Arrow Financial Corporation · NASDAQ:AROW
Arrow Financial — Q1 2023 Earnings Presentation
41 slides from Arrow Financial's earnings presentation, Jul 27, 2023
Slide 1: Q1 2023 Investor Presentation
Q1 2023 Investor Presentation July 27, 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 • Q1 2023 Results & 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 • $4.1 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 K. 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
Slide 10: Q1 2023 Performance
Q1 2023 Performance =ArROW Financial Corporation
Slide 11: Q1 2023 Summary
11 Q1 2023 Summary • Assets of $4.1 billion; Net income of $8.6 million; Fully diluted earnings per share (EPS) of $0.52 • Deposits were unchanged from year-end ’22 at $3.5 billion for a loan-to-deposit ratio of 85% • Loans of $3.0 billion, an increase of $22 million versus year-end ‘22 • Tangible b
Slide 12: Q1 2023 Results
12 Net Interest Margin 2.96% Profitability Revenue $34.8 million Return on Average Assets 0.87% Return on Average Equity 9.66% $3.0 billion of gross loans 84.7% Loan-to-deposit ratio Balance Sheet $3.5 billion of gross deposits 0% Brokered Deposits 1.02% Allowance for Credit Losses (ACL) Dividend of
Slide 13: Q1 2023 Consolidated Financial Statements
13 Q1 2023 Consolidated Financial Statements 1Variances 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 14: Performance Trends
14 Performance Trends $2.22 $2.29 $2.49 $3.01 $2.95 $0.52 2018 2019 2020 2021 2022 1Q23 EPS $15.09 $16.97 $18.87 $21.03 $19.95 $20.55 2018 2019 2020 2021 2022 1Q23 Fully Diluted Tangible Book Value 13.96% 13.17% 12.77% 14.09% 13.55% 9.66% 2018 2019 2020 2021 2022 1Q23 Return on Average Equity 1.27%
Slide 15: Net Interest Margin
15 Net Interest Margin 3.05% 2.99% 2.97% 3.03% 2.96% 4.18% 3.98% 3.97% 4.00% 4.32% 0.67% 0.36% 0.10% 0.27% 0.82% 2019 2020 2021 2022 1Q23 Net Interest Margin (NIM) Average Loan Yield for the Period Shown Cost of Deposits • NIM compression expected to continue - Fed rate hikes and “higher for longer”
Slide 16: Operating Expenses - Efficiency Trends
16 Operating Expenses - Efficiency Trends 56.6% 57.1% 52.8% 54.2% 54.3% 63.4% 2.27% 2.22% 2.02% 2.00% 2.01% 2.24% 2018 2019 2020 2021 2022 1Q23 Efficiency Ratio Net Non-interest Expense / Average Assets Efficiency Ratio trend driven primarily by margin compression and to lesser degree by elevated ex
Slide 17: Funding Sources, Investments, Liquidity
Funding Sources, Investments, Liquidity 17
Slide 18: Deposit Balances
18 Deposit Balances 26.5% 25.8% 27.5% 27.0% 23.7% 26.5% 24.6% 26.3% 24.3% 27.1% 47.1% 49.7% 46.2% 48.7% 49.2% 1Q22 2Q22 3Q22 4Q22 1Q23 Axis Title Deposit BalancesNon-Municipal Municipal Business Dollars in billions $3.72 $3.55 $3.80 $3.50 $3.55 • Stable deposit franchise with diverse funding sources
Slide 19: Deposit Balances
19 Deposit Balances 21.9% 23.3% 24.0% 23.9% 22.2% 31.1% 29.5% 29.3% 28.5% 27.0% 42.3% 42.4% 41.7% 41.6% 42.2% 4.8% 4.8% 4.9% 6.0% 8.5% 1Q22 2Q22 3Q22 4Q22 1Q23 Axis Title Deposit BalancesTime Deposits Savings Deposits Interest-Bearing Checking Noninterest-Bearing Dollars in billions $3.72 $3.55 $3.8
Slide 20: Funding Sources & Rates
20 Funding Sources & Rates • Deposit Beta through current rate cycle Q1 2022 to Q1 2023 is 30.74% • 2023 YTD Deposit Beta is 144.0% • CD & Money Market specials are currently priced at or above 5% • Limited wholesale borrowing; short to medium-term borrowing costs are currently above 5% Dollars in m
Slide 21: Investment Portfolio
21 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 portfolio duration • A change in rates of ~ 25 bps impacts Other Comprehensive Income (OCI) by ~$5MM • Q1
Slide 22: Liquidity
22 Liquidity FDIC Insured Deposits 68% Uninsured Deposits 32% Total Deposits = $3.5 billion • ~ $2.4 billion in deposits are insured • Immediately Available Liquidity Cash $0.2 billion Unencumbered Securities $0.2 billion Borrowing Capacity1 $1.3 billion $1.7 billion • 10% liquidity on balance sheet
Slide 23: Non-Interest Income
Non-Interest Income =ArROW Financial Corporation
Slide 24: Non-Interest Income
24 Non-Interest Income • Decrease in fee income related to post-pandemic slow down in consumer use of debit cards • Wealth Management performance in ‘22 impacted by broader market pull-back • Minimal gains from loan sale activity (Residential, SBA) over the last 18 months Dollars in thousands - Inco
Slide 25: Wealth Management
25 Wealth Management • $1.7 billion Assets under Management (AUM) at March 31, 2023 • AUM increased ~$66 million (4%) during Q1’23 • New (net) accounts contributed ~$36 million • Serving NY (Upper Hudson Valley, Capital Region, North Country) • Based in Glens Falls, NY • 33 employees • Services • As
Slide 26: Insurance
26 Insurance • Upstate Agency - Headquartered in South Glens Falls, NY - Total of 9 locations in NY (Capital Region, North Country) - 37 employees - Majority of policy holders reside within our geographic footprint • Insurance Products - Personal, Commercial, and Employee Benefit Plans • 2022 Revenu
Slide 27: Loans
=Arrow Financial Corporation
Slide 28: Loan Balances
28 Loan Balances $2.37 $2.58 $2.98 $3.01 2020 2021 2022 1Q23 Consistent Loan Growth 1Compound annual growth rate Excludes PPP loans Dollars in billions • Q1’23 loan growth slowed from prior quarters • Pipeline and loan demand recovered in Q2’23 • Q2 loan growth expected at annualized rate of in exce
Slide 29: Loan Balances
29 $2,595 $2,639 $2,644 $2,655 $2,668 $2,737 $2,845 $2,925 $2,983 $3,005 Loan Balances Dollars in millions $305 $301 $312 $312 $316 $334 $345 $350 $350 $344 $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $923 $908 $911 $930 $946 $967 $1,01
Slide 30: Loan Yields Steadily Increasing
30 Loan Yields Steadily Increasing $2.60 $2.64 $2.64 $2.66 $2.67 $2.74 $2.85 $2.93 $2.98 $3.01 3.94% 3.90% 4.04% 4.08% 3.82% 3.90% 3.85% 4.09% 4.13% 4.32% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 Loan Portfolio Yields experiencing meaningful increase during Q1’23 Loan Balance Average Loan P
Slide 31: Loan Portfolio Composition
31 Loan Portfolio Composition Commercial (C&I) 12.5% Commercial Real Estate 16.8% Consumer 35.7% Residential Real Estate 36.0% • No single relationship represents more than ~1.5% of total loans, as of March 31, 2023 • CRE concentration ratio of ~120% of risk based capital • C&I portfolio can be a so
Slide 32: Consumer Loan Portfolio
32 Consumer Loan Portfolio $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 3.95% 3.94% 3.92% 3.93% 3.87% 3.84% 3.83% 4.10% 4.02% 4.26% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • 99.6% of
Slide 33: Commercial Real Estate Portfolio
33 Commercial Real Estate Portfolio $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 3.66% 4.90% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • CRE loans extended to businesses / borrowers primarily l
Slide 34: Commercial (C&I) Portfolio
34 Commercial (C&I) Portfolio $305 $301 $312 $312 $316 $334 $346 $350 $350 $344 4.17% 4.35% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions As of March 31, 2023, the po
Slide 35: Residential Real Estate Loans
35 Residential Real Estate Loans $923 $908 $911 $930 $946 $967 $1,012 $1,051 $1,071 $1,081 3.83% 3.79% 3.77% 3.76% 3.73% 3.71% 3.70% 3.78% 3.80% 4.10% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • One
Slide 36: Credit Quality and Capital
Credit Quality and Capital 36
Slide 37: Credit Quality
37 Credit Quality 0.25% 0.44% 0.40% 0.37% 2020 2021 2022 1Q23 Non Performing Loans (NPL) / Gross Loans Dollars in millions $6.4 $11.7 $12.0 $11.2 Allowance is 276% of NPL • Allowance of 1.02% available to address potential credit issues • Charge-offs were 10bps in Q1’23 • NPL population is well coll
Slide 38: Tangible Book Value (TBV) Increasing
38 Tangible Book Value (TBV) Increasing TBV in challenging industry environment
Slide 39: Capital Position
39 Capital Position 9.80% 13.32% 14.01% 15.11% 8.32% 10.13% 13.34% 14.03% 15.15% 8.31% 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 Capita
Slide 40: Financial Snapshot
40 Financial Snapshot 2018 2019 2020 2021 2022 1Q23 Total assets $2,988,334 $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,114,630 Loans $2,196,215 $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,005,352 Loan-to-deposit ratio 93.6% 91.2% 80.2% 75.1% 85.3% 84.7% Return on average assets 1.27% 1.24% 1.
Slide 41: Thank You
Thank You =ArROW Financial Corporation