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Arrow Financial (AROW) |
Arrow Reports Solid First Quarter Operating Results and Strong Asset Quality Ratios
PR Newswire
Apr 18, 2012
GLENS FALLS, N.Y., April 18, 2012 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® - AROW) announced operating results for the three-month period ended March 31, 2012. Net income for the first quarter of 2012 was $5.3 million, representing diluted earnings per share (EPS) of $0.45, essentially unchanged from net income of $5.3 million and diluted EPS of $.45 for the first quarter of 2011. The cash dividend paid to shareholders in the first quarter of 2012 was $.25 per share, or 3% higher than the cash dividend paid in the first quarter of 2011. All per share amounts have been adjusted to reflect the effect of the 3% stock dividend distributed on September 29, 2011.
Thomas L. Hoy, Chairman, President and CEO stated, "We are pleased to report solid earnings for the first quarter while continuing to maintain both strong asset quality and capital adequacy ratios. Our 2012 earnings results featured an increase in our noninterest income for the first quarter, reflecting primarily growth in insurance commissions and an increase in fee income from fiduciary activities. The Company again experienced modest growth in several key balance sheet categories, resulting in record levels in period-end amounts for both total assets and deposits, as well as assets under trust administration and investment management. Furthermore, our key asset quality measurements continue to be excellent. We are pleased with these results during this extended period of a challenging low interest rate environment."
Insurance commission income rose from $1.5 million in the first quarter of 2011 to nearly $1.9 million in the comparable 2012 quarter, as a result of our acquisitions of two strategically located insurance agencies in 2011. On February 1, 2011, we acquired Upstate Agency and on August 1, 2011, we acquired the McPhillips Insurance Agencies, all of which were longstanding property and casualty insurance agencies with offices located in our service area.
Assets under trust administration and investment management at March 31, 2012 rose to a record level of $1.038 billion, an increase of $26.6 million, or 2.63%, from the prior year balance of $1.012 billion. Over sixty percent of these assets are equity investments and the growth in balances was generally attributable to a recovery within the equity markets during the first quarter of 2012. As a result of the growth in this asset base, income from fiduciary activities rose in the first quarter of 2012 by $76 thousand, or 4.9%, above the income from the 2011 comparable first quarter.
The Company's key profitability ratios continue to be strong. Annualized return on average assets (ROA) for the 2012 first quarter was 1.09%, down slightly from our ROA of 1.11% for the comparable 2011 period. Annualized return on average equity (ROE) for the 2012 quarter was 12.67%. Although this was down slightly from a ROE of 13.77% for the comparable 2011 period, the decrease was largely the result of the higher capital ratios maintained during the 2012 three-month period.
Asset quality remained strong at March 31, 2012 as measured by our low level of nonperforming assets and very low level of charge-offs. Nonperforming assets of $6.7 million represented only 0.33% of period-end assets, far below industry averages although up from our 0.24% of assets ratio as of March 31, 2011. Nonperforming assets included $511 thousand in loans that have been recently restructured and are in compliance with modified terms. Net loan losses for the first quarter of 2012, expressed as an annualized percentage of average loans outstanding, were 0.08%, up slightly from 0.06% of average loans for the 2011 comparable period. These asset quality ratios continue to significantly outperform recently reported industry averages.
Overall loan delinquency rates remain very low and unlike many of our peers, we have not and do not expect to incur significant losses in our residential real estate portfolio within the near-term, even though some borrowers may be experiencing stress due to the current economic environment. Our allowance for loan losses amounted to $15.1 million at March 31, 2012, which represented 1.32% of loans outstanding, an increase of 2 basis points from our ratio one year earlier.
Total assets at March 31, 2012 reached a record high of $2.020 billion, an increase of $42.0 million, or 2.12%, from the $1.978 billion balance at March 31, 2011. Our loan portfolio was $1.138 billion, up $1.8 million, or 0.2%, from the March 31, 2011 level, and $6.1 million, or 0.5%, above the level at December 31, 2011. During the first quarter of 2012, we originated over $20.1 million of residential real estate loans. However, for interest rate risk management purposes we continued during the quarter to follow the practice we adopted in recent years of selling into the secondary market most of the residential real estate loans we originated, primarily to a government sponsored entity, the Federal Home Loan Mortgage Corporation. Therefore, the outstanding balance for our residential real estate loan portfolio at quarter-end 2012 was actually lower than our balance at March 31, 2011. We continue, however, to retain servicing rights on the mortgages that we sell into the secondary market, generating servicing fee income on these loans. We experienced an increase in the volume of new automobile loans in the first three months of 2012, reflecting an improvement in region-wide automobile sales. We also experienced modest growth in our commercial loan portfolio, which, combined with the increase in automobile loans, more than offset the decrease in our residential real estate loan portfolio.
Similar to many institutions within the banking industry, the Company's net interest income and net interest margin declined as a result of operating in this historically low interest rate environment. On a tax-equivalent ("TE") basis, our net interest income in the first quarter of 2012, as compared to the first quarter of 2011, decreased 207 thousand, or 1.3%. Our TE net interest margin fell from 3.39% in the first quarter of 2011, to 3.33% for the first quarter of 2012, but increased over the fourth quarter level of 3.25%. Both our yield on earning assets and the cost of our interest-bearing liabilities decreased significantly from the first quarter of 2011 to the first quarter of 2012. Our cost of interest-bearing deposits and other borrowings in the first quarter 2012 fell by 48 basis points, to an average cost of 0.92% compared to 1.40% in the first quarter of 2011, while our yield on earning assets in the first quarter of 2012 decreased by 46 basis points from 4.56% in the first quarter of 2011 to 4.10%.
Total shareholders' equity reached $168.5 million at period-end, an increase of $9.3 million, or 5.8%, above the March 31, 2011 balance. Arrow's capital ratios, which were strong to begin 2011, strengthened further during 2011 and through March 31, 2012. At quarter-end the Tier 1 leverage ratio at the holding company level was 9.10% and total risk-based capital ratio was 16.10%, up from 8.66% and 15.63% respectively at March 31, 2011. The capital ratios of the Company and it's subsidiary banks continue to significantly exceed the "well capitalized" regulatory standard, which is the highest category.
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 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, 2011 in which our return on average equity (ROE) was 13.45%, as compared to 6.16% for our peer group. Our ratio of loans 90 days past due and accruing plus nonaccrual loans to total loans was 0.55% as of December 31, 2011 compared to 2.94% for our peer group, while our annualized net loan losses of 0.05% for 2011 were well below the peer result of 0.93%. Our operating results and asset quality ratios have withstood the economic stress of recent years better than most banks in our national peer group.
Mr. Hoy further added, "We continue to believe that our conservative business model which emphasizes a strong capital position, high loan quality, knowledge of our market and responsiveness to our customers has positioned us well for the future. Nonetheless, we, like all banks, face challenges, particularly the threat to earnings posed by the Federal Reserve's determination to maintain interest rates at historically low levels for an extended period of time."
Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, NY 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, 2011 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,
2012 2011
---- ----
INTEREST AND DIVIDEND
INCOME
Interest
and Fees
on Loans $13,958 $15,015
Interest on
Deposits
at Banks 21 22
Interest and Dividends on
Investment Securities:
Fully
Taxable 2,638 3,350
Exempt from
Federal
Taxes 1,321 1,504
----- -----
Total
Interest
and
Dividend
Income 17,938 19,891
------ ------
INTEREST EXPENSE
NOW
Accounts 1,059 1,331
Savings
Deposits 357 503
Time
Deposits
of
$100,000
or More 608 667
Other Time
Deposits 1,146 1,352
Federal
Funds
Purchased
and 6 24
Securities Sold Under
Agreements to
Repurchase
Federal
Home Loan
Bank
Advances 197 1,316
Junior
Subordinated
Obligations
Issued to 159 144
Unconsolidated
Subsidiary Trusts
Total
Interest
Expense 3,532 5,337
----- -----
NET
INTEREST
INCOME 14,406 14,554
Provision
for Loan
Losses 280 220
--- ---
NET
INTEREST
INCOME
AFTER
PROVISION
FOR 14,126 14,334
LOAN LOSSES
NONINTEREST INCOME
Income From
Fiduciary
Activities 1,622 1,546
Fees for
Other
Services
to
Customers 1,960 1,915
Insurance
Commissions 1,889 1,466
Net Gain on
Securities
Transactions 502 542
Net Gain on
Sales of
Loans 357 51
Other
Operating
Income 229 100
--- ---
Total
Noninterest
Income 6,559 5,620
----- -----
NONINTEREST EXPENSE
Salaries
and
Employee
Benefits 7,903 7,202
Occupancy
Expenses,
Net 2,024 1,918
FDIC
Assessments 255 513
Other
Operating
Expense 2,964 2,686
----- -----
Total
Noninterest
Expense 13,146 12,319
------ ------
INCOME
BEFORE
PROVISION
FOR INCOME
TAXES 7,539 7,635
Provision
for Income
Taxes 2,251 2,354
NET INCOME $5,288 $5,281
====== ======
Average Shares Outstanding
(1):
Basic 11,770 11,675
Diluted 11,794 11,698
Per Common Share:
Basic
Earnings $0.45 $0.45
Diluted
Earnings 0.45 0.45
(1) Share and per share data have been restated for the September 29, 2011 3% stock
dividend.
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts - Unaudited)
March 31, December March 31,
2012 31, 2011 2011
---- -------- ----
ASSETS
Cash and Due From Banks $31,128 $29,598 $29,798
Interest-Bearing Deposits at
Banks 106,380 14,138 47,205
Investment Securities:
Available-for-Sale 466,785 556,538 544,789
Held-to-Maturity
(Approximate Fair Value of
$207,779 at March 31, 2012,
$159,059 at December 31, 2011
and $149,985 at March 31,
2011) 200,607 150,688 147,217
Other Investments 4,382 6,722 7,702
Loans 1,137,547 1,131,457 1,135,743
Allowance for Loan Losses (15,053) (15,003) (14,745)
Net Loans 1,122,494 1,116,454 1,120,998
--------- --------- ---------
Premises and Equipment, Net 23,217 22,629 19,256
Other Real Estate and
Repossessed Assets, Net 555 516 60
Goodwill 22,003 22,003 20,550
Other Intangible Assets, Net 4,650 4,749 4,350
Accrued Interest Receivable 6,380 6,082 7,132
Other Assets 31,788 32,567 29,347
Total Assets $2,020,369 $1,962,684 $1,978,404
========== ========== ==========
LIABILITIES
Noninterest-Bearing Deposits $230,289 $232,038 $214,853
NOW Accounts 758,114 642,521 621,412
Savings Deposits 432,854 416,829 405,850
Time Deposits of $100,000 or
More 115,161 123,668 122,157
Other Time Deposits 224,460 228,990 243,847
------- -------
Total Deposits 1,760,878 1,644,046 1,608,119
--------- --------- ---------
Federal Funds Purchased and 16,652 26,293 57,762
Securities Sold Under
Agreements to Repurchase
Other Short-Term Borrowings - - 1,647
Federal Home Loan Bank
Overnight Advances - 42,000 -
Federal Home Loan Bank Term
Advances 30,000 40,000 110,000
Junior Subordinated
Obligations Issued to
Unconsolidated Subsidiary
Trusts 20,000 20,000 20,000
Accrued Interest Payable 974 1,147 1,755
Other Liabilities 23,399 22,813 19,933
------ ------
Total Liabilities 1,851,903 1,796,299 1,819,216
--------- --------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock, $5 Par Value;
1,000,000 Shares Authorized - - -
Common Stock, $1 Par Value;
20,000,000 Shares Authorized
(16,094,277 Shares Issued at
March 31, 2012 and at
December 31, 2011, and
15,625,512 Shares Issued at
March 31, 2011) 16,094 16,094 15,626
Additional Paid-in Capital 208,808 207,600 193,733
Retained Earnings 26,291 23,947 27,020
Unallocated ESOP Shares
(109,939 Shares at March 31,
2012, 117,502 shares at
December 31, 2011, and
122,882 Shares at March 31,
2011) (2,350) (2,500) (2,700)
Accumulated Other
Comprehensive Loss (6,872) (6,695) (5,439)
Treasury Stock, at Cost
(4,223,687 Shares at March
31, 2012, 4,213,470 shares at
December 31, 2011, and
4,101,039 shares at March 31,
2011) (73,505) (72,061) (69,052)
------- -------
Total Stockholders' Equity 168,466 166,385 159,188
-------
Total Liabilities and
Stockholders' Equity $2,020,369 $1,962,684 $1,978,404
========== ========== ==========
Arrow Financial Corporation
Selected Quarterly Information
(Dollars In Thousands, Except Per Share Amounts- Unaudited)
Quarter Ended 3/31/2012 12/31/2011 9/30/2011 6/30/2011 3/31/2011
------------- --------- ---------- --------- --------- ---------
Net Income $5,288 $5,431 $5,372 $5,849 $5,281
Transactions Recorded in Net Income
(Net of Tax):
-----------------------------------
Net Gain on
Securities
Transactions 303 - 1,069 291 327
Net Gain on Sales of
Loans 216 259 132 101 31
Prepayment Penalty
on FHLB Advances - - (989) - -
Share and Per Share Data:(1)
---------------------------
Period End Shares
Outstanding 11,761 11,763 11,796 11,696 11,745
Basic Average Shares
Outstanding 11,770 11,782 11,754 11,729 11,675
Diluted Average
Shares Outstanding 11,794 11,788 11,776 11,741 11,698
Basic Earnings Per
Share $0.45 $0.46 $0.46 $0.50 $0.45
Diluted Earnings Per
Share 0.45 0.46 0.46 0.50 0.45
Cash Dividend Per
Share 0.25 0.25 0.24 0.24 0.24
Selected Quarterly Average Balances:
-----------------------------------
Interest-Bearing
Deposits at Banks $30,780 $49,101 $32,855 $31,937 $35,772
Investment
Securities 678,474 674,338 646,542 697,796 683,839
Loans 1,136,322 1,126,452 1,119,384 1,128,006 1,130,539
Deposits 1,683,781 1,668,062 1,554,349 1,596,876 1,564,677
Other Borrowed Funds 83,055 101,997 164,850 179,989 193,960
Shareholders' Equity 167,849 168,293 166,514 161,680 155,588
Total Assets 1,959,741 1,963,915 1,911,853 1,961,908 1,935,409
Return on Average
Assets 1.09% 1.10% 1.11% 1.20% 1.11%
Return on Average
Equity 12.67% 12.80% 12.80% 14.51% 13.77%
Return on Tangible
Equity(2) 15.07% 15.22% 15.19% 17.16% 16.07%
Average Earning
Assets $1,845,576 $1,849,891 $1,798,781 $1,857,739 $1,850,150
Average Paying
Liabilities 1,545,098 1,547,071 1,487,923 1,559,014 1,546,849
Interest Income,
Tax-Equivalent 18,810 19,179 19,884 20,500 20,822
Interest Expense 3,532 4,022 4,345 4,975 5,336
Net Interest Income,
Tax-Equivalent 15,278 15,157 15,539 15,525 15,486
Tax-Equivalent
Adjustment 872 832 887 944 931
Net Interest Margin
(3) 3.33% 3.25% 3.43% 3.35% 3.39%
Efficiency Ratio Calculation:
-----------------------------
Noninterest Expense $13,146 $12,455 $14,603 $12,171 $12,319
Less: Intangible
Asset Amortization (138) (141) (136) (134) (100)
Prepayment Penalty
on FHLB Advances - - (1,638) - -
--- --- ------ --- ---
Net Noninterest
Expense $13,008 $12,314 $12,829 $12,037 $12,219
------- ------- ------- ------- -------
Net Interest Income,
Tax-Equivalent $15,278 $15,157 $15,539 $15,525 $15,485
Noninterest Income 6,559 6,199 7,881 6,228 5,620
Less: Net Securities
Gains (502) - (1,771) (482) (542)
---- --- ------ ---- ----
Net Gross Income $21,335 $21,356 $21,649 $21,271 $20,563
------- ------- ------- ------- -------
Efficiency Ratio 60.97% 57.66% 59.26% 56.59% 59.42%
Period-End Capital Information:
-------------------------------
Total Stockholders'
Equity (i.e. Book
Value) $168,466 $166,385 $168,624 $163,589 $159,188
Book Value per Share 14.32 14.14 14.29 13.99 13.55
Intangible Assets 26,653 26,752 26,788 25,044 24,900
Tangible Book Value
per Share (2) 12.06 11.87 12.02 11.85 11.43
Capital Ratios:
---------------
Tier 1 Leverage
Ratio 9.10% 8.95% 9.10% 8.67% 8.66%
Tier 1 Risk-Based
Capital Ratio 14.84% 14.71% 15.06% 14.76% 14.37%
Total Risk-Based
Capital Ratio 16.10% 15.96% 16.31% 16.02% 15.63%
Assets Under Trust
Administration $1,038,186 $973,551 $925,671 $1,017,091 $1,011,618
and Investment Management
-------------------------
(1) Share and Per Share Data have been restated for the September 29, 2011 3% stock dividend.
(2) Tangible 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.
(3) Net 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: 3/31/2012 12/31/2011 3/31/2011
-------------- --------- ---------- ---------
Loan Portfolio
Commercial Loans $102,153 $99,791 $97,391
Commercial Construction Loans 10,814 11,083 7,284
Commercial Real Estate Loans 234,317 232,149 232,875
Other Consumer Loans 6,470 6,318 6,156
Consumer Automobile Loans 328,676 322,375 324,500
Residential Real Estate Loans 455,117 459,741 467,537
Total Loans $1,137,547 $1,131,457 $1,135,743
========== ========== ==========
Allowance for Loan Losses
Allowance for Loan Losses,
Beginning of Quarter $15,003 $14,921 $14,689
Loans Charged-off 297 251 238
Less Recoveries of Loans Previously
Charged-off 67 53 74
--- --- ---
Net Loans Charged-off 230 198 164
Provision for Loan Losses 280 280 220
Allowance for Loan Losses, End of
Quarter $15,053 $15,003 $14,745
======= ======= =======
Nonperforming Assets
Nonaccrual Loans $5,476 $4,528 $4,296
Loans Past Due 90 or More Days and
Accruing 121 1,662 93
Loans Restructured and in
Compliance with Modified Terms 511 1,422 362
--- ----- ---
Total Nonperforming Loans 6,108 7,612 4,751
Repossessed Assets 45 56 60
Other Real Estate Owned 510 460 -
Total Nonperforming Assets $6,663 $8,128 $4,811
====== ====== ======
Key Asset Quality Ratios
Net Loans Charged-off to Average
Loans, 0.08% 0.07% 0.06%
Quarter-to-date Annualized
Provision for Loan Losses to
Average Loans, 0.10% 0.10% 0.08%
Quarter-to-date Annualized
Allowance for Loan Losses to
Period-End Loans 1.32% 1.33% 1.30%
Allowance for Loan Losses to
Period-End Nonperforming Loans 246.45% 197.10% 310.36%
Nonperforming Loans to Period-End
Loans 0.54% 0.67% 0.42%
Nonperforming Assets to Period-End
Assets 0.33% 0.41% 0.24%
SOURCE Arrow Financial Corporation
Copyright (2013) PR Newswire. All Rights Reserved.
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