EX-99.1 2 pressrel.htm To:

 






To:

All Media

Date:

July 15, 2008




Arrow Reports a Significant Increase in Earnings and Strong Asset Quality Ratios


Arrow Financial Corporation (NasdaqGS® – AROW) announced operating results for the three and six-month periods ended June 30, 2008.  Net income for the second quarter ended June 30, 2008 was $5.4 million, representing diluted earnings per share of $.51, up $.12 or 30.8% from $.39 per share amount earned in the second quarter of 2007, when net income was $4.2 million.  For the first six months of 2008, net income of $10.4 million increased 25% from the $8.3 million earned for 2007.  Diluted earnings per share equaled $.98 for the first six months of 2008, up from $.77 per share earned during the comparative period in 2007.


Thomas L. Hoy, Chairman, President and CEO stated, “We are pleased to report a significant increase in earnings while asset and credit quality ratios remain strong. The favorable quarterly and six month earnings performances were primarily attributable to significant increases in net interest income as a result of a wider net interest margin and growth in average earning assets.


Average earning assets were $1.548 billion in the second quarter of 2008 versus $1.469 billion for the same quarter last year, an increase of 5.4%.  Net interest income was favorably impacted by a rising net interest margin, which increased 60 basis points to 3.92% for the second quarter of 2008 versus the 2007 comparative period and increased 36 basis points as compared to the margin of 3.56% for the first quarter of 2008.  Lower funding costs and a more positively sloped yield curve, a result of Federal Reserve Bank actions to lower the targeted federal funds rate 325 basis points since the beginning of September 2007, were principally responsible for the expansion in net interest margin. In essence, the volume of our interest-bearing liabilities that repriced to lower rates during the quarter significantly exceeded the volume of our earning assets that repriced to lower yields.


As we previously reported, Visa successfully completed an initial public offering (IPO) during the first quarter of 2008 which included a mandatory partial redemption of our holdings in Visa shares.  This transaction resulted in a positive impact on our net income of $637 thousand after-tax, or $.06 diluted earnings per share, both in the first quarter of 2008 and for the six-month 2008 period.


Total assets at June 30, 2008 reached a record high of $1.631 billion, up $89.0 million, or 5.8%, over the June 30, 2007 balance of $1.542 billion.  Loan balances outstanding reached a record level of $1.063 billion at June 30, 2008, representing an increase of $45.0 million, or 4.4%, from the balance at June 30, 2007. In addition, deposit balances at June 30, 2008 reached a record $1.249 billion, representing an increase of $43.9 million, or 3.6%, from the June 30, 2007 level of $1.205 billion.  


In the first half of 2008, the deterioration of the residential real estate market nationally, and of so-called subprime mortgage loan portfolios, continued to have a negative impact on many financial institutions and indirectly on the national and world economies.  We have not engaged in the origination of subprime mortgage loans or in subprime lending as a business line, nor do we hold mortgage-backed securities backed by subprime mortgages in our investment portfolio.



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Asset quality remained high at quarter-end 2008, with nonperforming loans of $2.5 million, which represented .24% of period-end loans, down from .29% at the end of the first quarter.  Gross loan charge-offs in the second quarter of 2008 were fully offset by recoveries, due to an unexpected recovery from our former Vermont operations.  Expressed as an annualized percentage of average loans outstanding, net loans charged-off for the six months ended June 30, 2008 were a very low .04%.  Arrow’s allowance for loan losses amounted to $12.7 million at June 30, 2008, which represented 1.20% of loans outstanding, an increase from 1.19% as of December 31, 2007.


Many of our operating ratios in recent periods have been well above those of 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 ‘Bank Holding Company Performance Report.’  Most notably, our return on average equity (ROE) for the quarter ended March 31, 2008 was 16.07% as compared to 8.59% for our peer group.  Our ROE for the second quarter of 2008 increased to 17.33%.  Our loan quality ratios also compare very favorably to our peer group.  At the end of the 2008 second quarter our ratio of nonperforming loans to period-end loans was .24% which compares to a ratio of 1.37% for our peer group as of March 31, 2008.  The Company has maintained a higher total risk-based capital ratio than the average for our peer group.  Arrow and our subsidiary banks continue to be “well-capitalized” under the standards established by the FDIC Improvement Act.


As of June 30, 2008, assets under trust administration and investment management were $897.7 million, a decrease of $63.6 million, or 6.6%, from June 30, 2007.  This decrease was the result of a general decline in the equity markets, which also led to a 1.6% decrease in fee income from fiduciary activities for the second quarter of 2008 compared to the second 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 Advisers, Inc., with a combined balance of $203 million at June 30, 2008.


Arrow was recently added to the Russell 2000® Index. Membership in the Russell 2000 is based on membership in the Broad-Market Russell 3000® Index, which also serves as the U.S. component to the Russell Global Index which was launched last year.  Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for both passive and active investment strategies.  Membership in the Russell Indexes, which are reconstituted annually in June, is determined based on the company’s market capitalization.


On July 1, 2008 we acquired the key operating assets, two employees and the trade name from U.S. Benefits, Inc., a provider of administrative and record keeping services for more complex retirement plans.  This acquisition will allow us to offer enhanced and broadened services to retirement plan clients and will complement the fiduciary services currently offered by the Company through its trust administrative and investment management activities. The acquisition reflects the Company’s intent to develop new sources of service-based revenues and to provide an expanded menu of services to our customers.


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, 2007.



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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands, except per share amounts)

Unaudited

 

Three Months

Six Months

 

Ended June 30,

Ended June 30,

 

2008

2007

2008

2007

Income Statement

 

 

 

 

Interest and Dividend Income

$22,115 

$21,409 

$44,197 

$42,225 

Interest Expense

   7,751 

   9,984 

 17,046 

 19,598 

  Net Interest Income

14,364 

11,425 

27,151 

22,627 

Provision for Loan Losses

       248 

        92 

      538 

      186 

  Net Interest Income After Provision for Loan Losses

 14,116 

 11,333 

 26,613 

 22,441 

Net Loss on Securities Transactions

(35)

--- 

(35)

--- 

Net Gain on Sales of Loans

32 

23 

41 

28 

Gain on Sale of Premises

--- 

--- 

115 

--- 

Gain on Visa Stock Redemption

--- 

--- 

749 

--- 

Income From Fiduciary Activities

1,396 

1,419 

2,835 

2,872 

Fees for Other Services to Customers

2,195 

2,062 

4,076 

3,944 

Insurance Commissions

499 

462 

1,047 

963 

Other Operating Income

         94 

       205 

      200 

      376 

  Total Noninterest Income

    4,181 

    4,171 

   9,028 

   8,183 

Salaries and Employee Benefits

5,996 

5,439 

12,028 

10,756 

Occupancy Expenses of Premises, Net

882 

831 

1,775 

1,643 

Furniture and Equipment Expense

765 

786 

1,565 

1,541 

Amortization of Intangible Assets

86 

96 

182 

202 

Reversal of Visa Related Litigation Exposure

--- 

--- 

(306)

--- 

Other Operating Expense

   2,680 

   2,421 

   5,344 

   4,792 

  Total Noninterest Expense

 10,409 

   9,573 

 20,588 

 18,934 

Income Before Taxes

7,888 

5,931 

15,053 

11,690 

Provision for Income Taxes

   2,452 

   1,721 

   4,636 

   3,349 

  Net Income

$ 5,436 

$ 4,210 

$10,417 

$ 8,341 

 

 

 

 

 

Share and Per Share Data 1

 

 

 

 

Period End Shares Outstanding

10,516 

10,689 

10,516 

10,689 

Basic Average Shares Outstanding

10,593 

10,732 

10,619 

10,806 

Diluted Average Shares Outstanding

10,650 

10,804 

10,673 

10,885 

Basic Earnings Per Share

$  0.51 

$  0.39 

$  0.98 

$  0.77 

Diluted Earnings Per Share

0.51 

0.39 

0.98 

0.77 

Cash Dividends

0.24 

0.23 

0.48 

0.47 

Book Value

11.80 

10.84 

11.80 

10.84 

Tangible Book Value 2

10.23 

9.27 

10.23 

9.27 

 

 

 

 

 

Key Earnings Ratios

 

 

 

 

Return on Average Assets

1.35%

1.10%

1.30%

1.10%

Return on Average Equity

17.33

14.43

16.70

14.28

Return on Tangible Equity 2

19.94

16.87

19.24

16.68

Net Interest Margin 3

3.92

3.32

3.74

3.32

 

 

 

 

 

1 Share and Per Share amounts have been restated for the September 2007 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 19 and 20 basis points for the respective quarterly and six-month 2008 periods and 20 basis points for the 2007 periods.

 





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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

June 30, 2008

 

June 30, 2007

 


Period

End

Second

Quarter

Average

Year-to-

Date

Average

 


Period

End

Second

Quarter

Average

Year-to-

Date

Average

Balance Sheet

 

 

 

 

 

 

 

Cash and Due From Banks

$    39,013 

$    33,378 

$    33,105 

 

$    33,403 

$    32,297 

$    32,183 

Interest-bearing Balances

--- 

   --- 

541 

 

--- 

--- 

--- 

Federal Funds Sold

--- 

17,845 

29,771 

 

2,000 

18,346 

18,859 

Securities Available-for-Sale

372,843 

364,466 

349,272 

 

333,015 

327,396 

322,693 

Securities Held-to-Maturity

111,289 

113,251 

113,772 

 

111,683 

108,831 

108,476 

Loans

1,062,999 

1,052,803 

1,045,857 

 

1,017,989 

1,014,487 

1,012,546 

Allowance for Loan Losses

     (12,725)

     (12,570)

     (12,489)

 

     (12,315)

     (12,315)

     (12,307)

  Net Loans

 1,050,274 

 1,040,233 

 1,033,368 

 

 1,005,674 

 1,002,172 

 1,000,239 

Premises and Equipment, Net

16,492 

16,399 

16,438 

 

16,000 

16,077 

15,932 

Goodwill and Intangible Assets, Net

16,495 

16,552 

16,583 

 

16,808 

16,871 

16,911 

Other Assets

      24,575 

      22,969 

      22,742 

 

      23,350 

      17,288 

      17,096 

    Total Assets

$1,630,981 

$1,625,093 

$1,615,592 

 

$1,541,933 

$1,539,278 

$1,532,389 

Demand Deposits

$   194,188 

$   188,949 

$   185,533 

 

$   187,306 

$   181,282 

$   180,536 

Nonmaturity Interest-Bearing Deposits

637,270 

655,153 

630,082 

 

563,724 

574,232 

567,370 

Time Deposits of $100,000 or More

177,472 

156,850 

172,230 

 

191,809 

175,550 

178,884 

Other Time Deposits

    240,122 

    238,297 

    243,383 

 

    262,328 

    265,056 

    262,500 

  Total Deposits

 1,249,052 

 1,239,249 

 1,231,228 

 

 1,205,167 

 1,196,120 

 1,189,290 

Short-Term Borrowings

55,757 

55,798 

53,789 

 

49,164 

49,317 

47,773 

Federal Home Loan Bank Advances

160,000 

161,949 

160,975 

 

130,000 

134,489 

134,135 

Other Long-Term Debt

20,000 

20,000 

20,000 

 

20,000 

20,000 

20,000 

Other Liabilities

      22,092 

      21,920 

      24,164 

 

      21,691 

      22,354 

      23,430 

  Total Liabilities

 1,506,901 

 1,498,916 

 1,490,156 

 

 1,426,022 

 1,422,280 

 1,414,628 

Common Stock

14,729 

14,729 

14,729 

 

14,300 

14,300 

14,300 

Surplus

162,085 

161,946 

161,847 

 

151,688 

151,316 

151,276 

Undivided Profits

20,675 

19,385 

17,848 

 

20,944 

19,767 

19,037 

Unallocated ESOP Shares

(2,572)

(2,137)

(1,854)

 

(2,042)

(2,042)

(1,486)

Accumulated Other Comprehensive Loss

(5,936)

(4,264)

(4,049)

 

(8,664)

(7,371)

(7,578)

Treasury Stock

     (64,901)

     (63,482)

     (63,085)

 

     (60,315)

     (58,972)

     (57,788)

  Total Shareholders’ Equity

    124,080 

    126,177 

    125,436 

 

    115,911 

    116,998 

    117,761 

    Total Liabilities and Shareholders’ Equity

$1,630,981 

$1,625,093 

$1,615,592 

 

$1,541,933 

$1,539,278 

$1,532,389 

 

 

 

 

 

 

 

 

Assets Under Trust Administration

  and Investment Management

$897,729

 

 

 

$961,298

 

 

 

 

 

 

 

 

 

 

Capital Ratios

 

 

 

 

 

 

 

  Leverage Ratio

8.45%

 

 

 

8.51%

 

 

  Tier 1 Risk-Based Capital Ratio

12.77

 

 

 

12.87

 

 

  Total Risk-Based Capital Ratio

13.96

 

 

 

14.08

 

 



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Arrow Financial Corporation

Consolidated Financial Information

($ in thousands)

Unaudited

 

June 30,

 

2008

2007

Second Quarter Ended June 30:

 

 

 

 

 

Loan Portfolio

 

 

Commercial, Financial and Agricultural

$     86,933 

$     77,661 

Real Estate – Commercial

195,486 

181,076 

Real Estate – Residential

444,259 

419,750 

Indirect and Other Consumer Loans

     336,321 

     339,502 

  Total Loans

$1,062,999 

$1,017,989 

 

 

 

Allowance for Loan Losses, Second Quarter

 

 

Allowance for Loan Losses, Beginning of Quarter

$12,480 

$12,298 

 

 

 

Loans Charged-off, Quarter-to-Date

(268)

(214)

Recoveries of Loans Previously Charged-off, Quarter-to-Date

      265 

      139 

  Net Loans Charged-off, Quarter-to-Date

         (3)

       (75)

 

 

 

Provision for Loan Losses, Quarter-to-Date

       248 

        92 

  Allowance for Loan Losses, End of Quarter

$12,725 

$12,315 

 

 

 

Nonperforming Assets

 

 

Nonaccrual Loans

$1,941 

$1,883 

Loans Past Due 90 or More Days and Accruing

    593 

    122 

  Total Nonperforming Loans

2,534 

2,005 

Repossessed Assets

53 

62 

Other Real Estate Owned

     242 

     200 

  Total Nonperforming Assets

$2,829 

$2,267 

 

 

 

Key Asset Quality Ratios

 

 

Allowance for Loan Losses to Period-End Loans

1.20

1.21

Allowance for Loan Losses to Nonperforming Loans

502.17

614.22

Nonperforming Loans to Period-End Loans

0.24

0.20

Nonperforming Assets to Period-End Assets

0.17

0.15

 

 

 

 

June 30,

Six-Month Period Ended June 30:

2008

2007

 

 

 

Allowance for Loan Losses, Six Months

 

 

Allowance for Loan Losses, Beginning of Year

$12,401 

$12,278 

 

 

 

Loans Charged-off, Year-to-Date

(563)

(426)

Recoveries of Loans Previously Charged-off, Year-to-Date

       349 

       277 

  Net Loans Charged-off, Year-to-Date

      (214)

      (149)

 

 

 

Provision for Loan Losses, Year-to-Date

       538 

       186 

  Allowance for Loan Losses, End of Period

$12,725 

$12,315 

 

 

 

Key Asset Quality Ratios

 

 

Net Loans Charged-off to Average Loans, Six Months Annualized

0.04%

0.03%

Provision for Loan Losses to Average Loans, Six Months Annualized

0.10

0.04

 

 

 




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