Arrow Financial Corporation (NasdaqGS® - AROW)
announced operating results for the three and twelvemonth
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.
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