Arrow Financial Corporation · NASDAQ:AROW
Arrow Financial — Q2 2024 Earnings Presentation
48 slides from Arrow Financial's earnings presentation, Jul 25, 2024
Slide 1: 2Q 2024 Investor Presentation
2Q 2024 Investor Presentation July 25, 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 • 2Q 2024 Results and Performance Metrics • Non-Interest Income/Expense • Loans • Deposits/Funding Sources • Credit Quality • Capital Actions & Strategy • Liquidity and Investments • Arrow Overview and History
Slide 4: 2Q 2024 Results
2Q 2024 Results i =Arrow Financial Corporation
Slide 5: Takeaways & Themes
5 Takeaways & Themes • Rebound in Earnings & Performance Metrics • Robust Loan Growth • Expanding Net Interest Margin • Excellent Credit Profile • Strong Capital Base • Diversified Revenue Sources Core Banking Wealth Management Insurance • Ample Liquidity & Moderating Deposit Costs
Slide 6: 2Q 2024 Highlights
6 2Q 2024 Highlights • Net income of $8.6 million; Earnings per share (EPS) of $0.52 • Gross loans grew approximately $57.6 million or 7.1% on an annualized basis • Net interest margin improved to 2.67% (2.69% FTE), up from 2.60% (2.62% FTE) from the prior quarter • Average loan yields increased to
Slide 7: 2Q 2024 Consolidated Financial Statements
7 2Q 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: 2Q 2024 Consolidated Financial Statements
8 2Q 2024 Consolidated Financial Statements 1 Variances 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 Quarter B
Slide 9: YTD 2024 Results
9 2Q24 YTD 2Q24 Earnings per Share $ 0.52 $ 0.97 Net Interest Margin* 2.67% 2.64% Profitability Net Revenue $35.0 million $69.3 million Return on Average Assets (ROA) 0.82% 0.77% Return on Average Equity (ROE) 9.15% 8.63% $3.32 billion of gross loans 90.0% loan-to-deposit ratio Balance Sheet $3.68 b
Slide 10: Performance Trends
10 Performance Trends $2.41 $2.92 $2.86 $1.77 $0.45 $0.52 2020 2021 2022 2023 1Q24 2Q24 Diluted EPS $18.32 $20.42 $19.37 $21.06 $21.25 $21.54 2020 2021 2022 2023 1Q24 2Q24 Fully Diluted Tangible Book Value 12.77% 14.09% 13.55% 8.29% 8.12% 9.15% 2020 2021 2022 2023 1Q24 2Q24 Return on Average Equity
Slide 11: Net Interest Margin
11 Net Interest Margin 2.97% 3.03% 2.65% 2.60% 2.67% 3.97% 4.00% 4.62% 5.01% 5.17% 0.10% 0.27% 1.43% 2.06% 2.12% 2021 2022 2023 1Q24 2Q24 NIM Average Loan Yield for the Period Shown Cost of Deposits 1 1Yield includes the impact of deferred fees and loan origination costs amortization 2.90% 3.02% 3.1
Slide 12: Non-Interest Income/Expense
Non-Interest Income/Expense 12
Slide 13: 2Q24 Non-Interest Income
13 June 30, 2024 March 31, 2024 June 30, 2023 Fees for Other Services to Customers $ 2,706 $ 2,543 $ 2,717 Fiduciary Activities/Wealth Management 2,451 2,457 2,428 Insurance Commissions 1,662 1,682 1,560 Other Operating Income 1,037 1,176 201 Total Noninterest Income $ 7,856 $ 7,858 $ 6,906 Three Mo
Slide 14: 2Q24 Non-Interest Expense
14 2Q24 Non-Interest Expense • Increase in Compensation & Benefits - Overall growth in organization and inflation-driven wage increases • Fraud Expenses for 2Q24 benefitted from recoveries related to Prior Year and 1Q24 events • Legal & Professional expenses normalizing, as prior year filing delays
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 11.0% Commercial Real Estate 16.9% Consumer 34.3% Residential Real Estate 37.9% • No single relationship represents more than ~1.75% of total loans as of June 30, 2024 • CRE concentration ratio of ~130% of risk-based capital • CRE loans not in major me
Slide 18: Loan Balances
18 $316 $350 $357 $358 $360 $442 $497 $544 $555 $561 $921 $1,065 $1,112 $1,126 $1,139 $946 $1,071 $1,194 $1,218 $1,255 2021 2022 2023 1Q24 2Q24 Residential Real Estate (RRE) Consumer Commercial Real Estate (CRE) Commercial (C&I) $2,668 $2,983 $3,207 $3,257 $3,315 Loan Balances Dollars in millions Co
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 3.94% 3.90% 4.04% 4.08% 3.82% 3.90% 3.85% 4.09% 4.13% 4.32% 4.57% 4.70% 4.86% 5.06% 5.17% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 Loan Portf
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 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% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 Period-End Loan
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 3.66% 4.90%5.08%5.19% 4.88%5.07%5.18% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Do
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 4.17% 4.35% 4.57% 4.89% 5.38% 5.53% 5.66% $200 $250 $300 $350 $400 $450 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 Period-End Loan Balance Average Loan Portfolio Y
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 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% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 Period-En
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% 26.5% 24.6% 26.3% 24.3% 27.1% 25.2% 26.8% 23.3% 26.5% 24.3% 47.0% 49.8% 46.2% 48.7% 47.4% 48.3% 46.7% 49.5% 48.3% 49.5% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 Axis Title Non-Municipal Muni
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% 31.1% 29.5% 29.3% 28.5% 27.0% 24.4% 25.1% 22.8% 25.2% 24.4% 42.4% 42.5% 41.8% 41.7% 42.3% 43.4% 40.9% 41.9% 41.6% 41.3% 4.8% 4.8% 4.9% 6.0% 8.5% 10.5% 12.3% 13.9% 13.9% 14.2% 1Q22 2Q22 3Q22 4Q22 1Q23
Slide 27: Funding Sources and 2Q24 Exit Rates
27 Funding Sources and 2Q24 Exit Rates • Retail CD pricing currently at 4.60% for six months – lower than the average maturing CD specials for the next six months Dollars in millions Balance Rate Balance Rate Balance Rate Balance Rate Demand (Non-Interest Bearing) $ 297 0.00% $ 399 0.00% $ 8 0.00% $
Slide 28: Deposit Rate Analysis
28 Deposit Rate Analysis Balance Exit Rate1 Balance Exit Rate1 Balance Exit Rate1 Demand (Non-Interest Bearing) $705 0.00% $697 0.00% $8 0.00% Interest Bearing Checking $857 1.06% $908 0.97% -$52 0.09% Savings and Money Market $1,447 2.84% $1,497 2.81% -$51 0.03% Time Deposits $500 3.90% $502 4.06%
Slide 29: Credit Quality
Credit Quality =Arrow Financial Corporation
Slide 30: Credit Quality
30 Credit Quality 0.25% 0.44% 0.40% 0.37% 0.21% 0.20% 0.66% 0.66% 0.64% 2020 2021 2022 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 Non-Performing Loans (NPL) / Gross Loans Dollars in millions $6.4 $11.7 $12.0 $11.2 $6.5 $6.3 $21.2 $21.4 $21.1 • Increase in 4Q23 related to ~$15.3M Commercial Loan relationship goin
Slide 31: Allowance for Credit Losses
31 Allowance for Credit Losses Provision for Credit Losses $775K
Slide 32: Allowance for Credit Losses
32 Allowance for Credit Losses Provision for Credit Losses $1.4M
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 • Declared 3rd Quarter Dividend of $0.27 payable August 23, 2024 • 45th consecutive quarter of dividends • YTD ~$6.4 million of stock repurchases (263K shares) Equivalent of additional $0.37 per share dividend Capital Strategy • Evaluating po
Slide 35: Fully Diluted Tangible Book Value (TBV)
35 Fully Diluted Tangible Book Value (TBV) TBV growth despite challenging economic environment and aggressive share repurchase activity
Slide 36: Capital Position
36 Capital Position 9.74% 12.88% 13.53% 14.57% 8.53% 9.63% 12.84% 13.50% 14.57% 8.24% 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: Liquidity and Investments
Liquidity and Investments 37
Slide 38: Liquidity
38 Liquidity FDIC Insured Deposits ~70% Uninsured Deposits ~30% Total Deposits = $3.68 billion • ~ $2.5 billion in deposits are insured • ~ 9% on-balance sheet liquidity (cash and unencumbered AFS securities) at June 30, 2024 • ~$166 million of unencumbered securities at June 30, 2024 • Available Bo
Slide 39: Investment Portfolio – AFS and HTM
39 Duration Wtd Avg Remaining LifeCurrent Book Value Market ValueCategoy Unrealized Gain / (Loss) Book Yield • Decrease of $1.3M in unrealized losses from March 31, 2024 • Book yield decreased from 2.35% to 2.25% and duration decreased from 2.58 to 2.53 in 2Q2024 Investment Portfolio – AFS and HTM 1
Slide 40: Overview and History
Overview and History =ArROW Financial Corporation
Slide 41: Our Profile
41 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 • $4.2 billion in assets • 550 plus employees • Primary service area population
Slide 42: Financial Snapshot
42 Financial Snapshot 2019 2020 2021 2022 2023 2Q24 YTD Total assets $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,169,868 $4,244,407 Loans $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,212,908 $3,315,524 Loan-to-deposit ratio 91.2% 80.2% 75.1% 85.3% 87.1% 90.0% Return on average assets 1.24% 1.17
Slide 43: Our History
43 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 44: Our History
44 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 45: President and Chief Executive Officer
45 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 46: Experienced Leadership Team
46 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 47: Experienced Leadership Team
47 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 48: Thank You
Thank You =ArROW Financial Corporation