Arrow Reports Solid Second Quarter Operating Results and Strong Asset Quality Ratios
GLENS FALLS, N.Y., July 15, 2011 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three and six-month periods ended June 30, 2011. Net income for the second quarter of 2011 was $5.8 million, representing diluted earnings per share (EPS) of $.51, as compared to net income of $5.7 million and $.50 diluted EPS for the second quarter of 2010, an increase of $.01 per share or 2.0%. The cash dividend paid to shareholders in the second quarter of 2011 was $.25 per share, or 3.0% higher than the $.24 cash dividend paid in the second quarter of 2010. All per share amounts have been adjusted to reflect the effect of the 3% stock dividend we distributed on September 29, 2010.
Thomas L. Hoy, Chairman, President and CEO stated, "We are pleased to announce solid earnings results for the second quarter while maintaining both strong asset quality and capital adequacy ratios. Our operating results included a substantial increase in our noninterest income for the second quarter, which consisted primarily of growth in insurance commissions and fee income from fiduciary activities. Furthermore, our key asset quality measurements continue to be excellent."
We have significantly expanded fee income from insurance commissions from $728 thousand in the second quarter of 2010 to $1.8 million in the comparable 2011 quarter, primarily through our continuing program of acquiring strategically located insurance agencies, which most recently was Upstate Agency, a property and casualty insurance agency in our service area that we acquired on February 1, 2011.
Assets under trust administration and investment management at June 30, 2011 rose to a record level of $1.017 billion, an increase of 19.0% from the prior year balance of $854.8 million. The growth was primarily attributable to a general recovery in the equity markets. As a result of the growth in this asset base, income from fiduciary activities rose in the second quarter of 2011 to over $1.5 million, an increase of $204 thousand, or 15.4%, above the income for the 2010 comparable quarter.
Our asset quality remained strong as measured by low levels of nonperforming assets, representing only .31% of total assets at June 30, 2011, and our annualized net loan losses represented only .03% for the second quarter of 2011. Both measures are not significantly different from the prior year levels and, importantly, continue to be significantly better than industry averages. Return on average equity (ROE) for the 2011 period continued to be very strong at 14.51%, although down from our ROE of 15.38% for the 2010 period.
Total assets at June 30, 2011 were $1.902 billion, up $55.7 million, or 3.0% over the $1.846 billion at June 30, 2010. Our loan portfolio was $1.120 billion, a decrease of $24.9 million from June 30, 2010. The decrease in our outstanding loan balances was primarily attributable to the fact that we sold most of our residential real estate loan originations to the secondary market for the past twelve months. We also experienced a decrease in the volume of new automobile loans leading to a decline in that portfolio. However, we did experience modest growth in our commercial loan portfolio, which offset these decreases, in part.
During the first six months of 2011 we originated over $32.0 million of residential real estate loans. However, for interest rate risk management purposes, due to the low interest-rate environment, during the last two quarters of 2010 and the first two quarters of 2011 we sold most of the residential real estate loans we originated in the secondary market, primarily to a government sponsored entity, Federal Home Loan Mortgage Corporation. Therefore, the outstanding balance for our residential real estate loan portfolio actually declined, both as compared to our quarter-end balances at June 30, 2010 and our year-end balance at December 31, 2010. However, we continue to receive fee income from the servicing of these mortgages.
The favorable impact from an increase of $67.2 million, or 3.8%, in the average balance of earning assets period-to-period was more than offset by a significant decrease in our net interest margin, which fell from 3.70% for the second quarter of 2010, to 3.35% for the second quarter of 2011. Compared to the first quarter of 2011, net interest margin in the second quarter decreased 4 basis points from 3.39%. This margin compression was attributable to the fact that our yield on the earning assets decreased faster than the cost of our interest-bearing liabilities. Our cost of interest-bearing deposits and other borrowings in the second quarter 2011 fell by 12 basis points, to an average cost of 1.28% compared to 1.40% in the first quarter of 2011.
Total shareholders' equity reached a record high at period-end of $163.6 million, an increase of $10.9 million, or 7.1%, above the June 30, 2010 balance. Our capital ratios remain very strong, with a Tier 1 leverage ratio at the holding company of 8.67% and a total risk-based capital ratio of 16.02%. The capital ratios of the Company and each subsidiary bank again significantly exceeded the "well capitalized" regulatory standard, which is the highest category.
We continue to believe that our conservative business model which emphasizes a strong capital position, high loan quality, knowledge of our market and a responsiveness to our customers has positioned us well for the future. To date, our commercial, residential real estate and other consumer loan portfolios have not experienced significant deterioration in credit quality, even though the communities we serve, similar to other areas in the U.S., have been negatively impacted by the recession.
Our asset quality continues to be strong at June 30, 2011 with nonperforming assets of $5.9 million, representing .31% of period-end assets, an increase from the .24% percentage of assets as of June 30, 2010. As of June 30, 2011, we held only one real estate property which financial institutions typically acquire through the foreclosure process. As a result of our conservative underwriting standards, within the near-term we do not expect significant losses to be incurred from residential real estate borrowers who are experiencing stress due to the current economic environment.
Net loan losses for the second quarter of 2011, expressed as an annualized percentage of average loans outstanding, were .03%, very low compared to industry averages, and down from .05% of average loans for the 2010 comparable period. The Company's allowance for loan losses amounted to $14.8 million at June 30, 2011, which represented 1.32% of loans outstanding, an increase of 6 basis points from our ratio a year ago.
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 period ended March 31, 2011 in which our return on average equity (ROE) was 13.58%, as compared to 6.16% for our peer group. Our ratio of nonperforming loans to total loans was .39% as of March 31, 2011 compared to 3.43% for our peer group, while our annualized net loan losses of .06% for the first quarter of 2011 were well below the peer result of .75%. Our operating results and asset quality ratios have withstood the economic stress of recent years better than most banks in our national peer group.
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., two property and casualty insurance agencies: Loomis & LaPann, Inc. and Upstate Agency, 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 | Six Months | ||||
Ended June 30, | Ended June 30, | ||||
2011 | 2010 | 2011 | 2010 | ||
INTEREST AND DIVIDEND INCOME | |||||
Interest and Fees on Loans | $14,714 | $16,293 | $29,729 | $32,456 | |
Interest on Deposits at Banks | 22 | 34 | 44 | 74 | |
Interest and Dividends on Investment Securities: | |||||
Fully Taxable | 3,323 | 3,890 | 6,673 | 7,861 | |
Exempt from Federal Taxes | 1,497 | 1,461 | 3,001 | 2,938 | |
Total Interest and Dividend Income | 19,556 | 21,678 | 39,447 | 43,329 | |
INTEREST EXPENSE | |||||
NOW Accounts | 1,361 | 1,454 | 2,692 | 2,877 | |
Savings Deposits | 503 | 570 | 1,006 | 1,110 | |
Time Deposits of $100,000 or More | 664 | 727 | 1,331 | 1,443 | |
Other Time Deposits | 1,292 | 1,480 | 2,644 | 2,966 | |
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase | 23 | 32 | 47 | 62 | |
Federal Home Loan Bank Advances | 986 | 1,615 | 2,302 | 3,219 | |
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 146 | 145 | 290 | 286 | |
Total Interest Expense | 4,975 | 6,023 | 10,312 | 11,963 | |
NET INTEREST INCOME | 14,581 | 15,655 | 29,135 | 31,366 | |
Provision for Loan Losses | 170 | 375 | 390 | 750 | |
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 14,411 | 15,280 | 28,745 | 30,616 | |
NONINTEREST INCOME | |||||
Income From Fiduciary Activities | 1,526 | 1,322 | 3,072 | 2,728 | |
Fees for Other Services to Customers | 2,058 | 1,997 | 3,973 | 3,853 | |
Insurance Commissions | 1,815 | 728 | 3,281 | 1,349 | |
Net Gain on Securities Transactions | 482 | 878 | 1,024 | 878 | |
Net Gain on Sales of Loans | 167 | 34 | 218 | 55 | |
Other Operating Income | 180 | 69 | 280 | 183 | |
Total Noninterest Income | 6,228 | 5,028 | 11,848 | 9,046 | |
NONINTEREST EXPENSE | |||||
Salaries and Employee Benefits | 7,233 | 7,053 | 14,435 | 13,655 | |
Occupancy Expenses, Net | 1,894 | 1,772 | 3,812 | 3,549 | |
FDIC Assessments | 267 | 492 | 780 | 986 | |
Other Operating Expense | 2,777 | 2,685 | 5,463 | 5,352 | |
Total Noninterest Expense | 12,171 | 12,002 | 24,490 | 23,542 | |
INCOME BEFORE PROVISION FOR INCOME TAXES | 8,468 | 8,306 | 16,103 | 16,120 | |
Provision for Income Taxes | 2,619 | 2,592 | 4,973 | 4,991 | |
NET INCOME | $5,849 | $5,714 | $11,130 | $11,129 | |
Average Shares Outstanding: | |||||
Basic | 11,387 | 11,307 | 11,361 | 11,284 | |
Diluted | 11,399 | 11,344 | 11,378 | 11,323 | |
Per Common Share: | |||||
Basic Earnings | $ .51 | $ .51 | $ .98 | $ .99 | |
Diluted Earnings | .51 | .50 | .98 | .98 | |
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in Thousands) | ||||
Unaudited | ||||
June 30, | December 31, | June 30, | ||
2011 | 2010 | 2010 | ||
ASSETS | ||||
Cash and Due From Banks | $33,202 | $ 25,961 | $ 33,071 | |
Interest-Bearing Deposits at Banks | 24,118 | 5,118 | 6,701 | |
Investment Securities: | ||||
Available-for-Sale | 511,094 | 517,364 | 447,867 | |
Held-to-Maturity (Approximate Fair Value of $143,327 at June 30, | 138,334 | 159,938 | 158,226 | |
Other Investments | 7,019 | 8,602 | 9,474 | |
Loans | 1,120,096 | 1,145,508 | 1,144,959 | |
Allowance for Loan Losses | (14,820) | (14,689) | (14,411) | |
Net Loans | 1,105,276 | 1,130,819 | 1,130,548 | |
Premises and Equipment, Net | 19,490 | 18,836 | 19,252 | |
Other Real Estate and Repossessed Assets, Net | 31 | 58 | 23 | |
Goodwill | 20,823 | 15,783 | 15,783 | |
Other Intangible Assets, Net | 4,221 | 1,458 | 1,423 | |
Accrued Interest Receivable | 6,689 | 6,512 | 6,464 | |
Other Assets | 31,477 | 17,887 | 17,287 | |
Total Assets | $1,901,774 | $1,908,336 | $1,846,119 | |
LIABILITIES | ||||
Noninterest-Bearing Deposits | $219,403 | $ 214,393 | $201,839 | |
NOW Accounts | 545,022 | 569,076 | 485,837 | |
Savings Deposits | 414,487 | 382,130 | 366,639 | |
Time Deposits of $100,000 or More | 123,640 | 120,330 | 134,220 | |
Other Time Deposits | 239,307 | 248,075 | 250,489 | |
Total Deposits | 1,541,859 | 1,534,004 | 1,439,024 | |
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase | 60,361 | 51,581 | 60,847 | |
Other Short-Term Borrowings | 2,211 | 1,633 | 1,619 | |
Federal Home Loan Bank Advances | 90,000 | 130,000 | 150,000 | |
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts | 20,000 | 20,000 | 20,000 | |
Accrued Interest Payable | 1,549 | 1,957 | 2,094 | |
Other Liabilities | 22,205 | 16,902 | 19,832 | |
Total Liabilities | 1,738,185 | 1,756,077 | 1,693,416 | |
STOCKHOLDERS' EQUITY | ||||
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized | --- | --- | --- | |
Common Stock, $1 Par Value; 20,000,000 Shares Authorized (15,625,512 Shares Issued at June 30, 2011 and at December 31, 2010, and 15,170,399 Shares Issued at June 30, 2010) | 15,626 | 15,626 | 15,170 | |
Additional Paid-in Capital | 194,276 | 191,068 | 179,850 | |
Retained Earnings | 30,039 | 24,577 | 29,757 | |
Unallocated ESOP Shares (118,292 Shares at June 30, 2011, 132,296 | (2,600) | (2,876) | (1,876) | |
Accumulated Other Comprehensive Loss | (2,983) | (6,423) | (1,682) | |
Treasury Stock, at Cost (4,152,043 Shares at June 30, 2011, 4,237,435 Shares at December 31, 2010, and 4,111,704 Shares at June 30, 2010) | (70,769) | (69,713) | (68,516) | |
Total Stockholders' Equity | 163,589 | 152,259 | 152,703 | |
Total Liabilities and Stockholders' Equity | $1,901,774 | $1,908,336 | $1,846,119 | |
Arrow Financial Corporation | ||||||
Selected Quarterly Information - Unaudited | ||||||
(Dollars in Thousands) | ||||||
Jun 2011 | Mar 2011 | Dec 2010 | Sep 2010 | Jun 2010 | ||
Net Income | $5,849 | $5,281 | $5,188 | $5,575 | $5,714 | |
Transactions Recorded in Net Income (Net of Tax): | ||||||
Net Gain on Securities Transactions | 291 | 327 | 7 | 373 | 530 | |
Net Gain on Sales of Loans | 101 | 31 | 299 | 285 | 21 | |
Share and Per Share Data:(1) | ||||||
Period End Shares Outstanding | 11,351 | 11,402 | 11,256 | 11,234 | 11,300 | |
Basic Average Shares Outstanding | 11,387 | 11,334 | 11,239 | 11,257 | 11,307 | |
Diluted Average Shares Outstanding | 11,399 | 11,347 | 11,292 | 11,260 | 11,344 | |
Basic Earnings Per Share | $.51 | $.47 | $.46 | $.50 | $.51 | |
Diluted Earnings Per Share | .51 | .47 | .46 | .50 | .50 | |
Cash Dividend Per Share | .25 | .25 | .25 | .24 | .24 | |
Selected Quarterly Average Balances: | ||||||
Interest-Bearing Deposits at Banks | $31,937 | $35,772 | $76,263 | $49,487 | $51,457 | |
Investment Securities | 697,796 | 683,839 | 672,071 | 594,738 | 608,477 | |
Loans | 1,128,006 | 1,130,539 | 1,147,889 | 1,148,196 | 1,130,638 | |
Deposits | 1,596,876 | 1,564,677 | 1,568,466 | 1,466,541 | 1,476,912 | |
Other Borrowed Funds | 179,989 | 193,960 | 223,425 | 236,115 | 225,687 | |
Shareholders' Equity | 161,680 | 155,588 | 154,677 | 153,653 | 149,026 | |
Total Assets | 1,961,908 | 1,935,409 | 1,970,085 | 1,880,099 | 1,873,690 | |
Return on Average Assets | 1.20% | 1.11% | 1.04% | 1.18% | 1.22% | |
Return on Average Equity | 14.51 | 13.77 | 13.31 | 14.39 | 15.38 | |
Return on Tangible Equity(2) | 17.61 | 16.07 | 14.97 | 16.21 | 17.39 | |
Average Earning Assets | $1,857,739 | $1,850,150 | $1,884,402 | $1,792,421 | $1,790,572 | |
Average Paying Liabilities | 1,559,014 | 1,546,849 | 1,579,765 | 1,485,639 | 1,502,052 | |
Interest Income, Tax-Equivalent | 20,500 | 20,821 | 21,554 | 21,829 | 22,530 | |
Interest Expense | 4,975 | 5,336 | 5,903 | 5,829 | 6,023 | |
Net Interest Income, Tax-Equivalent | 15,525 | 15,485 | 15,651 | 16,000 | 16,507 | |
Tax-Equivalent Adjustment | 944 | 931 | 908 | 832 | 852 | |
Net Interest Margin (3) | 3.35% | 3.39% | 3.30% | 3.54% | 3.70% | |
Efficiency Ratio Calculation: | ||||||
Noninterest Expense | $12,171 | $12,319 | $11,770 | $12,106 | $12,002 | |
Less: Intangible Asset Amortization | (134) | (100) | (66) | (67) | (65) | |
Net Noninterest Expense | $12,037 | $12,219 | $11,704 | $12,039 | $11,937 | |
Net Interest Income, Tax-Equivalent | $15,525 | $15,485 | $15,651 | $16,000 | $16,507 | |
Noninterest Income | 6,228 | 5,620 | 4,738 | 5,305 | 5,028 | |
Less: Net Securities Gains | (482) | (542) | (11) | (618) | (878) | |
Net Gross Income | $21,271 | $20,563 | $20,378 | $20,687 | $20,657 | |
Efficiency Ratio | 56.59% | 59.42% | 57.43% | 58.20% | 57.79% | |
Period-End Capital Information: | ||||||
Total Stockholders' Equity (i.e. Book Value) | $163,589 | $159,188 | $152,259 | $153,457 | $152,703 | |
Book Value per Share | 14.41 | 13.96 | 13.53 | 13.66 | 13.51 | |
Intangible Assets | 25,044 | 24,900 | 17,241 | 17,209 | 17,206 | |
Tangible Book Value per Share | 12.21 | 11.78 | 12.00 | 12.13 | 11.99 | |
Capital Ratios: | ||||||
Tier 1 Leverage Ratio | 8.67% | 8.66% | 8.53% | 8.79% | 8.71% | |
Tier 1 Risk-Based Capital Ratio | 14.76 | 14.37 | 14.50 | 14.16 | 14.25 | |
Total Risk-Based Capital Ratio | 16.02 | 15.63 | 15.75 | 15.41 | 15.50 | |
Assets Under Trust Administration and Investment Management | $1,017,091 | $1,011,618 | $984,394 | $925,940 | $854,831 | |
1 Share and Per Share Data have been restated for the September 29, 2010 3% stock dividend. | ||||||
2 Tangible Book Value and Tangible Equity exclude intangible assets from total equity. These are non-GAAP financial measures which we believe provide investors with information that is useful in understanding our financial performance. | ||||||
3 Net Interest Margin calculated as the ratio of annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which we believe provides investors with information that is useful in understanding our financial performance. | ||||||
Arrow Financial Corporation | |||||
Consolidated Financial Information | |||||
($ in thousands) | |||||
Unaudited | |||||
Quarter Ended: | 6/30/2011 | 12/31/2010 | 6/30/2010 | ||
Loan Portfolio | |||||
Commercial Loans | $97,201 | $97,621 | $93,101 | ||
Commercial Construction Loans | 6,907 | 7,090 | 12,960 | ||
Commercial Real Estate Loans | 228,542 | 214,291 | 203,299 | ||
Other Consumer Loans | 5,981 | 6,482 | 6,728 | ||
Consumer Automobile Loans | 316,692 | 334,656 | 331,303 | ||
Residential Real Estate Loans | 464,773 | 485,368 | 497,568 | ||
Total Loans | $1,120,096 | $1,145,508 | $1,144,959 | ||
Allowance for Loan Losses | |||||
Allowance for Loan Losses, Beginning of Quarter | $14,745 | $14,629 | $14,183 | ||
Loans Charged-off | (150) | (182) | (210) | ||
Recoveries of Loans Previously Charged-off | 55 | 65 | 63 | ||
Net Loans Charged-off | (95) | (117) | (147) | ||
Provision for Loan Losses | 170 | 177 | 375 | ||
Allowance for Loan Losses, End of Quarter | $14,820 | $14,689 | $14,411 | ||
Nonperforming Assets | |||||
Nonaccrual Loans | $4,990 | $4,061 | $3,227 | ||
Loans Past Due 90 or More Days and Accruing | 555 | 810 | 1,219 | ||
Loans Restructured and in Compliance with Modified Terms | 306 | 16 | --- | ||
Total Nonperforming Loans | 5,851 | 4,887 | 4,446 | ||
Repossessed Assets | 18 | 58 | 23 | ||
Other Real Estate Owned | 13 | --- | --- | ||
Total Nonperforming Assets | $5,882 | $4,945 | $4,469 | ||
Key Asset Quality Ratios | |||||
Net Loans Charged-off to Average Loans, Quarter-to-date Annualized | 0.03% | 0.04% | 0.05% | ||
Provision for Loan Losses to Average Loans, Quarter-to-date Annualized | 0.06 | 0.06 | 0.13 | ||
Allowance for Loan Losses to Period-End Loans | 1.32 | 1.28 | 1.26 | ||
Allowance for Loan Losses to Period-End Nonperforming Loans | 253.30 | 300.57 | 324.13 | ||
Nonperforming Loans to Period-End Loans | 0.52 | 0.43 | 0.39 | ||
Nonperforming Assets to Period-End Assets | 0.31 | 0.26 | 0.24 | ||
Six-Month Period Ended: | 6/30/2011 | 6/30/2010 | |||
Allowance for Loan Losses, Six Months | |||||
Allowance for Loan Losses, Beginning of Year | $14,689 | $14,014 | |||
Loans Charged-off | (388) | (495) | |||
Recoveries of Loans Previously Charged-off | 129 | 142 | |||
Net Loans Charged-off | (259) | (353) | |||
Provision for Loan Losses | 390 | 750 | |||
Allowance for Loan Losses, End of Period | $14,820 | $14,411 | |||
Key Asset Quality Ratios | |||||
Net Loans Charged-off to Average Loans, Six Months Annualized | 0.05% | 0.06% | |||
Provision for Loan Losses to Average Loans, Six Months Annualized | 0.07 | 0.13 | |||
SOURCE Arrow Financial Corporation
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