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October 21, 2005






Arrow Releases Third Quarter Operating Results




Arrow Financial Corporation announced operating results for the three and nine-month periods ended September 30, 2005.  Net income for the third quarter of 2005 was $4.839 million, or diluted earnings per share of $.46, and compares with $4.968 million in 2004, which equaled diluted earnings per share of $.47.  Diluted earnings per share for the first nine months of 2005 were $1.31 with net income totaling $13.949 million, which compared with diluted earnings per share of $1.36 when net income was $14.531 million in 2004.  Cash dividends paid to shareholders in 2005 totaled $.68 and represented a 6.0% increase over the amount paid in the first nine months of last year.


Thomas L. Hoy, Chairman, President and CEO stated, "Our third quarter and nine month operating results have been significantly impacted by a narrowing of the net interest margin, a reflection of a prolonged, difficult rate environment.  Actions by the Federal Reserve Bank over the past 15 months to raise the targeted federal funds rate have led to increases in our funding costs.  However, prevailing intermediate and longer-term rates, which are more likely to influence our earning asset yield, have not risen commensurately.  Net interest margin was 3.63% for the third quarter of 2005 versus 3.96% for the same quarter last year while net interest margin for the nine month period ending September 30, 2005 was 3.71% and compared with 3.93% for the same nine month period in 2004."


Mr. Hoy also stated, "We are pleased to report that the strong loan growth recorded in the second quarter of this year continued through the third quarter.  Loans outstanding at September 30, 2005 were $981 million, rising at an annualized rate of 11.8% from the June 30, 2005 balance of $953 million and were up $104 million, or 11.9%, from the September 30, 2004 level of $877 million.  All key categories of the loan portfolio participated in the growth.  The commercial loan segment of the portfolio increased $28 million, or 13.5%, to $235 million from the year earlier date.  Indirect consumer loans rose $53 million during the same period, to $359 million from $306 million, an increase of 17.4%."









Mr. Hoy also stated, "Acquisitions made in the past twelve months have significantly affected the comparisons of other operating income and other expense.  Other (i.e. non-interest) income totaled $11.258 million for the nine-month period ended September 30, 2005, up $1.633 million or 17.0% from the prior year level of $9.625 million.  Insurance commissions produced by the Capital Financial Group, Inc. ("CFG"), which Arrow acquired in November 2004, represented $1.314 million of the increase.  Other (i.e. non-interest expense) expense was $26.661 million for the first nine months of 2005, an increase of $2.072 million or 8.4% above the comparable 2004 amount of $24.589 million.  On-going expenses incurred as a part of the CFG acquisition as well as costs associated with operating the three branch offices acquired in April of 2005 represented the majority of the increase in other expense.


Total assets at September 30, 2005 were $1.484 billion, or 7.2% above $1.384 billion reported one year earlier.  Deposits rose 8.4% to $1.139 billion, which compares with $1.051 billion at September 30, 2004.  Total shareholders equity was $116.0 million, or 2.5% above the comparable 2004 amount of $113.3 million.  Arrow's capital adequacy ratios, and those of its bank subsidiaries, continue to exceed the "Well Capitalized" standard, the highest level established by the bank regulatory agencies.


Mr. Hoy added, "Arrow's asset quality remains very high.  Nonperforming assets were $2.315 million at September 30, 2005, down 29.3% from $3.273 million balance at September 30, 2004.  At September 30, 2005, nonperforming assets represented just .16% of period-end assets.  Our allowance for loan losses was $12.2 million at September 30, 2005 and equaled 1.24% of period-end loans.  Net loan losses were only .07% (annualized) of average loans outstanding for the nine month period ending September 30, 2005 as compared with .08% for the comparable nine month period in 2004."


Mr. Hoy also stated "In addition to the 4.3% increase in the cash dividend over that paid in the prior quarter, a three percent stock dividend was distributed in September.  The North Country Funds, which are advised exclusively by our subsidiary, North Country Investment Advisors, Inc., totaled $150.3 million at quarter-end, including $92.5 million invested in the North Country Equity Growth Fund (NCEGX) and $57.8 million invested in the North Country Intermediate Bond Fund (NCBDX).  The fourth branch office of Saratoga National Bank and Trust Company, and the Company's 31st, is nearing completion and is expected to open in November 2005.  The office, which is located at Jones Road and Route 50 in Saratoga Springs, will be part of a shared facility owned by the Stewart’s Shops Corp.


Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, NY with banking locations in Upstate New York.  Arrow is the parent of 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.  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

Nine Months

 

Ended September 30,

Ended September 30,

 

2005

2004

2005

2004

Income Statement

    

Interest and Dividend Income

$18,294 

$17,038 

$52,937 

$51,402 

Interest Expense

   6,158 

   4,536 

 16,842 

 14,485 

  Net Interest Income

12,136 

12,502 

36,095 

36,917 

Provision for Loan Losses

      218 

      205 

      626 

      744 

  Net Interest Income After Provision for Loan Losses

 11,918 

 12,297 

 35,469 

 36,173 

     

Net (Loss) Gain on Securities Transactions

151 

(9)

340 

201 

Net Gain on Sales of Loans

81 

72 

108 

184 

Recovery Related to Former Vermont Operations

--- 

--- 

--- 

77 

Net Gains on the Sales of Other Real Estate Owned

20 

--- 

28 

--- 

Income From Fiduciary Activities

1,147 

1,112 

3,435 

3,228 

Fees for Other Services to Customers

2,012 

1,914 

5,560 

5,498 

Insurance Commissions

449 

  8 

1,332 

19 

Other Operating Income

      222 

      169 

      455 

      418 

  Total Other Income

   4,082 

   3,266 

 11,258 

   9,625 

     

Salaries and Employee Benefits

5,195 

5,059 

15,538 

14,642 

Occupancy Expenses of Premises, Net

761 

674 

2,225 

2,068 

Furniture and Equipment Expense

760 

655 

2,271 

2,044 

Amortization of Intangible Assets

116 

9 

258 

28 

Other Operating Expense

   2,169 

   1,893 

   6,369 

   5,807 

  Total Other Expense

   9,001 

   8,290 

 26,661 

 24,589 

     

Income Before Taxes

6,999 

7,273 

20,066 

21,209 

Provision for Income Taxes

   2,160 

   2,305 

   6,117 

   6,678 

  Net Income

$ 4,839 

$ 4,968 

$13,949 

$14,531 

     

Share and Per Share Data 1

    

Period Ending Shares Outstanding

10,361 

10,412 

10,361 

10,412 

Basic Average Shares Outstanding

10,390 

10,411 

10,439 

10,419 

Diluted Average Shares Outstanding

10,563 

10,652 

10,627 

10,662 

     

Basic Earnings Per Share

$  0.47 

$  0.48 

$  1.34 

$  1.39 

Diluted Earnings Per Share

0.46 

0.47 

1.31 

1.36 

     

Cash Dividends

0.23 

0.22 

0.68 

0.64 

     

Book Value

11.20 

10.87 

11.20 

10.87 

Tangible Book Value 2

9.52 

9.96 

9.52 

9.96 

     

Key Earnings Ratios

    

Return on Average Assets

1.31%

1.42%

1.30%

1.40%

Return on Average Equity

16.39

17.87

15.90

17.70

Net Interest Margin 3

3.63

3.96

3.71

3.93

     

1 Share and Per Share amounts have been restated for the September 2005 three percent stock dividend.

2 Tangible Book Value is the ratio of Total Equity less Intangible Assets to Period End Shares Outstanding.

3 Net Interest Margin includes a tax equivalent adjustment for the third quarter of 17 basis points in 2005 and 19 basis points in 2004 and

    an adjustment for the nine-month period of 18 basis points in 2005 and 19 basis points in 2004.


Page 3 of 5






Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

    
 

September 30, 2005

 

September 30, 2004

  

Third

Year-to-

  

Third

Year-to-

 

Period

Quarter

Date

 

Period

Quarter

Date

 

End

Average

Average

 

End

Average

Average

Balance Sheet

       

Cash and Due From Banks

$    41,432 

$    38,145 

$    36,391 

 

$    38,301 

$     37,473 

$    35,593 

Federal Funds Sold

--- 

728 

 2,460 

 

5,000 

1,418 

 9,532 

Securities Available-for-Sale

306,499 

314,252 

327,445 

 

324,172 

335,882 

340,052 

Securities Held-to-Maturity

112,823 

109,995 

110,687 

 

109,255 

107,041 

106,329 

        

Loans

981,331 

969,212 

926,689 

 

876,939 

873,569 

863,357 

Allowance for Loan Losses

    (12,212)

    (12,176)

    (12,109)

 

    (12,056)

    (11,992)

    (11,929)

  Net Loans

   969,119 

   957,036 

   914,580 

 

   864,883 

   861,577 

    851,428 

        

Premises and Equipment, Net

15,200 

15,266 

15,136 

 

14,878 

14,761 

14,444 

Goodwill and Intangible Assets, Net

17,380 

17,428 

15,418 

 

9,478 

9,473 

9,474 

Other Assets

      21,658 

      17,587 

      17,284 

 

      18,826 

      19,608 

      20,701 

    Total Assets

$1,484,111 

$1,470,437 

$1,439,401 

 

$1,384,793 

$1,387,233 

$1,387,553 

        

Demand Deposits

$  184,221 

$  186,055 

$  173,146 

 

$  169,992 

$  172,793 

$  161,886 

Nonmaturity Interest-Bearing Deposits

619,996 

606,223 

607,250 

 

634,805 

607,648 

639,634 

Time Deposits of $100,000 or More

128,933 

123,750 

123,622 

 

75,024 

71,558 

67,973 

Other Time Deposits

   205,857 

   208,232 

    192,671 

 

    170,770 

    171,166 

    176,240 

  Total Deposits

1,139,007 

1,124,260 

1,096,689 

 

1,050,591 

1,023,165 

1,045,733 

        

Short-Term Borrowings

59,594 

56,288 

46,689 

 

50,037 

55,433 

45,292 

Federal Home Loan Bank Advances

131,500 

134,226 

142,125 

 

139,800 

165,957 

155,431 

Other Long-Term Debt

20,000 

20,000 

20,000 

 

15,000 

15,000 

15,000 

Other Liabilities

      17,993 

      18,559 

      16,622 

 

      16,214 

      17,059 

      16,456 

  Total Liabilities

 1,368,094 

 1,353,333 

 1,322,125 

 

 1,271,642 

 1,276,614 

1,277,912 

        

Common Stock

13,883 

13,646 

13,535 

 

13,479 

13,244 

13,139 

Surplus

139,187 

132,752 

129,528 

 

125,327 

118,576 

115,409 

Undivided Profits

19,195 

24,553 

25,139 

 

20,746 

26,172 

26,730 

Unallocated ESOP Shares

(1,182)

(1,182)

(1,183)

 

(1,502)

(1,502)

(1,502)

Accumulated Other Comprehensive

   Income (Loss)

(3,583)

(2,452)

(1,563)

 

672 

 (578)

561 

Treasury Stock

     (51,483)

     (50,213)

     (48,180)

 

     (45,571)

     (45,293)

     (44,696)

  Total Shareholders’ Equity

    116,017 

    117,104 

    117,276 

 

    113,151 

    110,619 

    109,641 

    Total Liabilities and

        Shareholders’ Equity

$1,484,111 

$1,470,437 

$1,439,401 

 

$1,384,793 

$1,387,233 

$1,387,553 

        

Assets Under Trust Administration

  And Investment Management

$840,418 

   

$795,298 

  
        

Capital Ratios

       

  Leverage Ratio

8.46%

   

8.62%

  

  Tier 1 Risk-Based Capital Ratio

12.54

   

13.54

  

  Total Risk-Based Capital Ratio

13.78

   

14.80

  










Page 4 of 5






Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

September 30,

 

2005

2004

Loan Portfolio

  

Commercial, Financial and Agricultural

$  84,287 

$  75,863 

Real Estate – Commercial

151,184 

131,571 

Real Estate – Residential

369,780 

344,230 

Real Estate – Construction

8,735 

8,508 

Indirect Consumer Loans

359,290 

305,927 

Other Loans to Individuals

      8,055 

    10,840 

  Total Loans

$981,331 

$876,939 

   

Allowance for Loan Losses, Third Quarter

  

Allowance for Loan Losses, Beginning of Period

$12,168 

$11,984 

   

Loans Charged-off

(239)

(195)

Recoveries of Loans Previously Charged-off

        65 

        62 

  Net Loans Charged-off

     (174)

     (133)

   

Provision for Loan Losses

      218 

      205 

  Allowance for Loan Losses, End of Period

$12,212 

$12,056 

   

Allowance for Loan Losses, First Nine Months

  

Allowance for Loan Losses, Beginning of Period

$12,046 

$11,842 

   

Loans Charged-off

(690)

(726)

Recoveries of Loans Previously Charged-off

      230 

      196 

  Net Loans Charged-off

     (460)

     (530)

   

Provision for Loan Losses

      626 

      744 

  Allowance for Loan Losses, End of Period

$12,212 

$12,056 

   

Nonperforming Assets

  

Nonaccrual loans

$1,931 

$2,839 

Loans Past Due 90 or More Days and Accruing

143 

311 

Restructured Loans

       --- 

       --- 

  Total Nonperforming Loans

2,074 

3,150 

Repossessed Assets

99 

123 

Other Real Estate Owned

     142 

       --- 

  Total Nonperforming Assets

$2,315 

$3,273 

   

Key Asset Quality Ratios

  

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

0.07%

0.06%

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

0.07

0.08

Provision for Loan Losses to Average Loans, Third Quarter Annualized

0.09

0.09

Provision for Loan Losses to Average Loans, First Nine Months Annualized

0.09

0.12

Allowance for Loan Losses to Period-End Loans

1.24

1.37

Allowance for Loan Losses to Nonperforming Loans

588.83

382.73

Nonperforming Loans to Period-End Loans

0.21

0.36

Nonperforming Assets to Period-End Assets

0.16

0.24






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