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Date:

April 22, 2005




Arrow Announces First Quarter Results


Arrow Financial Corporation announced operating results for the quarter ended March 31, 2005.  Net income for the quarter was $4.430 million, representing diluted earnings per share of $.43, which compared with the diluted per share amount of $.47 earned in the first quarter of 2004, when net income was $4.865 million.  The quarterly cash dividend paid to shareholders in the first quarter of 2005 was $.23, or 7.7% higher than was paid in last year's first quarter.


Thomas L. Hoy, President and CEO stated, "Arrow's operating results again reflect the impact of a narrowing net interest margin, resulting from a difficult interest rate environment.  Actions by the Federal Reserve Bank to raise the federal funds target rate beginning in June 2004 have caused our funding costs to increase whereas our earning asset yields generally take longer to respond to increases in prevailing interest rates.  Net interest margin was 3.79% in the first quarter of 2005, down from 3.97% in the first quarter of last year. Net interest income (tax equivalent) declined 4.0% to $12.4 million for the quarter ended March 31, 2005 from $12.9 million one year earlier."


Although the decrease in net interest income was the principal factor influencing the overall earnings comparison, several other items impacted the change.  The provision for loan losses declined $53 thousand to $232 thousand in response to lower net loan losses and a reduction in nonperforming loans.  Other operating income rose $70 thousand to $3.3 million, as insurance commissions generated by our new insurance agency subsidiary, Capital Financial Group, more than offset the effect of a $227 thousand decrease in the amount of gains recognized from securities transactions and loan sales.  Other operating expense rose $359 thousand, or 4.4% to $8.5 million.  Higher equipment related expenses and costs associated with the new insurance agency were largely attributable.


Mr. Hoy added, "On April 8, 2005, we completed the acquisition of three branch offices from HSBC Bank USA, NA.  These offices are located within our historical markets of Washington and Saratoga counties and will provide increased convenience to existing customers and a large number of new customers.  The acquisition included approximately $62 million of deposits and $8 million of loans.  In anticipation of the influx of the deposits, we began to price certain deposits less aggressively during 2004.  Although total deposit balances at March 31, 2005 are higher than the year-end 2004 amount, they are unchanged from the March 31, 2004 level.  Consequently, growth in the size of the Company was limited as reflected in the year-over-year comparison.  At March 31, 2005 and 2004, total deposits equaled $1.065 billion.  Total assets were $1.416 billion, up $22 million or 1.6%, from $1.394 billion at March 31, 2004."



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Loans outstanding at March 31, 2005 were $899 million, up $44 million or 5.1% from $855 million one year earlier.  Growth in the commercial and commercial real estate category continued to be the most significant, with balances increasing to $220 million at March 31, 2005 from $197 million one year earlier, an 11.5% change.  Indirect consumer loans totaled $313 million, or 3.1% above the $304 million reported at March 31, 2004 and 4.1% above the December 31, 2004 balance of $301 million.  Competitive pricing pressure in the indirect loan market, although still intense, has recently diminished somewhat and led to higher origination volume.



Mr. Hoy further added, "Arrow's asset quality continued to be very high.  Nonperforming assets were $2.084 million at March 31, 2005, down 8.6% from $2.280 million one year earlier.  Nonperforming assets represented a very low .15% of March 31, 2005 period-end assets.  Net loan losses were just .09% (annualized) of average loans outstanding during the 2005 first quarter."


Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, NY with 30 banking locations in northeastern New York.  Arrow is the parent of the Glens Falls National Bank and Trust Company and 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.  Examples are management’s statements about future economic conditions and anticipated business developments.  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, 2004.




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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands, except per share amounts)

Unaudited

  

Three Months

  

Ended March 31,

   

2005

2004

Income Statement

    

Interest and Dividend Income

  

$16,867

$17,302

Interest Expense

  

   5,063

   4,998

  Net Interest Income

  

11,804

12,304

Provision for Loan Losses

  

      232

      285

  Net Interest Income After Provision for Loan Losses

  

 11,572

 12,019

     

Net Gain on Securities Transactions

  

64

210

Net Gain on Sales of Loans

  

5

86

Recovery Related to Former Vermont Operations

  

---

77

Income From Fiduciary Activities

  

1,107

1,056

Fees for Other Services to Customers

  

1,600

1,680

Insurance Commissions

  

395

5

Other Operating Income

  

      123

      110

  Total Other Income

  

   3,294

   3,224

     

Salaries and Employee Benefits

  

5,055

4,805

Occupancy Expenses of Premises, Net

  

707

695

Furniture and Equipment Expense

  

765

694

Amortization of Intangible Assets

  

20

9

Other Operating Expense

  

   1,938

   1,923

  Total Other Expense

  

   8,485

   8,126

     

Income Before Taxes

  

6,381

7,117

Provision for Income Taxes

  

   1,951

   2,252

  Net Income

  

$ 4,430

$ 4,865

     

Share and Per Share Data 1

    

Period End Shares Outstanding

  

10,159

10,124

Basic Average Shares Outstanding

  

10,188

10,116

Diluted Average Shares Outstanding

  

10,394

10,358

     

Basic Earnings Per Share

  

$  0.43

$  0.48

Diluted Earnings Per Share

  

0.43

0.47

     

Cash Dividends

  

0.23

0.21

     

Book Value

  

11.40

11.00

Tangible Book Value 2

  

10.25

10.07

     

Key Earnings Ratios

    

Return on Average Assets

  

1.29%

1.42%

Return on Average Equity

  

15.24

17.97

Net Interest Margin 3

  

3.79

3.97

     

1 Share and Per Share amounts have been restated for the September 2004 3% stock dividend.

2 Tangible Book Value excludes intangible assets from total equity.

3 Net Interest Margin includes a tax equivalent upward adjustment of 19 basis points in 2005 and 20 basis points in 2004.

 





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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 
 

March 31, 2005

 

March 31, 2004

  

First

  

First

 

Period

Quarter

 

Period

Quarter

 

End

Average

 

End

Average

Balance Sheet

     

Cash and Due From Banks

$    34,587 

$    35,292 

 

$    27,916 

$     34,075 

Federal Funds Sold

   --- 

1,578 

 

55,500 

8,751 

Securities Available-for-Sale

333,756 

333,884 

 

318,494 

339,329 

Securities Held-to-Maturity

113,357 

109,963 

 

106,604 

106,202 

      

Loans

898,792 

882,681 

 

854,958 

856,487 

Allowance for Loan Losses

     (12,084)

     (12,048)

 

     (11,923)

      (11,861)

  Net Loans

    886,708 

    870,633 

 

    843,035 

     844,626 

      

Premises and Equipment, Net

14,905 

14,835 

 

14,105 

14,172 

Goodwill and Intangible Assets, Net

11,682 

11,717 

 

9,479 

9,469 

Other Assets

       20,972 

       18,818 

 

       19,152 

       22,128 

    Total Assets

$1,415,967 

$1,396,720 

 

$1,394,285 

$1,378,752 

      

Demand Deposits

$   164,405 

$   159,903 

 

$   151,094 

$   152,562 

Nonmaturity Interest-Bearing Deposits

602,273 

592,258 

 

665,897 

649,794 

Time Deposits of $100,000 or More

122,805 

109,080 

 

69,648 

66,911 

Other Time Deposits

    175,558 

    174,722 

 

    178,350 

    181,203 

  Total Deposits

1,065,041 

1,035,963 

 

1,064,989 

1,050,470 

      

Short-Term Borrowings

71,548 

49,216 

 

38,269 

37,635 

Federal Home Loan Bank Advances

130,000 

158,000 

 

150,000 

150,000 

Other Long-Term Debt

20,000 

20,000 

 

15,000 

15,000 

Other Liabilities

       13,605 

       15,687 

 

       14,638 

       16,770 

  Total Liabilities

  1,300,194 

  1,278,866 

 

  1,282,896 

  1,269,875 

      

Common Stock

13,479 

13,479 

 

13,086 

 13,086 

Surplus

127,902 

127,753 

 

113,854 

113,678 

Undivided Profits

25,447 

24,291 

 

27,011 

25,812 

Unallocated ESOP Shares

(1,182)

(1,186)

 

(1,502)

(1,505)

Accumulated Other Comprehensive

   Income

(2,519)

(447)

 

3,288 

2,028 

Treasury Stock

      (47,354)

      (46,036)

 

      (44,348)

      (44,222)

  Total Shareholders’ Equity

     115,773 

     117,854 

 

     111,389 

     108,877 

    Total Liabilities and

        Shareholders’ Equity

$1,415,967 

$1,396,720 

 

$1,394,285 

$1,378,752 

      

Assets Under Trust Administration

  and Investment Management

$779,320 

  

$775,226 

 
      

Capital Ratios

     

  Leverage Ratio

9.07%

  

8.37%

 

  Tier 1 Risk-Based Capital Ratio

14.31   

  

13.31   

 

  Total Risk-Based Capital Ratio

15.56   

  

14.56   

 






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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

March 31,

 

2005

2004

Loan Portfolio

  

Commercial, Financial and Agricultural

$  81,126 

$  83,395 

Real Estate – Commercial

139,059 

114,054 

Real Estate – Residential

349,131 

331,117 

Real Estate – Construction

6,653 

10,035 

Indirect Consumer Loans

312,942 

303,612 

Other Loans to Individuals

      9,881 

    12,745 

  Total Loans

$898,792 

$854,958 

   

Allowance for Loan Losses, First Quarter

  

Allowance for Loan Losses, Beginning of Period

$12,046 

$11,842 

   

Loans Charged-off

(247)

(259)

Recoveries of Loans Previously Charged-off

         53 

         55 

  Net Loans Charged-off

      (194)

      (204)

   

Provision for Loan Losses

       232 

       285 

  Allowance for Loan Losses, End of Period

$12,084 

$11,923 

   

Nonperforming Assets

  

Nonaccrual Loans

$1,853 

$2,096 

Loans Past Due 90 or More Days and Accruing

--- 

69 

Restructured Loans

       --- 

       --- 

  Total Nonperforming Loans

1,853 

2,165 

Repossessed Assets

126 

115 

Other Real Estate Owned

     105 

       --- 

  Total Nonperforming Assets

$2,084 

$2,280 

   

Key Asset Quality Ratios

  

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

0.09%

0.10%

Provision for Loan Losses to Average Loans, First Quarter Annualized

0.11

0.13

Allowance for Loan Losses to Period-End Loans

1.34

1.39

Allowance for Loan Losses to Nonperforming Loans

652.13

550.72

Nonperforming Loans to Period-End Loans

0.21

0.25

Nonperforming Assets to Period-End Assets

0.15

0.16




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