Arrow Reports Strong Second Quarter Operating Results
GLENS FALLS, N.Y., July 13 /PRNewswire-FirstCall/ -- Arrow Financial Corporation (Nasdaq: AROW) announced operating results for the three and six-month periods ended June 30, 2010. Net income for the second quarter of 2010 was $5.7 million, representing diluted earnings per share (EPS) of $.52, as compared to net income of $4.9 million and $.45 diluted EPS for the second quarter of 2009, an increase of $.07 per share or 15.5%. The Company's returns on average assets and average equity were 1.22% and 15.38%, respectively, for the second quarter of 2010, as compared to 1.15% and 14.79% for the second quarter of 2009. The results for both periods include certain significant transactions, discussed further in this release, which impacted operating results. The cash dividend paid to shareholders in the second quarter of 2010 was $.25, or 4.2% higher than the $.24 paid in the second quarter of 2009. All per share amounts have been adjusted to reflect the effect of the 3% stock dividend we distributed on September 29, 2009.
For the six-month period ending June 30, 2010, our net income was $11.1 million, representing diluted EPS of $1.01. For the comparable 2009 six-month period, net income was $11.6 million and diluted EPS equaled $1.06. As we previously reported, our 2009 six-month results included a net gain of $1.79 million, or $.16 per share, net of tax, recognized on the sale of our merchant bank card processing line of business to TransFirst LLC. Excluding this transaction, adjusted net income for the 2009 period was $9.8 million, and adjusted diluted EPS was $.90. Compared to this adjusted EPS for the 2009 period, diluted EPS for the 2010 six-month period increased $.11 per share, or 12.2%. Return on average equity (ROE) for the 2010 six-month period continued to be very strong at 15.32%. The ROE for the 2009 period was 17.86%. Excluding the sale transaction in 2009 referenced above, ROE for the first six months of 2009, as adjusted, was 15.11%. The adjusted net income, adjusted EPS and adjusted ROE measures for the 2009 period are non-GAAP financial measures. On page 3 of this press release, we have provided a tabular reconciliation of these 2009 non-GAAP measures to the related 2009 GAAP measures.
Thomas L. Hoy, Chairman, President and CEO stated, "We are pleased to report continued growth in operating earnings while maintaining both very strong asset quality and capital adequacy ratios. Our performance was led by a substantial increase in net interest income, resulting from an increase in the average level of earning assets but partially offset by a slight narrowing of our net interest margin. Our ratio of nonperforming assets to assets was only .24% at June 30, 2010 and our annualized net loan losses represented only .05% for the quarter just ended. "
Certain significant transactions occurring in the just-completed three and six-month periods as well as the comparable prior-year periods impacted earnings in, and comparative earnings between, the periods. During the second quarter of 2010 we sold $10 million par value of collateralized mortgage obligations (CMO) from our available-for-sale portfolio to provide additional liquidity to offset the seasonal low point in municipal deposit balances which occurs each year at June 30. The sale of these CMO's, which were identified and sold as a strategy for interest rate risk purposes, resulted in an after-tax net gain of $520 thousand or nearly $.05 per share.
The Company's subsidiary banks, like all FDIC insured financial institutions, recognized an FDIC special assessment in the second quarter of 2009. 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 an unexpected court-ordered restitution payment of $272 thousand, net of tax, from a former customer of our now-dissolved Vermont subsidiary bank. Taken together, these two transactions resulted in a $.02 decrease in EPS in the second quarter of 2009.
Total assets at June 30, 2010 reached a record high of $1.846 billion, up $127.5 million, or 7.4% over the $1.719 billion for the same quarter last year. The growth in assets was focused primarily in our available-for-sale securities portfolio, which increased $81.4 million from June 30, 2009. Our loan portfolio also reached a record high of $1.145 billion, an increase of 4.7% from the June 30, 2009 balance of $1.094 billion as we continue to lend to credit qualified business and individuals. The growth in the loan portfolio was experienced in the residential real estate category where loan demand responded very well to exceptionally attractive financing rates and improved affordability. Outstanding loan balances within the small business and consumer indirect loan categories were largely unchanged from the levels reported at June 30, 2009.
Net interest income increased $870 thousand in the second quarter of 2010 versus the second quarter of 2009, primarily as a result of an increase of $136.9 million, or 8.3%, in average earning assets period to period. Our net interest margin for the second quarter of 2010 was 3.70%, down from 3.77% for the second quarter of 2009 which is primarily attributable to the yield on our interest-bearing assets decreasing at a rate faster than the rate paid on our deposits and borrowed funds.
Total shareholders' equity at period-end increased $18.1 million, or 13.5%, above the June 30, 2009 balance to a record level of $152.7 million. Our capital ratios remain strong, with a Tier 1 leverage ratio of 8.71% and a total risk-based capital ratio of 15.50%. The capital ratios of the Company and each subsidiary bank significantly exceeded the "well capitalized" regulatory standard.
The number of failed financial institutions continues to grow and bank balance sheets generally remain under pressure. However, we believe that our strong capital position, traditionally high loan quality and fundamentally sound management approach to providing financial services to our customers have positioned us well to continue to serve our customers. Our commercial, residential real estate and indirect consumer loan portfolios have not experienced significant deterioration during 2009 and in 2010 to date, even though the communities we serve, similar to other areas in the U.S., have been negatively impacted by the recession. If the weak economic conditions persist or worsen, we may be unfavorably impacted in the future.
Our asset quality continues to remain strong. Nonperforming assets were $4.5 million at June 30, 2010, representing .24% of period-end assets, up 1 basis point from the .23% ratio at June 30, 2009. As of June 30, 2010, we did not own any real estate properties which financial institutions typically acquire through the foreclosure process. Net loan losses for the second quarter of 2010, expressed as an annualized percentage of average loans outstanding, were .05%, very low by industry average, and down from .09% of average loans for the 2009 period. The Company's allowance for loan losses amounted to $14.4 million at June 30, 2010, which represented 1.26% of loans outstanding, an increase of 1 basis point from our ratio a year ago.
Income from fiduciary activities also rose in the second quarter of 2010, increasing $37 thousand, or 2.9%, over the income from the 2009 quarter, primarily as a result of a recovery in the capital markets. Assets under trust administration and investment management at June 30, 2010 rose to $854.8 million, an increase of 10.8% from the prior year balance of $771.4 million.
Many of our key operating ratios have regularly compared very favorably to our peer group, consisting of 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, 2010 in which our return on average equity (ROE) was 15.04%, as compared to 2.18% for our peer group. Our ratio of nonperforming loans to total loans was .32% as of March 31, 2010, compared to 3.67% for our peer group, while our annualized net loan losses of .07% for the first quarter of 2010 were well below the peer result of .99%. Operating results and asset quality ratios for many banks in our national peer group have been severely impacted by the economic recession.
As previously announced, on April 1, 2010 we closed on the acquisition of Loomis & LaPann, Inc., an insurance agency specializing in property and casualty insurance and operating in the Greater Glens Falls area of New York State. This transaction affiliated two companies which are rich in the history of Glens Falls.
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., Loomis & LaPann, Inc., a property and casualty insurance agency and Capital Financial Group, Inc., an insurance agency specializing in the sale and servicing of group health plans.
This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission (the "SEC"), including period-to-period financial measure comparisons between non-GAAP financial measures and GAAP financial measures. The Company believes that these non-GAAP financial measures provide information that is useful to the users of its financial information regarding the Company's financial condition and results of operations. Additionally, the Company uses these non-GAAP measures to evaluate its past performance and prospects for future performance. The Company believes that this non-GAAP financial information is helpful in understanding the results of operations separate and apart from items that may, or could, have a disproportional positive or negative impact in any particular period.
While the Company believes that these non-GAAP financial measures are useful in evaluating Company performance, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with U.S. GAAP. Further, these non-GAAP financial measures may differ from similar measures presented by other companies.
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, 2009.
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures for the Six-Month Period Ended 6/30/09, and Comparable GAAP Financial Measures for the Six-Month Period Ended 6/30/10:
Diluted
Per Return on
2009 Period (Reconciliation) Net Income Share Average
-------------------------- (in thousands) Amount Equity
------- ------ ------
Net Income and Related Ratios for the $11,613 $1.06 17.86%
Six-Month Period Ended June 30, 2009
Adjustment: Net Gain on the Sale of our
Merchant Bank Card Processing 1,791 .16 2.75%
to TransFirst LLC During the First Six
Months of 2009 ($2,966 pre-tax) ----- --- ----
Adjusted Net Income and Related Ratios
for More Meaningful $9,822 $.90 15.11%
Comparison, for the Six-Month Period
Ended June 30, 2009 ====== ==== =====
2010 Period
-----------
Net Income and Related Ratios for the $11,129 $1.01 15.32%
Six-Month Period Ended June 30, 2010
Adjustment: None n/a n/a n/a
--- --- ---
Adjusted Net Income and Related Ratios
for More Meaningful $11,129 $1.01 15.32%
Comparison, for the Six-Month Period
Ended June 30, 2010 ======= ===== =====
Arrow Financial Corporation
Consolidated Financial Information
($ in thousands, except per share amounts) Unaudited
Three Months Six Months
Ended June 30, Ended June 30,
2010 2009 2010 2009
Income Statement
Interest and Dividend Income $21,678 $21,501 $43,329 $43,024
Interest Expense 6,023 6,716 11,963 13,508
Net Interest Income 15,655 14,785 31,366 29,516
Provision for Loan Losses 375 419 750 921
Net Interest Income After
Provision for Loan Losses 15,280 14,366 30,616 28,595
Net Gain on Securities
Transactions 878 4 878 281
Net Gain on Sales of Loans 34 233 55 310
Net Gain on Sale of Merchant
Bank Card Processing --- 266 --- 2,966
Income From Restitution Payment --- 450 --- 450
Income From Fiduciary
Activities 1,322 1,285 2,728 2,537
Fees for Other Services to
Customers 1,997 1,955 3,853 3,981
Insurance Commissions 728 567 1,349 1,095
Other Operating Income 69 84 183 191
Total Noninterest Income 5,028 4,844 9,046 11,811
Salaries and Employee Benefits 7,053 6,615 13,655 13,193
Occupancy Expenses of Premises,
Net 887 867 1,765 1,827
Furniture and Equipment Expense 885 824 1,784 1,674
Amortization of Intangible
Assets 65 79 138 168
FDIC Special Assessment --- 787 --- 787
FDIC Assessments 492 454 986 882
Other Operating Expense 2,620 2,493 5,214 4,961
Total Noninterest Expense 12,002 12,119 23,542 23,492
Income Before Taxes 8,306 7,091 16,120 16,914
Provision for Income Taxes 2,592 2,160 4,991 5,301
Net Income $5,714 $4,931 $11,129 $11,613
Share and Per Share Data
Period End Shares Outstanding 10,971 10,909 10,971 10,909
Basic Average Shares
Outstanding 10,978 10,901 10,955 10,896
Diluted Average Shares
Outstanding 11,013 10,948 10,993 10,933
Basic Earnings Per Share $0.52 $0.45 $1.02 $1.07
Diluted Earnings Per Share 0.52 0.45 1.01 1.06
Cash Dividends 0.25 0.24 0.50 0.49
Book Value 13.92 12.34 13.92 12.34
Tangible Book Value (1) 12.35 10.83 12.35 10.83
Key Earnings Ratios
Return on Average Assets 1.22% 1.15% 1.21% 1.37%
Return on Average Equity 15.38 14.79 15.32 17.86
Return on Tangible Equity (1) 17.39 16.87 17.32 20.42
Net Interest Margin (2) 3.70 3.77 3.75 3.83
(1) Tangible Book Value and Tangible Equity excludes intangible
assets from total equity. These are non-GAAP financial measures
which we believe provide investors with information that is useful
in understanding our financial performance.
(2) Net Interest Margin calculated as the ratio of annualized tax-
equivalent net interest income to average earning assets. Includes a
tax equivalent upward adjustment of 19 basis points for both the
quarterly and six-month 2010 periods and 18 basis points for both
the quarterly and six-month 2009 periods. This is also a non-GAAP
financial measure which we believe provides investors with
information that is useful in understanding our financial
performance.
Arrow Financial Corporation
Consolidated Financial Information
($ in thousands)
Unaudited
June 30, 2010
Second Year-to-
Period Quarter Date
End Average Average
Balance Sheet
Cash and Due From
Banks $33,071 $27,637 $28,105
Interest-Bearing
Bank Balances 6,701 51,457 56,615
Securities
Available-for-Sale 447,867 436,027 423,568
Securities
Held-to-Maturity 158,226 163,350 166,233
Other Investments 9,474 9,100 9,018
Loans 1,144,959 1,130,638 1,121,173
Allowance for
Loan Losses (14,411) (14,268) (14,180)
-------- ------- -------
Net Loans 1,130,548 1,116,370 1,106,993
--------- --------- ---------
Premises and
Equipment, Net 19,252 18,960 18,597
Goodwill and
Intangible Assets,
Net 17,206 17,234 16,957
Other Assets 23,774 33,555 32,927
------ ------ ------
Total Assets $1,846,119 $1,873,690 $1,859,013
========== ========== ==========
Noninterest-
Bearing Deposits $201,839 $200,547 $196,272
NOW Accounts 485,837 534,157 530,169
Savings Deposits 366,639 359,094 351,131
Time
Deposits of
$100,000 or More 134,220 133,737 140,269
Other Time Deposits 250,489 249,377 247,365
------- ------- -------
Total Deposits 1,439,024 1,476,912 1,465,206
--------- --------- ---------
Securities
Sold Under 60,847 62,411 61,527
Agreements
to Repurchase
Short-Term Borrowings 1,619 1,478 1,478
Federal Home
Loan Bank Advances 150,000 141,798 140,903
Other Long-Term Debt 20,000 20,000 20,000
Other Liabilities 21,926 22,065 23,371
------ ------ ------
Total
Liabilities 1,693,416 1,724,664 1,712,485
--------- --------- ---------
Common Stock 15,170 15,170 15,170
Surplus 179,850 179,252 178,812
Undivided Profits 29,757 28,175 26,808
Unallocated
ESOP Shares (1,876) (1,908) (1,942)
Accumulated
Other
Comprehensive
Loss (1,682) (3,961) (4,561)
Treasury Stock (68,516) (67,702) (67,759)
------- ------- -------
Total
Shareholders'
Equity 152,703 149,026 146,528
------- ------- -------
Total
Liabilities
and
Shareholders'
Equity $1,846,119 $1,873,690 $1,859,013
========== ========== ==========
Assets Under
Trust Administration
and Investment
Management $854,831
Capital
Ratios
Tier 1
Leverage Ratio 8.71%
Tier 1 Risk-
Based Capital
Ratio 14.25
Total Risk-
Based Capital
Ratio 15.50
June 30, 2009
Second Year-to-
Period Quarter Date
End Average Average
Balance Sheet
Cash and Due From
Banks $31,864 $27,464 $27,946
Interest-Bearing
Bank Balances 22,325 49,638 52,691
Securities Available-
for-Sale 366,475 354,613 329,521
Securities
Held-to-Maturity 156,422 146,046 141,166
Other Investments 9,829 9,825 9,751
Loans 1,093,789 1,093,515 1,098,813
Allowance
for Loan Losses (13,626) (13,532) (13,422)
------- ------- -------
Net Loans 1,080,163 1,079,983 1,085,391
--------- --------- ---------
Premises and
Equipment, Net 17,532 17,550 17,496
Goodwill and Intangible
Assets, Net 16,440 16,449 16,441
Other Assets 17,582 24,171 23,138
------ ------ ------
Total Assets $1,718,632 $1,725,739 $1,703,541
========== ========== ==========
Noninterest-Bearing
Deposits $189,417 $186,033 $183,513
NOW Accounts 419,035 451,350 437,827
Savings Deposits 301,496 298,180 293,855
Time
Deposits of
$100,000 or
More 151,682 145,335 149,019
Other Time Deposits 250,789 249,650 248,222
------- ------- -------
Total Deposits 1,312,419 1,330,548 1,312,436
--------- --------- ---------
Securities
Sold Under 64,872 56,611 54,412
Agreements
to Repurchase
Short-Term
Borrowings 3,224 1,325 1,198
Federal Home Loan Bank
Advances 160,000 160,000 160,000
Other Long-Term Debt 20,000 20,000 20,000
Other Liabilities 23,531 23,537 24,368
------ ------ ------
Total Liabilities 1,584,046 1,592,021 1,572,414
--------- --------- ---------
Common Stock 14,729 14,729 14,729
Surplus 164,615 164,079 163,785
Undivided Profits 31,790 30,801 29,152
Unallocated
ESOP Shares (2,204) (2,236) (2,269)
Accumulated Other
Comprehensive Loss (7,752) (7,484) (8,365)
Treasury Stock (66,592) (66,171) (65,905)
-------- -------- -------
Total
Shareholders'
Equity 134,586 133,718 131,127
------- ------- -------
Total
Liabilities
and
Shareholders'
Equity $1,718,632 $1,725,739 $1,703,541
========== ========== ==========
Assets Under
Trust Administration
and Investment
Management $771,442
Capital Ratios
Tier 1
Leverage Ratio 8.72%
Tier 1 Risk-
Based Capital Ratio 13.88
Total Risk-
Based Capital Ratio 15.13
Arrow Financial Corporation
Consolidated Financial Information
($ in thousands)
Unaudited
June 30,
2010 2009
---- ----
Second Quarter Ended June 30:
-----------------------------
Loan Portfolio
Commercial, Financial and Agricultural $87,501 $84,302
Real Estate – Commercial 198,633 203,446
Real Estate – Residential 515,174 459,908
Indirect and Other Consumer Loans 343,651 346,133
------- -------
Total Loans $1,144,959 $1,093,789
========== ==========
Allowance for Loan Losses,
Second Quarter Allowance for Loan Losses,
Beginning of Quarter $14,183 $13,450
Loans Charged-off (210) (318)
Recoveries of Loans Previously Charged-off 63 75
--- ---
Net Loans Charged-off (147) (243)
---- ----
Provision for Loan Losses 375 419
--- ---
Allowance for Loan Losses, End of Quarter $14,411 $13,626
======= =======
Nonperforming Assets
Nonaccrual Loans $3,227 $3,145
Loans Past Due 90 or More Days and Accruing 1,219 409
----- ---
Total Nonperforming Loans 4,446 3,554
Repossessed Assets 23 59
Nonaccrual Investments --- 400
--- ---
Total Nonperforming Assets $4,469 $4,013
====== ======
Key Asset Quality Ratios
Net Loans Charged-off to Average Loans,
Second Quarter Annualized 0.05% 0.09%
Provision for Loan Losses to Average
Loans, Second Quarter Annualized 0.13 0.15
Allowance for Loan Losses to Period-End
Loans 1.26 1.25
Allowance for Loan Losses to Nonperforming
Loans 324.13 383.40
Nonperforming Loans to Period-End Loans 0.39 0.32
Nonperforming Assets to Period-End Assets 0.24 0.23
June 30,
Six-Month Period Ended June 30: 2010 2009
------------------------------- ---- ----
Allowance for Loan Losses, Six Months
Allowance for Loan Losses, Beginning of
Year $14,014 $13,272
Loans Charged-off (495) (739)
Recoveries of Loans Previously Charged-off 142 172
--- ---
Net Loans Charged-off (353) (567)
---- ----
Provision for Loan Losses 750 921
--- ---
Allowance for Loan Losses, End of Period $14,411 $13,626
======= =======
Key Asset Quality Ratios
Net Loans Charged-off to Average Loans,
Six Months Annualized 0.06% 0.10%
Provision for Loan Losses to Average
Loans, Six Months Annualized 0.13 0.17
SOURCE Arrow Financial Corporation
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