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October 19, 2007



Arrow Announces Third Quarter Operating Results


Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the quarter and nine-month periods ended September 30, 2007.  Net income for the quarter ended September 30, 2007 was $4.510 million, representing diluted earnings per share of $.42.  This was 7.7% above the diluted earnings per share amount of $.39 earned in the third quarter of 2006, when net income was $4.261 million.  For the nine-month period, net income was $12.851 million in 2007, and diluted earnings per share was $1.19,  4.4% above the $1.14 amount earned in 2006 when net income was $12.597 million.  Cash dividends paid to shareholders during 2007 totaled $.70 per share, or 2.9% higher than the $.68 per share paid in the first nine months of 2006.  All per share amounts have been adjusted for the 3% stock dividend distributed on September 28, 2007.


Thomas L. Hoy, Chairman, President and CEO stated, "We are pleased to report that our strong earnings performance was accompanied by record levels for total assets, total deposits and total loans outstanding.  Our key profitability ratios confirm the excellent operating results, highlighted by a return on average equity which exceeded 15% for the third quarter of 2007.  In addition, the continuing low levels of nonperforming assets and net loan losses indicates that our asset quality remains high.


Total assets at September 30, 2007 reached a new record high of $1.577 billion, up $54.0 million, or 3.5%, over the September 30, 2006 balance of $1.523 billion.  Deposit balances at September 30, 2007 were $1.218 billion, representing an increase of $55.0 million, or 4.7%, from the September 30, 2006 level of $1.163 billion.  Loan balances outstanding reached $1.035 billion at September 30, 2007, representing an increase of $42.0 million, or 4.2%, from the balance at September 30, 2006.  We experienced increases in all of our major loan categories during the past 12 months, including an $8.1 million increase in commercial loans, a $12.6 million increase in indirect loans (primarily automobile loans) and a $21.2 million increase in residential real estate loans.  


Asset quality remained high at quarter-end, with nonperforming loans of $2.0 million at September 30, 2007, representing only .20% of period-end loans.  Nonperforming assets were $2.1 million at September 30, 2007, representing only .13% of assets.  Annualized net loan losses for the third quarter of 2007 as a percentage of average loans outstanding were a very low .04% compared to .07% for the third quarter of 2006.  Arrow's allowance for loan losses amounted to $12.3 million at September 30, 2007, which represented 1.19% of loans outstanding.  Throughout the third quarter of 2007, subprime consumer real estate lending continued to have a negative impact on the national and world economy.  We have not engaged in subprime lending as a business line nor do we hold mortgage-backed securities backed by subprime mortgages in our investment portfolio.


Our increase in net interest income was primarily the result of a significant increase in average earning assets, an increase of $50.0 million from the third quarter of 2006 to the third quarter of 2007.  This more than offset a decrease in our net interest margin, which for the third quarter of 2007 was 3.29%, down three basis points from the third quarter of 2006 and also down three basis points from the second quarter of 2007.  



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The Federal Reserve Bank reduced the federal funds target rate on September 18, 2007.  Short-term interest rates have declined greater than longer-term interest rates, resulting in a positively sloped yield curve.  Throughout this volatile interest rate environment, we have continued to follow our core banking strategy and the disciplined course we believe best serves our shareholders over time.  


Many of our operating ratios in recent periods have compared favorably to our peer group, consisting of all U.S. Bank Holding Companies having $1.0 to $3.0 billion in assets as identified in the Federal Reserve Bank’s June 30, 2007 ‘Bank Holding Company Performance Report.’  Most notably, our return on average equity for the quarter ended September 30, 2007 was 15.38%, as compared to 14.49% for the 2006 period.  The return on average equity for our peer group was 11.05% for the June 2007 six-month period and 11.07% for the March 2007 three-month period.  Our loan quality ratios also compare favorably to our peer group.  Our nonperforming loans to period-end loans was .20%, compared to a ratio of .72% for our peer group at June 30, 2007. We continue to maintain a higher total risk-based capital ratio than our peer group.  


As of September 30, 2007, assets under trust administration and investment management were $987.4 million, an increase of $113.9 million, or 13.0%, from September 30, 2006.  This increase in asset levels, partially attributable to rising prices in the equity markets, led to a $138 thousand increase in fee income from fiduciary activities for the third quarter of 2007.  Included in assets under trust administration and investment management are our proprietary mutual funds, the North Country Funds, advised exclusively by our subsidiary, North Country Investment Advisors, Inc., which recently reached a record balance of over $211 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 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.  These statements may be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, involving 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, explicitly or by implication. 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

Nine Months

 

Ended September 30,

Ended September 30,

 

2007

2006

2007

2006

Income Statement

    

Interest and Dividend Income

$21,921 

$20,440 

$64,146 

$59,780 

Interest Expense

 10,272 

   8,893 

 29,870 

 25,255 

  Net Interest Income

11,649 

11,547 

34,276 

34,525 

Provision for Loan Losses

      136 

      186 

      322 

      560 

  Net Interest Income After Provision for Loan Losses

 11,513 

 11,361 

 33,954 

 33,965 

Net (Losses) Gains on Securities Transactions

--- 

--- 

--- 

(118)

Net Gain on Sales of Loans

4 

8 

32 

63 

Gain on Sale of Premises

--- 

--- 

--- 

227 

Income From Fiduciary Activities

1,334 

1,196 

4,206 

3,806 

Fees for Other Services to Customers

2,097 

2,163 

6,041 

5,976 

Insurance Commissions

472 

458 

1,435 

1,362 

Other Operating Income

       182 

       205 

      558 

      492 

  Total Noninterest Income

    4,089 

    4,030 

 12,272 

 11,808 

Salaries and Employee Benefits

5,442 

5,546 

16,198 

16,497 

Occupancy Expenses of Premises, Net

750 

712 

2,393 

2,332 

Furniture and Equipment Expense

720 

776 

2,261 

2,346 

Amortization of Intangible Assets

96 

106 

298 

329 

Other Operating Expense

   2,215 

   2,062 

   7,007 

   6,183 

  Total Noninterest Expense

   9,223 

   9,202 

 28,157 

 27,687 

Income Before Taxes

6,379 

6,189 

18,069 

18,086 

Provision for Income Taxes

   1,869 

   1,928 

   5,218 

   5,489 

  Net Income

$ 4,510 

$ 4,261 

$12,851 

$12,597 

     

Share and Per Share Data 1

    

Period End Shares Outstanding

10,612 

10,879 

10,612 

10,879 

Basic Average Shares Outstanding

10,628 

10,878 

10,746 

10,931 

Diluted Average Shares Outstanding

10,697 

11,031 

10,821 

11,085 

Basic Earnings Per Share

$  0.42 

$  0.39 

$  1.20 

$  1.15 

Diluted Earnings Per Share

0.42 

0.39 

1.19 

1.14 

Cash Dividends

0.23 

0.23 

0.70 

0.68 

Book Value

11.20 

10.97 

11.20 

10.97 

Tangible Book Value 2

9.63 

9.41 

9.63 

9.41 

     

Key Earnings Ratios

    

Return on Average Assets

1.14%

1.12%

1.11%

1.11%

Return on Average Equity

15.38

14.49

14.65

14.45

Return on Tangible Equity 2

17.96

16.98

17.11

16.95

Net Interest Margin 3

3.29

3.32

3.31

3.35

     

1 Share and Per Share amounts have been restated for the September 2007 3% stock dividend.

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

3 Net Interest Margin includes a tax equivalent upward adjustment of 20 and 15 basis points for the respective 2007 and 2006 quarterly periods and 20

      and 17 basis points for the respective 2007 and 2006 nine-month periods.

 





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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

September 30, 2007

 

September 30, 2006

 


Period

End

Third

Quarter

Average

Year-to-

Date

Average

 


Period

End

Third

Quarter

Average

Year-to-

Date

Average

Balance Sheet

       

Cash and Due From Banks

$    42,219 

$    33,854 

$    32,746 

 

$    41,710 

$    34,076 

$    33,797 

Federal Funds Sold

4,000 

16,013 

17,900 

 

12,000 

7,587 

5,817 

Securities Available-for-Sale

336,055 

342,959 

329,523 

 

339,812 

349,829 

342,160 

Securities Held-to-Maturity

115,702 

114,373 

110,463 

 

91,607 

95,687 

105,891 

Loans

1,034,548 

1,021,399 

1,015,529 

 

992,675 

991,669 

995,578 

Allowance for Loan Losses

    (12,341)

    (12,325)

    (12,313)

 

    (12,274)

    (12,273)

    (12,257)

  Net Loans

 1,022,207 

 1,009,074 

 1,003,216 

 

   980,401 

   979,396 

   983,321 

Premises and Equipment, Net

16,385 

16,235 

16,034 

 

15,935 

15,887 

15,973 

Goodwill and Intangible Assets, Net

16,699 

16,762 

16,861 

 

17,044 

17,112 

17,201 

Other Assets

      23,782 

      17,059 

      17,083 

 

      24,867 

      16,148 

      15,391 

    Total Assets

$1,577,049 

$1,566,329 

$1,543,826 

 

$1,523,376 

$1,515,722 

$1,519,551 

Demand Deposits

$   191,125 

$   194,628 

$   185,285 

 

$   184,773 

$   187,764 

$   182,180 

Nonmaturity Interest-Bearing Deposits

607,180 

573,839 

569,550 

 

566,578 

551,061 

575,260 

Time Deposits of $100,000 or More

166,916 

189,685 

182,524 

 

147,409 

154,929 

158,811 

Other Time Deposits

    252,281 

    257,056 

    260,665 

 

    264,324 

    255,491 

    245,121 

  Total Deposits

 1,217,502 

 1,215,208 

 1,198,024 

 

 1,163,084 

 1,149,245 

 1,161,372 

Short-Term Borrowings

48,791 

49,976 

48,515 

 

55,296 

50,062 

44,107 

Federal Home Loan Bank Advances

150,000 

141,256 

136,535 

 

145,000 

158,595 

157,693 

Other Long-Term Debt

20,000 

20,000 

20,000 

 

20,000 

20,000 

20,000 

Other Liabilities

      21,882 

      23,527 

      23,463 

 

      20,623 

      21,137 

      19,799 

  Total Liabilities

 1,458,175 

 1,449,967 

 1,426,537 

 

 1,404,003 

 1,399,039 

 1,402,971 

Common Stock

14,729 

14,486 

14,362 

 

14,300 

14,060 

13,943 

Surplus

160,912 

155,697 

152,766 

 

150,356 

144,357 

141,328 

Undivided Profits

13,410 

17,594 

18,550 

 

15,878 

21,046 

22,243 

Unallocated ESOP Shares

(2,042)

(2,042)

(1,673)

 

(862)

(862)

(864)

Accumulated Other Comprehensive Loss

(6,157)

(7,772)

(7,643)

 

(4,870)

(6,496)

(6,073)

Treasury Stock

     (61,978)

     (61,601)

     (59,073)

 

     (55,429)

     (55,422)

     (53,997)

  Total Shareholders’ Equity

    118,874 

    116,362 

    117,289 

 

    119,373 

    116,683 

    116,580 

    Total Liabilities and Shareholders’ Equity

$1,577,049 

$1,566,329 

$1,543,826 

 

$1,523,376 

$1,515,722 

$1,519,551 

        

Assets Under Trust Administration

  and Investment Management

$987,415

   

$873,565

  
        

Capital Ratios

       

  Leverage Ratio

8.39%

   

8.51%

  

  Tier 1 Risk-Based Capital Ratio

12.63

   

12.87

  

  Total Risk-Based Capital Ratio

13.82

   

14.10

  



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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

September 30,

 

2007

2006

Loan Portfolio

  

Commercial, Financial and Agricultural

$     79,109 

$ 79,016 

Real Estate – Commercial

189,350 

181,295 

Real Estate – Residential

419,054 

397,879 

Indirect and Other Consumer Loans

     347,035 

  334,485 

  Total Loans

$1,034,548 

$992,675 

   

Allowance for Loan Losses, Third Quarter

  

Allowance for Loan Losses, Beginning of Period

$12,315 

$12,265 

   

Loans Charged-off

(185)

(240)

Recoveries of Loans Previously Charged-off

        75 

        63 

  Net Loans Charged-off

     (110)

     (177)

   

Provision for Loan Losses

       136 

       186 

  Allowance for Loan Losses, End of Period

$12,341 

$12,274 

   

Allowance for Loan Losses, First Nine Months

  

Allowance for Loan Losses, Beginning of Period

$12,278 

$12,241 

   

Loans Charged-off

(610)

(784)

Recoveries of Loans Previously Charged-off

       351 

       257 

  Net Loans Charged-off

      (259)

      (527)

   

Provision for Loan Losses

       322 

       560 

  Allowance for Loan Losses, End of Period

$12,341 

$12,274 

   

Nonperforming Assets

  

Nonaccrual Loans

$1,900 

$1,263 

Loans Past Due 90 or More Days and Accruing

     121 

       59 

  Total Nonperforming Loans

2,021 

1,322 

Repossessed Assets

63 

82 

Other Real Estate Owned

       26 

     200 

  Total Nonperforming Assets

$2,110 

$1,604 

   

Key Asset Quality Ratios

  

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

0.04%

0.07%

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

0.03

0.07

Provision for Loan Losses to Average Loans, Third Quarter Annualized

0.05

0.07

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

0.04

0.08

Allowance for Loan Losses to Period-End Loans

1.19

1.24

Allowance for Loan Losses to Nonperforming Loans

610.64

928.41

Nonperforming Loans to Period-End Loans

0.20

0.13

Nonperforming Assets to Period-End Assets

0.13

0.11




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