Arrow Financial Corporation · NASDAQ:AROW
Arrow Financial — Q3 2023 Earnings Presentation
43 slides from Arrow Financial's earnings presentation, Oct 24, 2023
Slide 1: 3Q 2023 Investor Presentation
3Q 2023 Investor Presentation October 24, 2023
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 • Arrow History and Overview • 3Q 2023 Results and Performance Metrics • Funding Sources, Investments and Liquidity • Non-Interest Income • Loans • Credit Quality • Capital
Slide 4: History and Overview
History and Overview i =Arrow Financial Corporation
Slide 5: Our History
5 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) wen
Slide 6: Our History
6 Our History 1988 Formed Saratoga National Bank and Trust Company (SNB) and expanded footprint 1999 Surpassed $1 billion in assets 2004 2021 Bought its first insurance agency Topped $4 billion in assets. 2018 Consolidated our insurance business into the Upstate Agency brand. 2012 Reached $2 billion
Slide 7: Our Profile
7 Our Profile Insurance Offices Bank Branches 937 • Multi-Bank Holding company • Glens Falls National Bank and Trust Company • Saratoga National Bank and Trust Company • Upstate Agency, LLC • Wealth Management Services • $4.3 billion in assets • 500 plus employees • Primary service area population o
Slide 8: Experienced Leadership Team
8 Experienced Leadership Team David S. DeMarco, President and CEO 35+ Years Experience 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 N
Slide 9: Experienced Leadership Team
9 Experienced Leadership Team Penko Ivanov, Senior Executive Vice President, CFO, Treasurer and CAO 30+ Years Experience Mr. Ivanov joined the Company in 2023 with more than 30 years of experience in Financial Planning & Analysis, Controllership, SOX, Financial Reporting and Treasury. Mr. Ivanov pre
Slide 10: 3Q 2023 Results
3Q 2023 Results =Arrow Financial Corporation
Slide 11: 3Q 2023 Summary
11 3Q 2023 Summary • Net income of $7.7 million; Fully diluted earnings per share (EPS) of $0.46 • Deposit balances of $3.7 billion; an increase of $164 million during 3Q23 • Cost of deposits averaged 1.64%, ending the quarter at 1.71% • Loans reached a record of $3.14 billion, an increase of $69 mi
Slide 12: 3Q 2023 Results
12 Net Interest Margin 2.53% Profitability Revenue $33.4 million Return on Average Assets (ROA) 0.75% Return on Average Equity (ROE) 8.47% $3.14 billion of gross loans 85.6% loan-to-deposit ratio Balance Sheet $3.67 billion of gross deposits 0% brokered deposits 0.99% Allowance for Credit Losses (AC
Slide 13: 3Q 2023 Consolidated Financial Statements
13 3Q 2023 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 Linked Quar
Slide 14: 3Q 2023 Consolidated Financial Statements
14 3Q 2023 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 15: Performance Trends
15 Performance Trends $2.16 $2.23 $2.41 $2.92 $2.86 $1.31 2018 2019 2020 2021 2022 3Q23 YTD Diluted EPS $14.65 $16.48 $18.32 $20.42 $19.37 $19.76 2018 2019 2020 2021 2022 3Q23 YTD Fully Diluted Tangible Book Value 13.96% 13.17% 12.77% 14.09% 13.55% 8.25% 2018 2019 2020 2021 2022 3Q23 YTD Return on A
Slide 16: Net Interest Margin
16 Net Interest Margin • 3Q 2023 NIM trends pointing to inflection point - Deposit costs still increasing but at a slower rate - Loans repricing faster than deposits - NIM to benefit from $300 million fair value hedge initiated in late 3Q 2023 2.90% 3.02% 3.14% 3.08% 2.96% 2.61% 2.53% 1Q22 2Q22 3Q22
Slide 17: Net Interest Margin
17 Net Interest Margin 3.05% 2.99% 2.97% 3.03% 2.70% 4.18% 3.98% 3.97% 4.00% 4.54% 0.67% 0.36% 0.10% 0.27% 1.27% 2019 2020 2021 2022 3Q23 YTD Net Interest Margin (NIM) Average Loan Yield for the Period Shown Cost of Deposits • 3Q loans originated at average rate of 7.23% • YTD originations at averag
Slide 18: Operating Expenses - Efficiency Trends
18 Operating Expenses - Efficiency Trends 56.6% 57.1% 52.8% 54.2% 54.3% 68.6% 59.4% 2.27% 2.22% 2.02% 2.00% 2.01% 2.30% 2018 2019 2020 2021 2022 3Q23 YTD 3Q23 YTD Efficiency Ratio Net Non-interest Expense / Average Assets Efficiency Ratio trend driven primarily by margin compression and by elevated
Slide 19: Funding, Investments and Liquidity
Funding, Investments and Liquidity 19
Slide 20: Deposit Balances
20 Deposit Balances 26.5% 25.8% 27.5% 27.0% 25.5% 26.5% 26.6% 26.5% 24.6% 26.3% 24.3% 27.1% 25.2% 26.8% 47.0% 49.8% 46.2% 48.7% 47.4% 48.3% 46.6% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Axis Title Deposit Balances Non-Municipal Municipal Business Dollars in billions $3.72 $3.55 $3.80 $3.50 $3.55 $3.50 $3
Slide 21: Deposit Balances
21 Deposit Balances 21.8% 23.3% 24.1% 23.9% 22.3% 21.8% 21.8% 31.1% 29.5% 29.3% 28.5% 27.0% 24.4% 25.1% 42.3% 42.4% 41.7% 41.6% 42.2% 43.3% 40.8% 4.8% 4.8% 4.9% 6.0% 8.5% 10.5% 12.3% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Axis Title Deposit Balances Time Deposits Savings Deposits Interest-Bearing Checki
Slide 22: Funding Sources and Rates
22 Funding Sources and Rates • 3Q2023 Deposit Beta is 128% • YTD Deposit Beta is 147% versus 153% as of 2Q 2023 • Deposit Beta through current rate cycle 1Q 2022 to 3Q 2023 is 41.8% • CD and Money Market specials are currently priced at or above 5% • Other Borrowings contain $150 million from FRB Ba
Slide 23: Investment Portfolio
23 Duration Wtd Avg Remaining LifeCurrent Book Value Market ValueCategoy Unrealized Gain / (Loss) Book Yield • Unrealized Losses at ~10% of carrying value; moderate impact due to relative short duration • A change in rates of ~ 25 bps impacts Other Comprehensive Income (OCI) by ~$4MM • Q3 2023 mark-
Slide 24: Liquidity
24 Liquidity FDIC Insured Deposits ~70% Uninsured Deposits ~30% Total Deposits = $3.67 billion • ~ $2.5 billion in deposits are insured • ~ 8% on-balance sheet liquidity (cash and unencumbered AFS securities) • Available Borrowing Capacity Brokered Deposits $0.8 billion Borrowing Capacity1 $1.5 bill
Slide 25: Non-Interest Income
Non-Interest Income =ArROW Financial Corporation
Slide 26: Non-Interest Income
26 Non-Interest Income • Decrease in fee income related to post-pandemic slowdown in consumer use of debit cards • Other Operating Income includes bank-owned life insurance (BOLI) proceeds • Wealth Management and Insurance revenues relatively stable • Minimal gains from loan sale activity (Residenti
Slide 27: Wealth Management
27 Wealth Management • $1.6 Billion Assets under Management (AUM) as of September 30, 2023 • YTD AUM increased ~$21 million (1.3%) • Net account activity increased AUM by $32 million • Market performance reduced AUM by ~$11 million • 3Q2023 AUM decreased by ~$84 million (4.9%) • Net account activity
Slide 28: Insurance
28 Insurance • Upstate Agency - Headquartered in South Glens Falls, NY - Total of 9 locations in New York (Capital Region, North Country) - 37 employees - Majority of policyholders reside within our geographic footprint • Insurance Products - Personal, Commercial, and Employee Benefit Plans • Revenu
Slide 29: Loans
=Arrow Financial Corporation
Slide 30: Loan Balances
30 Loan Balances $2.20 $2.39 $2.37 $2.58 $2.98 $3.14 2018 2019 2020 2021 2022 3Q23 Consistent Loan Growth Excludes PPP loans Dollars in billions • 3Q23 loan growth of $69 million; ~9% annualized growth rate • YTD 2023 loan growth of $155 million • YTD Annualized loan growth ~7% ~8% CAGR
Slide 31: Loan Balances
31 $2,595 $2,639 $2,644 $2,655 $2,668 $2,737 $2,845 $2,925 $2,983 $3,005 $3,070 $3,139 Loan Balances Dollars in millions $305 $301 $312 $312 $316 $334 $345 $350 $350 $344 $352 $354 $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $529 $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $
Slide 32: Loan Yields Steadily Increasing
32 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 3.94% 3.90% 4.04% 4.08% 3.82% 3.90% 3.85% 4.09% 4.13% 4.32% 4.57% 4.70% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Loan Portfolio Yields experiencing meaningful increase during
Slide 33: Loan Portfolio Composition
33 Loan Portfolio Composition Commercial (C&I) 11.3% Commercial Real Estate 16.8% Consumer 35.3% Residential Real Estate 36.6% • No single relationship represents more than ~1.5% of total loans as of September 30, 2023 • CRE concentration ratio of ~120% of risk-based capital • C&I portfolio can be a
Slide 34: Consumer Loan Portfolio
34 Consumer Loan Portfolio $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $1,088 $1,108 3.95% 3.94% 3.92% 3.93% 3.87% 3.84% 3.83% 4.10% 4.02% 4.26% 4.61% 4.83% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period S
Slide 35: Commercial Real Estate Portfolio
35 Commercial Real Estate Portfolio $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $529 3.66% 4.90% 5.08% 5.19% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • CRE loans extended to bu
Slide 36: Commercial (C&I) Portfolio
36 Commercial (C&I) Portfolio $305 $301 $312 $312 $316 $334 $346 $350 $350 $344 $352 $354 4.17% 4.35% 4.57% 4.89% Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • C&I loans extended to businesses / borrowers primarily located our regional market area •
Slide 37: Residential Real Estate Loans
37 Residential Real Estate Loans $923 $908 $911 $930 $946 $967 $1,012 $1,051 $1,071 $1,081 $1,111 $1,148 3.83% 3.79% 3.77% 3.76% 3.73% 3.71% 3.70% 3.78% 3.80% 4.10% 4.17% 4.25% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Pe
Slide 38: Credit Quality and Capital
Credit Quality and Capital 38
Slide 39: Credit Quality
39 Credit Quality 0.25% 0.44% 0.40% 0.37% 0.21% 0.20% 2020 2021 2022 1Q23 2Q23 3Q23 Non-Performing Loans (NPL) / Gross Loans Dollars in millions $6.4 $11.7 $12.0 $11.2 $7.1 $6.9 • ACL of 0.99% available to address potential credit issues • Charge-offs were 5bps in 3Q23; down from 7bps in 2Q23 and 10
Slide 40: Fully Diluted Tangible Book Value (TBV)
40 Fully Diluted Tangible Book Value (TBV) Increasing TBV in challenging industry environment
Slide 41: Capital Position
41 Capital Position 9.92% 13.27% 13.96% 15.08% 8.24% 9.94% 13.17% 13.84% 14.94% 7.93% 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 42: Financial Snapshot
42 Financial Snapshot 2018 2019 2020 2021 2022 3Q23 YTD Total assets $2,988,334 $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,272,911 Loans $2,196,215 $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,138,617 Loan-to-deposit ratio 93.6% 91.2% 80.2% 75.1% 85.3% 85.6% Return on average assets 1.27% 1.24
Slide 43: Thank You
Thank You =ArROW Financial Corporation