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Arrow Reports Solid Fourth Quarter Operating Results and Strong Asset Quality Ratios

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GLENS FALLS, N.Y., Jan. 24, 2012 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three and twelve-month periods ended December 31, 2011. Net income for the fourth quarter of 2011 was $5.4 million, representing diluted earnings per share (EPS) of $.46, as compared to net income of $5.2 million and diluted EPS of $.45 for the fourth quarter of 2010, an increase of $.01 per share, or 2.2%.  For the 2011 year, our net income was $21.93 million, representing diluted EPS of $1.87 as compared to our 2010 net income of $21.89 million which represented diluted EPS of $1.88. The cash dividend paid to shareholders in the fourth quarter of 2011 was $.25 per share, or 3% higher than the cash dividend paid in the fourth quarter of 2010. On September 29, 2011, we distributed a 3% stock dividend.  All per share amounts have been adjusted to reflect the effect of the stock dividend.

Thomas L. Hoy, Chairman, President and CEO stated, "We are pleased to report improved earnings for the fourth quarter while continuing to maintain both strong asset quality and capital adequacy ratios. The improved earnings results included a substantial increase in our noninterest income for the fourth quarter, reflecting primarily our strong growth in insurance commissions and an increase in fee income from fiduciary activities. Furthermore, our key asset quality measurements continue to be excellent. We are pleased with these results during this very challenging low interest rate environment."

Insurance commission income rose from $830 thousand in the fourth quarter of 2010 to nearly $2.1 million in the comparable 2011 quarter, resulting from our acquisitions of two strategically located insurance agencies in 2011. On February 1, 2011, we acquired Upstate Agency and on August 1, 2011, we acquired the McPhillips Insurance Agencies, all of which are longstanding property and casualty insurance agencies with offices located in our service area.

Assets under trust administration and investment management at December 31, 2011 were $973.6 million, down somewhat from the prior year-end balance of $984.4 million. However, income from fiduciary services in the fourth quarter of 2011 increased by $143 thousand, or 10.6%, above the total for the 2010 fourth quarter.

Our key profitability ratios continue to be strong. Annualized return on average assets (ROA) for the 2011 fourth quarter was 1.10%, up from our ROA of 1.04% for the comparable 2010 period.  Annualized return on average equity (ROE) for the 2011 quarter was 12.80%. Although this was down slightly from our ROE of 13.31% for the comparable 2010 period, the decrease was largely the result of the higher capital ratios we maintained in the 2011 three-month period.  

Our asset quality remained strong at December 31, 2011 as measured by our low level of nonperforming assets and very low level of charge-offs. Nonperforming assets of $8.1 million represented only .41% of period-end assets, up from the .26% of assets as of December 31, 2010. Nonperforming assets included $1.4 million in loans that have been recently restructured and are in compliance with modified terms. Net loan losses for the fourth quarter of 2011, expressed as an annualized percentage of average loans outstanding, were .07%, up from .04% of average loans for the 2010 comparable period. These asset quality ratios continue to be significantly better than industry averages.

As a result of our conservative underwriting standards, within the near-term we do not expect to incur significant losses in our residential real estate portfolio, even though some borrowers may be experiencing stress due to the current economic environment. Our allowance for loan losses amounted to $15.0 million at December 31, 2011, which represented 1.33% of loans outstanding, an increase of 5 basis points from our ratio a year ago.

Total assets at December 31, 2011 were $1.963 billion, an increase of $54 million, or 2.85%, from the $1.908 billion balance at December 31, 2010. Our loan portfolio was $1.131 billion, down $14 million, or 1.2%, from the December 31, 2010 level. During 2011, we originated over $75 million of residential real estate loans. However, for interest rate risk management purposes we continued during 2011 to follow the practice we adopted in mid-2010 of selling into the secondary market most of the residential real estate loans we originated, primarily to a government sponsored entity, the Federal Home Loan Mortgage Corporation. Therefore, the outstanding balance for our residential real estate loan portfolio at year-end was actually lower than our year-end balance at December 31, 2010. However, we continued to retain servicing rights on the mortgages that we sold into the secondary market, generating servicing fee income on those loans.  We also experienced a decrease in the volume of new automobile loans in the first six months of 2011, which leveled off and more recently increased in the fourth quarter of 2011.  Overall, for the 2011 calendar year, the outstanding balances in the consumer automobile loan portfolio declined. We did, however, experience modest growth in our commercial loan portfolio, which partially offset decreases in the consumer automobile and residential real estate portfolios.

Similar to many institutions within the banking industry, our net interest income and net interest margin declined as a result of operating in this historically low interest rate environment. Our net interest income in the fourth quarter of 2011, as compared to the fourth quarter of 2010, decreased $418 thousand, or 2.8%.  Our net interest margin fell from 3.30% in the fourth quarter of 2010, to 3.25% for the fourth quarter of 2011. Both our yield on earning assets and the cost of our interest-bearing liabilities decreased significantly from the fourth quarter of 2010 to the fourth quarter of 2011. Our cost of interest-bearing deposits and other borrowings in the fourth quarter 2011 fell by 45 basis points, to an average cost of 1.03% compared to 1.48% in the fourth quarter of 2010, while our yield on earning assets in the fourth quarter of 2011 decreased by  43 basis points from 4.54% in the fourth quarter of 2010 to 4.11%.

Total shareholders' equity reached $166.4 million at period-end, an increase of $14 million, or 9.3%, above the December 31, 2010 balance. Arrow's capital ratios, which were strong to begin 2011, strengthened further during the 2011 calendar year.  Our Tier 1 leverage ratio at the holding company level was 8.95% and our total risk-based capital ratio was 15.96%, up from 8.53% and 15.75% respectively at year-end 2010. The capital ratios of the Company and our subsidiary banks continue to significantly exceed the "well capitalized" regulatory standard, which is the highest category.

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, 2011 in which our return on average equity (ROE) was 13.64%, as compared to 6.37% for our peer group.  Our ratio of nonperforming loans to total loans was .45% as of September 30, 2011 compared to 3.26% for our peer group, while our annualized net loan losses of .04% for the third quarter of 2011 were well below the peer result of .88%.  Our operating results and asset quality ratios have withstood the economic stress of recent years better than most banks in our national peer group.

We continue to believe that our conservative business model which emphasizes a strong capital position, high loan quality, knowledge of our market and responsiveness to our customers has positioned us well for the future. Nonetheless, we, like all banks, face challenges, particularly the threat to earnings posed by the Federal Reserve's determination to maintain interest rates at historically low levels for an extended period of time.

Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, NY 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, 2010 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,


2011


2010


2011


2010

INTEREST AND DIVIDEND INCOME








Interest and Fees on Loans

$

14,322



$

15,737



$

58,599



$

64,283


Interest on Deposits at Banks

33



50



99



157


Interest and Dividends on Investment Securities:








Fully Taxable

2,695



3,358



12,402



14,701


Exempt from Federal Taxes

1,297



1,501



5,691



5,831


Total Interest and Dividend Income

18,347



20,646



76,791



84,972


INTEREST EXPENSE








NOW Accounts

1,289



1,489



5,052



5,582


Savings Deposits

409



503



1,898



2,136


Time Deposits of $100,000 or More

643



723



2,633



2,903


Other Time Deposits

1,225



1,452



5,143



5,900


Federal Funds Purchased and

 Securities Sold Under Agreements to Repurchase

9



29



74



124


Federal Home Loan Bank Advances

297



1,560



3,295



6,458


Junior Subordinated Obligations Issued to

 Unconsolidated Subsidiary Trusts

150



147



584



592


Total Interest Expense

4,022



5,903



18,679



23,695


NET INTEREST INCOME

14,325



14,743



58,112



61,277


Provision for Loan Losses

280



177



845



1,302


NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

14,045



14,566



57,267



59,975


NONINTEREST INCOME








Income From Fiduciary Activities

1,491



1,348



6,113



5,391


Fees for Other Services to Customers

1,969



1,990



8,034



7,864


Insurance Commissions

2,099



830



7,374



2,987


Net Gain on Securities Transactions



11



2,795



1,507


Net Gain on Sales of Loans

429



497



866



1,024


Other Operating Income

211



62



746



316


Total Noninterest Income

6,199



4,738



25,928



19,089


NONINTEREST EXPENSE








Salaries and Employee Benefits

7,843



6,777



30,205



27,552


Occupancy Expenses, Net

1,698



1,513



7,369



6,849


FDIC Assessments

252



510



1,292



1,982


Prepayment Penalty on FHLB Advances





1,638




Other Operating Expense

2,662



2,970



11,044



11,035


Total Noninterest Expense

12,455



11,770



51,548



47,418


INCOME BEFORE PROVISION FOR INCOME TAXES

7,789



7,534



31,647



31,646


Provision for Income Taxes

2,358



2,346



9,714



9,754


NET INCOME

$

5,431



$

5,188



$

21,933



$

21,892


Average Shares Outstanding:








Basic

11,782



11,576



11,735



11,604


Diluted

11,788



11,630



11,747



11,639


Per Common Share:








Basic Earnings

$

0.46



$

0.45



$

1.87



$

1.89


Diluted Earnings

0.46



0.45



1.87



1.88




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


December 31, 2011


December 31, 2010

ASSETS




Cash and Due From Banks

$

29,598



$

25,961


Interest-Bearing Deposits at Banks

14,138



5,118


Investment Securities:




Available-for-Sale

556,538



517,364


Held-to-Maturity (Approximate Fair Value of $159,059 at
 December 31, 2011 and $162,713 at December 31, 2010)

150,688



159,938


Other Investments

6,722



8,602


Loans

1,131,457



1,145,508


Allowance for Loan Losses

(15,003)



(14,689)


Net Loans

1,116,454



1,130,819


Premises and Equipment, Net

22,629



18,836


Other Real Estate and Repossessed Assets, Net

516



58


Goodwill

22,003



15,783


Other Intangible Assets, Net

4,749



1,458


Accrued Interest Receivable

6,082



6,512


Other Assets

32,567



17,887


Total Assets

$

1,962,684



$

1,908,336


LIABILITIES




Noninterest-Bearing Deposits

$

232,038



$

214,393


NOW Accounts

642,521



569,076


Savings Deposits

416,829



382,130


Time Deposits of $100,000 or More

123,668



120,330


Other Time Deposits

228,990



248,075


Total Deposits

1,644,046



1,534,004


Federal Funds Purchased and  

 Securities Sold Under Agreements to Repurchase

26,293



51,581


Other Short-Term Borrowings



1,633


Federal Home Loan Bank Overnight Advances

42,000




Federal Home Loan Bank Term Advances

40,000



130,000


Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts

20,000



20,000


Accrued Interest Payable

1,147



1,957


Other Liabilities

22,813



16,902


Total Liabilities

1,796,299



1,756,077


STOCKHOLDERS' EQUITY




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




Common Stock, $1 Par Value; 20,000,000 Shares Authorized
   (16,094,277 Shares Issued at December 31, 2011 and
  15,625,512 Shares Issued at December 31, 2010)

16,094



15,626


Additional Paid-in Capital

207,600



191,068


Retained Earnings

23,947



24,577


Unallocated ESOP Shares (117,502 Shares at December 31, 2011 and
 132,296 Shares at December 31, 2010)

(2,500)



(2,876)


Accumulated Other Comprehensive Loss

(6,695)



(6,423)


Treasury Stock, at Cost (4,213,470 Shares at December 31, 2011 and
 4,237,435 shares at December 31, 2010)

(72,061)



(69,713)


Total Stockholders' Equity

166,385



152,259


Total Liabilities and Stockholders' Equity

$

1,962,684



$

1,908,336




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

Quarter Ended

12/31/2011



9/30/2011



6/30/2011



3/31/2011



12/31/2010


Net Income

$

5,431



$

5,372



$

5,849



$

5,281



$

5,188


Transactions Recorded in Net Income (Net of Tax):










Net Gain on Securities Transactions



1,069



291



327



7


Net Gain on Sales of Loans

259



132



101



31



299


Prepayment Penalty on FHLB Advances



(989)








Share and Per Share Data(1)










Period End Shares Outstanding

11,763



11,796



11,696



11,745



11,593


Basic Average Shares Outstanding

11,782



11,754



11,729



11,675



11,576


Diluted Average Shares Outstanding

11,788



11,776



11,741



11,698



11,630


Basic Earnings Per Share

$

0.46



$

0.46



$

0.50



$

0.45



$

0.45


Diluted Earnings Per Share

0.46



0.46



0.50



0.45



0.45


Cash Dividend Per Share

0.25



0.24



0.24



0.24



0.24


Selected Quarterly Average Balances:










Interest-Bearing Deposits at Banks

$

49,101



$

32,855



$

31,937



$

35,772



$

76,263


Investment Securities

674,338



646,542



697,796



683,839



672,071


Loans

1,126,452



1,119,384



1,128,006



1,130,539



1,147,889


Deposits

1,668,062



1,554,349



1,596,876



1,564,677



1,568,466


Other Borrowed Funds

101,997



164,850



179,989



193,960



223,425


Shareholders' Equity

168,293



166,514



161,680



155,588



154,677


Total Assets

1,963,915



1,911,853



1,961,908



1,935,409



1,970,085


Return on Average Assets

1.10

%


1.11

%


1.20

%


1.11

%


1.04

%

Return on Average Equity

12.80

%


12.80

%


14.51

%


13.77

%


13.31

%

Return on Tangible Equity(2)

15.22

%


15.19

%


17.16

%


16.07

%


14.97

%

Average Earning Assets

$

1,849,891



$

1,798,781



$

1,857,739



$

1,850,150



$

1,884,402


Average Paying Liabilities

1,547,071



1,487,923



1,559,014



1,546,849



1,579,765


Interest Income, Tax-Equivalent

19,179



19,884



20,500



20,821



21,554


Interest Expense

4,022



4,345



4,975



5,336



5,903


Net Interest Income, Tax-Equivalent

15,157



15,539



15,525



15,485



15,651


Tax-Equivalent Adjustment

832



887



944



931



908


Net Interest Margin(3)

3.25

%


3.43

%


3.35

%


3.39

%


3.30

%

Efficiency Ratio Calculation:










Noninterest Expense

$

12,455



$

14,603



$

12,171



$

12,319



$

11,770


Less: Intangible Asset Amortization

(141)



(136)



(134)



(100)



(66)


Prepayment Penalty on FHLB Advances



(1,638)








Net Noninterest Expense

$

12,314



$

12,829



$

13,037



$

12,219



$

11,704


Net Interest Income, Tax-Equivalent

$

15,157



$

15,539



$

15,525



$

15,485



$

15,651


Noninterest Income

6,199



7,881



6,228



5,620



4,738


Less: Net Securities Gains



(1,771)



(482)



(542)



(11)


Net Gross Income

$

21,356



$

21,649



$

21,271



$

20,563



$

20,378


Efficiency Ratio

57.66

%


59.26

%


56.59

%


59.42

%


57.43

%

Period-End Capital Information:










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

$

166,385



$

168,624



$

163,589



$

159,188



$

152,259


Book Value per Share

14.14



14.29



13.99



13.55



13.13


Intangible Assets

26,752



26,788



25,044



24,900



17,241


Tangible Book Value per Share(2)

11.87



12.02



11.85



11.43



11.65


Capital Ratios:










Tier 1 Leverage Ratio

8.95

%


9.10

%


8.67

%


8.66

%


8.53

%

Tier 1 Risk-Based Capital Ratio

14.71

%


15.06

%


14.76

%


14.37

%


14.50

%

Total Risk-Based Capital Ratio

15.96

%


16.31

%


16.02

%


15.63

%


15.75

%

Assets Under Trust Administration
  and Investment Management

$

973,551



$

925,671



$

1,017,091



$

1,011,618



$

984,394



(1)Share and Per Share Data have been restated for the September 29, 2011 3% 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:

12/31/2011


12/31/2010

Loan Portfolio




Commercial Loans

$

99,791



$

97,621


Commercial Construction Loans

11,083



7,090


Commercial Real Estate Loans

232,149



214,291


Other Consumer Loans

6,318



6,482


Consumer Automobile Loans

322,375



334,656


Residential Real Estate Loans

459,741



485,368


Total Loans

$

1,131,457



$

1,145,508


Allowance for Loan Losses




Allowance for Loan Losses, Beginning of Quarter

$

14,921



$

14,629


Loans Charged-off

251



182


Less Recoveries of Loans Previously Charged-off

53



65


Net Loans Charged-off

198



117


Provision for Loan Losses

280



177


Allowance for Loan Losses, End of Quarter

$

15,003



$

14,689


Nonperforming Assets




Nonaccrual Loans

$

4,528



$

4,061


Loans Past Due 90 or More Days and Accruing

1,662



810


Loans Restructured and in Compliance with Modified Terms

1,422



16


Total Nonperforming Loans

7,612



4,887


Repossessed Assets

56



58


Other Real Estate Owned

460




Total Nonperforming Assets

$

8,128



$

4,945


Key Asset Quality Ratios




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

0.07

%


0.04

%

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

0.10

%


0.06

%

Allowance for Loan Losses to Period-End Loans

1.33

%


1.28

%

Allowance for Loan Losses to Period-End Nonperforming Loans

197.10

%


300.57

%

Nonperforming Loans to Period-End Loans

0.67

%


0.43

%

Nonperforming Assets to Period-End Assets

0.41

%


0.26

%

Twelve-Month Period Ended:




Allowance for Loan Losses




Allowance for Loan Losses, Beginning of Year

$

14,689



$

14,014


Loans Charged-off

774



894


Less Recoveries of Loans Previously Charged-off

243



267


Net Loans Charged-off

531



627


Provision for Loan Losses

845



1,302


Allowance for Loan Losses, End of Year

$

15,003



$

14,689


Key Asset Quality Ratios




Net Loans Charged-off to Average Loans

0.05

%


0.06

%

Provision for Loan Losses to Average Loans

0.08

%


0.11

%




SOURCE Arrow Financial Corporation



RELATED LINKS
http://www.arrowfinancial.com

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