Arrow Reports Strong Third Quarter Operating Results

Oct 14, 2010, 09:02 ET from Arrow Financial Corporation

GLENS FALLS, N.Y., Oct. 14 /PRNewswire-FirstCall/ -- Arrow Financial Corporation (Nasdaq: AROW) announced operating results for the three and nine-month periods ended September 30, 2010.  Net income for the third quarter of 2010 was $5.6 million, representing diluted earnings per share (EPS) of $.50, as compared to net income of $5.1 million and $.45 diluted EPS for the third quarter of 2009, an increase of $.05 per share or 11.1%.  The Company's returns on average assets and average equity were 1.18% and 14.39%, respectively, for the third quarter of 2010, as compared to 1.13% and 14.72% for the third quarter of 2009.

For the nine-month periods ending September 30, 2010 and 2009, our net income of $16.7 million and diluted EPS of $1.48, were the same for both periods.  Cash dividends paid to shareholders in the first nine months of 2010 were $.73, or 2.8% higher than the $.71 cash dividends paid in the first nine months of 2009.  All per share amounts have been adjusted to reflect the effect of the 3% stock dividend we distributed on September 29, 2010.  As we previously reported, our 2009 nine-month results included a net gain of $1.79 million, net of tax, or $.16 per share, which was recognized on the sale of our merchant bank card processing line of business.  Excluding this transaction, our adjusted net income for the first nine months of 2009 was $14.9 million, and our adjusted diluted EPS was $1.32.  Compared to this adjusted EPS for the 2009 period, diluted EPS for the 2010 nine-month period increased $.16 per share, or 12.1%.  Return on average equity (ROE) for the 2010 nine-month period continued to be very strong at 15.00%.  The ROE for the 2009 period was 16.77% but excluding the sale transaction in 2009 referenced above, ROE for the first nine months of 2009, as adjusted, was 14.97%.  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 favorable earnings results for the third quarter while maintaining both strong asset quality and capital adequacy ratios. Our performance was led by a substantial increase in our noninterest income for the quarter. Our asset quality remained strong as measured by low levels of nonperforming assets, representing only .20% of total assets at September 30, 2010, and our annualized net loan losses which represented only .05% for the quarter just ended."

Total assets at September 30, 2010 reached a new high of $1.960 billion, up $124.0 million, or 6.8% over the $1.836 billion for the same quarter last year.  The growth in assets was focused primarily in our available-for-sale investment securities portfolio, which increased $66 million from September 30, 2009.  Our loan portfolio also increased by $48 million to reach a record high of $1.155 billion, an increase of 4.3% over the September 30, 2009 balance of $1.107 billion.  The growth in the loan portfolio was experienced in the residential real estate category where loan demand has responded very well to exceptionally attractive financing rates and improved affordability.  We also experienced significant growth in our consumer loan portfolio, comprised primarily of automobile loans, in the third quarter of 2010.  Outstanding loan balances within the small business loan categories were basically unchanged from the levels reported at September 30, 2009, as new originations were fully offset by contractual payments and payoffs.

Net interest income was essentially unchanged from the third quarter of 2009 to the third quarter of 2010.  The favorable impact from an increase of $85.8 million, or 5.0%, in average earning assets period-to-period was offset by a decrease in our net interest margin for the third quarter of 2010 to 3.54% for the third quarter of 2010 as compared to 3.73% for the third quarter of 2009. This margin compression was attributable to the fact that our yield on our earning assets decreased faster than the cost of our interest-bearing liabilities.

Total shareholders' equity at period-end increased $14.2 million, or 10.2%, above the September 30, 2009 balance to a record level of $153.5 million.  Our capital ratios remain very strong, with a Tier 1 leverage ratio of 8.79% and a total risk-based capital ratio of 15.41%.  The capital ratios of the Company and each subsidiary bank again significantly exceeded the "well capitalized" regulatory standard.

We continue to believe that our conservative business model which emphasizes a strong capital position, high loan quality and a responsive 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 other 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 was very strong at September 30, 2010 with nonperforming assets of $4.0 million, representing .20% of period-end assets, down 6 basis points from the .26% ratio at September 30, 2009.  As of September 30, 2010, we did not own any real estate properties which financial institutions typically acquire through the foreclosure process.  Net loan losses for the third quarter of 2010, expressed as an annualized percentage of average loans outstanding, were .05%, very low compared to industry averages, and down from .08% of average loans for the 2009 period.  The Company's allowance for loan losses amounted to $14.6 million at September 30, 2010, which represented 1.27% of loans outstanding, an increase of 2 basis points from our ratio a year ago.

Income from fiduciary activities also rose in the third quarter of 2010, increasing $115 thousand, or 9.6%, 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 September 30, 2010 rose to $925.9 million, an increase of 10.7% from the prior year balance of $836.4 million.

Many of our key operating ratios have consistently compared very favorably to our peer group, comprised 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 June 30, 2010 in which our return on average equity (ROE) was 15.19%, as compared to 1.18% for our peer group.  Our ratio of nonperforming loans to total loans was .39% as of June 30, 2010, compared to 3.67% for our peer group, while our annualized net loan losses of .06% for the second quarter of 2010 were well below the peer result of 1.16%.  Operating results and asset quality ratios for many banks in our national peer group have been severely impacted by the economic recession.

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 and our other filings with the Securities and Exchange Commission.

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures for the Nine-Month Period Ended 9/30/09, and Comparable GAAP Financial Measures for the Nine-Month Period Ended 9/30/10:

2009 Period (Reconciliation)

Net Income (in thousands)

Diluted Per Share Amount

Return on Average Equity

Net Income and Related Ratios for the

 Nine-Month Period Ended September 30, 2009

$16,675

$1.48

16.77%

Adjustment: Net Gain on the Sale of our Merchant Bank Card Processing

 to TransFirst LLC During the First Nine Months of 2009 ($2,966 pre-tax)

1,791

.16

1.80%

Adjusted Net Income and Related Ratios for More Meaningful

 Comparison, for the Nine-Month Period Ended September 30, 2009

$14,884

$1.32

14.97%

2010 Period

Net Income and Related Ratios for the

 Nine-Month Period Ended September 30, 2010

$16,704

$1.48

15.00%

Adjustment: None

---

---

---

Adjusted Net Income and Related Ratios for More Meaningful

 Comparison, for the Nine-Month Period Ended September 30, 2010

$16,704

$1.48

15.00%

Arrow Financial Corporation

Consolidated Financial Information

($ in thousands, except per share amounts)

Unaudited

Three Months

Nine Months

Ended September 30,

Ended September 30,

2010

2009

2010

2009

Income Statement

Interest and Dividend Income

$20,997

$21,664

$64,326

$64,688

Interest Expense

5,829

6,462

17,792

19,970

 Net Interest Income

15,168

15,202

46,534

44,718

Provision for Loan Losses

375

427

1,125

1,348

 Net Interest Income After Provision for Loan Losses

14,793

14,775

45,409

43,370

Net Gain on Securities Transactions

618

48

1,496

329

Net Gain on Sales of Loans

472

16

527

326

Net Gain on Sale of Merchant Bank Card Processing

---

---

---

2,966

Income From Restitution Payment

---

---

---

450

Income From Fiduciary Activities

1,315

1,200

4,043

3,737

Fees for Other Services to Customers

2,021

1,956

5,874

5,937

Insurance Commissions

808

727

2,157

1,822

Other Operating Income

71

29

254

220

 Total Noninterest Income

5,305

3,976

14,351

15,787

Salaries and Employee Benefits

7,120

6,727

20,775

19,920

Occupancy Expenses of Premises, Net

876

789

2,641

2,616

Furniture and Equipment Expense

911

819

2,695

2,493

Amortization of Intangible Assets

67

79

205

247

FDIC Special Assessment

---

---

---

787

FDIC Assessments

486

438

1,472

1,320

Other Operating Expense

2,646

2,549

7,860

7,510

 Total Noninterest Expense

12,106

11,401

35,648

34,893

Income Before Taxes

7,992

7,350

24,112

24,264

Provision for Income Taxes

2,417

2,288

7,408

7,589

 Net Income

$5,575

$5,062

$16,704

$16,675

Share and Per Share Data (1)

Period-End Shares Outstanding

11,234

11,244

11,234

11,244

Basic Average Shares Outstanding

11,257

11,239

11,275

11,229

Diluted Average Shares Outstanding

11,260

11,312

11,302

11,280

Basic Earnings Per Share

$0.50

$0.45

$1.48

$1.48

Diluted Earnings Per Share

0.50

0.45

1.48

1.48

Cash Dividends

0.24

0.24

0.73

0.71

Book Value

13.66

12.39

13.66

12.39

Tangible Book Value (2)

12.13

10.93

12.13

10.93

Key Earnings Ratios

Return on Average Assets

1.18%

1.13%

1.20%

1.29%

Return on Average Equity

14.39

14.72

15.00

16.77

Return on Tangible Equity (2)

16.21

16.74

16.93

19.14

Net Interest Margin (3)

3.54

3.73

3.68

3.79

(1) Share and Per Share Data have been restated for the September 29, 2010 3% stock dividend.

(2) 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.

(3) 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 $832 and $2,545, or 18 and 19 basis points, for the quarterly and nine-month 2010 periods, respectively,  and $835 and $2,318, or 19 basis points, for the respective quarterly and nine-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

September 30, 2010

September 30, 2009

Period

End

Third

Quarter

Average

Year-to-

Date

Average

Period

End

Third

Quarter

Average

Year-to-

Date

Average

Balance Sheet

Cash and Due From Banks

$40,608

$29,785

$28,671

$37,970

$28,208

$28,034

Interest-Bearing Bank Balances

83,122

49,487

54,213

79,375

62,301

55,929

Securities Available-for-Sale

468,941

426,276

424,480

402,963

373,183

344,235

Securities Held-to-Maturity

158,106

158,988

163,791

162,197

161,491

148,016

Other Investments

9,474

9,474

9,172

9,835

9,830

9,778

Loans

1,154,676

1,148,196

1,130,280

1,106,657

1,099,821

1,099,153

Allowance for Loan Losses

(14,629)

(14,503)

(14,289)

(13,841)

(13,721)

(13,523)

 Net Loans

1,140,047

1,133,693

1,115,991

1,092,816

1,086,100

1,085,630

Premises and Equipment, Net

19,138

19,270

18,824

18,102

17,851

17,616

Goodwill and Intangible Assets, Net

17,209

17,203

17,040

16,353

16,405

16,429

Other Assets

23,649

35,923

33,937

16,672

23,524

23,267

   Total Assets

$1,960,294

$1,880,099

$1,866,119

$1,836,283

$1,778,893

$1,728,934

Nonmaturity Interest-Bearing Deposits

$217,855

$217,017

$203,263

$197,987

$199,611

$188,938

NOW Accounts

578,674

497,981

519,322

494,517

443,841

439,854

Saving Deposits

367,581

368,565

357,006

323,508

310,991

299,629

Time Deposits of $100,000 or More

129,635

130,471

136,967

163,337

167,681

155,308

Other Time Deposits

252,850

252,507

249,098

253,133

253,359

249,953

 Total Deposits

1,546,595

1,466,541

1,465,656

1,432,482

1,375,483

1,333,682

Securities Sold Under Agreements to Repurchase

67,336

64,993

62,695

60,592

60,175

56,354

Short-Term Borrowings

1,842

1,122

1,358

1,601

1,171

1,189

Federal Home Loan Bank Advances

150,000

150,000

143,969

160,000

160,000

160,000

Other Long-Term Debt

20,000

20,000

20,000

20,000

20,000

20,000

Other Liabilities

21,064

23,790

23,512

22,304

25,667

24,806

 Total Liabilities

1,806,837

1,726,446

1,717,190

1,696,979

1,642,496

1,596,031

Common Stock

15,626

15,353

15,232

15,170

14,901

14,787

Surplus

190,227

183,920

180,533

177,248

169,434

165,689

Undivided Profits

22,184

27,251

26,957

21,701

28,177

28,823

Unallocated ESOP Shares

(2,876)

(2,256)

(2,048)

(2,204)

(2,204)

(2,247)

Accumulated Other Comprehensive Loss

(2,326)

(1,635)

(3,575)

(5,724)

(7,310)

(8,009)

Treasury Stock

(69,378)

(68,980)

(68,170)

(66,887)

(66,601)

(66,140)

 Total Shareholders’ Equity

153,457

153,653

148,929

139,304

136,397

132,903

   Total Liabilities and Shareholders’ Equity

$1,960,294

$1,880,099

$1,866,119

$1,836,283

$1,778,893

$1,728,934

Assets Under Trust Administration

 and Investment Management

$925,940

$836,438

Capital Ratios

 Tier 1 Leverage Ratio

8.79%

8.63%

 Tier 1 Risk-Based Capital Ratio

14.16

14.12

 Total Risk-Based Capital Ratio

15.41

15.37

Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

Third Quarter Ended September 30:

2010

2009

      Loan Portfolio

      Commercial, Financial and Agricultural

$88,303

$88,299

      Real Estate – Commercial

198,132

202,561

      Real Estate – Residential

513,605

477,268

      Indirect and Other Consumer Loans

354,636

338,529

        Total Loans

$1,154,676

$1,106,657

      Allowance for Loan Losses, Third Quarter

      Allowance for Loan Losses, Beginning of Quarter

$14,411

$13,626

      Loans Charged-off

(217)

(315)

      Recoveries of Loans Previously Charged-off

60

103

        Net Loans Charged-off

(157)

(212)

      Provision for Loan Losses

375

427

        Allowance for Loan Losses, End of Quarter

$14,629

$13,841

      Nonperforming Assets

      Nonaccrual Loans

$3,713

$3,905

      Loans Past Due 90 or More Days and Accruing

244

723

        Total Nonperforming Loans

3,957

4,628

      Repossessed Assets

32

73

        Total Nonperforming Assets

$3,989

$4,701

      Key Asset Quality Ratios

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

0.05%

0.08%

      Provision for Loan Losses to Average Loans, Third Quarter Annualized

0.13

0.15

      Allowance for Loan Losses to Period-End Loans

1.27

1.25

      Allowance for Loan Losses to Nonperforming Loans

369.69

299.07

      Nonperforming Loans to Period-End Loans

0.34

0.42

      Nonperforming Assets to Period-End Assets

0.20

0.26

Nine-Month Period Ended September 30:

2010

2009

      Allowance for Loan Losses, Nine Months

      Allowance for Loan Losses, Beginning of Year

$14,014

$13,272

      Loans Charged-off

(712)

(1,054)

      Recoveries of Loans Previously Charged-off

202

275

        Net Loans Charged-off

(510)

(779)

      Provision for Loan Losses

1,125

1,348

        Allowance for Loan Losses, End of Period

$14,629

$13,841

      Key Asset Quality Ratios

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

0.06%

0.09%

      Provision for Loan Losses to Average Loans, Nine Months Annualized

0.13

0.16

SOURCE Arrow Financial Corporation



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