Arrow Reports Third Quarter Operating Results
- Press Release
- Source: Arrow Financial Corporation
- On 12:50 pm EDT, Monday October 19, 2009
GLENS FALLS, N.Y., Oct. 19 /PRNewswire-FirstCall/ -- Arrow Financial Corporation (Nasdaq: AROW - News) announced operating results for the three and nine-month periods ended September 30, 2009. Net income for the third quarter ended September 30, 2009 was $5.1 million, representing diluted earnings per share (EPS) of $.46, unchanged from the diluted earnings per share in the third quarter of 2008, when net income was $5.0 million. Net income for the first nine months of 2009 was $16.7 million, representing diluted EPS of $1.52, or 7.8% higher than the diluted per share amount of $1.41 earned in the first nine months of 2008, when net income was $15.4 million. The comparative results for the nine-month periods were affected by certain significant transactions, discussed further in this release. Cash dividends paid to shareholders in the first nine months of 2009 was $.73, or 2.8% higher than the $.71 dividend paid in the first nine months of 2008. All per share amounts have been adjusted to reflect the effect of the 3% stock dividend distributed on September 29, 2009.
Related Quotes
| Symbol | Price | Change |
|---|---|---|
| AROW | 24.68 | -0.45 |
Thomas L. Hoy, Chairman, President and CEO, stated, "We are pleased to report that our conservative business model has again produced solid earnings, especially in light of financial challenges confronting our national and regional economies as a result of the economic recession. Record period-end asset, deposit levels, and strong capital ratios highlight our operations in the first nine months of 2009. Furthermore, our asset quality remained high at quarter end. As of September 30, 2009, we had no 'other real estate owned' that is, acquired through foreclosure process and our nonperforming asset and charge-off levels remained very low."
As previously reported, certain significant transactions occurred in the first two quarters of 2009, as well as the comparable 2008 six-month period, which had a significant impact on earnings. Some of these transactions negatively affected earnings; some had a positive effect. In the second quarter of 2009, the Company's subsidiary banks, like all FDIC insured financial institutions, were subjected to an FDIC special assessment to support the FDIC's insurance fund. We expensed $475 thousand, net of tax, in the second quarter of 2009 for this assessment. Also during the second quarter of 2009, we received an unexpected court-ordered restitution payment of $272 thousand, net of tax, from a former customer of our now-dissolved Vermont subsidiary bank. In the first quarter of 2009, we transferred our merchant bank card processing to TransFirst LLC. The transfer generated an after-tax net gain of $1.79 million which was recognized in the first and second quarters of 2009. Taken together, these three significant transactions added $.14 to our EPS in the first nine months of 2009.
Also in the first quarter of 2008, as we previously reported, after Visa completed an initial public offering (IPO) of its Class A common shares, Visa redeemed a portion of our holdings of Visa's Class B common shares. This transaction resulted in net income to us of $637 thousand after-tax, adding $.06 to diluted earnings per share.
Total assets at September 30, 2009 reached a record high of $1.836 billion, up $163.2 million, or 9.8%, over the September 30, 2008 balance of $1.673 billion. Deposit balances at September 30, 2009 were $1.432 billion, representing an increase of $160.5 million, or 12.6%, from the September 30, 2008 level of $1.272 billion.
Average assets rose to $1.729 billion in the first nine months of 2009 versus $1.630 billion for the same period last year, an increase of 6.1%. The growth in average assets reflected an increase of $40.7 million in average loan balances, an increase of $31.3 million in average investment securities balances and an increase of $26.1 million in the average balance of short-term funds. However, loan balances outstanding at September 30, 2009 were $1.107 billion, essentially unchanged from both the balance at September 30, 2008 and at year-end 2008.
Although the demand for consumer loans, primarily automobile, and business loans has been soft in recent periods due to the recession, we continue to lend to credit qualified businesses and individuals within our market area. Demand for residential financings and refinancings, however, has been robust during the first nine months of 2009. We closed $72.8 million of residential mortgages, an increase of $24.4 million, or 50.5%, from the origination volumes experienced during the first nine months of 2008. However, for interest rate risk management purposes, many of these low fixed rate residential mortgage loans originated late in 2008 and the first two quarters of 2009, were sold in the secondary market and as a result were not reflected in outstanding loan balances at period-end.
Net interest income for the nine-month period was favorably impacted by an increase in average earning assets, which increased $104.1 million, or 6.7% to $1.657 billion for the 2009 nine-month period as compared with $1.553 billion to the same period in 2008. Net interest margin for the first nine months of 2009 was 3.79%, slightly below the 3.81% for the first nine months of 2008. During the first nine months of 2008, the targeted federal funds rate fell from 4.25% to 2.00%, while for all of the 2009 period the targeted federal funds rate ranged from 0% to .25%.
Our capital ratios remain strong and increased from year-end 2008. Total shareholders' equity rose $13.5 million since year-end 2008 to a record level of $139.3 million. Total shareholders equity increased by 11% and assets increased 10.3%. Our Tier 1 leverage ratio remained strong at 8.63%, above both the September 30, 2008 and year-end 2008 positions. The capital ratios of the Company and each subsidiary bank significantly exceeded the "well capitalized" regulatory standard.
The continued stress in the real estate markets and increasing levels of unemployment nationally have continued to negatively impact many financial institutions, primarily as a result of their holdings of subprime or poor-quality mortgage loans, as well as investment securities backed by pools of such loans. We have never engaged in the origination of subprime or other non-traditional mortgage loans as a business line, nor do we hold mortgage-backed securities backed by such mortgages in our investment portfolio. Mortgage-backed securities held by the Company are comprised of pass-through securities backed by conventional residential mortgages and guaranteed by government agencies or government sponsored entities. The Company does not invest in any private-label mortgage-backed securities or securities backed by subprime, or other high risk non-traditional mortgage loans. Our commercial, residential real estate and indirect consumer loan portfolios experienced no significant deterioration at September 30, 2009, although the communities we serve, like all areas of the U.S., have been negatively impacted by the recession. However, if the economic downturn continues or worsens, we may be negatively impacted by the recession to a greater degree in the future.
Our nonperforming loans were $4.6 million, at September 30, 2009 which represented .42% of period-end loans, up 7 basis points from the .35% ratio at December 31, 2008 and compares with a ratio of .26% one year earlier. Nonperforming assets were $4.7 million at September 30, 2009, representing .26% of period-end assets, down four basis points from the December 31, 2008 level but up 2 basis points from the September 30, 2008 level of .24%. Net loan losses for the 2009 nine-month period, expressed as an annualized percentage of average loans outstanding, were .09%, still low by industry averages but up from .05% for the comparable 2008 period. Arrow's allowance for loan losses amounted to $13.8 million at September 30, 2009, which represented 1.25% of loans outstanding, an increase of five basis points from our year-end 2008 ratio.
As of September 30, 2009, assets under trust administration and investment management were $836.4 million, a decrease of 3.0% from September 30, 2008. This decrease was the result of a general decline in equity markets from year-earlier levels and led to a $447 thousand decrease in fee income from fiduciary activities for the first nine months of 2009 compared to the first nine months of 2008. 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 total assets of $204.6 million at September 30, 2009, an increase of 6.5% from the balance a year ago.
In recent periods, many of our operating ratios have compared very 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 "Bank Holding Company Performance Report" (FRB Report). The most current peer data available in the FRB Report is for June 30, 2009 in which our annualized year-to-date return on average equity (ROE) was 17.86%, as compared to a loss of 3.03% for our peer group. Our ratio of nonperforming loans to total loans was .32% as of June 30, 2009, compared to 3.33% for our peer group. We also have maintained a higher total risk-based capital ratio than the average for our peer group.
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 public reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2008 and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.
Arrow Financial Corporation
Consolidated Financial Information
($ in thousands, except per share amounts)
Unaudited
Three Months Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
---- ---- ---- ----
Income Statement
Interest and
Dividend Income $21,664 $22,592 $64,688 $66,789
Interest Expense 6,462 7,690 19,970 24,736
Net Interest Income 15,202 14,902 44,718 42,053
Provision for Loan Losses 427 253 1,348 791
Net Interest Income
After Provision for
Loan Losses 14,775 14,649 43,370 41,262
Net Gain on
Transfer of
Merchant Bank Card
Processing --- --- 2,966 ---
Net Gains (Losses) on
Securities Transactions 48 6 329 (29)
Other-Than-Temporary
Impairment Write-
down on Securities --- (1,210) --- (1,210)
Gain on Visa Stock
Redemption --- --- --- 749
Net Gain on Sales of Loans 16 14 326 55
Income From
Restitution Payment --- --- 450 ---
Gain on Sale of Premises --- --- --- 115
Income From Fiduciary
Activities 1,200 1,349 3,737 4,184
Fees for Other
Services to Customers 1,956 2,242 5,937 6,318
Insurance Commissions 727 528 1,822 1,575
Other Operating Income 29 160 220 360
Total Noninterest Income 3,976 3,089 15,787 12,117
Salaries and Employee
Benefits 6,727 5,883 19,920 17,911
Occupancy Expenses of
Premises, Net 789 841 2,616 2,616
Furniture and
Equipment Expense 819 820 2,493 2,385
Amortization of
Intangible Assets 79 89 247 271
FDIC Special
Assessment --- --- 787 ---
FDIC Assessments 438 203 1,320 450
Reversal of Visa Related
Litigation Exposure --- --- --- (306)
Other Operating Expense 2,549 2,696 7,510 7,793
Total Noninterest
Expense 11,401 10,532 34,893 31,120
Income Before Taxes 7,350 7,206 24,264 22,259
Provision for Income
Taxes 2,288 2,198 7,589 6,834
Net Income $ 5,062 $ 5,008 $16,675 $15,425
Share and Per Share Data
Period-End Shares
Outstanding 10,916 10,825 10,916 10,825
Basic Average Shares
Outstanding 10,912 10,812 10,902 10,896
Diluted Average Shares
Outstanding 10,982 10,876 10,951 10,954
Basic Earnings Per Share $ 0.46 $ 0.46 $ 1.53 $ 1.42
Diluted Earnings Per Share 0.46 0.46 1.52 1.41
Cash Dividends 0.24 0.24 0.73 0.71
Book Value 12.76 11.58 12.76 11.58
Tangible Book Value (1) 11.26 10.06 11.26 10.06
Key Earnings Ratios
Return on Average Assets 1.13% 1.20% 1.29% 1.26%
Return on Average Equity 14.72 15.99 16.77 16.46
Return on Tangible
Equity 1 16.74 18.43 19.14 18.97
Net Interest Margin (2) 3.73 3.93 3.79 3.81
(1) Tangible Book Value per share is the ratio of Total Equity less
Intangible Assets to Period-End Shares Outstanding.
(2) Net Interest Margin includes a tax equivalent upward adjustment of
19 and 18 basis points for the respective 2009 and 2008 quarterly
periods and 19 basis points for both 2009 and 2008 nine-month
periods.
Arrow Financial Corporation
Consolidated Financial Information
($ in thousands)
Unaudited
September 30, 2009
------------------
Third Year-to-
Period Quarter Date
End Average Average
------ ------- --------
Balance Sheet
Cash and Due From Banks $ 37,970 $ 28,208 $ 28,034
Federal Funds Sold --- --- ---
Interest-Bearing Bank
Balances 79,375 62,301 55,929
Securities Available-for-
Sale 412,798 383,013 354,013
Securities Held-to-
Maturity 162,197 161,491 148,016
Loans 1,106,657 1,099,821 1,099,153
Allowance for Loan Losses (13,841) (13,721) (13,523)
Net Loans 1,092,816 1,086,100 1,085,630
Premises and Equipment,
Net 18,102 17,851 17,616
Goodwill and Intangible
Assets, Net 16,353 16,405 16,429
Other Assets 16,672 23,524 23,267
Total Assets $1,836,283 $1,778,893 $1,728,934
Demand Deposits $ 197,987 $ 199,611 $ 188,938
Nonmaturity Interest-
Bearing Deposits 818,025 754,832 739,483
Time Deposits of
$100,000 or More 163,337 167,681 155,308
Other Time Deposits 253,133 253,359 249,953
Total Deposits 1,432,482 1,375,483 1,333,682
Federal Funds Purchased
and Securities 60,592 60,175 56,354
Sold Under
Agreements to
Repurchase
Short-Term Borrowings 1,601 1,171 1,189
Federal Home Loan Bank
Advances 160,000 160,000 160,000
Other Long-Term Debt 20,000 20,000 20,000
Other Liabilities 22,304 25,667 24,806
Total Liabilities 1,696,979 1,642,496 1,596,031
Common Stock 15,170 14,901 14,787
Surplus 177,248 169,434 165,689
Undivided Profits 21,701 28,177 28,823
Unallocated ESOP Shares (2,204) (2,204) (2,247)
Accumulated Other
Comprehensive Loss (5,724) (7,310) (8,009)
Treasury Stock (66,887) (66,601) (66,140)
Total Shareholders'
Equity 139,304 136,397 132,903
Total Liabilities and
Shareholders' Equity $1,836,283 $1,778,893 $1,728,934
Assets Under Trust
Administration $836,438
and Investment
Management
Capital Ratios
Tier 1 Leverage Ratio 8.63%
Tier 1 Risk-Based
Capital Ratio 14.12
Total Risk-Based
Capital Ratio 15.37
September 30, 2008
------------------
Third Year-to-
Period Quarter Date
End Average Average
------ ------- --------
Balance Sheet
Cash and Due From Banks $ 38,325 $ 35,673 $ 33,967
Federal Funds Sold --- 10,158 23,186
Interest-Bearing Bank
Balances --- 929 672
Securities Available-for-
Sale 350,526 363,889 354,180
Securities Held-to-
Maturity 131,438 122,141 116,582
Loans 1,106,506 1,083,291 1,058,426
Allowance for Loan Losses (12,785) (12,732) (12,571)
Net Loans 1,093,721 1,070,559 1,045,855
Premises and Equipment,
Net 17,398 16,951 16,610
Goodwill and Intangible
Assets, Net 16,457 16,500 16,555
Other Assets 25,186 20,866 22,112
Total Assets $1,673,051 $1,657,666 $1,629,719
Demand Deposits $ 190,452 $ 200,193 $ 190,456
Nonmaturity Interest-
Bearing Deposits 675,219 641,478 633,908
Time Deposits of
$100,000 or More 166,124 178,041 174,181
Other Time Deposits 240,181 242,069 242,942
Total Deposits 1,271,976 1,261,781 1,241,487
Federal Funds Purchased
and Securities 69,547 62,787 56,477
Sold Under
Agreements to
Repurchase
Short-Term Borrowings 1,517 411 472
Federal Home Loan Bank
Advances 160,000 163,405 161,791
Other Long-Term Debt 20,000 20,000 20,000
Other Liabilities 24,614 24,681 24,337
Total Liabilities 1,547,654 1,533,065 1,504,564
Common Stock 14,729 14,729 14,729
Surplus 162,478 162,129 161,942
Undivided Profits 23,066 22,120 19,283
Unallocated ESOP Shares (2,572) (2,572) (2,095)
Accumulated Other
Comprehensive Loss (6,649) (6,446) (4,854)
Treasury Stock (65,655) (65,359) (63,850)
Total Shareholders'
Equity 125,397 124,601 125,155
Total Liabilities and
Shareholders' Equity $1,673,051 $1,657,666 $1,629,719
Assets Under Trust
Administration $862,601
and Investment
Management
Capital Ratios
Tier 1 Leverage Ratio 8.40%
Tier 1 Risk-Based
Capital Ratio 12.63
Total Risk-Based
Capital Ratio 13.79
Arrow Financial Corporation
Consolidated Financial Information
($ in thousands)
Unaudited
September 30,
2009 2008
---- ----
Third Quarter Ended September 30:
---------------------------------
Loan Portfolio
Commercial, Financial and Agricultural $ 88,299 $ 95,892
Real Estate - Commercial 202,561 199,240
Real Estate - Residential 477,268 454,753
Indirect and Other Consumer Loans 338,529 356,621
Total Loans $1,106,657 $1,106,506
Allowance for Loan Losses, Third Quarter
Allowance for Loan Losses,
Beginning of Quarter $13,626 $12,725
Loans Charged-off, Quarter-to-Date $(315) $(263)
Recoveries of Loans Previously Charged-
off, Quarter-to-Date 103 70
Net Loans Charged-off, Quarter-to-Date (212) (193)
Provision for Loan Losses, Quarter-to-Date 427 253
Allowance for Loan Losses, End of Quarter $13,841 $12,785
Nonperforming Assets
Nonaccrual Loans $3,905 $2,424
Loans Past Due 90 or More Days and Accruing 723 455
-------- ---------
Total Nonperforming Loans 4,628 2,879
Nonaccrual Investments --- 800
Repossessed Assets 73 61
Other Real Estate Owned --- 270
Total Nonperforming Assets $4,701 $4,010
Key Asset Quality Ratios
Allowance for Loan Losses to
Period-End Loans 1.25% 1.16%
Allowance for Loan Losses to Period-
End Nonperforming Loans 299.07 444.08
Nonperforming Loans to Period-End Loans 0.42 0.26
Nonperforming Assets to Period-End Assets 0.26 0.24
Net Loans Charged-off to Average Loans,
Three Months Annualized 0.08 0.07
Provision for Loan Losses to Average Loans,
Three Months Annualized 0.15 0.09
Nine-Month Period Ended September 30:
-------------------------------------
Allowance for Loan Losses, Nine Months
Allowance for Loan Losses,
Beginning of Year $13,272 $12,401
Loans Charged-off, Year-to-Date (1,054) (825)
Recoveries of Loans Previously
Charged-off, Year-to-Date 275 418
Net Loans Charged-off, Year-to-Date (779) (407)
Provision for Loan Losses, Year-to-Date 1,348 791
Allowance for Loan Losses, End of Year $13,841 $12,785
Key Asset Quality Ratios
Net Loans Charged-off to Average Loans,
Nine Months Annualized 0.09% 0.05%
Provision for Loan Losses to Average Loans,
Nine Months Annualized 0.16 0.10
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