ARROW FINANCIAL CORPORATION 
By GLENS FALLS, N.Y., Jan. 21, 2014 /PRNewswire/ -- Arrow Financial Corporation (NasdaqGS® - AROW) announced operating results for the three- and twelve-month periods ended December 31, 2013. Net income for the fourth quarter of 2013 was $5.8 million, an increase of $235 thousand, or 4.2%, from net income of $5.5 million for the fourth quarter of 2012. Diluted earnings per share (EPS) for the quarter was $.47, an increase of 4.4% from the comparable 2012 quarter, when diluted EPS was $.45. For the twelve-month period ended December 31, 2013, net income was $21.8 million, as compared to net income of $22.2 million for 2012, while diluted EPS decreased by $0.04, from $1.81 in 2012 to $1.77 for 2013. Return on average equity and return on average assets was 12.11% and 1.04%, respectively for the twelve-month period ended December 31, 2013, as compared to 12.88% and 1.11%, respectively for the prior year.
Arrow President and CEO Thomas J. Murphy stated, "Our highlights for 2013 included continued growth in insurance commission income, as well as record highs at year-end for loan balances outstanding, total assets, equity and assets under trust administration and investment management. Key asset quality and profitability measurements remained strong. We are pleased with these results during this extended and challenging period of historically low interest rates."
The following provides more detail about our fourth-quarter and year-to-date periods:
Cash and Stock Dividends: A cash dividend of $.25 per share was paid to shareholders in the fourth quarter of 2013, effectively 2% higher than the cash dividend paid in the fourth quarter of 2012. This represents the 20th consecutive year of an increased cash dividend. In September 2013, we distributed a 2% stock dividend. All prior period share and per share data have been adjusted accordingly.
Insurance Operations: For the 2013 twelve-month period, insurance income rose $648 thousand, or 7.9%, to $8.9 million in 2013 from $8.2 million in 2012. This growth is attributable to organic growth of insurance commissions within our agency operations.
Trust Assets and Related Noninterest Income: Assets under trust administration and investment management at December 31, 2013 rose to a record high of $1.175 billion, an increase of $129 million, or 12.3%, from the December 31, 2012 balance of $1.046 billion. The growth in balances was generally attributable to an increase in the market value of accounts, principally reflecting improvements in the equity markets during the year, and the addition of new accounts . Income from fiduciary activities of $1.7 million rose by 14.0% for the 2013 fourth quarter as compared to the same period in 2012.
Balance Sheet Changes: Total assets at December 31, 2013 reached a record high of $2.164 billion, an increase of $140.9 million, or 7.0%, from the $2.023 billion balance at December 31, 2012. At December 31, 2013 our loan portfolio was also at a record high of $1.266 billion, up $94.1 million, or 8.0%, from the December 31, 2012 level. During 2013, we originated over $118.9 million of residential real estate loans, an increase of 9.0% from approximately $109.1 million of residential real estate loans originated in 2012. The outstanding balance of our residential real estate loan portfolio at December 31, 2013 was higher than at year-end 2012. For interest rate risk-management purposes, we continued to follow the practice we adopted in recent years of selling a substantial portion of the residential real estate loans we originate to the secondary market, primarily to a government-sponsored entity, the Federal Home Loan Mortgage Corporation. During 2013, we retained more residential real estate loan originations than we sold as yields began to rise. Our gain on the sale of residential real estate loan originations in 2013 was significantly less than our gain on the sale of originations in 2012 due both to a decrease in the amount of loans sold and to a narrowing of the premium received on each sale. Consistent with past practice, we retained servicing rights on nearly all the mortgages we sold, generating servicing fee income over the life of these loans and providing a convenient payment option for our customers. We also experienced an increase in the volume of new automobile loans in 2013, as well as modest growth in our commercial loan portfolio.
Asset Quality: Asset quality remained strong at December 31, 2013, as measured by our low level of nonperforming assets and charge-offs. Nonperforming assets of $7.9 million represented only 0.37% of period-end assets, far below industry averages and down from our 0.45% ratio at December 31, 2012. Net loan losses for the fourth quarter of 2013, expressed as an annualized percentage of average loans outstanding, were 0.05%, an increase of one basis point from the 2012 comparable period. These asset quality ratios continue to be significantly better than recently reported industry-wide averages.
Overall loan delinquency rates also remain low even though we, like other area banks, serve a community in which some individual and small business customers continue to experience varying degrees of financial stress. Our allowance for loan losses was $14.4 million at December 31, 2013, which represented 1.14% of loans outstanding, a decrease of sixteen basis points from our ratio of 1.30% at year-end 2012.
Capital: Total shareholders' equity grew to $192.2 million at period-end, an increase of $16.3 million, or 9.3%, above the December 31, 2012 balance. Arrow's capital ratios were again strong in 2013. At December 31, 2013, the Tier 1 leverage ratio at the holding company level was 9.19%, up from 9.10% at December 31, 2012, and total risk-based capital ratio was 15.77%, as compared to 16.26% for the prior year. The capital ratios of the Company and both of its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standards, which places us in 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 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 nine-month period ended September 30, 2013, in which our return on average equity (ROE) was 11.96%, as compared to 8.63% for our peer group. For the year ended December 31, 2013, ROE was 12.11%, versus 12.88% for the prior year. Our ratio of loans 90 days past due and accruing, plus nonaccrual loans to total loans was 0.57% as of September 30, 2013, as compared to 1.71% for our peer group, while our annualized net loan losses of 0.10% for the year-to-date period ending September 30, 2013 were well below the peer result of 0.25%. Our net loan losses for the full year were 0.09% for 2013 and 0.05% for 2012. Overall, our operating results and asset quality ratios have withstood the economic stress of recent years much better than most banks in our national peer group.
Net Interest Income: Like most banks, Arrow has been impacted by this historically low interest rate environment. While the cost of funds is extremely low, yields on loans and interest-bearing assets are also at very low levels. On a tax-equivalent basis, our net interest income in the fourth quarter of 2013, as compared to the fourth quarter of 2012, increased $636 thousand, or 4.2%, due primarily to an increase in the average level of interest-earning assets between the periods. Our tax-equivalent net interest margin fell from 3.13% in the fourth quarter of 2012 to 3.06% for the fourth quarter of 2013. However, net interest margin was stable as compared to the third quarter of 2013 which was also 3.06%. Both our yield on earning assets and the cost of our interest-bearing liabilities decreased significantly from the fourth quarter of 2012 to the fourth quarter of 2013. Our average cost of funds in the fourth quarter of 2013, as compared to the fourth quarter of 2012, fell by 22 basis points from 0.62% to 0.40%, while our average yield on earning assets decreased by 25 basis points from 3.64% in the fourth quarter of 2012 to 3.39% in the just completed quarter.
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, 2012, 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 Twelve Months Ended
December 31, December 31,
2013 2012 2013 2012
---- ---- ---- ----
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans $13,040 $13,356 $51,319 $54,511
Interest on Deposits at Banks 32 28 89 108
Interest and Dividends on Investment Securities:
Fully Taxable 1,912 1,960 6,903 9,269
Exempt from Federal Taxes 1,475 1,396 5,827 5,491
----- ----- ----- -----
Total Interest and Dividend Income 16,459 16,740 64,138 69,379
------ ------ ------ ------
INTEREST EXPENSE
NOW Accounts 474 854 2,461 3,564
Savings Deposits 239 282 1,024 1,287
Time Deposits of $100,000 or More 277 371 1,198 2,007
Other Time Deposits 433 655 1,962 3,730
Federal Funds Purchased and 4 5 18 22
Securities Sold Under Agreements to Repurchase
Federal Home Loan Bank Advances 141 186 680 729
Junior Subordinated Obligations Issued to 145 150 579 618
Unconsolidated Subsidiary Trusts
Total Interest Expense 1,713 2,503 7,922 11,957
----- ----- ----- ------
NET INTEREST INCOME 14,746 14,237 56,216 57,422
Provision for Loan Losses - 175 200 845
--- --- --- ---
NET INTEREST INCOME AFTER PROVISION FOR 14,746 14,062 56,016 56,577
LOAN LOSSES
NONINTEREST INCOME
Income From Fiduciary Activities 1,715 1,504 6,735 6,290
Fees for Other Services to Customers 2,351 2,134 9,407 8,245
Insurance Commissions 2,287 2,028 8,895 8,247
Net Gain on Securities Transactions - 156 540 865
Net Gain on Sales of Loans 189 788 1,460 2,282
Other Operating Income 335 287 1,024 1,170
--- --- ----- -----
Total Noninterest Income 6,877 6,897 28,061 27,099
----- ----- ------ ------
NONINTEREST EXPENSE
Salaries and Employee Benefits 8,068 8,042 31,182 31,703
Occupancy Expenses, Net 2,008 1,694 8,285 7,467
FDIC Assessments 280 260 1,080 1,026
Other Operating Expense 3,029 3,121 12,656 11,640
----- ----- ------ ------
Total Noninterest Expense 13,385 13,117 53,203 51,836
------ ------ ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES 8,238 7,842 30,874 31,840
Provision for Income Taxes 2,454 2,293 9,079 9,661
NET INCOME $5,784 $5,549 $21,795 $22,179
====== ====== ======= =======
Average Shares Outstanding(1):
Basic 12,339 12,254 12,296 12,247
Diluted 12,387 12,273 12,327 12,257
Per Common Share:
Basic Earnings $0.47 $0.45 $1.77 $1.81
Diluted Earnings 0.47 0.45 1.77 1.81
(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)
December 31, 2013 December 31, 2012
----------------- -----------------
ASSETS
Cash and Due From Banks $37,275 $37,076
Interest-Bearing Deposits at Banks 12,705 11,756
Investment Securities:
Available-for-Sale 457,606 478,698
Held-to-Maturity (Approximate Fair Value of $302,305 at 299,261 239,803
December 31, 2013, and $248,252 at December 31, 2012)
Other Investments 6,281 5,792
Loans 1,266,472 1,172,341
Allowance for Loan Losses (14,434) (15,298)
Net Loans 1,252,038 1,157,043
--------- ---------
Premises and Equipment, Net 29,154 28,897
Goodwill 22,003 22,003
Other Intangible Assets, Net 4,140 4,492
Other Assets 43,235 37,236
Total Assets $2,163,698 $2,022,796
========== ==========
LIABILITIES
Noninterest-Bearing Deposits $278,958 $247,232
NOW Accounts 817,366 758,287
Savings Deposits 498,779 442,363
Time Deposits of $100,000 or More 78,928 93,375
Other Time Deposits 168,299 189,898
------- -------
Total Deposits 1,842,330 1,731,155
--------- ---------
Federal Funds Purchased and 11,777 12,678
Securities Sold Under Agreements to Repurchase
Federal Home Loan Bank Overnight Advances 53,000 29,000
Federal Home Loan Bank Term Advances 20,000 30,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts 20,000 20,000
Other Liabilities 24,437 24,138
------ ------
Total Liabilities 1,971,544 1,846,971
--------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized - -
Common Stock, $1 Par Value; 20,000,000 Shares Authorized 16,744 16,416
(16,744,486 Shares Issued at December 31, 2013, and
16,416,163 Shares Issued at December 31, 2012)
Additional Paid-in Capital 229,290 218,650
Retained Earnings 27,457 26,251
Unallocated ESOP Shares (87,641 Shares at December 31, 2013, and (1,800) (2,150)
102,890 Shares at December 31, 2012)
Accumulated Other Comprehensive Loss (4,373) (8,462)
Treasury Stock, at Cost (4,296,723 Shares at December 31, 2013, and (75,164) (74,880)
4,288,617 Shares at December 31, 2012)
Total Stockholders' Equity 192,154 175,825
Total Liabilities and Stockholders' Equity $2,163,698 $2,022,796
========== ==========
Arrow Financial Corporation
Selected Quarterly Information
(Dollars In Thousands, Except Per Share Amounts - Unaudited)
Quarter Ended 12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012
------------- ---------- --------- --------- --------- ----------
Net Income $5,784 $5,623 $5,207 $5,181 $5,549
Transactions Recorded in Net Income (Net of
Tax):
-----
Net Gain on Securities Transactions - - 8 318 94
Net Gain on Sales of Loans 114 100 301 367 476
Share and Per Share Data:(1)
---------------------------
Period End Shares Outstanding 12,360 12,329 12,284 12,251 12,265
Basic Average Shares Outstanding 12,339 12,308 12,261 12,272 12,254
Diluted Average Shares Outstanding 12,387 12,344 12,279 12,290 12,273
Basic Earnings Per Share $0.47 $0.46 $0.42 $0.42 $0.45
Diluted Earnings Per Share 0.47 0.46 0.42 0.42 0.45
Cash Dividend Per Share 0.25 0.25 0.25 0.25 0.25
Selected Quarterly Average Balances:
------------------------------------
Interest-Bearing Deposits at Banks $46,853 $14,096 $26,632 $41,145 $40,065
Investment Securities 762,768 744,928 771,018 711,848 745,150
Loans 1,254,957 1,224,840 1,185,041 1,169,870 1,160,226
Deposits 1,904,922 1,800,181 1,801,346 1,773,126 1,781,778
Other Borrowed Funds 62,038 92,073 94,596 64,622 80,357
Shareholders' Equity 184,506 179,634 178,867 176,874 176,514
Total Assets 2,176,264 2,095,017 2,099,138 2,039,314 2,064,602
Return on Average Assets 1.05% 1.06% 0.99% 1.03% 1.07%
Return on Average Equity 12.44% 12.42% 11.68% 11.88% 12.51%
Return on Tangible Equity(2) 14.50% 14.55% 13.70% 13.97% 14.72%
Average Earning Assets $2,064,578 $1,983,864 $1,982,691 $1,922,863 $1,945,441
Average Paying Liabilities 1,686,993 1,614,873 1,641,300 1,590,401 1,612,959
Interest Income, Tax-Equivalent 17,633 17,032 16,989 17,059 17,787
Interest Expense 1,713 1,747 2,223 2,239 2,503
Net Interest Income, Tax-Equivalent 15,920 15,285 14,766 14,820 15,284
Tax-Equivalent Adjustment 1,174 1,158 1,180 1,063 1,047
Net Interest Margin 3 3.06% 3.06% 2.99% 3.13% 3.13%
Efficiency Ratio Calculation:
-----------------------------
Noninterest Expense $13,385 $13,133 $13,274 $13,411 $13,117
Less: Intangible Asset Amortization (108) (108) (112) (124) (126)
Net Noninterest Expense $13,277 $13,025 $13,162 $13,287 $12,991
------- ------- ------- ------- -------
Net Interest Income, Tax-Equivalent $15,920 $15,285 $14,766 $14,820 $15,284
Noninterest Income 6,877 6,939 7,071 7,174 6,897
Less: Net Securities Gains - - (13) (527) (156)
--- --- --- ---- ----
Net Gross Income $22,797 $22,224 $21,824 $21,467 $22,025
------- ------- ------- ------- -------
Efficiency Ratio 58.24% 58.61% 60.31% 61.90% 58.98%
Period-End Capital Information:
-------------------------------
Total Stockholders' Equity (i.e. Book Value) $192,154 $182,683 $177,607 $177,803 $175,825
Book Value per Share 15.55 14.82 14.46 14.51 14.34
Intangible Assets 26,143 26,273 26,387 26,460 26,495
Tangible Book Value per Share (2) 13.43 12.69 12.31 12.35 12.18
Capital Ratios:
---------------
Tier 1 Leverage Ratio 9.19% 9.37% 9.19% 9.30% 9.10%
Tier 1 Risk-Based Capital Ratio 14.70% 14.59% 14.82% 15.15% 15.02%
Total Risk-Based Capital Ratio 15.77% 15.69% 15.96% 16.34% 16.26%
Assets Under Trust Administration $1,174,891 $1,111,085 $1,073,523 $1,094,708 $1,045,972
and Investment Management
-------------------------
(1)Share and Per Share Data have been restated for the September 27, 2013, 2% 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: 12/31/2013 12/31/2012
------- ---------- ----------
Loan Portfolio
Commercial
Loans $87,893 $105,536
Commercial
Construction
Loans 27,815 29,149
Commercial
Real Estate
Loans 288,119 245,177
Other
Consumer
Loans 7,649 6,684
Consumer
Automobile
Loans 394,204 349,100
Residential
Real Estate
Loans 460,792 436,695
Total Loans $1,266,472 $1,172,341
========== ==========
Allowance for Loan Losses
Allowance
for Loan
Losses,
Beginning
of Quarter $14,584 $15,247
Loans
Charged-
off 246 178
Less
Recoveries
of Loans
Previously
Charged-
off 96 54
--- ---
Net Loans
Charged-
off 150 124
Provision
for Loan
Losses - 175
Allowance
for Loan
Losses, End
of Quarter $14,434 $15,298
======= =======
Nonperforming Assets
Nonaccrual
Loans $6,479 $6,633
Loans Past
Due 90 or
More Days
and
Accruing 652 920
Loans
Restructured
and in
Compliance
with
Modified
Terms 641 483
--- ---
Total
Nonperforming
Loans 7,772 8,036
Repossessed
Assets 63 64
Other Real
Estate
Owned 81 970
Total
Nonperforming
Assets $7,916 $9,070
====== ======
Key Asset Quality Ratios
Net Loans
Charged-
off to
Average
Loans,
Quarter-
to-date 0.05% 0.04%
Annualized
Provision
for Loan
Losses to
Average
Loans,
Quarter-
to-date - 0.06%
Annualized
Allowance
for Loan
Losses to
Period-End
Loans 1.14% 1.30%
Allowance
for Loan
Losses to
Period-End
Nonperforming
Loans 185.71% 190.37%
Nonperforming
Loans to
Period-End
Loans 0.61% 0.69%
Nonperforming
Assets to
Period-End
Assets 0.37% 0.45%
Twelve-Month Period Ended:
--------------------------
Allowance for Loan Losses
Allowance
for Loan
Losses,
Beginning
of Year $15,298 $15,003
Loans
Charged-
off 1,411 782
Less
Recoveries
of Loans
Previously
Charged-
off 347 232
--- ---
Net Loans
Charged-
off 1,064 550
Provision
for Loan
Losses 200 845
Allowance
for Loan
Losses, End
of Year $14,434 $15,298
======= =======
Key Asset Quality Ratios
Net Loans
Charged-
off to
Average
Loans 0.09% 0.05%
Provision
for Loan
Losses to
Average
Loans 0.02% 0.07%
SOURCE Arrow Financial Corporation
