Arrow Financial Corporation · NASDAQ:AROW
Arrow Financial — Q3 2024 Earnings Presentation
47 slides from Arrow Financial's earnings presentation, Oct 31, 2024
Slide 1: 3Q 2024 Investor Presentation
3Q 2024 Investor Presentation October 31, 2024
Slide 2: Safe Harbor
2 Safe Harbor This presentation may contain certain forward-looking statements about Arrow Financial Corporation (“Arrow” or the “Company”). Forward-looking statements, as defined in Section 21E of the Securities Exchange Act of 1934, as amended, include statements regarding anticipated future event
Slide 3: Table of Contents
3 Table of Contents • 3Q 2024 Results and Performance Metrics • Non-Interest Income/Expense • Loans • Deposits/Funding Sources • Credit Quality • Capital Actions & Strategy • Investments • Overview and History
Slide 4: 3Q 2024 Results
3Q 2024 Results i =Arrow Financial Corporation
Slide 5: Takeaways & Themes
5 Takeaways & Themes • Strong Expansion of Net Interest Margin • Successful Integration of Two Acquisitions • Continued Capital Return to Investors • Excellent Credit Profile • Strong Capital Base • Diversified Revenue Sources Core Banking Wealth Management Insurance • 2025 Tailwinds Liabili
Slide 6: 3Q 2024 Highlights
6 3Q 2024 Highlights • Net income of $9.0 million; Diluted Earnings Per Share (EPS) of $0.53; negatively impacted by $0.02 per share of non-core expenses related to acquisitions • Net Interest Margin improved to 2.78% (2.79% FTE), up from 2.67% (2.69% FTE) from the prior quarter • Average loan yield
Slide 7: 3Q 2024 Consolidated Financial Statements
7 3Q 2024 Consolidated Financial Statements 1 Variances are rounded based on actual whole dollar amounts 2 Pre-tax, pre-provision net revenue per share is a non-GAAP metric and excludes provision for loan losses and income tax expense UNAUDITED Dollars in millions, except per share data Comparative
Slide 8: 3Q 2024 Consolidated Financial Statements
8 3Q 2024 Consolidated Financial Statements 1 Variances rounded based on actual whole dollar amounts UNAUDITED Dollars in millions, except per share data Linked Quarter Balance Sheet 3Q24 2Q24 4Q23 3Q24 vs 2Q241 3Q24 vs 4Q231 Cash & Cash Equivalents $ 340.1 $ 200.2 $ 142.5 139.9 197.6 Investment Sec
Slide 9: YTD 2024 Results
9 3Q24 YTD 2024 EPS $0.53 $1.50 Net Interest Margin* 2.78% 2.69% Profitability Net Revenue $36.6 million $105.9 million Return on Average Assets (ROA) 0.84% 0.79% Return on Average Equity (ROE) 9.20% 8.83% $3.34 billion of gross loans 87.0% loan-to-deposit ratio Balance Sheet $3.84 billion of deposi
Slide 10: Performance Trends
10 Performance Trends $2.41 $2.92 $2.86 $1.77 $0.45 $0.52 $0.53 2020 2021 2022 2023 1Q24 2Q24 3Q24 EPS $18.32 $20.42 $19.37 $21.06 $21.25 $21.54 $21.95 2020 2021 2022 2023 1Q24 2Q24 3Q24 Fully Diluted Tangible Book Value 12.77% 14.09%13.55% 8.29% 8.12% 9.15% 9.20% 2020 2021 2022 2023 1Q24 2Q24 3Q24
Slide 11: Net Interest Margin
11 Net Interest Margin 2.97% 3.03% 2.65% 2.60% 2.67% 2.78% 3.97% 4.00% 4.62% 5.01% 5.17% 5.27% 0.10% 0.27% 1.43% 2.06% 2.12% 2.12% 2021 2022 2023 1Q24 2Q24 3Q24 NIM Average Loan Yield for the Period Shown Cost of Deposits 1 1Yield includes the impact of deferred fees and loan origination costs amort
Slide 12: Non-Interest Income/Expense
Non-Interest Income/Expense 12
Slide 13: 3Q24 Non-Interest Income
13 3Q24 Non-Interest Income Steady, broad based non-interest income sources: • Wealth Management • Insurance (3Q24 aided by acquisition of A&B Agency) • Banking Fees Dollars in thousands September 30, 2024 June 30, 2024 September 30, 2023 Fees for Other Services to Customers $ 2,881 $ 2,706 $ 2,761
Slide 14: 3Q24 Non-Interest Expense
14 3Q24 Non-Interest Expense • Increase in Compensation & Benefits – Supporting growing organization and inflation-driven wage increases • Fraud Expenses in 2Q24 benefitted from recoveries related to 2023 and 1Q24 events • Legal & Professional elevated in 3Q2024 related to one-time charges for acqui
Slide 15: Operating Expenses - Efficiency Trends
15 Operating Expenses - Efficiency Trends 57.1% 52.8% 54.2% 54.3% 68.8% 2.22% 2.02% 2.00% 2.01% 2.28% 2019 2020 2021 2022 2023 Efficiency Ratio Net Non-interest Expense / Average Assets 2023 impacted by margin compression and elevated expenses (audit, professional, legal) due to regulatory filing de
Slide 16: Loans
=Arrow Financial Corporation
Slide 17: Loan Portfolio Composition
17 Loan Portfolio Composition Commercial (C&I)1 10.9% Commercial Real Estate (CRE) 16.9% Consumer 33.6% Residential Real Estate (RRE) 38.6% • No single relationship represents more than ~1.75% of total loans as of September 30, 2024 • CRE concentration ratio of ~131% of risk-based capital • CRE loan
Slide 18: Loan Growth Across Multiple Portfolios
18 $316 $350 $357 $358 $360 $365 $442 $497 $544 $555 $561 $562 $921 $1,065 $1,112 $1,126 $1,139 $1,120 $946 $1,071 $1,194 $1,218 $1,255 $1,287 2021 2022 2023 1Q24 2Q24 3Q24 Residential Real Estate (RRE) Consumer Commercial Real Estate (CRE) Commercial (C&I) $2,624 $2,983 $3,207 $3,257 $3,315 $3,333
Slide 19: Loan Yields Steadily Increasing
19 Loan Yields Steadily Increasing $2.60 $2.64 $2.64 $2.66 $2.67 $2.74 $2.85 $2.93 $2.98 $3.01 $3.07 $3.14 $3.21 $3.26 $3.32 $3.33 3.94% 3.90% 4.04% 4.08% 3.82% 3.90% 3.85% 4.09% 4.13% 4.32% 4.57% 4.70% 4.86% 5.02% 5.17% 5.27% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q2
Slide 20: Consumer Loan Portfolio
20 Consumer Loan Portfolio $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $1,088 $1,108 $1,112 $1,126 $1,139 $1,120 3.95%3.94%3.92%3.93%3.87%3.84%3.83% 4.10%4.02% 4.26% 4.61% 4.83% 5.11% 5.36% 5.61% 5.79% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Peri
Slide 21: Commercial Real Estate Portfolio
21 Commercial Real Estate Portfolio $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $529 $543 $555 $561 $562 3.66% 4.90%5.08%5.19% 4.88% 5.07%5.18%5.25% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Period-End Loan Balance Average Loan Portfolio Yield for the
Slide 22: Commercial (C&I) Portfolio
22 Commercial (C&I) Portfolio $305 $301 $312 $312 $316 $334 $346 $350 $350 $344 $352 $354 $359 $358 $360 $365 4.17% 4.35% 4.57% 4.89% 5.38% 5.53% 5.66% 5.81% $200 $250 $300 $350 $400 $450 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Period-End Loan Balance Average
Slide 23: Residential Real Estate Loans
23 Residential Real Estate Loans $923 $908 $911 $930 $946 $967 $1,012 $1,051 $1,071 $1,081 $1,111 $1,148 $1,194 $1,218 $1,255 $1,287 3.83%3.79%3.77%3.76%3.73%3.71%3.70%3.78%3.80% 4.10%4.17%4.25% 4.52%4.57%4.67%4.77% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Peri
Slide 24: Deposits/Funding Sources
Deposits/Funding Sources 24
Slide 25: Deposit Balances – Excl. Brokered CDs
25 Deposit Balances – Excl. Brokered CDs 26.5% 25.8% 27.5% 27.0% 25.5% 26.5% 26.6% 27.2% 25.2% 26.2% 27.0% 26.5% 24.6% 26.3% 24.3% 27.1% 25.2% 26.8% 23.3% 26.5% 24.3% 25.6% 47.0% 49.8% 46.2% 48.7% 47.4% 48.3% 46.7% 49.5% 48.3% 49.5% 47.4% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Axis T
Slide 26: Deposit Balances – Excl. Brokered CDs
26 Deposit Balances – Excl. Brokered CDs 21.8% 23.3% 24.1% 23.9% 22.3% 21.8% 21.8% 21.5% 19.3% 20.1% 20.2% 31.1% 29.5% 29.3% 28.5% 27.0% 24.4% 25.1% 22.8% 25.2% 24.4% 23.9% 42.4% 42.5% 41.8% 41.7% 42.3% 43.4% 40.9% 41.9% 41.6% 41.3% 42.2% 4.8% 4.8% 4.9% 6.0% 8.5% 10.5% 12.3% 13.9% 13.9% 14.2% 13.7%
Slide 27: Funding Sources and 3Q24 Exit Rates
27 Funding Sources and 3Q24 Exit Rates • Recent FRB activity created opportunity to actively reduce Cost of Funds (COF) • Laddered retail CD pricing (6, 14, and 23 month offerings) lower than the average maturing CD specials Dollars in millions Balance Rate Balance Rate Balance Rate Balance Rate Dem
Slide 28: Deposit Rate Analysis
28 Deposit Rate Analysis Balance Exit Rate1 Balance Exit Rate1 Balance Exit Rate1 Demand (Non-Interest Bearing) $740 0.00% $705 0.00% $35 0.00% Interest Bearing Checking $875 1.08% $857 1.06% $19 0.02% Savings and Money Market $1,545 2.90% $1,447 2.84% $98 0.06% Time Deposits $502 3.58% $500 3.90% $
Slide 29: Credit Quality
Credit Quality =Arrow Financial Corporation
Slide 30: Credit Quality
30 Credit Quality 0.44% 0.40% 0.37% 0.21% 0.20% 0.66% 0.66% 0.64% 0.66% 2021 2022 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 Non-Performing Loans (NPL) / Gross Loans Dollars in millions $11.7 $12.0 $11.2 $6.5 $6.3 $21.2 $21.4 $21.1 $21.9 • Increase in 4Q23 related to one ~$15.3M Commercial Loan relationship
Slide 31: Allowance for Credit Losses
31 Allowance for Credit Losses Provision for Credit Losses $0.9M
Slide 32: Allowance for Credit Losses
32 Allowance for Credit Losses Provision for Credit Losses $2.3M
Slide 33: Capital Actions and Strategy
Capital Actions and Strategy 33
Slide 34: Equity and Ownership, Dividends and Return of Capital
34 Equity and Ownership Dividends and Return of Capital • 4th Quarter Dividend of $0.28 per share paid on October 29, 2024 • Represents a 3.7% increase to our quarterly dividend • 46th consecutive quarter of dividends • YTD ~$6.4 million of stock repurchases (263K shares) • No repurchase activity in
Slide 35: Fully Diluted Tangible Book Value (TBV)
35 Fully Diluted Tangible Book Value (TBV)
Slide 36: Capital Position
36 Capital Position 9.78% 12.77% 13.41% 14.46% 8.63% 9.74% 12.88% 13.53% 14.57% 8.53% 4.00% 4.50% 6.00% 8.00% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% Tier 1 Leverage Ratio Common Equity Tier 1 Capital Tier 1 Risk-Based Capital Total Risk-Based Capital Tangible Common Equity Capital
Slide 37: Investments
Investments =Arrow Financial Corporation
Slide 38: Investment Portfolio – AFS and HTM
38 Duration Wtd Avg Remaining LifeCurrent Book Value Market ValueCategoy Unrealized Gain / (Loss) Book Yield • Decrease of $12.5M in unrealized losses from June 30, 2024 • Book yield consistent with prior quarter and duration decreased from 2.53 to 2.39 in 3Q2024 Investment Portfolio – AFS and HTM 1
Slide 39: Overview and History
Overview and History =ArROW Financial Corporation
Slide 40: Our Profile
40 Our Profile Insurance Offices Bank Branches 938 • Multi-Bank Holding company • Glens Falls National Bank and Trust Company • Saratoga National Bank and Trust Company • Upstate Agency, LLC • Wealth Management Services • $4.4 billion in assets • 560 plus employees • Primary service area population
Slide 41: Financial Snapshot
41 Financial Snapshot 2019 2020 2021 2022 2023 3Q24 YTD Total assets $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,169,868 $4,411,449 Loans $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,212,908 $3,339,937 Loan-to-deposit ratio 91.2% 80.2% 75.1% 85.3% 87.1% 87.0% Return on average assets 1.24% 1.17
Slide 42: Our History
42 Our History 1851 Glens Falls Bank opened for business in a newly constructed building on Ridge Street. 1932 1912 > 1949 Changed name to Glens Falls National Bank and Trust Company. Broke ground at 250 Glen Street — our current headquarters. > 1965 addition 1981 Glens Falls National Bank (GFNB) we
Slide 43: Our History
43 Our History 1988 Formed Saratoga National Bank and Trust Company (SNB) and expanded footprint 1999 Surpassed $1 billion in assets 2004 2021 Bought first insurance agency Topped $4 billion in assets. 2018 Consolidated our insurance business into the Upstate Agency brand. 2012 Reached $2 billion in
Slide 44: President and Chief Executive Officer
44 President and Chief Executive Officer Mr. DeMarco joined the Company in 1987 as a commercial lender and since that time has served in positions of increasing responsibility within the organization. In 2012, he was named President and CEO of Saratoga National Bank. In May 2023, he was named Presid
Slide 45: Experienced Leadership Team
45 Experienced Leadership Team Mr. Kaiser joined the Company in 2001 as Vice President and Commercial Loan Officer. He served as Corporate Banking Manager and was later promoted to Senior Vice President, before being named Chief Credit Officer in 2011, followed by promotions to Executive Vice Presid
Slide 46: Experienced Leadership Team
46 Experienced Leadership Team Ms. Pancoe joined the Company in 2018 as Director of Human Resources. In her current role as Chief Human Resources Officer, she has executive oversight of the Company’s human resource strategies, which includes organizational design and succession planning, talent acqu
Slide 47: Thank You
Thank You =ArROW Financial Corporation