Arrow Financial Corporation · NASDAQ:AROW
Arrow Financial — Q1 2024 Earnings Presentation
45 slides from Arrow Financial's earnings presentation, Apr 30, 2024
Slide 1: 1Q 2024 Investor Presentation
1Q 2024 Investor Presentation April 30, 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 • 1Q 2024 Results and Performance Metrics • Funding Sources, Liquidity and Investments • Non-Interest Income • Non-Interest Expense • Loans • Credit Quality • Capital • Arrow Overview and History
Slide 4: 1Q 2024 Results
1Q 2024 Results i =Arrow Financial Corporation
Slide 5: 1Q 2024 Summary
5 1Q 2024 Summary 1Q24 Highlights • Net income of $7.7 million; Earnings per share (EPS) of $0.45 • Gross loans grew approximately $50.5 million or 6.1% on an annualized basis • Deposit balances increased to $3.8 billion, growing $91.5 million, or 2.5% • Net interest margin improved to 2.60% (2.62%
Slide 6: 1Q 2024 Consolidated Financial Statements (Linked Quarter)
6 1Q 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 Linked Quart
Slide 7: 1Q 2024 Consolidated Financial Statements (Comparative Quarter)
7 1Q 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: Net Interest Margin
8 Net Interest Margin 2.97% 3.03% 2.65% 2.60% 3.97% 4.00% 4.62% 5.01% 0.10% 0.27% 1.43% 2.06% 2021 2022 2023 1Q24 NIM Average Loan Yield for the Period Shown Cost of Funds 1 1Yield includes the impact of deferred fees and loan origination costs amortization 1Q2024 4Q2023 Loan Origination Avg. Rate 7
Slide 9: Q1 2024 Results and Capital Position
9 Earnings per Share $0.45 Net Interest Margin* 2.60% Profitability Net Revenue $34.3 million Return on Average Assets (ROA) 0.73% Return on Average Equity (ROE) 8.12% $3.26 billion of gross loans 86.2% loan-to-deposit ratio Balance Sheet $3.78 billion of deposits 6.49% wholesale funding ratio 0.97%
Slide 10: Performance Trends
10 Performance Trends $2.23 $2.41 $2.92 $2.86 $1.77 $0.45 2019 2020 2021 2022 2023 1Q24 Diluted EPS $16.48 $18.32 $20.42 $19.37 $21.06 $21.25 2019 2020 2021 2022 2023 1Q24 Fully Diluted Tangible Book Value 13.17% 12.77% 14.09% 13.55% 8.29% 8.12% 2019 2020 2021 2022 2023 1Q24 Return on Average Equity
Slide 11: Funding, Liquidity and Investments
Funding, Liquidity and Investments 11
Slide 12: Deposit Balances – Excl. Brokered CDs
12 Deposit Balances – Excl. Brokered CDs 26.5% 25.8% 27.5% 27.0% 25.5% 26.5% 26.6% 27.2% 25.2% 26.5% 24.6% 26.3% 24.3% 27.1% 25.2% 26.8% 23.3% 26.5% 47.0% 49.8% 46.2% 48.7% 47.4% 48.3% 46.7% 49.5% 48.3% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 Axis Title Non-Municipal Municipal Business Dollars
Slide 13: Deposit Balances – Excl. Brokered CDs
13 Deposit Balances – Excl. Brokered CDs 21.8% 23.3% 24.1% 23.9% 22.3% 21.8% 21.8% 21.5% 19.3% 31.1% 29.5% 29.3% 28.5% 27.0% 24.4% 25.1% 22.8% 25.2% 42.3% 42.4% 41.7% 41.6% 42.2% 43.3% 40.8% 41.8% 41.5% 4.8% 4.8% 4.9% 6.0% 8.5% 10.5% 12.3% 13.9% 13.9% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 Axi
Slide 14: Funding Sources and 1Q2024 Exit Rates
14 Funding Sources and 1Q2024 Exit Rates • Retail CD pricing currently at 4.75% 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) $ 294 0.00% $ 395 0.00% $ 7 0.00%
Slide 15: Deposit Rate Analysis
15 Deposit Rate Analysis Balance Exit Rate Balance Exit Rate Balance Exit Rate Demand (Non-Interest Bearing) $697 0.00% $758 0.00% -$62 0.00% Interest Bearing Checking $908 0.97% $800 1.00% $109 -0.03% Savings and Money Market $1,497 2.81% $1,466 2.73% $31 0.08% Time Deposits $502 4.06% $488 4.01% $
Slide 16: Liquidity
16 Liquidity FDIC Insured Deposits ~70% Uninsured Deposits ~30% Total Deposits = $3.78 billion • ~ $2.6 billion in deposits are insured • ~ 10% on-balance sheet liquidity (cash and unencumbered AFS securities) at March 31, 2024 • ~$180 million of unencumbered securities at March 31, 2024 • Available
Slide 17: Investment Portfolio – AFS and HTM
17 Duration Wtd Avg Remaining LifeCurrent Book Value Market ValueCategoy Unrealized Gain / (Loss) Book Yield • Increase of $4.6M in unrealized losses from December 31, 2023 (impact of higher interest rates) • Book yield increased from 2.33% to 2.35% and duration decreased from 2.68 to 2.58 in the 1Q
Slide 18: Non-Interest Income
Non-Interest Income =ArROW Financial Corporation
Slide 19: 1Q24 Non-Interest Income
19 1Q24 Non-Interest Income • 1Q2024 fees consistent with prior year comparable quarter • Wealth Management benefited primarily from higher AUM due to strong market performance • Other operating income included approximately $500K in gains on non-marketable securities Dollars in thousands March 31,
Slide 20: Non-Interest Expense
Non-Interest Expense =ArROW Financial Corporation
Slide 21: 1Q24 Non-Interest Expense
21 1Q24 Non-Interest Expense • Increase in compensation and benefits related to building out organization for growth • Technology expenses increased to enhance performance and customer experience • Legal and professional expenses increased as a result of the finalization of the financial audit and s
Slide 22: Operating Expenses - Efficiency Trends
22 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 due to regulatory filing delays 63.4% 72.7% 69.9% 69.9%
Slide 23: Loans
=Arrow Financial Corporation
Slide 24: Loan Balances
24 Loan Balances $2.20 $2.39 $2.37 $2.58 $2.98 $3.21 $3.26 2018 2019 2020 2021 2022 2023 1Q24 Consistent Loan Growth 2023 and 2024 balances exclude $5.8M and $1.2M, respectively, fair value (FV) mark to loan balances Excludes PPP loans Dollars in billions • 1Q24 loan growth > $50 million • 6.1% annu
Slide 25: Consistent Loan Growth Across Multiple Portfolios
25 $316 $350 $357 $358 $442 $497 $544 $555 $921 $1,065 $1,112 $1,126 $946 $1,071 $1,194 $1,218 2021 2022 2023 1Q24 Residential Real Estate (RRE) Consumer Commercial Real Estate (CRE) Commercial (C&I) $2,668 $2,983 $3,207 $3,257 Loan Balances Dollars in millions Consistent Loan Growth Across Multiple
Slide 26: Loan Yields Steadily Increasing
26 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 3.94% 3.90% 4.04% 4.08% 3.82% 3.90% 3.85% 4.09% 4.13% 4.32% 4.57% 4.70% 4.86% 5.01% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 Loan Portfolio Yields exper
Slide 27: Loan Portfolio Composition
27 Loan Portfolio Composition Commercial (C&I) 11.0% Commercial Real Estate 17.0% Consumer 34.6% Residential Real Estate 37.4% • No single relationship represents more than ~1.75% of total loans as of March 31, 2024 • CRE concentration ratio of ~125% of risk-based capital • CRE loans not in major me
Slide 28: Consumer Loan Portfolio
28 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 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% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 Period-End Loan Balance Average Loan Por
Slide 29: Commercial Real Estate Portfolio
29 Commercial Real Estate Portfolio $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $529 $543 $555 3.66% 4.90%5.08%5.19% 4.88%5.07% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millio
Slide 30: Commercial (C&I) Portfolio
30 Commercial (C&I) Portfolio $305 $301 $312 $312 $316 $334 $346 $350 $350 $344 $352 $354 $359 $358 4.17% 4.35% 4.57% 4.89% 5.38% 5.53% $200 $250 $300 $350 $400 $450 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 Period-End Loan Balance Average Loan Portfolio Yield for the Per
Slide 31: Residential Real Estate Loans
31 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 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% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 Period-End Loan Balance Ave
Slide 32: Credit Quality and Capital
Credit Quality and Capital 32
Slide 33: Credit Quality
33 Credit Quality 0.25% 0.44% 0.40% 0.37% 0.21% 0.20% 0.66% 0.66% 2020 2021 2022 1Q23 2Q23 3Q23 4Q23 1Q24 Non-Performing Loans (NPL) / Gross Loans Dollars in millions $6.4 $11.7 $12.0 $11.2 $7.1 $6.9 $21.2 $21.4 • ~$15.3M Commercial Loan relationship went into non-accrual status in 4Q23 Strong col
Slide 34: Allowance for Credit Losses
34 Allowance for Credit Losses Provision for Credit Losses $617K
Slide 35: Fully Diluted Tangible Book Value and Share Repurchases
35 Fully Diluted Tangible Book Value (TBV) Share Repurchases – reaching previously authorized limit •244,387 shares during 1Q24 at avg. price of $24.27 (~$6.0 million) •Additional 18,924 shares in April 2024 New buy-back authorization of $5 million approved by Arrow Board of Directors TBV growth des
Slide 36: Capital Position
36 Capital Position 9.63% 12.84% 13.50% 14.57% 8.24% 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 37: Overview and History
Overview and History =ArROW Financial Corporation
Slide 38: Our Profile
38 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
Slide 39: Financial Snapshot
39 Financial Snapshot 2019 2020 2021 2022 2023 1Q2024 Total assets $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,169,868 $4,333,623 Loans $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,212,908 $3,258,758 Loan-to-deposit ratio 91.2% 80.2% 75.1% 85.3% 87.1% 86.2% Return on average assets 1.24% 1.17%
Slide 40: Our History
40 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 41: Our History
41 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 42: President and Chief Executive Officer
42 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 43: Experienced Leadership Team
43 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 44: Experienced Leadership Team
44 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 45: Thank You
Thank You =ArROW Financial Corporation