ARROW FINANCIAL CORPORATION 
By 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)
Twelve Months
Three Months Ended 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 9 29 74 124
Securities Sold Under Agreements to
Repurchase
Federal Home Loan Bank
Advances 297 1,560 3,295 6,458
Junior Subordinated
Obligations Issued to 150 147 584 592
Unconsolidated Subsidiary
Trusts --- --- --- ---
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 December
31, 2011 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 150,688 159,938
December 31, 2011 and $162,713 at
December 31, 2010)
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 26,293 51,581
Securities Sold Under Agreements
to Repurchase
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 15,626
(16,094,277 Shares Issued at
December 31, 2011 and
15,625,512 Shares Issued at
December 31, 2010)
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 (2,500) (2,876)
132,296 Shares at December 31,
2010)
Accumulated Other Comprehensive
Loss (6,695) (6,423)
Treasury Stock, at Cost
(4,213,470 Shares at December
31, 2011 and (72,061) (69,713)
4,237,435 shares at December 31,
2010) ------- -------
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 $973,551 $925,671 $1,017,091 $1,011,618 $984,394
and
Investment
Management
(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 0.07% 0.04%
Annualized
Provision for Loan Losses to Average
Loans, Quarter-to-date 0.10% 0.06%
Annualized
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
