Arrow Financial Corporation · NASDAQ:AROW
Arrow Financial — Q4 2023 Earnings Presentation
47 slides from Arrow Financial's earnings presentation, Feb 1, 2024
Slide 1: 4Q 2023 Investor Presentation
4Q 2023 Investor Presentation February 1, 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 • Arrow History and Overview • 4Q 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 • $4.2 billion in assets • 500 plus employees • Primary service area population o
Slide 8: President and Chief Executive Officer
8 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 Preside
Slide 9: Experienced Leadership Team
9 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 Preside
Slide 10: Experienced Leadership Team
10 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 11: 4Q 2023 Results
4Q 2023 Results =ArROW Financial Corporation
Slide 12: 4Q 2023 Summary
12 4Q 2023 Summary • Net income of $7.7 million; Earnings per share (EPS) of $0.46 • Non-performing loan (NPL) migration negatively impacted EPS by $0.02 • Deposit balances, excluding brokered CDs, of $3.5 billion, a slight increase from year-end 2022 • Cost of retail deposits averaged 1.88%, ending
Slide 13: YTD 2023 Summary
13 YTD 2023 Summary • Net income of $30.1 million; Earnings per share (EPS) of $1.77 • Loan growth of $224 million, or 7.5% • NIM was 2.65% for 2023; full tax equivalent NIM of 2.67% for 2023 • Tangible Book Value of $21.06, an increase from $19.37 from the prior year • OCI improvement in 2023 of $1
Slide 14: 4Q23 and FY2023 Key Metrics
14 4Q23 FY2023 EPS $0.46 $1.77 Net Interest Margin* 2.53% 2.65% Profitability Revenue 33.1 134.0 Return on Average Assets (ROA) 0.74% 0.74% Return on Average Equity (ROE) 8.42% 8.29% $3.21 billion of gross loans 87.1% loan-to-deposit ratio Balance Sheet $3.69 billion in deposits 4.95% wholesale fund
Slide 15: 4Q 2023 Consolidated Financial Statements (Linked Quarter)
15 4Q 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 16: 4Q 2023 Consolidated Financial Statements (Comparative Quarter)
16 4Q 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 17: 2023 Consolidated Financial Statements
17 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 Ye
Slide 18: Performance Trends
18 Performance Trends $2.16 $2.23 $2.41 $2.92 $2.86 $1.77 2018 2019 2020 2021 2022 2023 Diluted EPS $14.65 $16.48 $18.32 $20.42 $19.37 $21.06 2018 2019 2020 2021 2022 2023 Fully Diluted Tangible Book Value 13.96% 13.17% 12.77% 14.09% 13.55% 8.29% 2018 2019 2020 2021 2022 2023 Return on Average Equit
Slide 19: Net Interest Margin
19 Net Interest Margin 2.90% 3.02% 3.14% 3.08% 2.96% 2.61% 2.53% 2.53% 2.49% 2.59% 2.69% 2.79% 2.89% 2.99% 3.09% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 NIM Trend • Full Tax Equivalent NIM 4Q23 2.55% • 2023 Deposit exit rate – 1.92% • NIM expansion in 2024 could be slower due to recent yield curve m
Slide 20: Net Interest Margin
20 Net Interest Margin 3.05% 2.99% 2.97% 3.03% 2.65% 4.18% 3.98% 3.97% 4.00% 4.62% 0.67% 0.36% 0.10% 0.27% 1.43% 2019 2020 2021 2022 2023 Net Interest Margin (NIM) Average Loan Yield for the Period Shown Cost of Deposits • 4Q loans originated at average rate of 7.26% • 2023 YTD originations at avera
Slide 21: Operating Expenses - Efficiency Trends
21 Operating Expenses - Efficiency Trends 56.6% 57.1% 52.8% 54.2% 54.3% 68.8% 60.3% 2.27% 2.22% 2.02% 2.00% 2.01% 2.28% 2018 2019 2020 2021 2022 2023 2023 Efficiency Ratio Net Non-interest Expense / Average Assets Efficiency Ratio trend driven primarily by margin compression and by elevated expenses
Slide 22: Funding, Investments and Liquidity
Funding, Investments and Liquidity 22
Slide 23: Deposit Balances – Excl. Brokered CDs
23 Deposit Balances – Excl. Brokered CDs 26.5% 25.8% 27.5% 27.0% 25.5% 26.5% 26.6% 27.2% 26.5% 24.6% 26.3% 24.3% 27.1% 25.2% 26.8% 23.3% 47.0% 49.8% 46.2% 48.7% 47.4% 48.3% 46.7% 49.5% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 Axis Title Non-Municipal Municipal Business Dollars in billions $3.72 $3.55
Slide 24: Deposit Balances – Excl. Brokered CDs
24 Deposit Balances – Excl. Brokered CDs 21.8% 23.3% 24.1% 23.9% 22.3% 21.8% 21.8% 21.5% 31.1% 29.5% 29.3% 28.5% 27.0% 24.4% 25.1% 22.8% 42.3% 42.4% 41.7% 41.6% 42.2% 43.3% 40.8% 41.8% 4.8% 4.8% 4.9% 6.0% 8.5% 10.5% 12.3% 13.9% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 Axis Title Deposit Balances Time
Slide 25: Funding Sources and Rates
25 Funding Sources and Rates • 2023 cost of deposits increased significantly • Deposit Beta through current rate cycle 1Q 2022 to 4Q 2023 is 47% • CD and Money Market specials are currently priced at 5% or less Dollars in millions Market rates and competition continue to impact deposit pricing Balan
Slide 26: Investment Portfolio
26 Duration Wtd Avg Remaining LifeCurrent Book Value Market ValueCategoy Unrealized Gain / (Loss) Book Yield • Unrealized Losses decreased by ~$31MM to ~$45MM during 4Q 2024 • ~$9MM of losses realized during 4Q ’24 as a result of portfolio repositioning activity • ~$22MM reduction in unrealized loss
Slide 27: Liquidity
27 Liquidity FDIC Insured Deposits ~70% Uninsured Deposits ~30% Total Deposits = $3.7 billion • ~ $2.6 billion in deposits are insured • ~ 9% on-balance sheet liquidity (cash and unencumbered AFS securities) • Over $200M of unencumbered securities at December 31, 2023 • Available Borrowing Capacity:
Slide 28: Non-Interest Income
Non-Interest Income =ArROW Financial Corporation
Slide 29: 4Q Non-Interest Income
29 4Q Non-Interest Income • Other Operating Income includes bank-owned life insurance (BOLI) - Q3 included receipt of BOLI policy payouts • Wealth Management and Insurance revenues relatively stable Dollars in thousands December 31, 2023 September 30, 2023 Fees for Other Services to Customers $ 2,72
Slide 30: YTD Non-Interest Income
30 YTD Non-Interest Income • Decrease in fee income related to post-pandemic slowdown in consumer use of debit cards • Decease in Other Operating Income is due to reduction of income in equity and non-marketable securities partially offset by bank-owned life insurance (BOLI) • Wealth Management and
Slide 31: Wealth Management
31 Wealth Management • $1.76 Billion Assets Under Management (AUM) as of December 31, 2023 • 2023 AUM increased ~$157 million (9.8%) • Net account activity increased AUM by ~$33 million • Market performance increased AUM by ~$124 million • 4Q 2023 AUM increased by ~$136 million (8.3%) • Net account
Slide 32: Insurance
32 Insurance • Upstate Agency - Headquartered in South Glens Falls, NY - Total of 9 locations in New York (Capital Region, North Country) - 39 employees - Majority of policyholders reside within our geographic footprint • Insurance Products - Personal, Commercial and Employee Benefit Plans • Revenue
Slide 33: Loans
=Arrow Financial Corporation
Slide 34: Loan Balances
34 Loan Balances $2.20 $2.39 $2.37 $2.58 $2.98 $3.21 2018 2019 2020 2021 2022 2023 Consistent Loan Growth 2023 balance excludes $5.8 million FV mark to loan balances Excludes PPP loans Dollars in billions • 4Q23 loan growth of $68 million; ~9% annualized growth rate • 2023 loan growth of $224 millio
Slide 35: Loan Balances by Portfolio
35 $305 $301 $312 $312 $316 $334 $345 $350 $350 $344 $352 $354 $357 $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $529 $544 $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $1,088 $1,108 $1,112 $923 $908 $911 $930 $946 $967 $1,012 $1,051 $1,071 $1,081 $1,111 $1,148 $1,194 4Q20 1Q21
Slide 36: Loan Yields Steadily Increasing
36 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 3.94%3.90%4.04%4.08% 3.82%3.90%3.85% 4.09%4.13% 4.32% 4.57%4.70%4.86% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 Loan Portfolio Yields experiencing meaningful increa
Slide 37: Loan Portfolio Composition
37 Loan Portfolio Composition Commercial (C&I) 11.2% Commercial Real Estate 16.9% Consumer 34.6% Residential Real Estate 37.3% • No single relationship represents more than ~1.75% of total loans as of December 31, 2023 • CRE concentration ratio of ~126% of risk-based capital • C&I portfolio can be a
Slide 38: Consumer Loan Portfolio
38 Consumer Loan Portfolio $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $1,088 $1,108 $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% 5.11% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 Period-End Loan Balance Average Loan Portfolio Yiel
Slide 39: Commercial Real Estate Portfolio
39 Commercial Real Estate Portfolio $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $529 $543 3.66% 4.90% 5.08% 5.19% 4.88% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • Decline
Slide 40: Commercial (C&I) Portfolio
40 Commercial (C&I) Portfolio $305 $301 $312 $312 $316 $334 $346 $350 $350 $344 $352 $354 $359 4.17% 4.35% 4.57% 4.89% 5.38% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • 4Q23 yields im
Slide 41: Residential Real Estate Loans
41 Residential Real Estate Loans $923 $908 $911 $930 $946 $967 $1,012 $1,051 $1,071 $1,081 $1,111 $1,148 $1,194 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% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 Period-End Loan Balance Average Loan Portfoli
Slide 42: Credit Quality and Capital
Credit Quality and Capital 42
Slide 43: Credit Quality
43 Credit Quality 0.25% 0.44% 0.40% 0.37% 0.21% 0.20% 0.66% 2020 2021 2022 1Q23 2Q23 3Q23 4Q23 Non-Performing Loans (NPL) / Gross Loans Dollars in millions $6.4 $11.7 $12.0 $11.2 $7.1 $6.9 $21.2 • ~$15.3M Commercial Loan relationship migrated to NPL status in Q4 • Collateral position strong. No loss
Slide 44: Fully Diluted Tangible Book Value (TBV) Increasing
44 Fully Diluted Tangible Book Value (TBV) Increasing TBV in challenging industry environment
Slide 45: Capital Position
45 Capital Position 9.80% 13.32% 14.01% 15.08% 8.37% 9.84% 13.00% 13.66% 14.74% 8.60% 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 46: Financial Snapshot
46 Financial Snapshot 2018 2019 2020 2021 2022 2023 Total assets $2,988,334 $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,169,868 Loans $2,196,215 $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,212,908 Loan-to-deposit ratio 93.6% 91.2% 80.2% 75.1% 85.3% 87.1% Return on average assets 1.27% 1.24% 1.
Slide 47: Thank You
Thank You =ArROW Financial Corporation