Arrow Reports Increased Quarterly Earnings and Strong Asset Quality Ratios - Fourth-quarter diluted earnings per share increased 4.4%.

- Organic growth in insurance commission income.

- Record highs at year-end 2013 for total loans, total assets, equity and assets under trust administration and investment management.

- Cash dividends paid increased for 20th consecutive year.

GLENS FALLS, N.Y., Jan. 21, 2014 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three- and twelve-month periods ended December 31, 2013. Net income for the fourth quarter of 2013 was $5.8 million, an increase of $235 thousand, or 4.2%, from net income of $5.5 million for the fourth quarter of 2012. Diluted earnings per share (EPS) for the quarter was $.47, an increase of 4.4% from the comparable 2012 quarter, when diluted EPS was $.45. For the twelve-month period ended December 31, 2013, net income was $21.8 million, as compared to net income of $22.2 million for 2012, while diluted EPS decreased by $0.04, from $1.81 in 2012 to $1.77 for 2013. Return on average equity and return on average assets was 12.11% and 1.04%, respectively for the twelve-month period ended December 31, 2013, as compared to 12.88% and 1.11%, respectively for the prior year.

Arrow President and CEO Thomas J. Murphy stated, "Our highlights for 2013 included continued growth in insurance commission income, as well as record highs at year-end for loan balances outstanding, total assets, equity and assets under trust administration and investment management. Key asset quality and profitability measurements remained strong. We are pleased with these results during this extended and challenging period of historically low interest rates."

The following provides more detail about our fourth-quarter and year-to-date periods:

Cash and Stock Dividends: A cash dividend of $.25 per share was paid to shareholders in the fourth quarter of 2013, effectively 2% higher than the cash dividend paid in the fourth quarter of 2012. This represents the 20th consecutive year of an increased cash dividend. In September 2013, we distributed a 2% stock dividend. All prior period share and per share data have been adjusted accordingly.

Insurance Operations: For the 2013 twelve-month period, insurance income rose $648 thousand, or 7.9%, to $8.9 million in 2013 from $8.2 million in 2012. This growth is attributable to organic growth of insurance commissions within our agency operations.

Trust Assets and Related Noninterest Income: Assets under trust administration and investment management at December 31, 2013 rose to a record high of $1.175 billion, an increase of $129 million, or 12.3%, from the December 31, 2012 balance of $1.046 billion. The growth in balances was generally attributable to an increase in the market value of accounts, principally reflecting improvements in the equity markets during the year, and the addition of new accounts . Income from fiduciary activities of $1.7 million rose by 14.0% for the 2013 fourth quarter as compared to the same period in 2012.

Balance Sheet Changes: Total assets at December 31, 2013 reached a record high of $2.164 billion, an increase of $140.9 million, or 7.0%, from the $2.023 billion balance at December 31, 2012. At December 31, 2013 our loan portfolio was also at a record high of $1.266 billion, up $94.1 million, or 8.0%, from the December 31, 2012 level. During 2013, we originated over $118.9 million of residential real estate loans, an increase of 9.0% from approximately $109.1 million of residential real estate loans originated in 2012. The outstanding balance of our residential real estate loan portfolio at December 31, 2013 was higher than at year-end 2012. 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. During 2013, we retained more residential real estate loan originations than we sold as yields began to rise. Our gain on the sale of residential real estate loan originations in 2013 was significantly less than our gain on the sale of originations in 2012 due both to a decrease in the amount of loans sold and to a narrowing of the premium received on each sale. Consistent with past practice, we retained servicing rights on nearly all the mortgages we sold, generating servicing fee income over the life of these loans and providing a convenient payment option for our customers. We also experienced an increase in the volume of new automobile loans in 2013, as well as modest growth in our commercial loan portfolio.

Asset Quality: Asset quality remained strong at December 31, 2013, as measured by our low level of nonperforming assets and charge-offs. Nonperforming assets of $7.9 million represented only 0.37% of period-end assets, far below industry averages and down from our 0.45% ratio at December 31, 2012. Net loan losses for the fourth quarter of 2013, expressed as an annualized percentage of average loans outstanding, were 0.05%, an increase of one basis point from the 2012 comparable period. These asset quality ratios continue to be significantly better than recently reported industry-wide averages.

Overall loan delinquency rates also remain low even though we, like other area banks, serve a community in which some individual and small business customers continue to experience varying degrees of financial stress. Our allowance for loan losses was $14.4 million at December 31, 2013, which represented 1.14% of loans outstanding, a decrease of sixteen basis points from our ratio of 1.30% at year-end 2012.

Capital: Total shareholders' equity grew to $192.2 million at period-end, an increase of $16.3 million, or 9.3%, above the December 31, 2012 balance. Arrow's capital ratios were again strong in 2013. At December 31, 2013, the Tier 1 leverage ratio at the holding company level was 9.19%, up from 9.10% at December 31, 2012, and total risk-based capital ratio was 15.77%, as compared to 16.26% for the prior year. 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 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 nine-month period ended September 30, 2013, in which our return on average equity (ROE) was 11.96%, as compared to 8.63% for our peer group. For the year ended December 31, 2013, ROE was 12.11%, versus 12.88% for the prior year. Our ratio of loans 90 days past due and accruing, plus nonaccrual loans to total loans was 0.57% as of September 30, 2013, as compared to 1.71% for our peer group, while our annualized net loan losses of 0.10% for the year-to-date period ending September 30, 2013 were well below the peer result of 0.25%. Our net loan losses for the full year were 0.09% for 2013 and 0.05% for 2012. 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: Like most banks, Arrow has been impacted by this historically low interest rate environment. While the cost of funds is extremely low, yields on loans and interest-bearing assets are also at very low levels. On a tax-equivalent basis, our net interest income in the fourth quarter of 2013, as compared to the fourth quarter of 2012, increased $636 thousand, or 4.2%, due primarily to an increase in the average level of interest-earning assets between the periods. Our tax-equivalent net interest margin fell from 3.13% in the fourth quarter of 2012 to 3.06% for the fourth quarter of 2013. However, net interest margin was stable as compared to the third quarter of 2013 which was also 3.06%. Both our yield on earning assets and the cost of our interest-bearing liabilities decreased significantly from the fourth quarter of 2012 to the fourth quarter of 2013. Our average cost of funds in the fourth quarter of 2013, as compared to the fourth quarter of 2012, fell by 22 basis points from 0.62% to 0.40%, while our average yield on earning assets decreased by 25 basis points from 3.64% in the fourth quarter of 2012 to 3.39% in the just completed quarter.

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


Twelve Months Ended


December 31,


December 31,


2013


2012


2013


2012

INTEREST AND DIVIDEND INCOME








Interest and Fees on Loans

$

13,040



$

13,356



$

51,319



$

54,511


Interest on Deposits at Banks

32



28



89



108


Interest and Dividends on Investment Securities:








Fully Taxable

1,912



1,960



6,903



9,269


Exempt from Federal Taxes

1,475



1,396



5,827



5,491


Total Interest and Dividend Income

16,459



16,740



64,138



69,379


INTEREST EXPENSE








NOW Accounts

474



854



2,461



3,564


Savings Deposits

239



282



1,024



1,287


Time Deposits of $100,000 or More

277



371



1,198



2,007


Other Time Deposits

433



655



1,962



3,730


Federal Funds Purchased and

Securities Sold Under Agreements to Repurchase

4



5



18



22


Federal Home Loan Bank Advances

141



186



680



729


Junior Subordinated Obligations Issued to

Unconsolidated Subsidiary Trusts

145



150



579



618


Total Interest Expense

1,713



2,503



7,922



11,957


NET INTEREST INCOME

14,746



14,237



56,216



57,422


Provision for Loan Losses



175



200



845


NET INTEREST INCOME AFTER PROVISION FOR

  LOAN LOSSES

14,746



14,062



56,016



56,577


NONINTEREST INCOME








Income From Fiduciary Activities

1,715



1,504



6,735



6,290


Fees for Other Services to Customers

2,351



2,134



9,407



8,245


Insurance Commissions

2,287



2,028



8,895



8,247


Net Gain on Securities Transactions



156



540



865


Net Gain on Sales of Loans

189



788



1,460



2,282


Other Operating Income

335



287



1,024



1,170


Total Noninterest Income

6,877



6,897



28,061



27,099


NONINTEREST EXPENSE








Salaries and Employee Benefits

8,068



8,042



31,182



31,703


Occupancy Expenses, Net

2,008



1,694



8,285



7,467


FDIC Assessments

280



260



1,080



1,026


Other Operating Expense

3,029



3,121



12,656



11,640


Total Noninterest Expense

13,385



13,117



53,203



51,836


INCOME BEFORE PROVISION FOR INCOME TAXES

8,238



7,842



30,874



31,840


Provision for Income Taxes

2,454



2,293



9,079



9,661


NET INCOME

$

5,784



$

5,549



$

21,795



$

22,179


Average Shares Outstanding1:








Basic

12,339



12,254



12,296



12,247


Diluted

12,387



12,273



12,327



12,257


Per Common Share:








Basic Earnings

$

0.47



$

0.45



$

1.77



$

1.81


Diluted Earnings

0.47



0.45



1.77



1.81














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)










December 31, 2013


December 31, 2012

ASSETS




Cash and Due From Banks

$

37,275



$

37,076


Interest-Bearing Deposits at Banks

12,705



11,756


Investment Securities:




Available-for-Sale

457,606



478,698


Held-to-Maturity (Approximate Fair Value of $302,305 at

  December 31, 2013, and $248,252 at December 31, 2012)

299,261



239,803


Other Investments

6,281



5,792


Loans

1,266,472



1,172,341


Allowance for Loan Losses

(14,434)



(15,298)


Net Loans

1,252,038



1,157,043


Premises and Equipment, Net

29,154



28,897


Goodwill

22,003



22,003


Other Intangible Assets, Net

4,140



4,492


Other Assets

43,235



37,236


Total Assets

$

2,163,698



$

2,022,796


LIABILITIES




Noninterest-Bearing Deposits

$

278,958



$

247,232


NOW Accounts

817,366



758,287


Savings Deposits

498,779



442,363


Time Deposits of $100,000 or More

78,928



93,375


Other Time Deposits

168,299



189,898


Total Deposits

1,842,330



1,731,155


Federal Funds Purchased and

Securities Sold Under Agreements to Repurchase

11,777



12,678


Federal Home Loan Bank Overnight Advances

53,000



29,000


Federal Home Loan Bank Term Advances

20,000



30,000


Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts

20,000



20,000


Other Liabilities

24,437



24,138


Total Liabilities

1,971,544



1,846,971


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 December 31, 2013, and

  16,416,163 Shares Issued at December 31, 2012)

16,744



16,416


Additional Paid-in Capital

229,290



218,650


Retained Earnings

27,457



26,251


Unallocated ESOP Shares (87,641 Shares at December 31, 2013, and

  102,890 Shares at December 31, 2012)

(1,800)



(2,150)


Accumulated Other Comprehensive Loss

(4,373)



(8,462)


Treasury Stock, at Cost (4,296,723 Shares at December 31, 2013, and

  4,288,617 Shares at December 31, 2012)

(75,164)



(74,880)


Total Stockholders' Equity

192,154



175,825


Total Liabilities and Stockholders' Equity

$

2,163,698



$

2,022,796


 

 

Arrow Financial Corporation

Selected Quarterly Information

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

















Quarter Ended

12/31/2013


9/30/2013


6/30/2013


3/31/2013


12/31/2012


Net Income

$

5,784


$

5,623


$

5,207


$

5,181


$

5,549


Transactions Recorded in Net Income (Net of
Tax):









Net Gain on Securities Transactions



8


318


94


Net Gain on Sales of Loans

114


100


301


367


476


Share and Per Share Data:1









Period End Shares Outstanding

12,360


12,329


12,284


12,251


12,265


Basic Average Shares Outstanding

12,339


12,308


12,261


12,272


12,254


Diluted Average Shares Outstanding

12,387


12,344


12,279


12,290


12,273


Basic Earnings Per Share

$

0.47


$

0.46


$

0.42


$

0.42


$

0.45


Diluted Earnings Per Share

0.47


0.46


0.42


0.42


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

$

46,853


$

14,096


$

26,632


$

41,145


$

40,065


Investment Securities

762,768


744,928


771,018


711,848


745,150


Loans

1,254,957


1,224,840


1,185,041


1,169,870


1,160,226


Deposits

1,904,922


1,800,181


1,801,346


1,773,126


1,781,778


Other Borrowed Funds

62,038


92,073


94,596


64,622


80,357


Shareholders' Equity

184,506


179,634


178,867


176,874


176,514


Total Assets

2,176,264


2,095,017


2,099,138


2,039,314


2,064,602


Return on Average Assets

1.05%


1.06%


0.99%


1.03%


1.07%


Return on Average Equity

12.44%


12.42%


11.68%


11.88%


12.51%


Return on Tangible Equity2

14.50%


14.55%


13.70%


13.97%


14.72%


Average Earning Assets

$

2,064,578


$

1,983,864


$

1,982,691


$

1,922,863


$

1,945,441


Average Paying Liabilities

1,686,993


1,614,873


1,641,300


1,590,401


1,612,959


Interest Income, Tax-Equivalent

17,633


17,032


16,989


17,059


17,787


Interest Expense

1,713


1,747


2,223


2,239


2,503


Net Interest Income, Tax-Equivalent

15,920


15,285


14,766


14,820


15,284


Tax-Equivalent Adjustment

1,174


1,158


1,180


1,063


1,047


Net Interest Margin 3

3.06%


3.06%


2.99%


3.13%


3.13%


Efficiency Ratio Calculation:









Noninterest Expense

$

13,385


$

13,133


$

13,274


$

13,411


$

13,117


Less: Intangible Asset Amortization

(108)


(108)


(112)


(124)


(126)


Net Noninterest Expense

$

13,277


$

13,025


$

13,162


$

13,287


$

12,991


Net Interest Income, Tax-Equivalent

$

15,920


$

15,285


$

14,766


$

14,820


$

15,284


Noninterest Income

6,877


6,939


7,071


7,174


6,897


Less: Net Securities Gains



(13)


(527)


(156)


Net Gross Income

$

22,797


$

22,224


$

21,824


$

21,467


$

22,025


Efficiency Ratio

58.24%


58.61%


60.31%


61.90%


58.98%


Period-End Capital Information:









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

$

192,154


$

182,683


$

177,607


$

177,803


$

175,825


Book Value per Share

15.55


14.82


14.46


14.51


14.34


Intangible Assets

26,143


26,273


26,387


26,460


26,495


Tangible Book Value per Share 2

13.43


12.69


12.31


12.35


12.18


Capital Ratios:









Tier 1 Leverage Ratio

9.19%


9.37%


9.19%


9.30%


9.10%


Tier 1 Risk-Based Capital Ratio

14.70%


14.59%


14.82%


15.15%


15.02%


Total Risk-Based Capital Ratio

15.77%


15.69%


15.96%


16.34%


16.26%


Assets Under Trust Administration

and Investment Management

$

1,174,891


$

1,111,085


$

1,073,523


$

1,094,708


$

1,045,972


 

1Share and Per Share Data have been restated for the September 27, 2013, 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:

12/31/2013


12/31/2012

Loan Portfolio




Commercial Loans

$

87,893



$

105,536


Commercial Construction Loans

27,815



29,149


Commercial Real Estate Loans

288,119



245,177


Other Consumer Loans

7,649



6,684


Consumer Automobile Loans

394,204



349,100


Residential Real Estate Loans

460,792



436,695


Total Loans

$

1,266,472



$

1,172,341


Allowance for Loan Losses




Allowance for Loan Losses, Beginning of Quarter

$

14,584



$

15,247


Loans Charged-off

246



178


Less Recoveries of Loans Previously Charged-off

96



54


Net Loans Charged-off

150



124


Provision for Loan Losses



175


Allowance for Loan Losses, End of Quarter

$

14,434



$

15,298


Nonperforming Assets




Nonaccrual Loans

$

6,479



$

6,633


Loans Past Due 90 or More Days and Accruing

652



920


Loans Restructured and in Compliance with Modified Terms

641



483


Total Nonperforming Loans

7,772



8,036


Repossessed Assets

63



64


Other Real Estate Owned

81



970


Total Nonperforming Assets

$

7,916



$

9,070


Key Asset Quality Ratios




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

  Annualized

0.05%



0.04%


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

  Annualized



0.06%


Allowance for Loan Losses to Period-End Loans

1.14%



1.30%


Allowance for Loan Losses to Period-End Nonperforming Loans

185.71%



190.37%


Nonperforming Loans to Period-End Loans

0.61%



0.69%


Nonperforming Assets to Period-End Assets

0.37%



0.45%


Twelve-Month Period Ended:




Allowance for Loan Losses




Allowance for Loan Losses, Beginning of Year

$

15,298



$

15,003


Loans Charged-off

1,411



782


Less Recoveries of Loans Previously Charged-off

347



232


Net Loans Charged-off

1,064



550


Provision for Loan Losses

200



845


Allowance for Loan Losses, End of Year

$

14,434



$

15,298


Key Asset Quality Ratios




Net Loans Charged-off to Average Loans

0.09%



0.05%


Provision for Loan Losses to Average Loans

0.02%



0.07%


 

 

SOURCE Arrow Financial Corporation



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