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Date:

April 24, 2006




Arrow Announces First Quarter Results




Arrow Financial Corporation announced operating results for the quarter ended March 31, 2006.  Net income for the quarter was $4.059 million, or diluted earnings per share of $.39, which compared with the diluted earnings per share amount of $.41 earned in the first quarter of 2005, when net income was $4.430 million.  This represents a 4.9% decrease in earnings per share.  The quarterly cash dividend paid to shareholders in the first quarter of 2006 was $.24, or 7.5% higher than was paid in last year's first quarter.


Thomas L. Hoy, President and CEO stated, "Our operating results for the first quarter were again a reflection of a narrowing of the net interest margin.  A continued increase in our funding costs, a result of policy decisions by the Federal Reserve Bank together with a flattened yield curve, which limits the increases in our long-term portfolio, were attributable.  Arrow's net interest margin was 3.39% for the quarter ended March 31, 2006 as compared with 3.79% in the first quarter of 2005.  Net interest income (tax equivalent) declined 2.4% to $12.124 million for the quarter ended March 31, 2006 from $12.417 million one year earlier."


Other factors influencing the earnings comparison include increases in other (non-interest) income, the provision for loan losses and other (non-interest) expense.  For the quarter ended March 31, 2006, other (non-interest) income rose 13.1% to $3.726 million from $3.294 one year earlier.  This change was led by a 17.7% increase in income from fiduciary and investment management services which rose to $1.303 million from $1.107 million in 2005.  Assets under Trust administration and investment management were $861 million at March 31, 2006, a new record and a 10.5% increase over the $779 million balance one year earlier.  The provision for loan losses increased $41 thousand to $273 thousand as net loan losses were up slightly from the prior year but remained at a very low level.  Other (non-interest expense) was $9.154 million for the first quarter of 2006, up 7.9% from $8.485 million reported in the first quarter of 2005.  The majority of the increase is attributable to the costs of operating three branches, which were acquired from HSBC Bank, NA in the second quarter of 2005.




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At March 31, 2006, total assets were $1.506 billion, up $90 million or 6.3%, from $1.416 billion at March 31, 2005.  Total deposits rose $105 million to $1.170 billion from $1.065 billion at March 31, 2005, a 9.8% increase.  Loans outstanding at March 31, 2006 were $997 million, up $98 million or 10.9% from $899 million one year earlier.  Growth in the commercial and commercial real estate category continued to be the most significant, with balances increasing to $263 million at March 31, 2006 from $220 million one year earlier, a 19.3% change.  Indirect consumer loans totaled $340 million, or 8.5% above the $313 million reported at March 31, 2005 but 3.5% below the December 31, 2005 balance of $352 million.  The year-over-year change reflected less aggressive pricing subsidies from the auto manufacturers while the interim change was influenced by seasonality and our decision to price on the higher end of the financing range.  Residential mortgage credit totaled $389 million at March 31, 2006, up 9.3% from $356 million one year earlier. Attractive financing rates available throughout much of 2005 were attributable for this change, although recent increases in prevailing mortgage rates and seasonality resulted in a slight drop in outstandings from the year-end level.


Mr. Hoy further added, "Arrow's asset quality continued to be very high.  Nonperforming assets were $1.346 million at March 31, 2006, down 35.4% from $2.084 million one year earlier.  Nonperforming assets represented a very low .09% of March 31, 2006 period-end assets.  Net loan losses were just .11% (annualized) of average loans outstanding during the 2006 first quarter."


Our 31st office opened January 3, 2006 in Wilton as a branch of the Saratoga National Bank and Trust Company.  Customer response to date has been very good.  We expect to complete the permitting process and begin construction of the third Glens Falls National Bank and Trust Company Plattsburgh office later in the second quarter.  This office will be located in the PARC complex in the southern part of the city. We also expect that our recently chartered Community Development Corporation ("CDC") will soon acquire and begin renovation of its first residential property.  Working in conjunction with local government, the CDC's mission is to promote affordable housing and community development.  The North Country Funds, which are advised by our subsidiary, North Country Investment Advisors, Inc., reached another record period-end high - $162 million.


Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, NY serving the financial needs of 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, 2005.




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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands, except per share amounts)

Unaudited

  

Three Months

  

Ended March 31,

   

2006

2005

Income Statement

    

Interest and Dividend Income

  

$19,332

$16,867

Interest Expense

  

   7,850

   5,063

  Net Interest Income

  

11,482

11,804

Provision for Loan Losses

  

      273

      232

  Net Interest Income After Provision for Loan Losses

  

 11,209

 11,572

     

Net Gain on Securities Transactions

  

---

64

Net Gain on Sales of Loans

  

43

5

Income From Fiduciary Activities

  

1,303

1,107

Fees for Other Services to Customers

  

1,804

1,600

Insurance Commissions

  

422

395

Other Operating Income

  

      154

      123

  Total Other Income

  

   3,726

   3,294

     

Salaries and Employee Benefits

  

5,471

5,055

Occupancy Expenses of Premises, Net

  

805

707

Furniture and Equipment Expense

  

757

765

Amortization of Intangible Assets

  

117

20

Other Operating Expense

  

   2,004

   1,938

  Total Other Expense

  

   9,154

   8,485

     

Income Before Taxes

  

5,781

6,381

Provision for Income Taxes

  

   1,722

   1,951

  Net Income

  

$ 4,059

$ 4,430

     

Share and Per Share Data 1

    

Period End Shares Outstanding

  

10,344

10,464

Basic Average Shares Outstanding

  

10,358

10,494

Diluted Average Shares Outstanding

  

10,508

10,706

     

Basic Earnings Per Share

  

$  0.39

$  0.42

Diluted Earnings Per Share

  

0.39

0.41

     

Cash Dividends

  

0.24

0.22

     

Book Value

  

11.27

11.06

Tangible Book Value 2

  

9.59

9.95

     

Key Earnings Ratios

    

Return on Average Assets

  

1.08%

1.29%

Return on Average Equity

  

14.02

15.24

Net Interest Margin 3

  

3.39

3.79

     

1 Share and Per Share amounts have been restated for the September 2005 3% stock dividend.

2 Tangible Book Value excludes intangible assets from total equity.

3 Net Interest Margin includes a tax equivalent upward adjustment of 18 basis points in 2006 and 19 basis points in 2005.

 





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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 
 

March 31, 2006

 

March 31, 2005

  

First

  

First

 

Period

Quarter

 

Period

Quarter

 

End

Average

 

End

Average

Balance Sheet

     

Cash and Due From Banks

$    27,177 

$    33,841 

 

$    34,587 

$    35,292 

Federal Funds Sold

5,500 

2,733 

 

   --- 

1,578 

Securities Available-for-Sale

319,901 

332,183 

 

333,756 

333,884 

Securities Held-to-Maturity

111,010 

114,744 

 

113,357 

109,963 

      

Loans

996,922 

999,560 

 

898,792 

882,681 

Allowance for Loan Losses

     (12,253)

     (12,229)

 

     (12,084)

     (12,048)

  Net Loans

    984,669 

    987,331 

 

    886,708 

    870,633 

      

Premises and Equipment, Net

15,949 

15,957 

 

14,905 

14,835 

Goodwill and Intangible Assets, Net

17,231 

17,288 

 

11,682 

11,717 

Other Assets

       24,417 

       15,733 

 

       20,972 

       18,818 

    Total Assets

$1,505,584 

$1,519,810 

 

$1,415,967 

$1,396,720 

      

Demand Deposits

$   177,747 

$   177,398 

 

$   164,405 

$   159,903 

Nonmaturity Interest-Bearing Deposits

603,710 

592,400 

 

602,273 

592,258 

Time Deposits of $100,000 or More

148,060 

153,730 

 

122,805 

109,080 

Other Time Deposits

    240,069 

    233,807 

 

    175,558 

    174,722 

  Total Deposits

1,169,586 

1,157,335 

 

1,065,041 

1,035,963 

      

Short-Term Borrowings

38,619 

38,848 

 

71,548 

49,216 

Federal Home Loan Bank Advances

145,000 

167,168 

 

130,000 

158,000 

Other Long-Term Debt

20,000 

20,000 

 

20,000 

20,000 

Other Liabilities

       16,066 

       19,020 

 

       13,605 

       15,687 

  Total Liabilities

  1,389,271 

  1,402,371 

 

  1,300,194 

  1,278,866 

      

Common Stock

13,883 

13,883 

 

13,479 

13,479 

Surplus

139,794 

139,732 

 

127,902 

127,753 

Undivided Profits

22,981 

22,118 

 

25,447 

24,291 

Unallocated ESOP Shares

(862)

(869)

 

(1,182)

(1,186)

Accumulated Other Comprehensive

   Income

(6,346)

(5,016)

 

(2,519)

(447)

Treasury Stock

      (52,867)

      (52,409)

 

      (47,354)

      (46,036)

  Total Shareholders’ Equity

     116,583 

     117,439 

 

     115,773 

     117,854 

    Total Liabilities and

        Shareholders’ Equity

$1,505,854 

$1,519,810 

 

$1,415,967 

$1,396,720 

      

Assets Under Trust Administration

  and Investment Management

$860,904 

  

$779,320 

 
      

Capital Ratios

     

  Leverage Ratio

8.39%

  

9.07%

 

  Tier 1 Risk-Based Capital Ratio

12.65   

  

14.31   

 

  Total Risk-Based Capital Ratio

13.87   

  

15.56   

 






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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

March 31,

 

2006

2005

Loan Portfolio

  

Commercial, Financial and Agricultural

$  86,210 

$  81,126 

Real Estate – Commercial

176,370 

139,059 

Real Estate – Residential

380,378 

349,131 

Real Estate – Construction

8,594 

6,653 

Indirect Consumer Loans

339,637 

312,942 

Other Loans to Individuals

      5,733 

      9,881 

  Total Loans

$996,922 

$898,792 

   

Allowance for Loan Losses, First Quarter

  

Allowance for Loan Losses, Beginning of Period

$12,241 

$12,046 

   

Loans Charged-off

(360)

(247)

Recoveries of Loans Previously Charged-off

         99 

         53 

  Net Loans Charged-off

      (261)

      (194)

   

Provision for Loan Losses

       273 

       232 

  Allowance for Loan Losses, End of Period

$12,253 

$12,084 

   

Nonperforming Assets

  

Nonaccrual Loans

$1,232 

$1,853 

Loans Past Due 90 or More Days and Accruing

7 

--- 

Restructured Loans

       --- 

       --- 

  Total Nonperforming Loans

1,239 

1,853 

Repossessed Assets

107 

126 

Other Real Estate Owned

       --- 

     105 

  Total Nonperforming Assets

$1,346 

$2,084 

   

Key Asset Quality Ratios

  

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

0.11%

0.09%

Provision for Loan Losses to Average Loans, First Quarter Annualized

0.11

0.11

Allowance for Loan Losses to Period-End Loans

1.23

1.34

Allowance for Loan Losses to Nonperforming Loans

988.94

652.13

Nonperforming Loans to Period-End Loans

0.12

0.21

Nonperforming Assets to Period-End Assets

0.09

0.15




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