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Date:

April 23, 2007




Arrow Financial Corporation Announces Earnings for the First Quarter of 2007


Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the quarter ended March 31, 2007.  Net income for the quarter ended March 31, 2007 was $4.131 million, representing diluted earnings per share of $.39, or 2.6% above the diluted per share amount of $.38 earned in the first quarter of 2006, when net income was $4.059 million.


Thomas L. Hoy, Chairman, President and CEO stated, "In this challenging interest rate environment, operating results and earnings per share improved over the first quarter of 2006.  Our net interest margin for the first quarter of 2007 was 3.32%, as compared to 3.24% for the fourth quarter of 2006 and 3.39% for the first quarter of 2006.  Regardless of the pressures from the interest rate environment, we have not deviated from our banking strategy and the disciplined course we believe best serves our shareholders, over the long-term.  


Many of our operating ratios compare favorably to our peer group, consisting of all U.S. banks having $1.0 to $3.0 billion in assets as identified in the Federal Reserve Bank’s December 31, 2006 ‘Bank Holding Company Performance Report.’  Most notably, our return on average equity for the quarter ended March 31, 2007 was 14.13%.  This was an increase from 14.02% for the first quarter of 2006 and above the peer group ratio for the year ended December 31, 2006 of 12.62%.  Over the same period, we continued to maintain a higher total risk-based capital ratio than our peer group.  Arrow’s return on tangible shareholders’ equity was 16.49% for the first quarter of 2007, compared to 16.44% for the first quarter of 2006.


Asset quality remained high at quarter-end, with nonperforming loans of $2.0 million at March 31, 2007, representing only .20% of period-end loans, but up from the ratio of .12% one year earlier.  This compared favorably with the ratio for our peer group at December 31, 2006 which was .56%.  Nonperforming assets were $2.3 million at March 31, 2007, representing only .15% of assets, but up modestly from .09% one year earlier.  Net loan losses for the first quarter of 2007, expressed as an annualized percentage of average loans outstanding, were a very low .03% compared to .11% for the first quarter of 2006.  Arrow's allowance for loan losses amounted to $12.3 million at March 31, 2007, which represented 1.21% of loans outstanding.


The low level of non-performing assets and charge-offs are an indication of the high quality of loans in our loan portfolio.  We believe that our conservative underwriting standards have worked well for our shareholders over the long-term.  Recent industry headlines have focused on sub-prime consumer real estate lending.  We have not engaged in this activity, as reflected in our strong asset quality ratios.




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As of March 31, 2007, assets under trust administration and investment management were $926.0 million.  The increase of $65.2 million, or 7.6%, from March 31, 2006, led to a $150 thousand increase in income from fiduciary activities.  These assets include the North Country Funds, advised exclusively by our subsidiary, North Country Investment Advisors, Inc., which reached a record balance of $187 million at quarter-end.  We also experienced a $78 thousand increase in fees for other services to customers and a $79 thousand increase in commission income from group health and life insurance sales by our insurance subsidiary, Capital Financial Group, Inc.


Deposit balances at March 31, 2007 were $1.204 billion, representing an increase of $34.2 million, or 2.9%, from the balance at March 31, 2006 of $1.170 billion.  Loan balances reached $1.015 billion at March 31, 2007, representing an increase of $17.7 million, or 1.8%, from the balance at March 31, 2006. The relatively strong demand for commercial and commercial real estate credit that we experienced in 2005 and 2006 continued into the first quarter of 2007.  The balance of commercial loans increased by $1.5 million from March 31, 2006 to March 31, 2007, offsetting the payoff primarily of one large commercial relationship in the first quarter of 2007.  Residential real estate loans increased $27.2 million, or 7%, from the March 31, 2006 balance of $388.4 million.  The balance of other consumer loans, primarily indirect automobile loans, decreased $10.8 million from the March 31, 2006 level as we elected not to compete aggressively with the extremely low rates offered by automobile manufacturers during 2006.  However, since year-end 2006, indirect loan balances have risen slightly.


We have opened two new branches in 2007, situated strategically in the northern and southern regions of our market area.  The new Glens Falls National Bank branch is located in South Plattsburgh, New York on the corner of U.S. Avenue and New York Road.  On April 2, 2007 we also opened a new branch of Saratoga National Bank, located on Ballard Road in Wilton, New York, an area experiencing significant residential growth and business expansion.  We continue to work vigorously to ensure that these investments made in our franchise allow us to prosper along with the customers in our region."


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 and Saratoga National Bank and Trust Company.  Other subsidiaries include North Country Investment Advisers, Inc. and Capital Financial Group, Inc., an insurance agency specializing in the sale and servicing of group health plans.


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, 2006.




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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands, except per share amounts)

Unaudited

  

Three Months

  

Ended March 31,

   

2007

2006

Income Statement

    

Interest and Dividend Income

  

$20,816

$19,332

Interest Expense

  

   9,614

   7,850

  Net Interest Income

  

11,202

11,482

Provision for Loan Losses

  

        94

      273

  Net Interest Income After Provision for Loan Losses

  

 11,108

 11,209

     

Net Gain on Sales of Loans

  

5

43

Income From Fiduciary Activities

  

1,453

1,303

Fees for Other Services to Customers

  

1,882

1,804

Insurance Commissions

  

501

422

Other Operating Income

  

      171

      154

  Total Other Income

  

   4,012

   3,726

     

Salaries and Employee Benefits

  

5,317

5,471

Occupancy Expenses of Premises, Net

  

812

805

Furniture and Equipment Expense

  

755

757

Amortization of Intangible Assets

  

106

117

Other Operating Expense

  

   2,371

   2,004

  Total Other Expense

  

   9,361

   9,154

     

Income Before Taxes

  

5,759

5,781

Provision for Income Taxes

  

   1,628

   1,722

  Net Income

  

$ 4,131

$ 4,059

     

Share and Per Share Data 1

    

Period End Shares Outstanding

  

10,492

10,655

Basic Average Shares Outstanding

  

10,564

10,669

Diluted Average Shares Outstanding

  

10,646

10,824

     

Basic Earnings Per Share

  

$  0.39

$  0.38

Diluted Earnings Per Share

  

0.39

0.38

     

Cash Dividends

  

0.24

0.23

     

Book Value

  

11.28

10.94

Tangible Book Value 2

  

9.67

9.32

     

Key Earnings Ratios

    

Return on Average Assets

  

1.10%

1.08%

Return on Average Equity

  

14.13

14.02

Return on Tangible Equity 2

  

16.49

16.44

Net Interest Margin 3

  

3.32

3.39

     

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

2 Tangible Book Value and Tangible Equity excludes intangible assets from total equity.

3 Net Interest Margin includes a tax equivalent upward adjustment of 20 basis points in 2007 and 18 basis points in 2006.

 





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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 
 

March 31, 2007

 

March 31, 2006

  

First

  

First

 

Period

Quarter

 

Period

Quarter

 

End

Average

 

End

Average

Balance Sheet

     

Cash and Due From Banks

$    36,691 

$     32,068 

 

$    27,177 

$    33,841 

Federal Funds Sold

33,000 

19,378 

 

5,500 

2,733 

Securities Available-for-Sale

307,836 

317,938 

 

319,901 

332,183 

Securities Held-to-Maturity

107,366 

108,117 

 

111,010 

114,744 

      

Loans

1,014,592 

1,010,585 

 

996,922 

999,560 

Allowance for Loan Losses

     (12,298)

    (12,300)

 

     (12,253)

     (12,229)

  Net Loans

  1,002,294 

    998,285 

 

    984,669 

    987,331 

      

Premises and Equipment, Net

16,172 

15,786 

 

15,949 

15,957 

Goodwill and Intangible Assets, Net

16,917 

16,951 

 

17,231 

17,288 

Other Assets

       22,878 

       16,900 

 

       24,417 

       15,733 

    Total Assets

$1,543,154 

$1,525,423 

 

$1,505,854 

$1,519,810 

      

Demand Deposits

$   184,094 

$   179,781 

 

$   177,747 

$   177,398 

Nonmaturity Interest-Bearing Deposits

582,554 

560,436 

 

603,710 

592,400 

Time Deposits of $100,000 or More

174,282 

182,254 

 

148,060 

153,730 

Other Time Deposits

    262,851 

    259,913 

 

    240,069 

    233,807 

  Total Deposits

1,203,781 

1,182,384 

 

1,169,586 

1,157,335 

      

Short-Term Borrowings

46,304 

46,212 

 

38,619 

38,848 

Federal Home Loan Bank Advances

135,000 

133,778 

 

145,000 

167,168 

Other Long-Term Debt

20,000 

20,000 

 

20,000 

20,000 

Other Liabilities

       19,689 

       24,517 

 

       16,066 

       19,020 

  Total Liabilities

  1,424,774 

  1,406,891 

 

  1,389,271 

  1,402,371 

      

Common Stock

14,300 

14,300 

 

13,883 

13,883 

Surplus

151,282 

151,235 

 

139,794 

139,732 

Undivided Profits

19,218 

18,298 

 

22,981 

22,118 

Unallocated ESOP Shares

(2,042)

(923)

 

(862)

(869)

Accumulated Other Comprehensive Loss

(7,095)

(7,787)

 

(6,346)

(5,016)

Treasury Stock

      (57,283)

      (56,591)

 

      (52,867)

      (52,409)

  Total Shareholders’ Equity

     118,380 

     118,532 

 

     116,583 

     117,439 

    Total Liabilities and

        Shareholders’ Equity

$1,543,154 

$1,525,423 

 

$1,505,854 

$1,519,810 

      

Assets Under Trust Administration

  and Investment Management

$926,097 

  

$860,904 

 
      

Capital Ratios

     

  Leverage Ratio

8.62%

  

8.39%

 

  Tier 1 Risk-Based Capital Ratio

12.96   

  

12.65   

 

  Total Risk-Based Capital Ratio

14.18   

  

13.87   

 






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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

March 31,

 

2007

2006

Loan Portfolio

  

Commercial, Financial and Agricultural

$     83,519 

$  81,997 

Real Estate – Commercial

176,684 

176,980 

Real Estate – Residential

415,589 

388,362 

Indirect and  Other Consumer Loans

     338,800 

  349,583 

  Total Loans

$1,014,592 

$996,922 

   

Allowance for Loan Losses, First Quarter

  

Allowance for Loan Losses, Beginning of Period

$12,278 

$12,241 

   

Loans Charged-off

(212)

(360)

Recoveries of Loans Previously Charged-off

      138 

         99 

  Net Loans Charged-off

       (74)

      (261)

   

Provision for Loan Losses

        94 

       273 

  Allowance for Loan Losses, End of Period

$12,298 

$12,253 

   

Nonperforming Assets

  

Nonaccrual Loans

$1,782 

$1,232 

Loans Past Due 90 or More Days and Accruing

     256 

       7 

  Total Nonperforming Loans

2,038 

1,239 

Repossessed Assets

107 

107 

Other Real Estate Owned

     200 

       --- 

  Total Nonperforming Assets

$2,345 

$1,346 

   

Key Asset Quality Ratios

  

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

0.03%

0.11%

Provision for Loan Losses to Average Loans, First Quarter Annualized

0.04

0.11

Allowance for Loan Losses to Period-End Loans

1.21

1.23

Allowance for Loan Losses to Nonperforming Loans

603.43

988.94

Nonperforming Loans to Period-End Loans

0.20

0.12

Nonperforming Assets to Period-End Assets

0.15

0.09




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