Arrow Reports Solid First Quarter Results and Strong Asset Quality

GLENS FALLS, N.Y., April 19, 2013 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three-month period ended March 31, 2013. Net income for the first quarter of 2013 was $5.2 million, a decrease of $107 thousand, or 2%, from net income of $5.3 million for the first quarter of 2012. Diluted earnings per share (EPS) for the quarter was $0.43, a 2% decrease from the comparable 2012 quarter, when diluted EPS was $0.44. Return on average assets for the first quarter of 2013 was 1.03% and return on average equity for the 2013 first quarter was 11.88%. 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.

In the first quarter of 2013, Arrow also set new record highs for total assets, deposits and equity, as well as assets under trust administration and investment management. In addition, our subsidiary, Saratoga National Bank and Trust Company, recently expanded into the rapidly growing Clifton Park area of southern Saratoga County, New York, with a new office that opened for business on April 1.

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. Arrow's net interest margin continued to narrow in the first quarter, contributing to the slight decline in earnings. However, we are committed to our conservative business model and continue to grow, as evidenced by new record highs for several key balance sheet categories and assets under trust administration and investment management. Furthermore, our noninterest income continues to increase. At the same time, our asset quality and profitability ratios remain strong. Given the difficult business environment, we are pleased with these results."

The following list presents highlights of our first quarter results:

  • Cash Dividend: A cash dividend of $.25 per share was paid to shareholders in the first quarter of 2013, 2% higher than the cash dividend paid in the first quarter of 2012. That dividend, based on the daily average of our closing stock price for the first quarter of 2013, represents an annualized yield of over 4.0%.
  • Insurance Agency Operations: Insurance commission income rose from $1.9 million in the first quarter of 2012 to over $2.0 million in the comparable 2013 quarter.
  • Balance Sheet Changes: Total assets at March 31, 2013, reached a record high level of $2.116 billion, an increase of $95.6 million, or 4.7%, from the $2.020 billion balance at March 31, 2012. Our loan portfolio was $1.165 billion, up $27.2 million, or 2.4%, from the March 31, 2012, level, although down $7.6 million, or 0.6%, from the level at December 31, 2012. During the first three months of 2013, we originated over $30 million of residential real estate loans, an increase of 50% from over $20 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 March 31, 2013, was actually lower than our balance at December 31, 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 first quarter of 2013 was greater than our gain on sale of such originations in the comparable 2012 quarter. We did experience an increase in the outstanding balance of automobile loans in the first three months of 2013. Although we experienced modest activity in our commercial loan portfolio, that volume was more than offset by the payoff of one large commercial loan. The combination of these factors led to the slight decrease in total loans from December 31, 2012, to March 31, 2013.
  • Asset Quality: Asset quality remained strong at March 31, 2013, as measured by our low level of nonperforming assets and low level of net charge-offs, notwithstanding one large commercial charge-off of $753 thousand in the first quarter of 2013. This commercial loan was individually evaluated for impairment and was fully provisioned within the allowance for loan losses at December 31, 2012. Nonperforming assets of $7.1 million at quarter-end represented only 0.34% of period-end assets, far below industry averages, although up slightly from our 0.33% ratio as of March 31, 2012. Net loan losses for the first quarter of 2013, expressed as an annualized percentage of average loans outstanding, were 0.28%. The commercial loan charge-off mentioned above represented 0.26% of average loans, while all other net charge-offs combined represented only 0.02% of average loans, a decrease of six basis points from the ratio for the comparable 2012 quarter. These asset quality ratios continue to be significantly better than 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 $14.6 million at March 31, 2013, which represented 1.25% of loans outstanding, seven basis points below our ratio one year earlier and five basis points below our ratio at December 31, 2012.
  • Trust Assets and Related Noninterest Income: Assets under trust administration and investment management at March 31, 2013, rose to a record $1.095 billion, an increase of $56.5 million, or 5.4%, from the March 31, 2012, balance of $1.038 billion. The growth in balances was generally attributable to the addition of new accounts and positive investment returns. Income from fiduciary activities, however, fell by $48 thousand, or 3%, for the first three months of 2013, as compared to the 2012 period, due primarily to a decrease in estate administration fees which fluctuates from period to period.
  • Capital: Total shareholders' equity reached a record high level of $177.8 million at period-end, an increase of $9.3 million, or 5.5%, above the March 31, 2012, balance. Arrow's capital ratios, which were strong at the end of 2012, strengthened further during the recent quarter. At quarter-end, the Tier 1 leverage ratio at the holding company level was 9.30% and total risk-based capital ratio was 16.40%, up from 9.10% and 16.10%, respectively, at March 31, 2012. The capital ratios of the Company and its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standard, which is the highest 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 twelve-month period ended December 31, 2012, in which our return on average equity (ROE) was 12.88%, as compared to 7.76% for our peer group. Our ratio of loans 90 days past due and accruing plus nonaccrual loans to total loans was 0.64% as of December 31, 2012, as compared to 2.18% for our peer group, while our annualized net loan losses of 0.04% for the quarter ending December 31, 2012, were well below the peer result of 0.30%. 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 first quarter results were securities gains of $318 thousand, net of tax, which represented nearly $.03 per share for the quarter. Included in our 2012 first quarter results were securities gains of $303 thousand, net of tax, which also represented nearly $.03 per share for that quarter.
  • 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 first quarter of 2013, as compared to the first quarter of 2012, decreased $458 thousand, or 3.0%. Our tax-equivalent net interest margin fell from 3.33% in the first quarter of 2012 to 3.13% for the first quarter of 2013, although net interest margin for the first quarter of 2013 was unchanged from the 3.13% margin for the fourth quarter of 2012. Both our yield on earning assets and the cost of our interest-bearing liabilities decreased significantly from the first quarter of 2012 to the first quarter of 2013. Our average cost of funds in the first quarter of 2013 fell by 35 basis points to .57%, down from .92% in the first quarter of 2012, while our average yield on earning assets in the first quarter of 2013 decreased by an even greater amount, 50 basis points, to 3.60% from 4.10% in the first 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 March 31,



2013


2012

INTEREST AND DIVIDEND INCOME





Interest and Fees on Loans


$

12,783



$

13,958


Interest on Deposits at Banks


27



21


Interest and Dividends on Investment Securities:





Fully Taxable


1,796



2,638


Exempt from Federal Taxes


1,390



1,321


Total Interest and Dividend Income


15,996



17,938


INTEREST EXPENSE





NOW Accounts


778



1,059


Savings Deposits


268



357


Time Deposits of $100,000 or More


319



608


Other Time Deposits


554



1,146


Federal Funds Purchased and   Securities Sold Under Agreements to Repurchase


3



6


Federal Home Loan Bank Advances


173



197


Junior Subordinated Obligations Issued to   Unconsolidated Subsidiary Trusts


144



159


Total Interest Expense


2,239



3,532


NET INTEREST INCOME


13,757



14,406


Provision for Loan Losses


100



280


NET INTEREST INCOME AFTER PROVISION FOR   LOAN LOSSES


13,657



14,126


NONINTEREST INCOME





Income From Fiduciary Activities


1,574



1,622


Fees for Other Services to Customers


2,282



1,960


Insurance Commissions


2,028



1,889


Net Gain on Securities Transactions


527



502


Net Gain on Sales of Loans


607



357


Other Operating Income


156



229


Total Noninterest Income


7,174



6,559


NONINTEREST EXPENSE





Salaries and Employee Benefits


7,621



7,903


Occupancy Expenses, Net


2,276



2,024


FDIC Assessments


264



255


Other Operating Expense


3,250



2,964


Total Noninterest Expense


13,411



13,146


INCOME BEFORE PROVISION FOR INCOME TAXES


7,420



7,539


Provision for Income Taxes


2,239



2,251


NET INCOME


$

5,181



$

5,288


Average Shares Outstanding 1:





Basic


12,031



12,005


Diluted


12,049



12,030


Per Common Share:





Basic Earnings


$

0.43



$

0.44


Diluted Earnings


0.43



0.44









(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
)














March 31, 2013


December 31,
2012


March 31, 2012

ASSETS






Cash and Due From Banks

$

23,943



$

37,076



$

31,128


Interest-Bearing Deposits at Banks

113,231



11,756



106,380


Investment Securities:






Available-for-Sale

478,775



478,698



466,785


Held-to-Maturity (Approximate Fair Value of $259,562 at March 31, 2013, $248,252 at December 31, 2012, and $207,779 at March 31, 2012)

251,456



239,803



200,607


Other Investments

4,493



5,792



4,382


Loans

1,164,759



1,172,341



1,137,547


Allowance for Loan Losses

(14,603)



(15,298)



(15,053)


Net Loans

1,150,156



1,157,043



1,122,494


Premises and Equipment, Net

29,363



28,897



23,217


Other Real Estate and Repossessed Assets, Net

1,194



1,034



555


Goodwill

22,003



22,003



22,003


Other Intangible Assets, Net

4,457



4,492



4,650


Accrued Interest Receivable

6,481



5,486



6,380


Other Assets

30,410



30,716



31,788


Total Assets

$

2,115,962



$

2,022,796



$

2,020,369


LIABILITIES






Noninterest-Bearing Deposits

$

254,308



$

247,232



$

230,289


NOW Accounts

845,531



758,287



758,114


Savings Deposits

476,115



442,363



432,854


Time Deposits of $100,000 or More

89,797



93,375



115,161


Other Time Deposits

185,455



189,898



224,460


Total Deposits

1,851,206



1,731,155



1,760,878


Federal Funds Purchased and   Securities Sold Under Agreements to Repurchase

12,166



12,678



16,652


Federal Home Loan Bank Overnight Advances

--



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

523



584



974


Other Liabilities

24,264



23,554



23,399


Total Liabilities

1,938,159



1,846,971



1,851,903


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 March 31, 2013 and December 31, 2012 and 16,094,277 Shares Issued at March 31, 2012)

16,416



16,416



16,094


Additional Paid-in Capital

219,178



218,650



208,808


Retained Earnings

28,423



26,251



26,291


Unallocated ESOP Shares (95,172 Shares at March 31, 2013, 102,890 Shares at December 31, 2012 and 109,939 Shares at March 31, 2012)

(2,000)



(2,150)



(2,350)


Accumulated Other Comprehensive Loss

(8,324)



(8,462)



(6,872)


Treasury Stock, at Cost (4,310,578 Shares at March 31, 2013, 4,288,617 Shares at December 31, 2012, and 4,223,687 Shares at March 31, 2012)

(75,890)



(74,880)



(73,505)


Total Stockholders' Equity

177,803



175,825



168,466


Total Liabilities and Stockholders' Equity

$

2,115,962



$

2,022,796



$

2,020,369


 

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





















Quarter Ended

3/31/2013



12/31/2012



9/30/2012



6/30/2012



3/31/2012


Net Income

$

5,181



$

5,549



$

5,748



$

5,594



$

5,288


Transactions Recorded in Net Income (Net of Tax):










Net Gain on Securities Transactions

318



94



39



86



303


Net Gain on Sales of Loans

367



476



362



324



216


Reversal of VISA Litigation Reserve

--



--



--



178



--


Share and Per Share Data:1










Period End Shares Outstanding

12,010



12,025



12,034



12,001



11,996


Basic Average Shares Outstanding

12,031



12,014



12,012



11,994



12,005


Diluted Average Shares Outstanding

12,049



12,032



12,032



12,009



12,030


Basic Earnings Per Share

$

0.43



$

0.46



$

0.48



$

0.47



$

0.44


Diluted Earnings Per Share

0.43



0.46



0.48



0.47



0.44


Cash Dividend Per Share

0.25



0.25



0.25



0.25



0.25


Selected Quarterly Average Balances:










  Interest-Bearing Deposits at Banks

$

41,145



$

40,065



$

33,332



$

55,023



$

30,780


  Investment Securities

711,848



745,150



670,328



682,589



678,474


  Loans

1,169,870



1,160,226



1,148,771



1,143,666



1,136,322


  Deposits

1,773,126



1,781,778



1,701,599



1,733,320



1,683,781


  Other Borrowed Funds

64,622



80,357



68,667



66,022



83,055


  Shareholders' Equity

176,874



176,514



174,069



170,199



167,849


  Total Assets

2,039,314



2,064,602



1,971,215



1,994,883



1,959,741


Return on Average Assets

1.03

%


1.07

%


1.16

%


1.13

%


1.09

%

Return on Average Equity

11.88

%


12.51

%


13.14

%


13.22

%


12.67

%

Return on Tangible Equity2

13.97

%


14.72

%


15.50

%


15.67

%


15.07

%

Average Earning Assets

$

1,922,863



$

1,945,441



$

1,852,431



$

1,881,278



$

1,845,576


Average Paying Liabilities

1,590,401



1,612,959



1,511,634



1,565,692



1,545,098


Interest Income, Tax-Equivalent

17,059



17,787



18,168



18,508



18,810


Interest Expense

2,239



2,503



2,643



3,279



3,532


Net Interest Income, Tax-Equivalent

14,820



15,284



15,525



15,229



15,278


Tax-Equivalent Adjustment

1,063



1,047



1,000



975



872


Net Interest Margin 3

3.13

%


3.13

%


3.33

%


3.26

%


3.33

%

Efficiency Ratio Calculation:










Noninterest Expense

$

13,411



$

13,117



$

12,922



$

12,651



$

13,146


Less: Intangible Asset Amortization

(124)



(126)



(126)



(127)



(138)


Net Noninterest Expense

$

13,287



$

12,991



$

12,796



$

12,524



$

13,008


Net Interest Income, Tax-Equivalent

$

14,820



$

15,284



$

15,525



$

15,229



$

15,278


Noninterest Income

7,174



6,897



6,835



6,808



6,559


Less: Net Securities Gains

(527)



(156)



(64)



(143)



(502)


Net Gross Income

$

21,467



$

22,025



$

22,296



$

21,894



$

21,335


Efficiency Ratio

61.90

%


58.98

%


57.39

%


57.20

%


60.97

%

Period-End Capital Information:










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

$

177,803



$

175,825



$

176,314



$

171,940



$

168,466


Book Value per Share

14.80



14.62



14.65



14.33



14.04


Intangible Assets

26,460



26,495



26,546



26,611



26,653


Tangible Book Value per Share 2

12.60



12.42



12.45



12.11



11.82


Capital Ratios:










Tier 1 Leverage Ratio

9.30

%


9.10

%


9.41

%


9.09

%


9.10

%

Tier 1 Risk-Based Capital Ratio

15.21

%


15.02

%


15.20

%


15.08

%


14.84

%

Total Risk-Based Capital Ratio

16.40

%


16.26

%


16.45

%


16.34

%


16.10

%

Assets Under Trust Administration  and Investment Management

$

1,094,708



$

1,045,972



$

1,051,176



$

1,019,702



$

1,038,186


(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:

3/31/2013


12/31/2012


3/31/2012

Loan Portfolio






Commercial Loans

$

89,167



$

105,536



$

102,153


Commercial Construction Loans

27,380



29,149



10,814


Commercial Real Estate Loans

255,242



245,177



234,317


Other Consumer Loans

7,031



6,684



6,470


Consumer Automobile Loans

354,001



349,100



328,676


Residential Real Estate Loans

431,938



436,695



455,117


Total Loans

$

1,164,759



$

1,172,341



$

1,137,547


Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Quarter

$

15,298



$

15,247



$

15,003


Loans Charged-off

890



178



297


Less Recoveries of Loans Previously Charged-off

95



54



67


Net Loans Charged-off

795



124



230


Provision for Loan Losses

100



175



280


Allowance for Loan Losses, End of Quarter

$

14,603



$

15,298



$

15,053


Nonperforming Assets






Nonaccrual Loans

$

5,218



$

6,633



$

5,476


Loans Past Due 90 or More Days and Accruing

259



920



121


Loans Restructured and in Compliance with Modified Terms

473



483



511


Total Nonperforming Loans

5,950



8,036



6,108


Repossessed Assets

45



64



45


Other Real Estate Owned

1,149



970



510


Total Nonperforming Assets

$

7,144



$

9,070



$

6,663


Key Asset Quality Ratios






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

0.28

%


0.04

%


0.08

%

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

0.03

%


0.06

%


0.10

%

Allowance for Loan Losses to Period-End Loans

1.25

%


1.30

%


1.32

%

Allowance for Loan Losses to Period-End Nonperforming Loans

245.43

%


190.37

%


246.45

%

Nonperforming Loans to Period-End Loans

0.51

%


0.69

%


0.54

%

Nonperforming Assets to Period-End Assets

0.34

%


0.45

%


0.33

%

 

 

SOURCE Arrow Financial Corporation



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