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
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 events
Slide 3: Table of Contents
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 3
Slide 4: 3Q 2024 Results
3Q 2024 Results 4 =ArRROW Financial Corporation
Slide 5: Takeaways & Themes
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 Liability
Slide 6: 3Q 2024 Highlights
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 yields
Slide 7: 3Q 2024 Consolidated Financial Statements
3Q 2024 Consolidated Financial Statements Comparative Quarter UNAUDITED Dollars in millions, except per share data Fav/(Unfav) YTD YTD Fav/(Unfav) Income Statement 3Q24 2Q24 Income Statement Var1 3Q24 3Q23 Var1 Total Interest Income $ 49.4 $ 48.0 1.5 Total Interest Income $ 144.1 $ 118.2 25.9 Total
Slide 8: 3Q 2024 Consolidated Financial Statements
3Q 2024 Consolidated Financial Statements Linked Quarter UNAUDITED Dollars in millions, except per share data 3Q24 vs 3Q24 vs Balance Sheet 3Q24 2Q24 4Q23 2Q241 4Q231 Cash & Cash Equivalents $ 340.1 $ 200.2 $ 142.5 139.9 197.6 Investment Securities 549.8 556.4 636.1 (6.6) (86.3) Loans Receivable, ne
Slide 9: YTD 2024 Results
YTD 2024 Results 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 bi
Slide 10: Performance Trends
Performance Trends History of strong earnings and performance metrics EPS Fully Diluted Tangible Book Value $21.95 $21.54 $2.92 $2.86 $21.06 $21.25 $2.41 $20.42 YTD $1.50 $19.37 $1.77 $18.32 $0.45 $0.52 $0.53 2020 2021 2022 2023 1Q24 2Q24 3Q24 2020 2021 2022 2023 1Q24 2Q24 3Q24 Return on Average Equ
Slide 11: Net Interest Margin
Net Interest Margin NIM Expansion Accelerating 3.14% 3.03% 3.08% 2.97% 2.67% 2.78% 3.02% 2.65% 2.96% 2.60% 2.90% 5.01% 5.17% 5.27% 4.62% 3.97% 4.00% 2.78% 2.06% 2.12% 2.12% 2.67% 1.43% 2.61% 2.60% 0.10% 0.27% 2.53% 2.53% 2021 2022 2023 1Q24 2Q24 3Q24 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24
Slide 12: Non-Interest Income/Expense
Non-Interest Income/Expense 12
Slide 13: 3Q24 Non-Interest Income
3Q24 Non-Interest Income Dollars in thousands Three Months Ended September 30, 2024 June 30, 2024 September 30, 2023 Fees for Other Services to Customers $ 2,881 $ 2,706 $ 2,761 Fiduciary Activities/Wealth Management 2,429 2,451 2,378 Insurance Commissions 1,955 1,662 1,695 Other Operating Income 86
Slide 14: 3Q24 Non-Interest Expense
3Q24 Non-Interest Expense Dollars in thousands Three Months Ended September 30, 2024 June 30, 2024 September 30, 2023 Compensation & Benefits $ 13,446 $ 13,036 $ 11,988 Occupancy & Equipment 1,754 1,774 1,517 Data Processing & Technology 4,692 4,734 4,371 Advertising & Contributions 305 278 305 Lega
Slide 15: Operating Expenses - Efficiency Trends
Operating Expenses - Efficiency Trends Efficiency Ratio Net Non-interest Expense / Average Assets 68.8% 57.1% 2023 impacted by margin 52.8% 54.2% 54.3% compression and elevated expenses 2.22% 2.28% (audit, professional, legal) due to 2.02% 2.00% 2.01% regulatory filing delays 2019 2020 2021 2022 202
Slide 16: Loans
=ARROW Financial Corporation
Slide 17: Loan Portfolio Composition
Loan Portfolio Composition Total Loan Portfolio ~ $3.33 billion Commercial (C&I)1 10.9% • No single relationship represents more than ~1.75% of Residential Commercial total loans as of September 30, 2024 Real Estate Real Estate (RRE) (CRE) 38.6% 16.9% • CRE concentration ratio of ~131% of risk-based
Slide 18: Loan Balances
Loan Balances Dollars in millions Loan Growth Across Multiple Portfolios Residential Real Estate (RRE) Consumer Commercial Real Estate (CRE) Commercial (C&I) ~10.6% CAGR $3,257 $3,315 $3,333 $3,207 $2,983 $2,624 $1,218 $1,255 $1,287 $1,194 $1,071 $946 $1,112 $1,126 $1,139 $1,120 $1,065 $921 $497 $54
Slide 19: Loan Yields Steadily Increasing
Loan Yields Steadily Increasing Dollars in billions Loan Portfolio Yields1…experiencing meaningful increase during 2024, continuing trend from 2023 4.86% 5.02% 5.17% 5.27% Rate by Vintage 4.70% 4.57% $3.32 $3.33 4.32% $3.26 4.04% 4.08% 4.09% 4.13% $3.21 3.94% 3.90% 3.82% 3.90% 3.85% $3.14 $3.07 2024
Slide 20: Consumer Loan Portfolio
Consumer Loan Portfolio Dollars in millions • 99.6% of the portfolio are collateralized auto 5.61% 5.79% loans; only $4 million in unsecured personal 5.11% 5.36% loans 4.83% 4.61% 4.26% • Auto loans sourced through a network of 4.10% 4.02% 3.95%3.94% 3.92%3.93% 3.87% 3.84%3.83% $1,108 $1,112 $1,126
Slide 21: Commercial Real Estate Portfolio
Commercial Real Estate Portfolio Dollars in millions 5.25% • CRE loans extended to businesses / borrowers 5.08%5.19% 5.07%5.18% 4.90% 4.88% primarily located in our regional market area • No CRE exposure to large metropolitan areas – e.g., $555 $561 $562 3.66% $543 no NYC exposure $529 $519 $507 $49
Slide 22: Commercial (C&I) Portfolio
Commercial (C&I) Portfolio Dollars in millions 5.81% $450 5.53% 5.66% 5.38% 4.89% $400 4.57% • C&I loans extended to businesses/ 4.35% 4.17% borrowers primarily located in our $365 $346 $350 $350 $344 $352 $354 $359 $358 $360 regional market area $350 $334 $312 $312 $316 • C&I portfolio a potential
Slide 23: Residential Real Estate Loans
Residential Real Estate Loans Dollars in millions • 3Q24 yields include ~19bps related to FV 4.67% 4.77% balance sheet hedge 4.52% 4.57% 4.10% 4.17% 4.25% $1,287 • One-to-four family residential real estate $1,255 3.83% 3.79% 3.77% 3.76% 3.73% 3.71% 3.70% 3.78% 3.80% secured by first or second mortg
Slide 24: Deposits/Funding Sources
Deposits/Funding Sources 24
Slide 25: Deposit Balances – Excl. Brokered CDs
Deposit Balances – Excl. Brokered CDs Dollars in billions Non-Municipal Municipal Business $3.72 $3.55 $3.80 $3.50 $3.55 $3.50 $3.67 $3.51 $3.60 $3.51 $3.66 47.0% 49.8% 46.2% 48.7% 47.4% 48.3% 46.7% 49.5% 48.3% 49.5% 47.4% 26.5% 26.3% 24.3% 27.1% 25.2% 26.8% 23.3% 26.5% 24.3% 25.6% 24.6% 26.5% 25.8%
Slide 26: Deposit Balances – Excl. Brokered CDs
Deposit Balances – Excl. Brokered CDs Dollars in billions Time Deposits Savings Deposits Interest-Bearing Checking Deposit Balances Noninterest-Bearing $3.72 $3.55 $3.80 $3.50 $3.55 $3.50 $3.67 $3.51 $3.60 $3.51 $3.66 4.8% 4.8% 4.9% 6.0% 8.5% 10.5% 12.3% 13.9% 13.9% 14.2% 13.7% 42.4% 42.5% 41.8% 41.
Slide 27: Funding Sources and 3Q24 Exit Rates
Funding Sources and 3Q24 Exit Rates Dollars in millions Consumer Business Municipal Total Balance Rate Balance Rate Balance Rate Balance Rate Demand (Non-Interest Bearing) $ 291 0.00% $ 425 0.00% $ 24 0.00% $ 740 0.00% Interest Bearing Checking 307 0.14% 257 3.28% 312 0.19% 875 1.08% Savings and Mon
Slide 28: Deposit Rate Analysis
Deposit Rate Analysis 3Q 2024 2Q 2024 Variance Balance Exit Rate1 Balance Exit Rate1 Balance Exit Rate 1 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
Slide 29: Credit Quality
Credit Quality 29 =ARROW Financial Corporation
Slide 30: Credit Quality
Credit Quality Dollars in millions Non-Performing Loans (NPL) / Gross Loans 0.66% 0.66% 0.64% 0.66% 0.44% 0.40% 0.48% • One NPL relationship 0.37% • Well collateralized • No specific reserve required 0.21% 0.20% 0.18% 2021 2022 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 $11.7 $12.0 $11.2 $6.5 $6.3 $21.2 $21
Slide 31: Allowance for Credit Losses
Allowance for Credit Losses Provision for Credit Losses $0.9M 31
Slide 32: Allowance for Credit Losses
Allowance for Credit Losses Provision for Credit Losses $2.3M 32
Slide 33: Capital Actions and Strategy
Capital Actions and Strategy 33
Slide 34: Equity and Ownership
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 3Q
Slide 35: Fully Diluted Tangible Book Value (TBV)
Fully Diluted Tangible Book Value (TBV) 35
Slide 36: Capital Position
Capital Position Capital Ratios – Arrow Tangible Common Equity 8.53% 8.63% 8.00% Total Risk-Based Capital 14.57% 14.46% 6.00% Tier 1 Risk-Based Capital 13.53% 13.41% 4.50% Common Equity Tier 1 Capital 12.88% 12.77% 4.00% Tier 1 Leverage Ratio 9.74% 9.78% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13%
Slide 37: Investments
Investments 37 =ARROW Financial Corporation
Slide 38: Investment Portfolio – AFS and HTM
Investment Portfolio – AFS and HTM Dollars in thousands September 30, 2024 Expected Wtd Avg Wtd Avg Current Book Current Book Unrealized Runoff Thru Category Categoy Market Value Market Value Unrealized Gain Book Yield Book Remaining Yield Life Life Duration Remaining Duration Value Value Gain / (Lo
Slide 39: Overview and History
Overview and History 39 =ARROW Financial Corporation
Slide 40: Our Profile
Our Profile • 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 of more than 1.1 million 38 Bank Branch
Slide 41: Financial Snapshot
Financial Snapshot Dollars in thousands, except per share amounts 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.
Slide 42: Our History
Our History 1851 Glens Falls Bank opened for business in a newly constructed building on Ridge Street. 1912 > 1932 Changed name to Glens Falls National Bank and Trust Company. 1949 Broke ground at 250 Glen Street — our current headquarters. 1981 Glens Falls National Bank (GFNB) went public on NASDAQ
Slide 43: Our History
Our History 1988 Formed Saratoga National Bank and Trust Company (SNB) and expanded footprint 1999 Surpassed $1 billion in assets 2001 Added to the Russell 2000 Index 2004 Bought first insurance agency 2012 Reached $2 billion in assets. 2018 Consolidated our insurance business into the Upstate Agenc
Slide 44: President and Chief Executive Officer
President and Chief Executive Officer David S. DeMarco, President and CEO 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.
Slide 45: Experienced Leadership Team
Experienced Leadership Team Penko Ivanov, David D. Kaiser, Andrew J. Wise, Senior Executive Vice President, CFO, Senior Executive Vice President and CCO Senior Executive Vice President and CRO Treasurer and CAO Mr. Ivanov joined the Company in 2023 Mr. Kaiser joined the Company in 2001 Mr. Wise join
Slide 46: Experienced Leadership Team
Experienced Leadership Team Marc Yrsha, Michael Jacobs, Brooke Pancoe, Senior Executive Vice President, Executive Vice President, Executive Vice President, Chief Chief Banking Officer Chief Information Officer Human Resources Officer Mr. Yrsha joined the Company in 2015. Mr. Jacobs joined Glens Fall
Slide 47: Thank You
Thank You =ARROW Financial Corporation