Arrow Reports Record Earnings and Double-digit Growth Rates For 2009

Jan 20, 2010, 13:13 ET from Arrow Financial Corporation

GLENS FALLS, N.Y., Jan. 20 /PRNewswire-FirstCall/ -- Arrow Financial Corporation (Nasdaq: AROW) announced operating results for the three and twelve-month periods ended December 31, 2009.  Net income for the 2009 fourth quarter was $5.1 million, representing diluted earnings per share (EPS) of $.47, an increase of $.01, or 2.2%, from the diluted earnings per share of $.46 in the fourth quarter of 2008, when net income was $5.0 million.  For the 2009 year, net income of $21.8 million represented a new record high for the Company in its 158 year history of providing banking services in the northeastern region of New York State. Diluted EPS for 2009 of $1.99 was 6.4% higher than the diluted per share amount of $1.87 earned in the prior year, when net income was $20.4 million.  The comparative results for the three and twelve-month periods were affected by certain significant transactions, discussed further in this release. Cash dividends paid to shareholders in 2009 equaled $.98 per share, or 3.2% higher than the $.95 dividend paid in 2008. All per share amounts have been adjusted to reflect the effect of the 3% stock dividend distributed on September 29, 2009.

Thomas L. Hoy, Chairman, President and CEO stated, "In light of the challenging environment confronted by the financial services industry throughout 2009, we are pleased to report record earnings and continued growth of the franchise. Our concentration on the fundamentals has allowed the Company to achieve double-digit growth rates in several key balance sheet categories, resulting in record levels in period-end amounts for assets, deposits and capital levels. Furthermore, our asset quality remained strong at year-end, as measured by low levels of nonperforming assets and very low charge-off levels in spite of the difficulties currently experienced in the banking and financial markets."

Total assets at December 31, 2009 reached a record high of $1.842 billion, up $176.5 million, or 10.6%, over the December 31, 2008 balance of $1.665 billion.  Deposit balances at December 31, 2009 were $1.444 billion, representing an increase of $168.5 million, or 13.2%, from the December 31, 2008 level of $1.275 billion. Capital balances at December 31, 2009 were $140.8 million, representing an increase of $15.0 million, or 11.9%, from the December 31, 2008 level of $125.8 million. The capital ratios of the Company and each subsidiary bank were substantially above the "well capitalized" regulatory standard.

Average assets rose to $1.761 billion in 2009 versus $1.644 billion for the prior year, an increase of 7.1%.  The growth in average assets reflected an increase of $30.4 million in average loan balances, an increase of $56.0 million in average investment securities balances and an increase of $33.5 million in the average balance of short-term funds.  However, loan balances outstanding at December 31, 2009 were $1.112 billion, only modestly above the balance of $1.110 billion at December 31, 2008.

Although we experienced a continuing weakness for consumer loan demand, primarily indirect automobile loans, and the demand for business loans has softened in recent periods due to the economic environment, we continue to lend to credit qualified individuals and businesses within our market area.  Demand for mortgage loans (including both new purchase money and refinancings), however, has been favorable during 2009, due to prevailing low interest rates, more affordable home prices and tax incentive programs. We closed $91.9 million of residential mortgages, an increase of $33.8 million, or 51%, from the origination volumes experienced during 2008. However, for interest rate risk management purposes, many of these low fixed rate residential mortgage loans originated during 2009, were sold in the secondary market and, as a result, were not reflected in outstanding loan balances at year-end.

Net interest income for the twelve-month period was favorably impacted by an increase in average earning assets, which increased $119.8 million, or 7.6%, to $1.688 billion for 2009 as compared with $1.569 billion for 2008.  Net interest margin for 2009 was 3.76%, slightly below the 3.84% for 2008.  During 2008, the targeted federal funds rate fell from 4.25% to a range of 0% to .25%, where it stayed for all of 2009. Our decision to emphasize a very conservative liquidity profile in 2009 did come at a cost of very low yields on the related earning assets, which in turn, contributed to the narrowing net interest margin.

As previously reported, certain significant transactions in the first two quarters of 2009 and in 2008 had a significant impact on earnings for both years. Some of these transactions negatively affected earnings; others had a positive effect. In the second quarter of 2009, the Company's subsidiary banks, like all FDIC insured financial institutions, were subjected to an FDIC special assessment to support the FDIC's insurance fund. We expensed $475 thousand, net of tax, in the second quarter of 2009 for this assessment.  Also during the second quarter of 2009, we received unexpected income in the form of a court-ordered restitution payment of $272 thousand, net of tax, from a former customer of our now-dissolved Vermont subsidiary bank. In the first quarter of 2009, we transferred our merchant bank card processing to TransFirst LLC.  The transfer generated an after-tax net gain of $1.79 million which was recognized in the first and second quarters of 2009.  Taken together, these three significant transactions had a positive impact on EPS of $.14 for 2009.

In the first quarter of 2008, as we previously reported, after Visa completed an initial public offering (IPO) of its Class A common shares, Visa redeemed a portion of our holdings of Visa's Class B common shares. This transaction increased net income by $637 thousand after-tax and increased diluted EPS by $.06 in 2008.

The failure rate for financial institutions in 2009 rose to levels last seen more than 15 years ago, primarily as a result of their holdings of subprime or poor-quality mortgage loans, as well as investment securities backed by pools of such loans.  We have never engaged in the origination of subprime or other non-traditional mortgage loans as a business line, nor do we hold mortgage-backed securities backed by such mortgages in our investment portfolio.  Mortgage-backed securities held by the Company are comprised of pass-through securities backed by conventional residential mortgages and guaranteed by government agencies or government sponsored entities. The Company does not invest in any private-label mortgage-backed securities or securities backed by subprime, or other high risk non-traditional mortgage loans. Our commercial, residential real estate and indirect consumer loan portfolios experienced no significant deterioration during 2009, even though the communities we serve, like all areas of the U.S., have been negatively impacted by the recession.  However, if the economic downturn continues or worsens, we may be negatively impacted by the recession to a greater degree in the future.

Our nonperforming loans were $4.7 million at December 31, 2009, which represented .42% of period-end loans, up 7 basis points from the .35% ratio at December 31, 2008.  Nonperforming assets were $4.8 million at December 31, 2009, representing .26% of period-end assets, down 4 basis points from the .30% ratio at December 31, 2008.  Net loan losses for 2009, expressed as an annualized percentage of average loans outstanding, were .09%, still low by industry averages but up slightly from .07% for 2008.  Arrow's allowance for loan losses amounted to $14.0 million at December 31, 2009, which represented 1.26% of loans outstanding, an increase of 6 basis points from our year-end 2008 ratio.

Following a recovery in the capital markets, assets under trust administration and investment management at December 31, 2009 rose to $867.2 million, an increase of 14.8% from the prior year-end balance of $755.4 million. Despite this very favorable and substantial move in the year-over-year market value of such assets, the market value, which is the primary factor that impacts our income from fiduciary activities, was on average higher in 2008 than in 2009 and led to a $454 thousand decrease in the related fee income for 2009 as compared to 2008. Included in assets under trust administration and investment management are our proprietary mutual funds, the North Country Funds, advised exclusively by our subsidiary, North Country Investment Advisers, Inc., with total assets of $213.5 million at December 31, 2009, an increase of 18.6% from the balance a year ago.

In recent periods, many of our operating ratios have compared very favorably to our peer group, consisting of all U.S. bank holding companies having $1.0 to $3.0 billion in 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 September 30, 2009 in which our annualized year-to-date return on average equity (ROE) was 16.73%, as compared to a loss of 4.05% for our peer group.  Our annualized ratio of nonperforming loans to total loans was .42% as of September 30, 2009, compared to 3.52% for our peer group while our net loan losses of .09% for the nine-month period were well below the peer result of 1.18%.  At September 30, 2009, we also maintained a higher total risk-based capital ratio than the average for our peer group. Although year-end peer group reports are not yet available, we believe the superiority of our operating ratios in comparison to our peer group continued through the fourth quarter of 2009.

Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, NY serving the financial needs of northeastern New York.  Arrow 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. 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 public reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2008 and the Company's Quarterly Reports on Form 10-Q.

Arrow Financial Corporation

Consolidated Financial Information

($ in thousands, except per share amounts)

Unaudited

Three Months

Twelve Months

Ended December 31,

Ended December 31,

2009

2008

2009

2008

Income Statement

Interest and Dividend Income

$22,169   

$22,719   

$86,857   

$89,508   

Interest Expense

6,522   

7,541   

26,492   

32,277   

 Net Interest Income

15,647   

15,178   

60,365   

57,231   

Provision for Loan Losses

435   

880   

1,783   

1,671   

 Net Interest Income After Provision for Loan Losses

15,212   

14,298   

58,582   

55,560   

Net Gain on Transfer of Merchant Bank Card Processing

---   

---   

2,966   

---   

Net Gain on Securities Transactions

28   

412   

357   

383   

Other-Than-Temporary Impairment Write-down on Securities

(375)  

(400)  

(375)  

(1,610)  

Gain on Visa Stock Redemption

---   

---   

---   

749   

Net Gain on Sales of Loans

92   

51   

418   

106   

Income from Restitution Payment

---   

---   

450   

---   

Gain on Sale of Premises

---   

---   

---   

115   

Income From Fiduciary Activities

1,272   

1,279   

5,009   

5,463   

Fees for Other Services to Customers

2,114   

2,244   

8,051   

8,562   

Insurance Commissions

590   

491   

2,412   

2,066   

Other Operating Income

84   

75   

304   

435   

 Total Noninterest Income

3,805   

4,152   

19,592   

16,269   

Salaries and Employee Benefits

7,122   

6,640   

27,042   

24,551   

Occupancy Expenses of Premises, Net

700   

863   

3,316   

3,479   

Furniture and Equipment Expense

771   

826   

3,264   

3,211   

Amortization of Intangible Assets

77   

89   

324   

360   

FDIC Special Assessment

---   

---   

787   

---   

FDIC & FICO Assessments

463   

194   

1,783   

644   

Reversal of Visa Related Litigation Exposure

---   

---   

---   

(306)  

Other Operating Expense

2,566   

2,661   

10,076   

10,454   

 Total Noninterest Expense

11,699   

11,273   

46,592   

42,393   

Income Before Taxes

7,318   

7,177   

31,582   

29,436   

Provision for Income Taxes

2,201   

2,165   

9,790   

8,999   

 Net Income

$ 5,117   

$ 5,012   

$21,792   

$20,437   

Share and Per Share Data 1

Period-End Shares Outstanding

10,917   

10,863   

10,917   

10,863   

Basic Average Shares Outstanding

10,910   

10,840   

10,904   

10,882   

Diluted Average Shares Outstanding

10,959   

10,906   

10,953   

10,941   

Basic Earnings Per Share

$  0.47   

$  0.46   

$  2.00   

$  1.88   

Diluted Earnings Per Share

0.47   

0.46   

1.99   

1.87   

Cash Dividends

0.25   

0.24   

0.98   

0.95   

Book Value

12.90   

11.58   

12.90   

11.58   

Tangible Book Value 2

11.37   

10.07   

11.37   

10.07   

Key Earnings Ratios

Return on Average Assets

1.09%

1.18%

1.24%

1.24%

Return on Average Equity

14.42   

15.68   

16.16   

16.26   

Return on Tangible Equity2

16.35   

18.01   

18.40   

18.73   

Net Interest Margin 3

3.68   

3.92   

3.76   

3.84   

1 Share and Per Share Data have been restated to reflect the September 2009 3% stock dividend.

2 Tangible Book Value per share is the ratio of Total Equity less Intangible Assets to Period-End Shares Outstanding.

3 Net Interest Margin includes a tax-equivalent upward adjustment for the fourth quarter of 19 basis points in 2009 and 18 basis points in 2008 and an upward adjustment for the twelve-month period of 19 basis points in both 2009 and 2008.

Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

December 31, 2009

December 31, 2008

Fourth

Year-to-

Fourth

Year-to-

Period

Quarter

Date

Period

Quarter

Date

End

Average

Average

End

Average

Average

Balance Sheet

Cash and Due From Banks

$     44,386  

$     28,281  

$     28,096  

$     37,239  

$     28,149  

$     32,505  

Federal Funds Sold

---   

---   

---   

---   

457   

17,472   

Interest-Bearing Bank Balances

22,730   

59,859   

56,920   

21,099   

21,859   

5,997   

Securities Available-for-Sale

446,641   

443,041   

376,453   

325,090   

351,938   

353,616   

Securities Held-to-Maturity

168,931   

169,068   

153,322   

133,976   

131,008   

120,208   

Loans

1,112,150   

1,109,496   

1,101,759   

1,109,812   

1,109,978   

1,071,384   

Allowance for Loan Losses

(14,014)  

(13,933)  

(13,626)  

(13,272)  

(12,921)  

(12,658)  

 Net Loans

1,098,136   

1,095,563   

1,088,133   

1,096,540   

1,097,057   

1,058,726   

Premises and Equipment, Net

18,756   

18,034   

17,722   

17,602   

17,440   

16,819   

Goodwill and Intangible Assets, Net

16,712   

16,621   

16,477   

16,378   

16,416   

16,520   

Other Assets

25,335   

25,709   

23,883   

17,162   

23,042   

22,347   

   Total Assets

$1,841,627

$1,856,176  

$1,761,006  

$1,665,086  

$1,687,366  

$1,644,210  

Demand Deposits

$  198,025   

$  199,116   

$  191,504   

$  182,613   

$  188,638   

$  189,999   

Nonmaturity Interest-Bearing Deposits

852,540   

849,561   

767,229   

688,752   

692,192   

648,559   

Time Deposits of $100,000 or More

148,511   

155,588   

155,378   

157,187   

165,725   

172,055   

Other Time Deposits

244,490   

248,455   

249,575   

246,511   

244,155   

243,247   

 Total Deposits

1,443,566   

1,452,720   

1,363,686   

1,275,063   

1,290,710   

1,253,860   

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

72,020   

64,035   

58,290   

59,339   

61,386   

57,711   

Short-Term Borrowings

1,888   

1,535   

1,276   

617   

1,625   

762   

Federal Home Loan Bank Advances

140,000   

153,152   

158,274   

160,000   

160,261   

161,406   

Other Long-Term Debt

20,000   

20,000   

20,000   

20,000   

20,000   

20,000   

Other Liabilities

23,335   

23,948   

24,590   

24,265   

26,248   

24,818   

 Total Liabilities

1,700,809   

1,715,390   

1,626,116   

1,539,284   

1,560,230   

1,518,557   

Common Stock

15,170   

15,170   

14,883   

14,729   

14,729   

14,729   

Surplus

178,192   

177,529   

168,673   

163,215   

162,665   

162,124   

Undivided Profits

24,100   

22,956   

27,344   

25,454   

24,540   

20,604   

Unallocated ESOP Shares

(2,204)  

(2,204)  

(2,236)  

(2,572)  

(2,572)  

(2,215)  

Accumulated Other Comprehensive Loss

(6,640)  

(5,346)  

(7,337)  

(9,404)  

(6,624)  

(5,299)  

Treasury Stock

(67,800)  

(67,319)  

(66,437)  

(65,620)  

(65,602)  

(64,290)  

 Total Shareholders' Equity

140,818   

140,786   

134,890   

125,802   

127,136   

125,653   

   Total Liabilities and Shareholders' Equity

$1,841,627   

$1,856,176   

$1,761,006   

$1,665,086   

$1,687,366   

$1,644,210   

Assets Under Trust Administration And Investment Management

$867,154   

$755,378   

Capital Ratios

 Tier 1 Leverage Ratio

8.43%

8.45%

 Tier 1 Risk-Based Capital Ratio

14.18   

13.05   

 Total Risk-Based Capital Ratio

15.44   

14.27   

Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

December 31,

2009

2008

Fourth Quarter Ended December 31:

  Loan Portfolio

  Commercial, Financial and Agricultural

$  89,222   

$  86,872   

  Real Estate – Commercial

200,916   

202,812   

  Real Estate – Residential

492,177   

459,947   

  Indirect and Other Consumer Loans

329,835   

360,181   

    Total Loans

$1,112,150   

$1,109,812   

  Allowance for Loan Losses, Fourth Quarter

  Allowance for Loan Losses, Beginning of Quarter

$13,841   

$12,785   

  Loans Charged-off, Quarter-to-Date

(376)  

(466)  

  Recoveries of Loans Previously Charged-off, Quarter-to-Date

114   

73   

    Net Loans Charged-off, Quarter-to-Date

(262)  

(393)  

  Provision for Loan Losses, Quarter-to-Date

435   

880   

    Allowance for Loan Losses, End of Quarter

$14,014   

$13,272   

  Nonperforming Assets

  Nonaccrual Loans

$4,390   

$3,469   

  Loans Past Due 90 or More Days and Accruing

270   

457   

    Total Nonperforming Loans

4,660   

3,926   

  Repossessed Assets

59   

64   

  Other Real Estate Owned

53   

581   

  Nonaccrual Investments

---   

400   

    Total Nonperforming Assets

$4,772   

$4,971   

  Key Asset Quality Ratios

  Allowance for Loan Losses to Period-End Loans

1.26%

1.20%

  Allowance for Loan Losses to Period-End Nonperforming Loans

300.73   

338.05   

  Nonperforming Loans to Period-End Loans

0.42   

0.35   

  Nonperforming Assets to Period-End Assets

0.26   

0.30   

      Net Loans Charged-off to Average Loans, Three Months Annualized

0.09   

0.14   

      Provision for Loan Losses to Average Loans, Three Months Annualized

0.16   

0.32   

December 31,

Year Ended December 31:

2009

2008

  Allowance for Loan Losses, Twelve Months

  Allowance for Loan Losses, Beginning of Year

$13,272   

$12,401   

  Loans Charged-off

(1,430)  

(1,291)  

  Recoveries of Loans Previously Charged-off

389   

491   

    Net Loans Charged-off

(1,041)  

(800)  

  Provision for Loan Losses

1,783   

1,671   

    Allowance for Loan Losses, End of Year

$14,014   

$13,272   

  Key Asset Quality Ratios

  Net Loans Charged-off to Average Loans, Twelve Months

0.09%

0.07%

  Provision for Loan Losses to Average Loans, Twelve Months

0.16   

0.16   

SOURCE Arrow Financial Corporation



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http://www.arrowfinancial.com