EX-99 2 pressrel.htm To:









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Date:

January 23, 2007



Arrow Reports Results of Operations for 2006


Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the quarter and year ended December 31, 2006.  Net income for the quarter ended December 31, 2006 was $4.3 million, representing diluted earnings per share of $.40, or 7.0% below the diluted per share amount of $.43 earned in the fourth quarter of 2005, when net income was $4.7 million. Net income for the year 2006 was $16.9 million, representing diluted earnings per share of $1.57, or 8.2% below the diluted per share amount of $1.71 earned in 2005, when net income was $18.6 million. Cash dividends paid to shareholders in 2006 totaled $.94, or 5.6% higher than the $.89 paid in 2005.


Thomas L. Hoy, Chairman, President and CEO stated, "Our fourth quarter and twelve month operating results for 2006 again reflected the impact of a lower net interest margin.  Although the Federal Reserve Bank has not changed the targeted federal funds rate since the June 2006 meeting of the Federal Open Market Committee, the Fed’s actions to raise the short-term rate 425 basis points between June 2004 and June 2006 resulted in significant increases in our funding costs. However, intermediate and longer term rates, which are more likely to influence our earning asset yields, have not risen commensurately leading to margin shrinkage.  Although earning asset yields increased steadily throughout 2006, our cost of funds rose at an even faster rate.  Net interest margin was 3.24% for the fourth quarter of 2006 compared with 3.32% for the preceding quarter and 3.46% for the same quarter last year.  Net interest margin for the year ending December 31, 2006 was 3.32% which compared with 3.64% for 2005.


Increases in other non-interest income partially offset the impact of margin compression.  An increase in assets under trust administration and investment management of $92.8 million, or 11.4%, from year-end 2005 to year-end 2006, led to a $406 thousand increase in income from fiduciary activities.  We also experienced a $583 thousand increase in fees for other services to customers and an $85 thousand increase in commission income from group health and life insurance sales.


Arrow's key profitability ratios, return on average assets and return on average equity, remained strong in 2006, but were down from 2005 levels, again principally due to margin compression.  Return on average assets for the year of 2006 was 1.11%, compared with 1.28% for the prior year, while return on average equity for 2006 was 14.38% versus 15.94% for 2005.  For the quarter ended December 31, 2006, the return on average assets was 1.11% compared with 1.23% for the same quarter in 2005, whereas return on average equity was 14.19% for the 2006 quarter as compared with 16.04% for 2005.”  



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Mr. Hoy further added, "Deposit balances at December 31, 2006 were $1.186 billion, representing an increase of $20.6 million, or 1.8%, from the prior year-end balance of $1.166 billion.  For the first time, loan balances outstanding exceeded one billion dollars at year-end, reaching $1.009 billion at December 31, 2006.  Loan growth totaled $12.5 million in the 12-month period, representing a 1.2% increase.  The relatively strong demand for commercial and commercial real estate credit that we experienced in 2004 and 2005 continued throughout 2006.  Commercial loans totaled $272 million at December 31, 2006, up $24 million, or 9.7%, from $248 million one year earlier.  Residential mortgage loan balances rose $12 million, or 3.2%, to $399 million from $387 million at December 31, 2005.  The volume of new residential mortgage loan originations increased over the 2005 total as attractive financing rates during 2006 continued to spur demand.  The consumer installment loan portfolio was the only loan category to decrease during 2006.  This category, primarily loans to finance motor vehicles, decreased $25 million, or 6.8%, to $337 million at year-end 2006 from $362 million at December 31, 2005.  For most of 2006 we elected not to compete aggressively in the indirect loan sector in the face of a resurgence of extremely low rates being offered by automobile manufacturers, their finance affiliates and other lenders in the marketplace.”


Mr. Hoy said, "Asset quality remained high at year-end, with nonperforming loans of $2.8 million at December 31, 2006, representing only .28% of year-end loans, but up from the ratio of .23% one year earlier.  This compared favorably with the ratio for our peer group at September 30, 2006 which was .54%.  Nonperforming assets were $3.2 million at December 31, 2006, equaling .21% of assets, up from .16% one year earlier.  Net loan losses for 2006, expressed as a percentage of average loans outstanding, were a very low .08% compared to .09% for 2005.  Arrow's allowance for loan losses amounted to $12.3 million at December 31, 2006, which represented 1.22% of loans outstanding.


Other highlights for 2006 included the distribution of a 3% stock dividend in September which effectively resulted in a fourth quarter increase in the quarterly cash dividend.  We expect to open two new branches in early 2007 situated in the northern and southern regions of our market area.  The economy of the greater Plattsburgh, New York area remains vibrant and has been a source of significant new business for us.  We have strategically located a new Glens Falls National Bank branch in South Plattsburgh on property purchased from the Plattsburgh Airbase Redevelopment Corporation on the corner of U.S. Avenue and New York Road.  A new branch for Saratoga National Bank will be located on Ballard Road in Wilton, New York, an area experiencing significant residential growth and business expansion.  The North Country Funds, which are advised exclusively by our subsidiary, North Country Investment Advisors, Inc., continued to grow, reaching a record combined balance of $176 million at year-end.”


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 Glens Falls National Bank and Trust Company, its subsidiary, Capital Financial Group, Inc. 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 any 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 and Form 10-K/A 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

Twelve Months

 

Ended December 31,

Ended December 31,

 

2006

2005

2006

2005

Income Statement

    

Interest and Dividend Income

$20,831

$19,190

$80,611

$72,127

Interest Expense

   9,488

   7,272

  34,743

  24,114

  Net Interest Income

11,343

11,918

45,868

48,013

Provision for Loan Losses

      266

      404

       826

    1,030

  Net Interest Income After Provision for Loan Losses

 11,077

 11,514

  45,042

  46,983

     

Net Gain (Loss) on Securities Transactions

16

24

(102)

364

Net Gain on Sales of Loans

11

14

74

122

Net Gain on the Sale of Other Real Estate Owned

---

29

---

57

Net Gains on Sale of Premises

---

---

227

---

Income From Fiduciary Activities

1,276

1,241

5,082

4,676

Fees for Other Services to Customers

1,978

1,811

7,954

7,371

Insurance Commissions

406

351

1,768

1,683

Other Operating Income

      286

      220

      778

      675

  Total Other Income

   3,973

   3,690

 15,781

 14,948

     

Salaries and Employee Benefits

5,599

5,155

22,096

20,693

Occupancy Expenses of Premises, Net

726

689

3,058

2,914

Furniture and Equipment Expense

625

604

2,971

2,875

Amortization of Intangible Assets

107

127

436

385

Foreclosed Property Expense

45

---

119

---

Other Operating Expense

   2,018

   1,953

    8,127

    8,322

  Total Other Expense

   9,120

   8,528

  36,807

  35,189

     

Income Before Taxes

5,930

6,676

24,016

26,742

Provision for Income Taxes

   1,635

   1,986

    7,124

    8,103

  Net Income

$ 4,295

$ 4,690

$16,892

$18,639

     

Share and Per Share Data 1

    

Period Ending Shares Outstanding

10,587

10,677

10,587

10,677

Basic Average Shares Outstanding

10,578

10,672

10,604

10,732

Diluted Average Shares Outstanding

10,700

10,834

10,745

10,914

     

Basic Earnings Per Share

$  0.41

$  0.44

$  1.59

$  1.74

Diluted Earnings Per Share

0.40

0.43

1.57

1.71

     

Cash Dividends

0.24

0.23

0.94

0.89

     

Book Value

11.16

11.00

11.16

11.00

Tangible Book Value 2

9.56

9.37

9.56

9.37

     

Key Earnings Ratios

    

Return on Average Assets

1.11%

1.23%

1.11%

1.28%

Return on Average Equity

14.19

16.04

14.38

15.94

Net Interest Margin 3

3.24

3.46

3.32

3.64

     

1 Share and Per Share amounts have been restated for the September 2006 3% stock dividend.

2 Tangible Book Value excludes from total equity intangible assets, primarily goodwill.

3 Net Interest Margin includes a tax equivalent upward adjustment for the fourth quarter of 15 basis points in 2006 and 18 basis points in 2005 and

    an upward adjustment for the twelve-month period of 16 basis points in 2006 and 18 basis points in 2005.





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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

    
 

December 31, 2006

 

December 31, 2005

  

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

$     34,995 

$     34,018 

$     33,853 

 

$     35,558 

$     36,075 

$     36,312 

Federal Funds Sold

9,000 

17,951 

8,875 

 

 --- 

4,842 

3,060 

Securities Available-for-Sale

315,886 

340,686 

341,789 

 

326,363 

331,251 

328,404 

Securities Held-to-Maturity

108,498 

99,898 

104,380 

 

118,123 

118,814 

112,735 

        

Loans

1,008,999 

999,676 

996,611 

 

996,545 

988,567 

942,286 

Allowance for Loan Losses

    (12,278)

     (12,282)

     (12,263)

 

    (12,241)

     (12,216)

     (12,136)

  Net Loans

   996,721 

    987,394 

    984,348 

 

   984,304 

    976,351 

    930,150 

        

Premises and Equipment, Net

15,608 

15,854 

15,943 

 

15,884 

15,491 

15,225 

Goodwill and Intangible Assets, Net

16,925 

16,993 

17,149 

 

17,337 

17,361 

15,907 

Other Assets

       22,584 

       17,772 

       15,990 

 

       22,034 

       15,844 

       16,923 

    Total Assets

$1,520,217 

$1,530,566 

$1,522,327 

 

$1,519,603 

$1,516,029 

$1,458,716 

        

Demand Deposits

$  183,492 

$  184,267 

$  182,706 

 

$  179,441 

$  179,555 

$  174,762 

Nonmaturity Interest-Bearing Deposits

559,132 

570,705 

574,113 

 

610,524 

622,108 

610,995 

Time Deposits of $100,000 or More

187,777 

170,388 

161,729 

 

154,626 

136,703 

126,919 

Other Time Deposits

    255,996 

     259,346 

     248,706 

 

    221,172 

     214,330 

     198,130 

  Total Deposits

1,186,397 

1,184,706 

1,167,254 

 

1,165,763 

1,152,696 

1,110,806 

        

Short-Term Borrowings

48,324 

51,788 

46,044 

 

43,054 

57,817 

49,493 

Federal Home Loan Bank Advances

125,000 

131,217 

151,020 

 

157,000 

149,120 

143,889 

Other Long-Term Debt

20,000 

20,000 

20,000 

 

20,000 

20,000 

20,000 

Other Liabilities

       22,366 

       22,758 

       20,543 

 

       16,365 

       20,389 

       17,572 

  Total Liabilities

  1,402,087 

  1,410,469 

  1,404,861 

 

  1,402,182 

  1,400,022 

  1,341,760 

        

Common Stock

14,300 

14,300 

14,033 

 

13,883 

13,883 

13,623 

Surplus

150,919 

150,660 

143,680 

 

139,442 

139,233 

131,974 

Undivided Profits

17,619 

16,323 

20,751 

 

21,402 

20,007 

23,845 

Unallocated ESOP Shares

(862)

(862)

(864)

 

(1,163)

(1,181)

(1,183)

Accumulated Other Comprehensive Loss

(7,965)

  (4,645)

(5,713)

 

(4,563)

  (4,415)

(2,281)

Treasury Stock

     (55,881)

     (55,679)

     (54,421)

 

     (51,580)

     (51,520)

     (49,022)

  Total Shareholders’ Equity

     118,130 

    120,097 

    117,466 

 

     117,421 

    116,007 

    116,956 

    Total Liabilities and

        Shareholders’ Equity

$1,520,217 

$1,530,566 

$1,522,327 

 

$1,519,603 

$1,516,029 

$1,458,716 

        

Assets Under Trust Administration

  And Investment Management

$906,451

   

$813,693

  
        

Capital Ratios

       

  Leverage Ratio

8.63%

   

8.33%

  

  Tier 1 Risk-Based Capital Ratio

13.09

   

12.56

  

  Total Risk-Based Capital Ratio

14.32

   

13.79

  






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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

December 31,

 

2006

2005

Loan Portfolio

  

Commercial, Financial and Agricultural

$     79,581 

$  79,917 

Real Estate – Commercial

192,762 

168,101 

Real Estate – Residential

399,446 

386,902 

Indirect and Other Consumer Loans

     337,210 

  361,625 

  Total Loans

$1,008,999 

$996,545 

   

Allowance for Loan Losses, Fourth Quarter

  

Allowance for Loan Losses, Beginning of Period

$12,274 

$12,211 

   

Loans Charged-off

(353)

(437)

Recoveries of Loans Previously Charged-off

        91 

        63 

  Net Loans Charged-off

     (262)

     (374)

   

Provision for Loan Losses

       266 

       404 

  Allowance for Loan Losses, End of Period

$12,278 

$12,241 

   

Allowance for Loan Losses, Twelve Months

  

Allowance for Loan Losses, Beginning of Period

$12,241 

$12,046 

   

Loans Charged-off

(1,137)

(1,128)

Recoveries of Loans Previously Charged-off

       348 

       293 

  Net Loans Charged-off

      (789)

      (835)

   

Provision for Loan Losses

       826 

    1,030 

  Allowance for Loan Losses, End of Period

$12,278 

$12,241 

   

Nonperforming Assets

  

Nonaccrual Loans

$2,038 

$1,875 

Loans Past Due 90 or More Days and Accruing

    739 

    373 

  Total Nonperforming Loans

2,777 

2,248 

Repossessed Assets

144 

124 

Other Real Estate Owned

     248 

       --- 

  Total Nonperforming Assets

$3,169 

$2,372 

   

Key Asset Quality Ratios

  

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

0.10%

0.15%

Net Loans Charged-off to Average Loans, Twelve Months

0.08

0.09

   

Provision for Loan Losses to Average Loans, Fourth Quarter Annualized

0.11

0.16

Provision for Loan Losses to Average Loans, Twelve Months

0.08

0.11

   

Allowance for Loan Losses to Period-End Loans

1.22

1.23

Allowance for Loan Losses to Nonperforming Loans

442.12

544.55

Nonperforming Loans to Period-End Loans

0.28

0.23

Nonperforming Assets to Period-End Assets

0.21

0.16




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