SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-12507
ARROW FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 22-2448962
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
250 GLEN STREET, GLENS FALLS, NEW YORK 12801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (518) 745-1000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1997
Common Stock, par value
$1.00 per share 5,610,875
ARROW FINANCIAL CORPORATION
FORM 10-Q
MARCH 31, 1997
<TABLE>
<CAPTION>
INDEX
PART I FINANCIAL INFORMATION Page No.
<S> <C>
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION 17
SIGNATURES 17
</TABLE>
<TABLE>
<CAPTION>
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)(Unaudited)
3/31/97 12/31/96
ASSETS
<S> <C> <C>
Cash and Due from Banks $ 21,488 $ 19,572
Federal Funds Sold 12,500 17,925
Cash and Cash Equivalents 33,988 37,497
Securities Available-for-Sale 159,456 171,743
Securities Held-to-Maturity: (Approximate Fair Value of
$42,820 in 1997 and $31,519 in 1996) 42,915 30,876
Loans and Leases 398,581 393,511
Less: Allowance for Loan Losses (5,625) (5,581)
Net Loans and Leases 392,956 387,930
Premises and Equipment 9,365 9,414
Other Real Estate Owned 340 136
Other Assets 15,343 15,007
Total Assets $654,363 $652,603
LIABILITIES
Deposits:
Demand $ 65,995 $ 67,877
Regular Savings, N.O.W. & Money Market Deposit Accounts 248,341 254,312
Time Certificates of $100,000 or More 93,145 83,802
Other Time Deposits 142,185 135,756
Total Deposits 549,666 541,747
Short-Term Borrowings:
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase 12,731 16,597
Other Short-Term Borrowings 8,322 6,109
Other Liabilities 12,230 13,854
Total Liabilities 582,949 578,307
SHAREHOLDERS' EQUITY
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized --- ---
Common Stock, $1 Par Value; 20,000,000 Shares Authorized
(6,577,036 Shares Issued in 1997 and 1996) 6,577 6,577
Surplus 54,653 54,569
<PAGE>
Undivided Profits 28,750 26,992
Valuation Allowance for Securities Available-for-Sale (682) 208
Treasury Stock (951,161 Shares in 1997 and
817,743 in 1996, at Cost) (17,884) (14,050)
Total Shareholders' Equity 71,414 74,296
Total Liabilities and Shareholders' Equity $654,363 $652,603
</TABLE>
<TABLE>
<CAPTION>
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)(Unaudited)
Three Months
Ended March 31,
1997 1996
INTEREST INCOME
<S> <C> <C>
Interest and Fees on Loans and Leases $ 8,700 $11,574
Interest and Dividends on Securities Held-to-Maturity:
U.S. Government, Agencies and Corporations 360 ---
State and Municipal Obligations 276 194
Other Securities --- ---
Interest on Federal Funds Sold and Securities
Purchased Under Agreements to Resell 71 138
Interest and Dividends on Securities Available-for-Sale 2,761 2,643
Total Interest Income 12,168 14,549
INTEREST EXPENSE
Interest on Deposits:
Time Certificates of $100,000 or More 1,149 944
Other Deposits 3,708 4,423
Interest on Short-Term Borrowings:
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 168 179
Other Short-Term Borrowings 70 30
Total Interest Expense 5,095 5,576
NET INTEREST INCOME 7,073 8,973
Provision for Loans Losses 236 224
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,837 8,749
OTHER INCOME
Income from Fiduciary Activities 658 970
Fees for Other Services to Customers 755 1,014
Net (Losses) Gains on Securities Transactions (28) 112
Gain on the Disposition of Branches --- 7,091
Other Operating Income 525 281
Total Other Income 1,910 9,468
OTHER EXPENSE
Salaries and Employee Benefits 2,934 3,900
Occupancy Expense of Premises, Net 378 525
Furniture and Equipment Expense 479 457
Other Operating Expense 1,145 1,899
Total Other Expense 4,936 6,781
INCOME BEFORE PROVISION FOR INCOME TAXES 3,811 11,436
Provision for Income Taxes 910 3,963
NET INCOME $ 2,901 $ 7,473
Average Primary Shares Outstanding 5,772 6,213
Average Fully Diluted Shares Outstanding 5,773 6,226
Per Common Share:
Primary Earnings $ .50 $ 1.20
Fully Diluted Earnings .50 1.20
Dividends Declared .20 .15
Book Value 12.69 11.62
Per share amounts have been adjusted for the November 1996 ten percent stock dividend.
</TABLE>
<TABLE>
<CAPTION>
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)(Unaudited)
Three Months
Ended March 31,
1997 1996
Operating Activities:
<S> <C> <C>
Net Income $ 2,901 $ 7,473
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 236 224
Provision for Other Real Estate Owned Losses 60 215
Depreciation and Amortization 153 318
Compensation Expense for Allocated ESOP Shares --- 23
Net Gain on Divestiture of Vermont Operations --- (7,091)
Gains on the Sale of Securities Available-for-Sale (35) (174)
Losses on the Sale of Securities Available-for-Sale 63 62
Proceeds from the Sale of Loans 527 1,973
Net Gains on the Sale of Loans, Fixed Assets and
Other Real Estate Owned (6) (39)
Decrease in Deferred Tax Assets 508 269
Decrease in Interest Receivable 158 442
Increase (Decrease) in Interest Payable 76 (646)
Decrease (Increase) in Other Assets (412) 976
Increase (Decrease) in Other Liabilities (1,701) 3,010
Net Cash Provided By Operating Activities 2,528 7,035
Investing Activities:
Proceeds from the Sale of Securities Available-for-Sale 10,935 18,285
Proceeds from the Maturities of
Securities Available-for-Sale 13,895 13,924
Purchases of Securities Available-for-Sale (14,088) (27,051)
Proceeds from the Maturities of
Securities Held-to-Maturity 470 20
Purchases of Securities Held-to-Maturity (12,395) (221)
Proceeds from Loans Sold in Branch Divestitures --- 39,543
Net Decrease (Increase) in Loans and Leases (6,046) (4,475)
Proceeds from Fixed Assets Sold in Branch Divestitures --- 1,533
Proceeds from the Sales of Fixed Assets and
Other Real Estate Owned 14 338
Purchase of Fixed Assets (196) (568)
Net Cash (Used In) Provided By Investing Activities (7,411) 41,328
Financing Activities:
Deposits Transferred in Branch Divestitures,
Net of Premium --- (93,109)
Net Increase (Decrease) in Deposits 7,919 17,783
Net (Decrease) Increase in Short-Term Borrowings (1,652) 2,017
Purchase of Treasury Stock (3,750) (2,979)
Exercise of Stock Options --- 160
Disqualifying Disposition of ISO Shares --- 32
Cash Dividends Paid (1,143) (952)
<PAGE>
Net Cash Provided By (Used In) Financing Activities 1,374 (77,048)
Net Decrease in Cash and Cash Equivalents (3,509) (28,685)
Cash and Cash Equivalents at Beginning of Period 37,497 58,506
Total Cash and Cash Equivalents $33,988 $29,821
Supplemental Cash Flow Information:
Interest Paid $ 5,019 $ 6,211
Income Taxes Paid 1,916 290
Transfer of Loans to Other Real Estate Owned 264 216
</TABLE>
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q
MARCH 31, 1997
1. Financial Statement Presentation
In the opinion of the management of Arrow Financial Corporation (the
"Company"), the accompanying consolidated financial statements
contain all of the adjustments necessary to present fairly the financial
position as of March 31, 1997 and December 31, 1996; the results of
operations for the three month periods ended March 31, 1997 and
March 31, 1996; and the statements of cash flows for the three month
periods ended March 31, 1997 and March 31, 1996. All such
adjustments are of a normal recurring nature. Certain items have
been reclassified to conform to the 1997 presentation. Per share
amounts have been restated to reflect the November 1, 1996 ten
percent stock dividend, declared September 25, 1996.
2. Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 (except for certain provisions
which were deferred for one year by SFAS No. 127) and is to be
applied prospectively. This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of
financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers
that are secured borrowings. Management of the Company does not
expect that adoption of SFAS No. 125 will have a material impact on
the Company's consolidated financial position, results of operations,
or liquidity.
3. Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share." SFAS No. 128 simplifies the standards for computing
earnings per share ("EPS") previously found in APB Opinion No. 15,
and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic and diluted EPS computations. The
statement is effective for financial statements issued for periods
ending after December 15, 1997. Earlier application is not permitted,
however, the statement requires restatement of all prior-period EPS
data presented.
Cautionary Statement under Federal Securities Laws: The
information contained in this Quarterly Report on Form 10-Q contains
forward-looking statements that are based on management's beliefs,
certain assumptions made by management and current expectations,
estimates and projections about the Company's financial condition
and results of operations. Words such as "expects," "believes,"
"should," "plans," "will," "estimates," and variations of such words and
similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future
performance and involve certain risks and uncertainties that are
difficult to quantify or, in some cases, to identify. Therefore, actual
outcomes and results may differ materially from what is expected or
forecasted in such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to,
changes in economic and market conditions, including unanticipated
fluctuations in interest rates, effects of state and federal regulation
and risks inherent in banking operations. Readers are cautioned not
to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no
obligation to revise or update these forward-looking statements to
reflect the occurrence of unanticipated events.
ARROW FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
Arrow Financial Corporation (the "Company") is a two bank holding
company headquartered in Glens Falls, New York. The banking
subsidiaries are Glens Falls National Bank and Trust Company
whose main office is located in Glens Falls, New York and Saratoga
National Bank and Trust Company whose main office is located in
Saratoga Springs, New York.
Acquisition of Six Fleet Branches
On March 24, 1997, the Company announced a definitive agreement
to purchase six branches in upstate New York from Fleet Bank, a
subsidiary of Fleet Financial Group, Hartford, CT. The branches are
located in the towns of Plattsburg (2), Lake Luzerne, Port Henry,
Ticonderoga and Warrensburg and will become branches of Glens
Falls National Bank and Trust Company. Under the agreement,
Glens Falls National Bank and Trust Company will acquire
substantially all deposits and certain loans related to the branches.
At December 31, 1996, total deposits at the branches were
approximately $145 million and the total amount of the branch-related
loans to be acquired was approximately $37 million. Under the
agreement, Glens Falls National Bank and Trust Company also has
an option to acquire from Fleet an additional $10 million of residential
real estate loans not related to the branches. The transaction, which
is subject to regulatory approval, is currently expected to close in mid-summer.
Divestiture and Liquidation of Vermont Operations
During 1996, the Company completed the divestiture of substantially
all the banking operations of its Vermont subsidiary bank, Green
Mountain Bank ("GMB") in three separate transactions. Total loans
and deposits transferred in these divestiture transactions amounted
to approximately $148 million and $208 million, respectively. The
only substantial Vermont property not sold in the transactions, the
building that served as GMB's main office in Rutland, Vermont, was
being held for sale on March 31, 1997.
In the first quarter of 1997, GMB transferred to its immediate parent
corporation, Arrow Vermont Corporation, as a capital distribution,
substantially all of its remaining assets, primarily consisting of
investment securities and other liquid assets. Thereafter, on March
21, 1997, GMB filed Articles of Dissolution under Vermont law. It is
anticipated that Arrow Vermont Corporation, in turn, also will file
Articles of Dissolution under Vermont law in the immediate future,
having transferred substantially all of its assets to its parent
corporation, Arrow Financial Corporation, by way of dividend.
Stock Repurchase Program
On two separate occasions, in spring and fall 1996, the Board of
Directors authorized an ongoing stock repurchase program, under
which management was given the authority to repurchase at its
discretion from time to time, in market or privately negotiated
transactions, up to an aggregate of $20 million of the Company's
outstanding common stock. As of March 31, 1997, the Company
had repurchased under the program $13.0 million, of which $3.7
million was repurchased in the first quarter of 1997.
OVERVIEW
The Company reported earnings of $2.9 million for the first quarter of
1997, compared to earnings of $7.5 million for the first quarter of
1996. Earnings per share were $.50 and $1.20 for the two respective
periods. Each of the periods included income amounts relating to
nonrecurring items, with the earlier period amount being substantially
larger than the amount for the just-completed quarter. Earnings in
the 1997 period reflected the favorable settlement of a combined
reporting issue with the New York State Department of Taxation and
Finance, resulting in a significant reduction in the provision for income
taxes for that period. Earnings in the 1996 period included the gain
on the sale of eight branches of GMB to Mascoma Savings Bank in
January 1996 and substantial unanticipated repayments on certain
restructured loans. On a comparable basis, excluding these
nonrecurring items, earnings per share for both periods was $.40.
The returns on average assets were 1.80% and 4.15% for the first
quarter of 1997 and 1996, respectively. The returns on average
equity were 15.94% and 41.54% for the first quarter of 1997 and
1996, respectively. Excluding the nonrecurring items, the returns on
average assets were 1.42% and 1.39%, and the returns on average
equity were 12.60% and 14.73%, for the respective quarters.
Total assets were $654.4 million at March 31, 1997, an increase of
$1.8 million, or 0.3%, from December 31, 1996. Total assets at
March 31, 1997 were $60.0 million below the level at March 31, 1996,
reflecting among other changes, the effects of the sale of
substantially all the remaining banking operations of GMB in the third
quarter of 1996.
Shareholders' equity decreased $2.9 million to $71.4 million during
the first three months of 1997, as net income of $2.9 million was
more than offset by repurchases, under the Company's stock
repurchase program, cash dividends and a change in the valuation
allowance for securities available-for-sale. However, the Company's
risk-based capital ratios and Tier 1 leverage ratio continued to exceed
regulatory minimums at period-end and all Company banks qualified
as "well-capitalized" under federal bank guidelines. The Company
currently expects that after the acquisition of the six Fleet branches,
both the Company and Glens Falls National Bank and Trust
Company will continue to exceed all regulatory capital standards and
maintain their well-capitalized ratings, without raising additional
capital from external sources.
CHANGE IN FINANCIAL CONDITION
<TABLE>
<CAPTION>
Summary of Consolidated Balance Sheets
(Dollars in Thousands)
$ Change $ Change % Change % Change
Mar 1997 Dec 1996 Mar 1996 From Dec From Mar From Dec From Mar
<S> <C> <C> <C> <C> <C> <C> <C>
Federal Funds Sold $ 12,500 $ 17,925 $ 9,400 $ (5,425) $ 3,100 (30.3)% 33.0%
Securities Available
for Sale 159,456 171,743 171,766 (12,287) (12,310) (7.2) (7.2)
Securities Held
to Maturity 42,915 30,876 14,120 12,039 28,795 39.0 203.9
Loans, Net of
Unearned Income (1) 398,581 393,511 479,848 5,070 (81,267) 1.3 (16.9)
Allowance for
Loan Losses 5,625 5,581 11,469 44 (5,844) 0.8 (51.0)
Earning Assets (1) 613,452 614,055 675,134 (603) (61,682) (0.1) (9.1)
Total Assets 654,363 652,603 714,412 1,760 (60,049) 0.3 (8.4)
Demand Deposits $ 65,995 $ 67,877 $ 78,123 $ (1,882) $(12,128) (2.8) (15.5)
Savings, NOW and
MMDA Accounts 248,341 254,312 299,950 (5,971) (51,609) (2.3) (17.2)
Time Deposits of
$100,000 or More 93,145 83,802 73,468 9,343 19,677 11.1 26.8
Other Time Deposits 142,185 135,756 159,711 6,429 (17,526) 4.7 (11.0)
Total Deposits $549,666 $541,747 $611,252 $ 7,919 $(61,586) 1.5 (10.1)
Other Borrowed Funds $ 21,053 $ 22,706 $ 17,314 $ (1,653) $ 3,739 (7.3) 21.6
Shareholders' Equity 71,414 74,296 70,138 (2,882) 1,276 (3.9) 1.8
(1) Includes Nonaccrual Loans
</TABLE>
Total resources at March 31, 1997 amounted to $654.4 million, an
increase of $1.8 million, or 0.3%, from year-end 1996, and a
decrease of $60.0 million, or 8.4%, from March 31, 1996. The
decrease from March 31, 1996 was attributable to the sale of the
remaining Vermont operations at the end of the third quarter of
1996. This decrease was offset, in part, by growth in the loan
portfolios of the Company's two New York based banks, primarily in
the area of consumer loans.
Total loans at March 31, 1997 amounted to $398.6 million, an
increase of $5.1 million, or 1.3%, from December 31, 1996, and a
decrease of $81.3 million, or 16.9%, from March 31, 1996. Loans
transferred in September 1996 in the sale to ALBANK, FSB of the
remaining commercial bank operations in Vermont were
approximately $108 million.
Total deposits of $549.7 million at March 31, 1997 increased $7.9
million, or 1.5%, from the December 31, 1996 level, and decreased
$61.6 million, or 10.1%, from March 31, 1996. Total deposits
assumed by ALBANK, FSB in the September 1996 Vermont
transaction were approximately $107 million.
Shareholders' equity decreased $2.9 million to $71.4 million during
the first three months of 1997. Net income of $2.9 million was more
than offset by stock repurchases of $3.7 million, cash dividends of
$1.1 million and an $890 thousand change in the valuation
allowance for securities available-for-sale. The Company paid a
$.20 cash dividend for the first quarter of 1997, which followed
dividends of $.20 and $.155 for the two previous quarters.
Deposit and Loan Trends
The following analysis on trends in the deposit and loan portfolios
focuses exclusively on the Company's two New York banking
subsidiaries, Glens Falls National Bank and Trust Company and
Saratoga National Bank and Trust Company. Vermont banking
operations, which were divested in 1996, have been excluded.
The following table presents the quarterly average balance by
deposit type and the relative proportion of each deposit type for the
last five quarters for the New York banks.
<TABLE>
<CAPTION>
Quarterly Average Deposit Balances
(Excludes Vermont Deposits)
(Dollars in Thousands)
Mar 1997 Dec 1996 Sep 1996 Jun 1996 Mar 1996
Amount % Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand Deposits $ 63,147 12 $ 67,240 12 $ 69,216 13 $ 66,299 13 $ 63,156 13
N.O.W. and Super N.O.W. 122,318 22 125,559 23 111,052 21 104,768 20 99,004 20
Savings and M.M.D.A 129,791 24 133,974 25 137,768 26 142,916 28 145,094 29
Time Deposits of
$100,000 or More 88,704 16 80,462 15 84,708 16 78,063 15 66,755 14
Other Time Deposits 139,261 26 133,041 25 127,934 24 120,397 24 117,683 24
Total Deposits $543,221 100 $540,276 100 $530,678 100 $512,443 100 $491,692 100
</TABLE>
Average deposits for the New York banks increased $51.5 million,
or 10.5%, from the first quarter of 1996 to the first quarter of 1997.
Average deposits increased by $2.9 million, or 0.5% from the last
quarter of 1996 to the first quarter of 1997, reflecting among other
changes, the normal seasonal out-flow of municipal deposits. Over
the five quarters charted in the table above, the Company
experienced a relatively small but steady shift in the mix of deposits,
with savings and money market accounts decreasing as a
percentage of total deposits and N.O.W. accounts and time deposits
generally increasing in proportion to total deposits. Most of the
increase in deposits over the past four quarters has been in the area
of time deposits.
<TABLE>
<CAPTION>
Quarterly Cost of Deposits
(Excludes Vermont Deposits)
Mar 1997 Dec 1996 Sep 1996 Jun 1996 Mar 1996
<S> <C> <C> <C> <C> <C>
Demand Deposits ---% ---% ---% ---% ---%
N.O.W. and Super N.O.W. 3.05 3.04 2.86 2.69 2.58
Savings and M.M.D.A 2.94 2.93 2.92 2.92 3.00
Time Deposits of $100,000 or More 5.25 5.21 5.25 5.15 5.37
Other Time Deposits 5.38 5.34 5.23 5.23 5.49
Total Deposits 3.63 3.52 3.45 3.38 3.45
</TABLE>
<TABLE>
<CAPTION>
Federal Reserve Bank's Discount Rate Changes 1992 - 1997
Date New Rate Old Rate
<S> <C> <C>
January 31, 1996 5.00% 5.25%
February 1, 1995 5.25 4.75
November 15, 1994 4.75 4.00
August 16, 1994 4.00 3.50
May 17, 1994 3.50 3.00
July 2, 1992 3.00 3.50
</TABLE>
The Federal Reserve Board attempts to influence the federal funds
and prime interest rates by changing the Federal Reserve Bank
discount rate and/or through open market operations. In the most
recent quarter, the prevailing Federal Funds rate increased by
twenty five basis points even though the discount rate remain
unchanged. Accordingly, the Company experienced an increase in
the total cost of deposits, resulting from competitive pricing in the
marketplace as well as a shift in the mix of deposits discussed
above.
The Company does not expect that its average cost of funds will
change significantly after the acquisition of the Fleet branches. Total
deposits to be acquired from the six Fleet branches were
approximately $144 million at December 31, 1996. For variable rate
deposit products (including NOW, Super NOW, Money Market
Savings and regular savings) which comprise approximately $57
million of the branch deposits, the Company traditionally has been
somewhat more aggressive than Fleet in terms of the yields offered
on those products. Approximately $61 million of the new branch
deposits represent time deposits. At December 31, 1996, the yield
on that portfolio maintained by Fleet was similar to the Company's
yield. Only $3.4 million of the new branch deposits were time
deposits of $100,000 or more, and the yield on that portion of the
deposit base was slightly higher than the Company's average for
similar deposits at year-end. Accordingly, the Company expects to
lose few, if any, core deposit customers due to interest rate
sensitivity.
The following table presents the quarterly average balance by loan
type and the relative proportion of each loan type for
the last five quarters for the New York banks.
<TABLE>
<CAPTION>
Quarterly Average Loan Balances
(Excludes Vermont Loans)
(Dollars in Thousands)
Mar 1997 Dec 1996 Sep 1996 Jun 1996 Mar 1996
Amount % Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Commercial
Real Estate $ 89,673 23 $ 84,059 22 $ 87,789 23 $ 87,304 23 $ 87,073 24
Residential Real Estate 127,032 32 125,897 33 123,884 33 122,858 33 120,010 33
Home Equity 30,012 8 29,863 8 29,109 8 28,804 8 29,226 8
Indirect Consumer Loans 107,371 27 105,227 27 99,059 26 92,757 25 82,446 23
Direct Consumer Loans 33,300 8 32,013 8 30,634 8 31,627 8 31,555 9
Credit Card Loans 8,153 2 8,514 2 8,733 2 8,967 3 9,310 3
Total Loans $395,541 100 $385,573 100 $376,208 100 $372,317 100 $359,620 100
</TABLE>
Average loans at the New York banks increased at a steady pace
over the five most recent quarters. Average loans for the first
quarter of 1997 increased by $35.9 million, or 10.0%, over the first
quarter of 1996. While all categories of loans, except for credit card
loans, increased over the comparative period, indirect consumer
loans demonstrated the most significant change. Indirect consumer
loans are primarily auto loans financed through local dealerships
where the Company acquires the dealer paper. As a percentage of
the overall loan portfolio of the New York banks, these loans
increased from 23% to 27% from the first quarter of 1996 to the first
quarter of 1997. Otherwise, there was no significant change in the
overall mix of loans within the portfolio of the New York banks.
<TABLE>
<CAPTION>
Quarterly Taxable Equivalent Yield on Loans
(Excludes Vermont Loans)
Mar 1997 Dec 1996 Sep 1996 Jun 1996 Mar 1996
<S> <C> <C> <C> <C> <C>
Commercial and Commercial
Real Estate 9.61% 9.36% 9.76% 9.84% 9.98%
Residential Real Estate 8.47 8.30 8.26 8.42 8.55
Home Equity 9.10 9.08 9.10 9.23 9.40
Indirect Consumer Loans 8.29 8.35 8.43 8.52 8.62
Direct Consumer Loans 9.16 9.33 9.45 9.44 9.43
Credit Card Loans 16.76 16.46 16.66 16.55 16.45
Total Loans 8.96 8.99 9.00 9.12 9.26
</TABLE>
Yields on the loan portfolio of the New York banks slowly declined
over the past five quarters in all categories except for credit card
loans. Although general interest rate trends were quite stable, the
Company experienced significant competitive pricing for loan
products in its market area.
Total loans related to the Fleet branches to be acquired were
approximately $37 million at December 31, 1996. Additionally,
under its acquisition agreement with Fleet, the Company has an
option to acquire an additional $10 million of residential real estate
loans not related to specific branches. The Company does not
expect that the acquisition of these loans from Fleet, including the
optional mortgage loans, will have a significant impact on the overall
yield of the loan portfolio of the New York banks, or within the
particular loan categories affected by the purchase.<PAGE>
The following table presents information related to the Company's
allowance and provision for loan losses for the past five quarters.
The provision for loan losses and net charge-offs are reported on a
year-to-date basis, and are annualized for the purpose of calculating
the ratio of each to average loans for each of the periods presented.
<TABLE>
<CAPTION>
Summary of the Allowance and Provision for Loan Losses
(Dollars in Thousands)(Loans Stated Net of Unearned Income)
Mar 1997 Dec 1996 Sep 1996 Jun 1996 Mar 1996
Loan Balances:
<S> <C> <C> <C> <C> <C>
Period-End Loans $398,581 $393,511 $381,683 $487,291 $479,848
Average Loans, Year-to-Date 395,541 459,946 484,872 484,473 482,640
Allowance for Loan Losses:
Allowance for Loan Losses,
Begining of Period $5,581 $12,106 $12,106 $12,106 $12,106
Transfer Pursuant to Branch Sale --- (6,841) (6,841) (596) (596)
Provision for Loan Losses, Y-T-D 236 896 672 448 224
Net Charge-offs, Y-T-D (192) (580) (388) (418) (265)
Allowance for Loan Losses,
End of Period $5,625 $ 5,581 $ 5,549 $11,540 $11,469
Nonperforming Assets:
Nonaccrual Loans $2,070 $2,297 $2,477 $2,962 $3,247
Loans Past due 90 or More Days
and Still Accruing Interest 292 321 39 806 957
Loans Restructured and in
Compliance with Modified Terms --- --- --- --- ---
Total Nonperforming Loans 2,362 2,618 2,516 3,768 4,204
Other Real Estate Owned 340 136 225 540 2,215
Total Nonperforming Assets $2,702 $2,754 $2,741 $4,308 $6,419
Performance Ratios:
Allowance to Nonperforming Loans 238.15% 213.18% 220.54% 306.26% 272.81%
Allowance to Period-End Loans 1.41 1.42 1.45 2.37 2.39
Provision to Average Loans (annualized) 0.24 0.19 0.18 0.19 0.19
Net Charge-offs to Average
Loans (annualized) 0.20 0.13 0.11 0.17 0.22
Nonperforming Assets to Loans & OREO 0.68 0.67 0.72 0.88 1.33
</TABLE>
The Company's nonperforming assets at March 31, 1997 amounted
to $2.7 million, virtually unchanged from December 31, 1996.
During the third quarter of 1996, a large portion of the Company's
nonperforming assets were transferred in connection with the
divestiture of Vermont banking operations during that period.
The provision for loan losses was $236 thousand for the first quarter
of 1997, compared to a provision of $224 thousand for the first
quarter of 1996. On an annualized basis, the ratio of the 1997 first
quarter provision to average loans was .24%, four basis points
higher than the annualized ratio of net charge-offs to average loans
in the 1996 period of .20%. The ratio of the allowance for loan
losses to outstanding loans at March 31, 1997, was 1.41%, virtually
unchanged from the ratio at December 31, 1996.
CAPITAL RESOURCES
Shareholders' equity was $71.4 million at March 31, 1997, a net
decrease of $2.9 million, or 3.9%, from December 31, 1996. Net
income of $2.9 million for the period was more than offset by a
combination of stock repurchases ($3.7 million), cash dividends
($1.1 million) and a change in the valuation allowance for securities
available-for-sale ($890 thousand). The valuation allowance was
established by the Company with its December 31, 1993 adoption
of SFAS No. 115, which requires that securities available-for-sale be
carried at fair value, net of tax, by way of a valuation reserve in
shareholders' equity.
The Company and its subsidiaries are currently subject to two sets
of regulatory capital measures, a leverage ratio test and risk-based
capital guidelines. The risk-based guidelines assign weightings to all
assets and certain off-balance sheet items and establish an 8%
minimum ratio of qualified total capital to risk-weighted assets. At
least half of total capital must consist of "Tier 1" capital, which
comprises common equity, retained earnings and a limited amount
of permanent preferred stock, less goodwill. Up to half of total
capital may consist of so-called "Tier 2" capital, comprising a limited
amount of subordinated debt, other preferred stock, certain other
instruments and a limited amount of loan loss reserves. The
leverage ratio test establishes minimum limits on the ratio of Tier 1
capital to total tangible assets, without risk weighting. For top-rated
companies, the minimum leverage ratio is 3%, but lower-rated or
rapidly expanding companies may be required to meet substantially
higher minimum leverage ratios. The FDIC Improvement Act of
1991 ("FDICIA") mandated actions to be taken by banking regulators
for financial institutions that are undercapitalized as measured by
these ratios. FDICIA established five levels of capitalization for
financial institutions ranging from "critically undercapitalized" to
"well-capitalized." As of March 31, 1997, the Tier 1 leverage and
risk-based capital ratios for the Company and its subsidiaries were
as follows:
<TABLE>
<CAPTION>
Summary of Capital Ratios
Tier 1 Total
Risk-Based Risk-Based
Leverage Capital Capital
Ratio Ratio Ratio
<S> <C> <C> <C>
Arrow Financial Corporation 10.87% 18.51% 19.76%
Glens Falls National Bank & Trust Co. 8.36 14.84 16.09
Saratoga National Bank & Trust Co. 7.47 9.27 10.44
Regulatory Minimum 3.00 4.00 8.00
FDICIA's "Well-Capitalized" Standard 5.00 6.00 10.00
</TABLE>
All capital ratios for the Company and its subsidiary banks at March
31, 1997 were above minimum capital standards for financial
institutions. Additionally, all Company and subsidiary banks' capital
ratios at that date were above FDICIA's "well-capitalized" standard.
The common stock of Arrow Financial Corporation is traded
over-the-counter, and is quoted on the Nasdaq National Market System.
The price ranges below represent actual reported transactions
rounded to the nearest 1/8 point. (There may have been sales
outside the parameters shown, but the Company believes that the
price ranges fairly represent the trends.) Per share amounts and
market prices have been adjusted for the November 1996 ten
percent stock dividend. On April 30, 1997, the Company announced
the 1997 second quarter dividend of $.20 payable on June 15, 1997.
<TABLE>
<CAPTION>
Quarterly Stock Prices and Dividends Market Price Cash
(Restated for Stock Dividends) (Bid) Dividends
High Low Declared
<S> <C> <C> <C>
1996 1st Quarter $18.375 $15.000 $.155
2nd Quarter 21.000 18.625 .155
3rd Quarter 20.750 17.750 .155
4th Quarter 23.750 20.750 .200
1997 1st Quarter $24.500 $23.250 $.200
2nd Quarter n/a n/a .200
</TABLE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
First Quarter Core Earnings Per Share $.40 $.40
Dividend Payout Ratio: (Second quarter dividends as
a percent of first quarter core earnings per share) 50.0% 38.8%
Book Value Per Share $12.69 $11.62
</TABLE>
LIQUIDITY
The objective of liquidity management is to satisfy cash flow
requirements, principally the needs of depositors and borrowers to
access funds. Liquidity is provided through assumption or
"purchase" of liabilities, the maturity of asset balances and the sale
of assets. Liability liquidity arises primarily from the significant base
of "core" and other deposits gathered through a branch network
operating over a dispersed geographical area. These "core"
balances consist of demand deposits, savings, N.O.W. and money
market account balances and small denomination time deposits.
Core deposits are considered to be less volatile in their movement
into and out of financial institutions, as compared to large
denomination time deposits, brokered time deposits and repurchase
agreements, which are perceived as more sensitive to changes in
interest rates than core deposits. Core deposits historically have
represented a substantial proportion of the Company's total assets.
At March 31, 1997, core deposits represented approximately 70% of
the Company's total assets and shareholders' equity represented
11% of total assets. Large denomination time deposits, repurchase
agreements and other borrowed funds represented 17.5% of total
assets at March 31, 1997.
Federal funds sold are overnight sales of the Company's surplus
funds to correspondent banks, while federal funds purchased
represent overnight borrowings. The Company's practice is to be a
net seller of federal funds on average, and to avoid extended
periods of purchasing federal funds. During the first quarter of 1997,
average federal funds sold amounted to $5.5 million and federal
funds purchased averaged $284 thousand for the period. At March
31, 1997, federal funds sold amounted to $12.5 million.
Apart from federal funds, securities available-for-sale represent the
Company's primary source of liquidity. This liquidity arises both from
an ability to sell the securities quickly without significant impact on
Company earnings, as well as from the ability to use the securities
as collateral for borrowing. At March 31, 1997, securities available-
for-sale amounted to $159.5 million and averaged $167.2 million for
the quarter.
Other sources of funds include federal funds arrangements with
correspondent banks and borrowing arrangements with the Federal
Home Loan Bank.
The Company is not aware of any known trends, events or
uncertainties that will have or are reasonably likely to have a
material effect or make material demands on the Company's
liquidity, capital resources or results of operations.
INTEREST RATE RISK
While managing liquidity, the Company must monitor and control
interest rate risk. Interest rate risk is the exposure of the Company's
net interest income to changes in interest rates. Interest rate risk is
directly related to the different maturities and repricing
characteristics of interest-bearing assets and liabilities, as well as to
prepayment risks for mortgage-backed assets, possible early
withdrawal of time deposits, and the fact that the speed and
magnitude of responses to interest rate changes varies by product.
While many of the Company's loan products are indexed to
independent rates, such as prime or treasury notes, the rates on
most deposit products are set by management pricing committees.
The Company's primary short-term measure of interest rate risk
projects net interest income for the ensuing twelve-month period
based on the maturity, prepayment assumption and repricing
characteristics of each individual interest-bearing asset and liability
under a variety of interest rate projections. To make interest rate
projections, the Company obtains information from third party
providers of economic data. The rate projections are applied to
existing interest sensitive assets and liabilities and to expected new
and rollover amounts. The Company estimates net interest income
for the ensuing twelve months using the most likely rate projection
and then using a no-change scenario. Exposure to rising or falling
rates are calculated to cover a distribution of the perceived probable
interest rate scenarios.
For a long-term measure of interest rate risk, the Company
measures the economic value of equity for immediate and sustained
changes in interest rates. At March 31, 1997, the Company was
operating within established internal policy limits for both the
short-term and long-term measures of interest rate risk.
The Company is able to reduce interest rate risk by adjusting the mix
of loan products as well as the balance of fixed and variable rate
products within the various loan categories. To a lesser extent, the
Company manages interest rate risk through selection of
investments for the securities portfolios. The Company does not,
and in the foreseeable future will not, use derivative financial
instruments to manage interest rate risk.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS: Three Months Ended March 31, 1997 Compared With
Three Months Ended March 31, 1996
Summary of Earnings Performance
(Dollars in Thousands)
Mar 1997 Mar 1996 Change % Change
<S> <C> <C> <C> <C>
Net Income $2,901 $7,473 $(4,572) (61.2)%
Net Income, recurring 2,291 2,480 (189) (7.6)
Primary Earnings Per Share .50 1.20 ( 0.70) (58.3)
Primary Earnings Per Share, recurring .40 .40 0.00 0.0
Return on Assets 1.80% 4.15% (2.35)% (56.6)
Return on Assets, recurring 1.42% 1.39% 0.03 % 2.2
Return on Equity 15.94% 41.54% (25.60)% (61.6)
Return on Equity, recurring 12.60% 14.73% (2.13)% (14.5)
</TABLE>
The Company reported earnings of $2.9 million for the first quarter
of 1997. The first quarter earnings included a favorable settlement
of a combined reporting issue with the State of New York
Department of Taxation and Finance. The benefit for the period,
net of the federal tax impact, reduced the provision for income taxes
by $464 thousand.
The Company reported earnings of $7.5 million for the first quarter
of 1996, which included the gain associated with the sale of eight
branches of GMB to Mascoma Savings Bank completed on January
15, 1996.
As adjusted for nonrecurring items, net income was $2.3 million and
$2.5 million for the first quarter of 1997 and 1996, respectively. As
thus adjusted, earnings per share was $.40 for each period.
The divestiture of the Company's Vermont banking operations
during 1996 had the most significant impact on the comparison of
results of operations between the 1997 and 1996 periods. This and
other significant factors are reviewed in the following sections on net
interest income, other income, other expense and income taxes.
Net Interest Income
<TABLE>
<CAPTION>
Summary of Net Interest Income
(Taxable Equivalent Basis)
(Dollars in Thousands)
Mar 1997 Mar 1996 Change % Change
<S> <C> <C> <C> <C>
Interest Income $ 12,350 $ 14,702 $ (2,352) (16.0)%
Interest Expense 5,095 5,576 (481) (8.6)
Net Interest Income $ 7,255 $ 9,126 $ (1,871) (20.5)
Average Earning Assets (1) $609,257 $680,076 $(70,819) (10.4)%
Average Paying Liabilities 500,218 556,615 (56,397) (10.1)
Taxable Equivalent Adjustment 182 153 29 19.0
Yield on Earning Assets (1) 8.22% 8.69% (0.47)% (5.4)%
Cost of Paying Liabilities 4.13 4.03 0.10 2.5
Net Interest Spread 4.09 4.67 (0.58) (12.4)
Net Interest Margin 4.83 5.40 (0.57) (10.6)
(1) Includes Nonaccrual Loans
</TABLE>
The Company's net interest margin (net interest income on a tax-
equivalent basis divided by average earning assets, annualized)
decreased by 57 basis points from the first quarter of 1996 to the
first quarter of 1997.
During the first quarter of 1996, two significant loans, which had
been restructured in earlier periods and were performing under the
restructured terms, were repaid in excess of the principal amounts
recorded on the Company's books. Under accounting guidelines,
payments in excess of the recorded amounts were reported as
interest income. Otherwise, net interest income for the first quarter
of 1996 would have been $497 thousand less than the amount
shown in the table above, and the net interest margin for the period
would have been 5.09%, 26 basis points above the net interest
margin for the 1997 period.
A comparison of the net interest margins between the first quarter of
1997 and the last quarter of 1996 (the first full period following
completion of the Company's divestiture of its Vermont operations,
reflecting the New York bank operations only), revealed a five basis
point improvement in the net interest margin, from 4.78% to 4.83%.
Historically, the net interest margin for the Company's Vermont Bank
was higher than for its New York banks because the Vermont loan
portfolio had a higher ratio of commercial loans to total loans
generating higher average yields. The loan to deposit ratio for GMB
after the Janaury 15, 1996 branch sale to Mascoma Savings Bank,
exceeded 100% for the remainder of the first quarter of 1996. This
high ratio of loans to deposits had a favorable impact on net interest
margin for the 1996 first quarter.
The Company expects that the acquisition of the six Fleet branches
may have the effect, at least initially, of further reducing the net
interest margin, both because a substantial amount of the assets
receivable from Fleet at closing of the branch transaction will be in
the form of cash or cash equivalents that will be placed in the short
run in the investment securities portfolio and only in the long run will
be absorbed into higher-yielding loans, and because the expansion
in the loan portfolio, when it does occur, will likely be weighted
toward lower-yielding consumer loans typical of the Company's
existing portfolio for its New York banks. The Company expects,
however, that offsetting any possible negative impact of the branch
transaction on the net interest margin will be the positive impact of
the transaction on the Company's earnings per share, insofar as the
Company expects to obtain greater leverage of its existing capital
through the acquisition.
The provision for loan losses was $236 thousand and $224
thousand for the quarters ended March 31, 1997 and 1996,
respectively. The provision for loan losses was discussed previously
under the heading "Summary of the Allowance and Provision for
Loan Losses."
Other Income
<TABLE>
<CAPTION>
Summary of Other Income
(Dollars in Thousands)
Mar 1997 Mar 1996 $ Change % Change
<S> <C> <C> <C> <C>
Income From Fiduciary Activities $ 658 $ 970 $ (312) (32.2)%
Fees for Other Services to Customers 755 1,014 (259) (25.5)
Net Gains on Securities Transactions (28) 112 (140) ---
Gain on the Sale of Branches --- 7,091 (7,091) ---
Other Operating Income 525 281 244 86.8
Total Other Income $1,910 $9,468 $7,558 (79.8)
<PAGE>
Total Other Income, Recurring $1,663 $2,265 $ (602) (26.6)%
Other Operating Income, Recurring $ 250 $ 281 $ (31) (11.0)%
New York Operations, Recurring
Other Income:
Income From Fiduciary Activities $ 658 $ 620 $ 38 6.1%
Fees for Other Services to Customers 755 810 (55) (6.8)
Other Operating Income 220 192 28 14.6
Total Other Income, Recurring $1,633 $1,622 $ 11 0.7
</TABLE>
Other (i.e. noninterest) income for the first quarter of 1996 included
a gain of $7.1 million on the sale of eight GMB branches and
securities gains of $112 thousand. For the 1997 period, other
income included securities losses of $28 thousand and
approximately $275 of other operating income from various legal
claims resolved during the period. Other income, on a recurring
basis, decreased $602 thousand or 26.6%. Nearly all of the
decrease was attributable to the discontinuation of Vermont banking
operations between the two periods. For the first quarter of 1997,
recurring other income for the New York banks was $11 thousand,
or 0.7%, above the 1996 period.
Trust income for the New York banks amounted to $658 for the first
quarter of 1997 for an increase of $38 thousand, or 6.1%, over the
1996 period. The increase was primarily due to an increase in
assets under management.
For the New York banks, fees for other services to customers
(primarily service charges on deposit accounts, credit card merchant
fee income and servicing income on sold loans) was $755 thousand
for the first quarter of 1997, a decrease of $55 thousand, or 6.8%,
from the 1996 first quarter. The decrease was primarily attributable
to the sale of merchant credit card processing for merchants located
in Vermont.
Other operating income (primarily third party credit card servicing
income and gains on the sale of loans and other assets), on a
recurring basis for the New York banks, amounted to $220
thousand, an increase of $28 thousand, or 14.6%, from the first
quarter of 1996.
During the first quarter of 1997, the Company recognized net
securities losses of $28 thousand on the sale of $11.0 million of
securities available-for-sale. During the first quarter of 1996, the
Company sold $18.2 million of securities classified as available-
for-sale, recognizing net gains of $112 thousand. Sales in the 1997
period were effected primarily for liquidity purposes and the majority
of sales in the 1996 period were undertaken as the most financially
expedient method of producing the funds required to complete the
sale of eight GMB branches to Mascoma Savings Bank.
Other Expense
<TABLE>
<CAPTION>
Summary of Other Expense
(Dollars in Thousands)
Mar 1997 Mar 1996 $ Change % Change
<S> <C> <C> <C> <C>
Salaries and Employee Benefits $2,934 $3,900 $ (966) (24.8)%
Occupancy Expense of Premises, Net 378 525 (147) (28.0)
Furniture and Equipment Expense 479 457 22 4.8
Other Operating Expense 1,145 1,899 (754) (39.7)
Total Other Expense $4,936 $6,781 $(1,845) (27.2)
New York Operations:
Salaries and Employee Benefits $2,934 $3,114 $ (180) (5.8)%
Occupancy Expense of Premises, Net 329 342 (13) (3.8)
Furniture and Equipment Expense 479 363 116 32.0
Other Operating Expense 1,129 1,405 (276) (19.6)
Total Other Expense $4,871 $5,224 $ (353) (6.8)
</TABLE>
Other (i.e. noninterest) expense decreased $1.8 million, or 27.2%,
for the first three months of 1997 compared with the first three
months of 1996. A substantial portion of the decrease was
attributable to the disposition between the two periods of the
Vermont banking operations, including the sale of the trust business
of GMB.
For the New York banks, total other expenses amounted to $4.9
million for the first quarter of 1997, a decrease of $353 thousand, or
6.8%, from the 1996 amount of $5.2 million. Between the
comparative periods, salaries and benefits decreased $180
thousand, a decrease that was primarily attributable to a decrease
in full time equivalent employees, including the Company's retiring
chief executive officer, whose office was filled by internal promotion,
without the hiring of any additional senior officers. The New York
banks also experienced a decrease in other operating expenses of
$276 thousand, attributable to a variety of cost reduction measures
distributed over several expense categories.
These decreases were offset, only in part, by a $116 thousand
increase in furniture and equipment expense. This increase was
primarily attributable to increased depreciation expense associated
with the Company's investment in data processing equipment, late
in 1996, principally for the production of imaged checking account
statements. The Company expects that decreases in statement
processing expenses, which are primarily reported in other operating
expense and salaries and benefits expense, will fully offset
equipment acquisition costs within five years, while providing the
Company's customers with enhanced statements and at the same
time streamlining the Company's operations.
Income Taxes
<TABLE>
<CAPTION>
Summary of Income Taxes
(Dollars in Thousands)
Mar 1997 Mar 1996 Change
<S> <C> <C> <C>
Provision for Income Taxes $ 910 $3,963 $(3,053)
Effective Federal Rate 23.88% 34.65% (10.77)%
</TABLE>
The provision for federal and state income taxes amounted to $910
thousand and $4.0 million for the first quarter of 1997 and 1996,
respectively. During the first quarter of 1997, the Company reached
a favorable settlement with the New York Department of Taxation
and Finance over a combined reporting issue. The effects of the
settlement resulted in a $464 thousand decrease in the Company's
provision for income taxes for the first quarter of 1997. As adjusted
for this settlement, the effective tax rates for the first quarter of 1997
and 1996 were 36.05% and 34.65%, respectively.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any
material pending legal proceedings, other
than ordinary routine litigation occurring in
the normal course of its business.
The Company's subsidiary banks are
parties to various legal claims which arise
in the normal course of their business, for
example, lender liability claims that
normally take the form of counterclaims to
lawsuits filed by the banks for collection of
past due loans. The various pending legal
claims against the subsidiary banks will not,
in the current opinion of management,
likely result in any material liability to the
subsidiary banks or the Company.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
<TABLE>
<CAPTION>
At the Company's Annual Meeting of
Shareholders held April 30, 1997,
shareholders elected the following
directors to serve terms expiring in 2000:
Withhold Broker
Director For Authority Non-Votes
<S> <C> <C> <C>
John J. Carusone, Jr. 4,440,034 29,725 ---
Thomas L. Hoy 4,449,083 20,677 ---
David G. Kruczlnicki 4,449,020 20,740 ---
David L. Moynehan 4,448,949 20,811 ---
Daniel L. Robertson 4,448,827 20,932 ---
</TABLE>
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ARROW FINANCIAL CORPORATION
Registrant
Date: May 14, 1997 s/Thomas L. Hoy
Thomas L. Hoy, President and
Chief Executive Officer
Date: May 14, 1997 s/John J. Murphy
John J. Murphy, Executive Vice
President and Treasurer/CFO
(Principal Financial Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 21488
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159456
<INVESTMENTS-CARRYING> 42915
<INVESTMENTS-MARKET> 42820
<LOANS> 398581
<ALLOWANCE> 5625
<TOTAL-ASSETS> 654363
<DEPOSITS> 549666
<SHORT-TERM> 21053
<LIABILITIES-OTHER> 12230
<LONG-TERM> 0
<COMMON> 6577
0
0
<OTHER-SE> 64837
<TOTAL-LIABILITIES-AND-EQUITY> 654363
<INTEREST-LOAN> 8700
<INTEREST-INVEST> 3397
<INTEREST-OTHER> 71
<INTEREST-TOTAL> 12168
<INTEREST-DEPOSIT> 4857
<INTEREST-EXPENSE> 5095
<INTEREST-INCOME-NET> 7073
<LOAN-LOSSES> 236
<SECURITIES-GAINS> (28)
<EXPENSE-OTHER> 4936
<INCOME-PRETAX> 3811
<INCOME-PRE-EXTRAORDINARY> 3811
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2910
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<YIELD-ACTUAL> 4.83
<LOANS-NON> 2070
<LOANS-PAST> 292
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5581
<CHARGE-OFFS> 251
<RECOVERIES> 59
<ALLOWANCE-CLOSE> 5625
<ALLOWANCE-DOMESTIC> 5625
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
