EX-99 3 prq4.htm DECEMBER 31, 2003 EARNINGS PRESS RELEASE To:







To:

All Media

Date:

January 21, 2004




Arrow Releases 2003 Operating Results


Arrow Financial Corporation announced operating results for the quarter and year ended December 31, 2003.  Net income for the quarter ended December 31, 2003 was $4.8 million, representing diluted earnings per share of $.48, or 2.1% above the diluted per share amount of $.47 earned in the fourth quarter of 2002, when net income was also $4.8 million. Net income for the year 2003 was $18.9 million, representing diluted earnings per share of $1.88, or 1.6% above the diluted per share amount of $1.85 earned in 2002, when net income was also $18.9 million.  Cash dividends paid to shareholders in 2003 totaled $.84, or 10.6% higher than the $.76 paid in 2002.


Thomas L. Hoy, President and CEO stated, "We are pleased to report favorable diluted earnings per share comparisons for the year and the fourth quarter.  This was accomplished in a challenging interest rate environment with falling rates continuing into 2003 and resulting in a narrowing of our net interest margin.  However, the effect of margin compression was largely offset by significant growth in the average level of earning assets with all key categories reaching record levels at year-end.  Also, the number of average shares outstanding was lower in 2003 than in 2002 as a result of share repurchases.  For the year, our return on average assets (ROA) was 1.42% while our return on average equity (ROE) was 18.34%.  This marks the fourth consecutive year in which ROE has exceeded 18%.  We believe these ratios reflect a very strong earnings performance although these same measurements were even higher in 2002 when ROA was 1.55% and ROE was 19.49%."


For the year, average earning assets were $1.271 billion for 2003, or 9.8% higher than the $1.158 billion level of 2002.  Loans outstanding at year-end were $855 million, up $44 million or 5.4%, from December 31, 2002.    The rate of loan growth was restrained by two factors; the securitization of $11.5 million of residential mortgage loans in the fourth quarter and net runoff in our indirect loan portfolio.  The securitization involved the sale of the mortgage loans and the concurrent purchase by the Company of Federal Home Loan Mortgage Corporation guaranteed mortgage backed securities with the sold loans representing the underlying collateral, thereby decreasing the loan portfolio and increasing the investment securities portfolio by the amount securitized.  Adjusted for the effect of the securitization, year-over-year loan growth would have equaled 6.8%.  Indirect consumer loans, essentially loans to finance motor vehicles, ended the year at $312 million, down $6 million from $318 million at the prior year-end.  The decrease reflected a continuation of aggressive, low-rate financing programs by the automobile manufacturers.  Small business loans increased 11.5% or $20 million to $193 million at December 31, 2003 from $173 million at the prior year-end.  



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Mr. Hoy also stated, "Total assets at year-end were $1.374 billion, up $103 million, or 8.1%, over the December 31, 2002 amount of $1.271 billion.  Deposits, which represented the principal source of funding of the significant earning asset growth, totaled $1.047 billion at year-end 2003, an increase of $89 million or 9.3% from $958 million one year earlier.  Shareholders' equity totaled $105.9 million at December 31, 2003, up $4.5 million or 4.4% from a level of $101.4 million at the prior year-end."



Mr. Hoy added, "Our net interest margin for 2003 was 4.05% as compared with 4.50% for 2002.  The narrowing of the net interest margin largely reflected lower reinvestment rate opportunities together with the effect of accelerated amortization of investment securities premium as a result of the high level of prepayments on mortgage backed securities.    The increased amortization, which had the effect of reducing interest income, was most pronounced in the third quarter of 2003.  For the fourth quarter of 2003, net interest margin was 3.95%, compared to 4.26% in the fourth quarter of 2002."


Mr. Hoy further added, "Asset quality remained very high.  At December 31, 2003, nonperforming loans totaled $2.5 million, down 2.2% from a balance of $2.6 million one year earlier and representing just .29% of period-end loans outstanding.  We experienced a comparable decrease in the level of nonperforming assets, as the balance fell 2.5% to $2.7 million from $2.8 million at the prior year-end.  Net loan losses, expressed as a percentage of average loans outstanding, were a low .10% for the year 2003 and compared with .11% for 2002.  Arrow's allowance for loan losses amounted to $11.8 million at December 31, 2003 and equaled 1.38% of loans outstanding, the same ratio present at December 31, 2002."


Other highlights for the year include the distribution of a 5 for 4 stock split in September, two increases in the quarterly cash dividend, opening of our 27th branch office and substantial growth in the balance of assets under trust administration and investment management (included in managed assets are the North Country Funds which are advised exclusively by our subsidiary, North Country Investment Advisors, Inc.).  At December 31, 2003, assets under trust administration and investment management totaled $748 million, which represented a 20.6% increase over the prior year-end level of $620 million.  This increase was principally affected by the rebound in the equity markets during 2003, although a significant amount of new business was developed during the year.  The market value of the North Country Funds was $113 million at year-end 2003.  As part of our plan to diversify the menu of financial services and products, a licensed life and health insurance sales representative can be found in nearly all of our full service offices and financial planning services have been introduced.


Arrow Financial Corporation is a bank holding company headquartered in Glens Falls, New York serving the banking needs of Northeastern New York.  Arrow Financial Corporation is the parent of the Glens Falls National Bank and Trust Company and the Saratoga National Bank and Trust Company.


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 are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and involve 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. 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, 2002.


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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands, except per share amounts)

Unaudited

 

Three Months

Twelve Months

 

Ended December 31,

Ended December 31,

 

2003

2002

2003

2002

Income Statement

    

Interest and Dividend Income

$17,761

$18,923

$70,731

$75,145

Interest Expense

   5,256

   6,269

  21,610

  25,106

  Net Interest Income

12,505

12,654

49,121

50,039

Provision for Loan Losses

      245

      443

    1,460

    2,288

  Net Interest Income After Provision for Loan Losses

 12,260

 12,211

  47,661

  47,751

     

Net Gain (Loss) on Securities Transactions

1

(73)

755

100

Net Gain on Sales of Loans

1

 20

489

101

Demutualization Benefit from an Employee Group Insurance Trust

---

---

---

 92

Recovery from Former Vermont Operations

---

173

---

173

Net Gains on the Sales of Other Real Estate Owned

---

---

 12

 24

Income From Fiduciary Activities

959

936

3,647

3,863

Fees for Other Services to Customers

1,704

1,682

6,776

6,189

Other Operating Income

      188

      186

      668

      771

  Total Other Income

   2,853

   2,924

 12,347

  11,313

     

Salaries and Employee Benefits

4,710

4,900

18,967

18,858

Occupancy Expenses of Premises, Net

609

553

2,524

2,330

Furniture and Equipment Expense

672

596

2,774

2,440

Amortization of Intangible Assets

10

10

37

37

Foreclosed Property Expense

---

(1)

4

29

Other Operating Expense

   2,206

   2,047

    8,179

    7,703

  Total Other Expense

   8,207

   8,105

  32,485

  31,397

     

Income Before Taxes

6,906

7,030

27,523

27,667

Provision for Income Taxes

   2,119

   2,254

    8,606

    8,773

  Net Income

$ 4,787

$ 4,776

$18,917

$18,894

     

Share and Per Share Data 1

    

Period Ending Shares Outstanding

9,779

9,914

9,779

9,914

Basic Average Shares Outstanding

9,811

9,911

9,852

9,968

Diluted Average Shares Outstanding

10,057

10,148

10,079

10,195

     

Basic Earnings Per Share

$  0.49

$  0.48

$  1.92

$  1.90

Diluted Earnings Per Share

0.48

0.47

1.88

1.85

     

Cash Dividends

0.22

0.20

0.84

0.76

     

Book Value

10.83

10.23

10.83

10.23

Tangible Book Value 2

9.86

9.25

9.86

9.25

     

Key Earnings Ratios

    

Return on Average Assets

1.37%

1.47%

1.42%

1.55%

Return on Average Equity

18.27

18.83

18.34

19.49

Net Interest Margin 3

3.95

4.26

4.05

4.50

     

1 Share and Per Share amounts have been restated for the September 2003 five for four stock split.

2 Tangible Book Value excludes from total equity intangible assets, primarily goodwill associated with branch purchases.

3 Net Interest Margin includes a tax equivalent upward adjustment for the fourth quarter of 19 basis points in 2003 and 17 basis points in 2002 and

    an upward adjustment for the twelve-month period of 19 basis points in 2003 and 18 basis points in 2002.



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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

    
 

December 31, 2003

 

December 31, 2002

  

Fourth

Year-to-

  

Fourth

Year-to-

 

Period

Quarter

Date

 

Period

Quarter

Date

 

End

Average

Average

 

End

Average

Average

Balance Sheet

       

Cash and Due From Banks

$     27,526

$     34,594

$     32,765

 

$     29,141

$     32,128

$     31,386

Federal Funds Sold

 5,800

8,007

 9,006

 

3,000

24,140

19,418

Securities Available-for-Sale

349,831

340,806

322,460

 

326,661

329,167

288,776

Securities Held-to-Maturity

105,776

105,355

 90,531

 

 74,505

 74,884

 75,000

        

Loans

855,178

864,954

848,664

 

811,292

800,428

775,296

Allowance for Loan Losses

    (11,842)

     (11,887)

     (11,573)

 

     (11,193)

     (11,177)

     (10,556)

  Net Loans

   843,336

    853,067

    837,091

 

    800,099

    789,251

    764,740

        

Premises and Equipment, Net

14,174

14,112

13,883

 

13,715

13,502

13,381

Goodwill and Intangible Assets, Net

9,463

9,790

9,733

 

9,715

9,837

9,827

Other Assets

       18,014

       20,540

       16,936

 

       14,585

       14,584

       13,853

    Total Assets

$1,373,920

$1,386,271

$1,332,405

 

$1,271,421

$1,287,493

$1,216,381

        

Demand Deposits

$  151,847

$  154,537

$  144,665

 

$  133,644

$  135,915

$  132,208

Nonmaturity Interest-Bearing Deposits

646,544

644,498

600,848

 

565,545

567,932

512,404

Time Deposits of $100,000 or More

65,585

67,012

73,307

 

60,095

64,158

81,770

Other Time Deposits

    182,640

     184,791

     192,682

 

     198,723

     203,139

     201,253

  Total Deposits

1,046,616

1,050,838

1,011,502

 

  958,007

  971,144

  927,635

        

Short-Term Borrowings

40,936

51,432

44,272

 

48,498

47,921

39,468

Federal Home Loan Bank Advances

150,000

147,174

147,507

 

145,000

145,000

130,233

Other Long-Term Debt

15,000

15,000

 9,411

 

 5,000

 5,000

 5,000

Other Liabilities

       15,503

       17,872

       16,545

 

       13,514

       17,783

       17,093

  Total Liabilities

  1,268,055

  1,282,316

  1,229,237

 

  1,170,019

  1,186,848

  1,119,429

        

Common Stock

13,086

13,086

11,380

 

 10,469

 10,350

10,066

Surplus

113,335

113,180

114,622

 

115,110

111,184

102,652

Undivided Profits

24,303

22,731

19,116

 

13,611

16,144

20,265

Unallocated ESOP Shares

(1,769)

(1,822)

(1,822)

 

(1,822)

(1,822)

(1,874)

Accumulated Other Comprehensive

   Income

1,084

   20

1,462

 

3,253

3,366

2,628

Treasury Stock

     (44,174)

     (43,240)

     (41,590)

 

     (39,219)

     (38,577)

     (36,785)

  Total Shareholders’ Equity

     105,865

    103,955

    103,168

 

    101,402

    100,645

      96,952

    Total Liabilities and

        Shareholders’ Equity

$1,373,920

$1,386,271

$1,332,405

 

$1,271,421

$1,287,493

$1,216,381

        

Assets Under Trust Administration

  And Investment Management

$748,456

   

$620,431

  
        

Capital Ratios

       

  Leverage Ratio

8.14%

   

7.32%

  

  Tier 1 Risk-Based Capital Ratio

12.98

   

11.55

  

  Total Risk-Based Capital Ratio

14.23

   

12.80

  




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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

December 31,

 

2003

2002

Loan Portfolio

  

Commercial, Financial and Agricultural

$  82,808

$  75,659

Real Estate – Commercial

110,499

 97,683

Real Estate – Residential

328,673

295,265

Real Estate – Construction

8,670

10,754

Indirect Consumer Loans

311,812

317,706

Other Loans to Individuals

    12,716

    14,225

  Total Loans

$855,178

$811,292

   

Allowance for Loan Losses, Fourth Quarter

  

Allowance for Loan Losses, Beginning of Period

$11,778

$11,008

   

Loans Charged-off

(279)

(355)

Recoveries of Loans Previously Charged-off

        98

        97

  Net Loans Charged-off

     (181)

     (258)

   

Provision for Loan Losses

       245

       443

  Allowance for Loan Losses, End of Period

$11,842

$11,193

   

Allowance for Loan Losses, Twelve Months

  

Allowance for Loan Losses, Beginning of Period

$11,193

$ 9,720

   

Loans Charged-off

(1,153)

(1,121)

Recoveries of Loans Previously Charged-off

      342

      306

  Net Loans Charged-off

     (811)

     (815)

   

Provision for Loan Losses

    1,460

    2,288

  Allowance for Loan Losses, End of Period

$11,842

$11,193

   

Nonperforming Assets

  

Nonaccrual Loans

$1,822

$2,471

Loans Past Due 90 or More Days and Accruing

685

 91

Restructured Loans

       ---

       ---

  Total Nonperforming Loans

2,507

2,562

Repossessed Assets

180

143

Other Real Estate Owned

       ---

       51

  Total Nonperforming Assets

$2,687

$2,756

   

Key Asset Quality Ratios

  

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

0.08%

0.13%

Net Loans Charged-off to Average Loans, Twelve Months

0.10

0.11

   

Provision for Loan Losses to Average Loans, Fourth Quarter Annualized

0.11

0.22

Provision for Loan Losses to Average Loans, Twelve Months

0.17

0.30

   

Allowance for Loan Losses to Period-End Loans

1.38

1.38

Allowance for Loan Losses to Nonperforming Loans

472.37

436.89

Nonperforming Loans to Period-End Loans

0.29

0.32

Nonperforming Assets to Period-End Assets

0.20

0.22


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