SYS-CON MEDIA Authors: Kevin Benedict, Gilad Parann-Nissany

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Arrow Reports Increased Quarterly Earnings and Strong Asset Quality Ratios

GLENS FALLS, N.Y., April 21, 2014 /PRNewswire/ --

  • First-quarter diluted earnings per share increased 2.4%.
  • Net interest income on a tax-equivalent basis rose $1.0 million or 6.9%.
  • Continued growth in insurance commission income and income from fiduciary activities.
  • Record highs at quarter-end for total loans, assets, deposits and stockholders' equity, as well as assets under trust administration and investment management.
  • An increase of 2% in the cash dividends paid.

Arrow Financial Corporation (NasdaqGS: AROW) announced operating results for the three-month period ended March 31, 2014. Net income for the first quarter of 2014 was $5.32 million, an increase of $139 thousand, or 2.7%, from net income of $5.18 million for the first quarter of 2013. Diluted earnings per share (EPS) for the quarter was $0.43, a 2.4% increase from the comparable 2013 quarter, when diluted EPS was $0.42. Return on average assets for the first quarter of 2014 was 0.99%, and return on average equity for the 2014 first quarter was 11.11%.

Expansion continues with the announcement of a new Saratoga National Bank and Trust Company banking branch in Colonie, New York; it will be the Bank's first office in Albany County.

Arrow President and CEO Thomas J. Murphy stated, "Arrow ended the first quarter with solid returns on average assets and average equity, record highs in several key balance sheet categories, excellent asset quality and strong capital. We are pleased with these results."

The following list expands on the highlights of our first-quarter results:

Net Interest Income and Margin: In the first quarter of 2014, on a tax-equivalent basis, our net interest income increased $1.0 million, or 6.9%, compared to the first quarter of 2013, while our tax-equivalent net interest margin remained relatively unchanged, falling one basis point to 3.12% from 3.13% in the first quarter of 2013. Although our loan yields remain under pressure, net interest margin increased 6 basis points to 3.12% from our fourth quarter 2013 margin of 3.06%.

Insurance Agency Operations: Insurance commission income rose from $2.0 million for the first quarter of 2013 to $2.4 million for the first quarter of 2014, an increase of $416 thousand, or 20.5%. This increase was primarily attributable to annual contingent commission income received from certain insurance carriers.

Trust Assets and Related Noninterest Income: Assets under trust administration and investment management at March 31, 2014, were a record $1.183 billion, an increase of $88.0 million, or 8.0%, from the March 31, 2013, balance of $1.095 billion. The growth in balances was generally attributable to a significant rise in the equity markets between the reporting dates as well as to the addition of new accounts. Income from fiduciary activities increased by $299 thousand, or 19.0%, for the first three months of 2014, as compared to the 2013 period.

Balance Sheet Changes: Total assets at March 31, 2014, reached a record high of $2.222 billion, an increase of $105.6 million, or 5.0%, from the $2.116 billion balance at March 31, 2013, and 2.7% above total assets of $2.164 billion at December 31, 2013. Our loan portfolio also rose to a record high of $1.3 billion, up $145.7 million, or 12.5%, from the March 31, 2013, level, and an increase of $44.0 million, or 3.5%, from the level at December 31, 2013. While all three major categories of our loan portfolio grew during the first quarter of 2014, the largest increase was in our commercial real estate loan portfolio, followed by increases in our residential real estate loan and automobile loan categories.

During the first three months of 2014, we originated approximately $27 million of residential real estate loans, a decrease of 12.1% from approximately $30 million of residential real estate loans originated in the comparable period for 2013. However, during the 2014 first quarter, our management strategy was to retain most of our originations, as opposed to our 2013 strategy of selling most into the secondary market. As a result, the outstanding balance of our residential real estate loan portfolio at March 31, 2014, was higher than the outstanding balance at both March 31, 2013 and December 31, 2013. Since we elected to retain most mortgage originations, our gain on the sale of residential real estate loan originations in the first quarter of 2014 was significantly less than our gain on the sale of such originations in the comparable 2013 quarter.

Asset Quality: Asset quality remained strong at March 31, 2014, as measured by our low level of nonperforming assets and low level of net charge-offs. Nonperforming assets of $7.3 million at March 31, 2014 represented only 0.33% of period-end assets, down four basis points from our 0.37% ratio as of December 31, 2013. Net loan losses for the first quarter of 2014, expressed as an annualized percentage of average loans outstanding, were only 0.08%. These asset quality ratios continue to be significantly better than recently reported industry-wide averages and our overall loan delinquency rates remain low.

Our allowance for loan losses was $14.6 million at March 31, 2014, which represented 1.12% of loans outstanding, thirteen basis points below our ratio one year earlier and two basis points below our ratio at December 31, 2013.

Capital: Total stockholders' equity was a record $194.5 million at period-end, an increase of $16.7 million, or 9.4%, above the March 31, 2013 amount. Arrow's capital ratios continued to remain strong, as reflected by a Tier 1 leverage ratio of 9.30% at quarter-end, unchanged from March 31, 2013. Arrow's total risk-based capital ratio was 15.62%, down from 16.34% a year ago. The capital ratios of the Company and its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standard, which is the highest current regulatory category.

Peer Group: Many of our key operating ratios have consistently compared very favorably to our peer group, which we define as all U.S. bank holding companies having $1.0 billion to $3.0 billion in total 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 the twelve-month period ended December 31, 2013, in which our return on average equity (ROE) was 12.11%, as compared to 8.56% for our peer group. Our ratio of loans 90 days past due and accruing plus nonaccrual loans to total loans was 0.56% as of December 31, 2013, as compared to 1.46% for our peer group. Our ratio of net loan losses for the year ending December 31, 2013, was 0.09%, well below the peer result of 0.25%.

Cash and Stock Dividends: We distributed a cash dividend of $.25 per share to stockholders in the first quarter of 2014. The cash dividend was 2% higher than the cash dividend paid in the first quarter of 2013, adjusted for our 2% stock dividend in September 2013. This quarter's dividend, based on our $26.44 closing stock price at March 31, 2014, represented an annualized yield of 3.78%.

Securities Transactions: There were no securities transactions in the first quarter of 2014. However, included in our comparable 2013 first quarter results were securities transactions of $318 thousand, net of tax, which represented nearly $.03 per share for the quarter.

Industry Recognition: Arrow was recently recognized by Forbes as one of "America's 50 Most Trustworthy Financial Companies" for its accounting and governance practices. The list includes publicly traded banks and insurance companies. This is the third consecutive year Arrow has received a "Most Trustworthy" designation from Forbes.

Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York. The Company 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.; three property and casualty insurance agencies: Loomis & LaPann, Inc., Upstate Agency, LLC, and McPhillips Insurance Agency, a division of Glens Falls National Insurance Agencies, LLC; 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, 2013, and our other filings with the Securities and Exchange Commission.

 

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts - Unaudited)












Three Months Ended March 31,



2014


2013

INTEREST AND DIVIDEND INCOME





Interest and Fees on Loans


$

12,774



$

12,783


Interest on Deposits at Banks


13



27


Interest and Dividends on Investment Securities:





Fully Taxable


2,008



1,796


Exempt from Federal Taxes


1,471



1,390


Total Interest and Dividend Income


16,266



15,996


INTEREST EXPENSE





NOW Accounts


464



778


Savings Deposits


219



268


Time Deposits of $100,000 or More


230



319


Other Time Deposits


391



554


Federal Funds Purchased and

 Securities Sold Under Agreements to Repurchase


4



3


Federal Home Loan Bank Advances


145



173


Junior Subordinated Obligations Issued to

 Unconsolidated Subsidiary Trusts


141



144


Total Interest Expense


1,594



2,239


NET INTEREST INCOME


14,672



13,757


Provision for Loan Losses


458



100


NET INTEREST INCOME AFTER PROVISION FOR

 LOAN LOSSES


14,214



13,657


NONINTEREST INCOME





Income From Fiduciary Activities


1,873



1,574


Fees for Other Services to Customers


2,194



2,282


Insurance Commissions


2,444



2,028


Net Gain on Securities Transactions




527


Net Gain on Sales of Loans


123



607


Other Operating Income


252



156


Total Noninterest Income


6,886



7,174


NONINTEREST EXPENSE





Salaries and Employee Benefits


7,642



7,621


Occupancy Expenses, Net


2,341



2,276


FDIC Assessments


273



264


Other Operating Expense


3,210



3,250


Total Noninterest Expense


13,466



13,411









INCOME BEFORE PROVISION FOR INCOME TAXES


7,634



7,420


Provision for Income Taxes


2,314



2,239


NET INCOME


$

5,320



$

5,181


Average Shares Outstanding 1:





Basic


12,354



12,272


Diluted


12,378



12,290


Per Common Share:





Basic Earnings


$

0.43



$

0.42


Diluted Earnings


0.43



0.42



1 Share and per share data have been restated for the September 27, 2013, 2% stock dividend.

 

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts - Unaudited)














March 31,

2014


December 31,

2013


March 31,

2013

ASSETS






Cash and Due From Banks

$

40,056



$

37,275



$

23,943


Interest-Bearing Deposits at Banks

35,994



12,705



113,231


Investment Securities:






Available-for-Sale

429,230



457,606



478,775


Held-to-Maturity (Approximate Fair Value of $322,335 at March 31,
2014; $302,305 at December 31, 2013; and $259,562 at March 31, 2013)

317,632



299,261



251,456


Other Investments

3,896



6,281



4,493


Loans

1,310,423



1,266,472



1,164,759


Allowance for Loan Losses

(14,636)



(14,434)



(14,603)


Net Loans

1,295,787



1,252,038



1,150,156


Premises and Equipment, Net

28,717



29,154



29,363


Goodwill

22,003



22,003



22,003


Other Intangible Assets, Net

3,996



4,140



4,457


Other Assets

44,270



43,235



38,085


Total Assets

$

2,221,581



$

2,163,698



$

2,115,962


LIABILITIES






Noninterest-Bearing Deposits

$

277,086



$

278,958



$

254,308


NOW Accounts

908,028



817,366



845,531


Savings Deposits

524,670



498,779



476,115


Time Deposits of $100,000 or More

74,127



78,928



89,797


Other Time Deposits

164,108



168,299



185,455


Total Deposits

1,948,019



1,842,330



1,851,206


Federal Funds Purchased and

 Securities Sold Under Agreements to Repurchase

13,787



11,777



12,166


Federal Home Loan Bank Overnight Advances



53,000




Federal Home Loan Bank Term Advances

20,000



20,000



30,000


Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts

20,000



20,000



20,000


Other Liabilities

25,284



24,437



24,787


Total Liabilities

2,027,090



1,971,544



1,938,159


STOCKHOLDERS' EQUITY






Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized






Common Stock, $1 Par Value; 20,000,000 Shares Authorized
(16,744,486 Shares Issued at March 31, 2014, and December 31,
2013; and 16,416,163 Shares Issued at March 31, 2013)

16,744



16,744



16,416


Additional Paid-in Capital

229,842



229,290



219,178


Retained Earnings

29,692



27,457



28,423


Unallocated ESOP Shares (79,763 Shares at March 31, 2014;
87,641 Shares at December 31, 2013; and 95,172 Shares at March 31, 2013)

(1,650)



(1,800)



(2,000)


Accumulated Other Comprehensive Loss

(4,075)



(4,373)



(8,324)


Treasury Stock, at Cost (4,315,156 Shares at March 31, 2014; 4,296,723 Shares at
December 31, 2013; and 4,310,578 Shares at March 31, 2013)

(76,062)



(75,164)



(75,890)


Total Stockholders' Equity

194,491



192,154



177,803


Total Liabilities and Stockholders' Equity

$

2,221,581



$

2,163,698



$

2,115,962


 

Arrow Financial Corporation

Selected Quarterly Information

(Dollars In Thousands, Except Per Share Amounts - Unaudited)





















Quarter Ended

3/31/2014


12/31/2013


9/30/2013


6/30/2013


3/31/2013

Net Income

$

5,320



$

5,784



$

5,623



$

5,207



$

5,181


Transactions Recorded in Net Income (Net of Tax):










Net Gain on Securities Transactions







8



318


Net Gain on Sales of Loans

74



114



100



301



367


Share and Per Share Data:1










Period End Shares Outstanding

12,350



12,360



12,329



12,284



12,251


Basic Average Shares Outstanding

12,354



12,339



12,308



12,261



12,272


Diluted Average Shares Outstanding

12,378



12,387



12,344



12,279



12,290


Basic Earnings Per Share

$

0.43



$

0.47



$

0.46



$

0.42



$

0.42


Diluted Earnings Per Share

0.43



0.47



0.46



0.42



0.42


Cash Dividend Per Share

0.25



0.25



0.25



0.25



0.25


Selected Quarterly Average Balances:










Interest-Bearing Deposits at Banks

17,184



46,853



14,096



26,632



41,145


Investment Securities

755,008



762,768



744,928



771,018



711,848


Loans

1,284,649



1,254,957



1,224,840



1,185,041



1,169,870


Deposits

1,887,589



1,904,922



1,800,181



1,801,346



1,773,126


Other Borrowed Funds

68,375



62,038



92,073



94,596



64,622


Shareholders' Equity

194,127



184,506



179,634



178,867



176,874


Total Assets

2,176,038



2,176,264



2,095,017



2,099,138



2,039,314


Return on Average Assets

0.99

%


1.05

%


1.06

%


0.99

%


1.03

%

Return on Average Equity

11.11

%


12.44

%


12.42

%


11.68

%


11.88

%

Return on Tangible Equity2

12.84

%


14.50

%


14.55

%


13.70

%


13.97

%

Average Earning Assets

$

2,056,841



$

2,064,578



$

1,983,864



$

1,982,691



$

1,922,863


Average Paying Liabilities

1,678,080



1,686,993



1,614,873



1,641,300



1,590,401


Interest Income, Tax-Equivalent

17,439



17,633



17,032



16,989



17,059


Interest Expense

1,594



1,713



1,747



2,223



2,239


Net Interest Income, Tax-Equivalent

15,845



15,920



15,285



14,766



14,820


Tax-Equivalent Adjustment

1,173



1,174



1,158



1,180



1,063


Net Interest Margin 3

3.12

%


3.06

%


3.06

%


2.99

%


3.13

%

Efficiency Ratio Calculation:










Noninterest Expense

$

13,466



$

13,385



$

13,133



$

13,274



$

13,411


Less: Intangible Asset Amortization

(106)



(108)



(108)



(112)



(124)


Net Noninterest Expense

$

13,360



$

13,277



$

13,025



$

13,162



$

13,287


Net Interest Income, Tax-Equivalent

$

15,845



$

15,920



$

15,285



$

14,766



$

14,820


Noninterest Income

6,886



6,877



6,939



7,071



7,174


Less: Net Securities Gains







(13)



(527)


Net Gross Income

$

22,731



$

22,797



$

22,224



$

21,824



$

21,467


Efficiency Ratio

58.77

%


58.24

%


58.61

%


60.31

%


61.90

%

Period-End Capital Information:










Total Stockholders' Equity (i.e. Book Value)

$

194,491



$

192,154



$

182,683



$

177,607



$

177,803


Book Value per Share

15.75



15.55



14.82



14.46



14.51


Intangible Assets

25,999



26,143



26,273



26,387



26,460


Tangible Book Value per Share 2

13.64



13.43



12.69



12.31



12.35


Capital Ratios:










Tier 1 Leverage Ratio

9.30

%


9.19

%


9.37

%


9.19

%


9.30

%

Tier 1 Risk-Based Capital Ratio

14.55

%


14.70

%


14.59

%


14.82

%


15.15

%

Total Risk-Based Capital Ratio

15.62

%


15.77

%


15.69

%


15.96

%


16.34

%

Assets Under Trust Administration

and Investment Management

$

1,182,661



$

1,174,891



$

1,111,085



$

1,073,523



$

1,094,708


1Share and Per Share Data have been restated for the September 27, 2013, 2% stock dividend.
2Tangible Book Value and Tangible Equity exclude intangible assets from total equity. These are non-GAAP financial measures which we believe provide investors with information that is useful in understanding our financial performance.
3Net Interest Margin is the ratio of our annualized tax-equivalent net interest income to average earning assets. This is also a non-GAAP financial measure which we believe provides investors with information that is useful in understanding our financial performance.

 

Arrow Financial Corporation

Consolidated Financial Information

(Dollars in Thousands - Unaudited)













Quarter Ended:

3/31/2014


12/31/2013


3/31/2013

Loan Portfolio






Commercial Loans

$

89,876



$

87,893



$

89,167


Commercial Construction Loans

28,026



27,815



27,380


Commercial Real Estate Loans

308,841



288,119



255,242


Other Consumer Loans

7,783



7,649



7,031


Consumer Automobile Loans

400,621



394,204



354,001


Residential Real Estate Loans

475,276



460,792



431,938


Total Loans

$

1,310,423



$

1,266,472



$

1,164,759


Allowance for Loan Losses






Allowance for Loan Losses, Beginning of Quarter

$

14,434



$

14,584



$

15,298


Loans Charged-off

336



246



890


Less Recoveries of Loans Previously Charged-off

80



96



95


Net Loans Charged-off

256



150



795


Provision for Loan Losses

458





100


Allowance for Loan Losses, End of Quarter

$

14,636



$

14,434



$

14,603


Nonperforming Assets






Nonaccrual Loans

$

6,284



$

6,479



$

5,218


Loans Past Due 90 or More Days and Accruing

347



652



259


Loans Restructured and in Compliance with Modified Terms

380



641



473


Total Nonperforming Loans

7,011



7,772



5,950


Repossessed Assets

138



63



45


Other Real Estate Owned

198



81



1,149


Total Nonperforming Assets

$

7,347



$

7,916



$

7,144


Key Asset Quality Ratios






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

0.08

%


0.05

%


0.28

%

Provision for Loan Losses to Average Loans, Quarter-to-date Annualized

0.14

%


%


0.03

%

Allowance for Loan Losses to Period-End Loans

1.12

%


1.14

%


1.25

%

Allowance for Loan Losses to Period-End Nonperforming Loans

208.76

%


185.71

%


245.43

%

Nonperforming Loans to Period-End Loans

0.53

%


0.61

%


0.51

%

Nonperforming Assets to Period-End Assets

0.33

%


0.37

%


0.34

%

 

SOURCE Arrow Financial Corporation

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