and Trust Company; he too continues to serve as its Chairman. The Company thanks them for their decades of service and wishes them well in retirement.
  • Headquarters Expansion: In 2012, we expanded the headquarters of Glens Falls National Bank and Trust Company, our main subsidiary, in Glens Falls, New York to include a new building for our Trust, Investment and Retirement Services Division, and our Commercial Lending Services Division. The new building positions the Bank for future growth, enhanced operational efficiencies, improved level of customer service and demonstrates our commitment to the community.

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, 2011, 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


Twelve Months Ended


December 31,


December 31,


2012


2011


2012


2011

INTEREST AND DIVIDEND INCOME








Interest and Fees on Loans

$

13,356



$

14,322



$

54,511



$

58,599


Interest on Deposits at Banks

28



33



108



99


Interest and Dividends on Investment Securities:








Fully Taxable

1,960



2,695



9,269



12,402


Exempt from Federal Taxes

1,396



1,297



5,491



5,691


Total Interest and Dividend Income

16,740



18,347



69,379



76,791


INTEREST EXPENSE








NOW Accounts

854



1,289



3,564



5,052


Savings Deposits

282



409



1,287



1,898


Time Deposits of $100,000 or More

371



643



2,007



2,633


Other Time Deposits

655



1,225



3,730



5,143


Federal Funds Purchased and

  Securities Sold Under Agreements to Repurchase

5



9



22



74


Federal Home Loan Bank Advances

186



297



729



3,295


Junior Subordinated Obligations Issued to

  Unconsolidated Subsidiary Trusts

150



150



618



584


Total Interest Expense

2,503



4,022



11,957



18,679


NET INTEREST INCOME

14,237



14,325



57,422



58,112


Provision for Loan Losses

175



280



845



845


NET INTEREST INCOME AFTER PROVISION FOR

   LOAN LOSSES

14,062



14,045



56,577



57,267


NONINTEREST INCOME








Income From Fiduciary Activities

1,504



1,491



6,290



6,113


Fees for Other Services to Customers

2,134



1,969



8,245



8,034


Insurance Commissions

2,028



2,099



8,247



7,374


Net Gain on Securities Transactions

156





865



2,795


Net Gain on Sales of Loans

788



429



2,282



866


Other Operating Income

287



211



1,170



746


Total Noninterest Income

6,897



6,199



27,099



25,928


NONINTEREST EXPENSE








Salaries and Employee Benefits

8,042



7,843



31,703



30,205


Occupancy Expenses, Net

1,694



1,698



7,467



7,369


FDIC Assessments

260



252



1,026



1,292


Prepayment Penalty on FHLB Advances







1,638


Other Operating Expense

3,121



2,662



11,640



11,044


Total Noninterest Expense

13,117



12,455



51,836



51,548


INCOME BEFORE PROVISION FOR INCOME TAXES

7,842



7,789



31,840



31,647


Provision for Income Taxes

2,293



2,358



9,661



9,714


NET INCOME

$

5,549



$

5,431



$

22,179



$

21,933


Average Shares Outstanding1:








Basic

12,014



12,017



12,007



11,970


Diluted

12,032



12,024



12,017



11,982


Per Common Share:








Basic Earnings

$

0.46



$

0.45



$

1.85



$

1.83


Diluted Earnings

0.46



0.45



1.85



1.83






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)










December 31, 2012


December 31, 2011

ASSETS




Cash and Due From Banks

$

37,076



$

29,598


Interest-Bearing Deposits at Banks

11,756



14,138


Investment Securities:




Available-for-Sale

478,698



556,538


Held-to-Maturity (Approximate Fair Value of $248,252 at

  December 31, 2012 and $159,059 at December 31, 2011)

239,803



150,688


Other Investments

5,792



6,722


Loans

1,172,341



1,131,457


Allowance for Loan Losses

(15,298)



(15,003)


Net Loans

1,157,043



1,116,454


Premises and Equipment, Net

28,897



22,629


Other Real Estate and Repossessed Assets, Net

1,034



516


Goodwill

22,003



22,003


Other Intangible Assets, Net

4,492



4,749


Accrued Interest Receivable

5,486



6,082


Other Assets

30,716



32,567


Total Assets

$

2,022,796



$

1,962,684


LIABILITIES




Noninterest-Bearing Deposits

$

247,232



$

232,038


NOW Accounts

758,287



642,521


Savings Deposits

442,363



416,829


Time Deposits of $100,000 or More

93,375



123,668


Other Time Deposits

189,898



228,990


Total Deposits

1,731,155



1,644,046


Federal Funds Purchased and

  Securities Sold Under Agreements to Repurchase

12,678



26,293


Federal Home Loan Bank Overnight Advances

29,000



42,000


Federal Home Loan Bank Term Advances

30,000



40,000


Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts

20,000



20,000


Accrued Interest Payable

584



1,147


Other Liabilities

23,554



22,813


Total Liabilities

1,846,971



1,796,299


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 December 31, 2012 and

   16,094,277 Shares Issued at December 31, 2011)

16,416



16,094


Additional Paid-in Capital

218,650



207,600


Retained Earnings

26,251



23,947


Unallocated ESOP Shares (102,890 Shares at December 31, 2012 and

  117,502 Shares at December 31, 2011)

(2,150)



(2,500)


Accumulated Other Comprehensive Loss

(8,462)



(6,695)


Treasury Stock, at Cost (4,288,617 Shares at December 31, 2012 and

  4,213,470 shares at December 31, 2011)

(74,880)



(72,061)


Total Stockholders' Equity

175,825



166,385


Total Liabilities and Stockholders' Equity

$

2,022,796



$

1,962,684


 



Arrow Financial Corporation

Selected Quarterly Information

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





















Quarter Ended

12/31/2012



9/30/2012



6/30/2012



3/31/2012



12/31/2011


Net Income

$

5,549



$

5,748



$

5,594



$

5,288



$

5,431


Transactions Recorded in Net Income (Net of Tax):










Net Gain on Securities Transactions

94



39



86



303




Net Gain on Sales of Loans

476



362



324



216



259


Reversal of VISA Litigation Reserve





178






Share and Per Share Data:1










Period End Shares Outstanding

12,025



12,034



12,001



11,996



11,999


Basic Average Shares Outstanding

12,014



12,012



11,994



12,005



12,017


Diluted Average Shares Outstanding

12,032



12,032



12,009



12,031



12,024


Basic Earnings Per Share

$

0.46



$

0.48



$

0.47



$

0.44



$

0.45


Diluted Earnings Per Share

0.46



0.48



0.47



0.44



0.45


Cash Dividend Per Share

0.25



0.25



0.25



0.25



0.25


Selected Quarterly Average Balances:










Interest-Bearing Deposits at Banks

$

40,065



$

33,332



$

55,023



$

30,780



$

49,101


Investment Securities

745,150



670,328



682,589



678,474



674,338


Loans

1,160,226



1,148,771



1,143,666



1,136,322



1,126,452


Deposits

1,781,778



1,701,599



1,733,320



1,683,781



1,668,062


Other Borrowed Funds

80,357



68,667



66,022



83,055



101,997


Shareholders' Equity

176,514



174,069



170,199



167,849



168,293


Total Assets

2,064,602



1,971,215



1,994,883



1,959,741



1,963,915


Return on Average Assets

1.07

%


1.16

%


1.13

%


1.09

%


1.10

%

Return on Average Equity

12.51

%


13.14

%


13.22

%


12.67

%


12.80

%

Return on Tangible Equity2

14.72

%


15.50

%


15.67

%


15.07

%


15.22

%

Average Earning Assets

$

1,945,441



$

1,852,431



$

1,881,278



$

1,845,576



$

1,849,891


Average Paying Liabilities

1,612,959



1,511,634



1,565,692



1,545,098



1,547,071


Interest Income, Tax-Equivalent

17,787



18,168



18,508



18,810



19,179


Interest Expense

2,503



2,643



3,279



3,532



4,022


Net Interest Income, Tax-Equivalent

15,284



15,525



15,229



15,278



15,157


Tax-Equivalent Adjustment

1,047



1,000



975



872



832


Net Interest Margin 3

3.13

%


3.33

%


3.26

%


3.33

%


3.25

%

Efficiency Ratio Calculation:










Noninterest Expense

$

13,117



$

12,922



$

12,651



$

13,146



$

12,455


Less: Intangible Asset Amortization

(126)



(126)



(127)



(138)



(142)


Net Noninterest Expense

$

12,991



$

12,796



$

12,524



$

13,008



$

12,313


Net Interest Income, Tax-Equivalent

$

15,284



$

15,525



$

15,229



$

15,278



$

15,157


Noninterest Income

6,897



6,835



6,808



6,559



6,199


Less: Net Securities Gains

(156)



(64)



(143)



(502)




Net Gross Income

$

22,025



$

22,296



$

21,894



$

21,335



$

21,356


Efficiency Ratio

58.98

%


57.39

%


57.20

%


60.97

%


57.66

%

Period-End Capital Information:










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

$

175,825



$

176,314



$

171,940



$

168,466



$

166,385


Book Value per Share

14.62



14.65



14.33



14.04



13.87


Intangible Assets

26,495



26,546



26,611



26,653



26,752


Tangible Book Value per Share 2

12.42



12.45



12.11



11.82



11.64


Capital Ratios:










Tier 1 Leverage Ratio

9.10

%


9.41

%


9.09

%


9.10

%


8.95

%

Tier 1 Risk-Based Capital Ratio

15.02

%


15.20

%


15.08

%


14.84

%


14.71

%

Total Risk-Based Capital Ratio

16.26

%


16.45

%


16.34

%


16.10

%


15.96

%

Assets Under Trust Administration

  and Investment Management

$

1,045,972



$

1,051,176



$

1,019,702



$

1,038,186



$

973,551



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

2Tangible 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.

3Net 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:

12/31/2012


12/31/2011

Loan Portfolio




Commercial Loans

$

105,536



$

99,791


Commercial Construction Loans

29,149



11,083


Commercial Real Estate Loans

245,177



232,149


Other Consumer Loans

6,684



6,318


Consumer Automobile Loans

349,100



322,375


Residential Real Estate Loans

436,695



459,741


Total Loans

$

1,172,341



$

1,131,457


Allowance for Loan Losses




Allowance for Loan Losses, Beginning of Quarter

$

15,247



$

14,921


Loans Charged-off

178



251


Less Recoveries of Loans Previously Charged-off

54



53


Net Loans Charged-off

124



198


Provision for Loan Losses

175



280


Allowance for Loan Losses, End of Quarter

$

15,298



$

15,003


Nonperforming Assets




Nonaccrual Loans

$

6,633



$

4,528


Loans Past Due 90 or More Days and Accruing

920



1,662


Loans Restructured and in Compliance with Modified Terms

483



1,422


Total Nonperforming Loans

8,036



7,612


Repossessed Assets

64



56


Other Real Estate Owned

970



460


Total Nonperforming Assets

$

9,070



$

8,128


Key Asset Quality Ratios




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

  Annualized

0.04

%


0.07

%

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

  Annualized

0.06

%


0.10

%

Allowance for Loan Losses to Period-End Loans

1.30

%


1.33

%

Allowance for Loan Losses to Period-End Nonperforming Loans

190.37

%


197.10

%

Nonperforming Loans to Period-End Loans

0.69

%


0.67

%

Nonperforming Assets to Period-End Assets

0.45

%


0.41

%

Twelve-Month Period Ended:




Allowance for Loan Losses




Allowance for Loan Losses, Beginning of Year

$

15,003



$

14,689


Loans Charged-off

782



774


Less Recoveries of Loans Previously Charged-off

232



243


Net Loans Charged-off

550



531


Provision for Loan Losses

845



845


Allowance for Loan Losses, End of Year

$

15,298



$

15,003


Key Asset Quality Ratios




Net Loans Charged-off to Average Loans

0.05

%


0.05

%

Provision for Loan Losses to Average Loans

0.07

%


0.08

%

SOURCE Arrow Financial Corporation



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