Arrow Financial Corporation · NASDAQ:AROW
Arrow Financial — Q2 2023 Earnings Presentation
42 slides from Arrow Financial's earnings presentation, Aug 8, 2023
Slide 1: Q2 2023 Investor Presentation
Q2 2023 Investor Presentation August 8, 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 • Q2 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 • $4.1 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: Q2 2023 Performance
Q2 2023 Performance =ArROW Financial Corporation
Slide 11: Q2 2023 Summary
11 Q2 2023 Summary • Assets of $4.1 billion • Net income of $6.0 million; Fully diluted earnings per share (EPS) of $0.36 • Deposit balances of $3.5 billion; a decrease of $44 million during 2Q23, slightly up from year-end 2022 • Loans reached a record of $3.1 billion, an increase of $65 million dur
Slide 12: Q2 2023 Results
12 Net Interest Margin 2.61% Profitability Revenue $32.7 million Return on Average Assets 0.59% Return on Average Equity 6.64% $3.1 billion of gross loans 87.7% loan-to-deposit ratio Balance Sheet $3.5 billion of gross deposits 0% brokered deposits 1.02% Allowance for Credit Losses (ACL) 0% digital
Slide 13: Q2 2023 Consolidated Financial Statements
13 Q2 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: Q2 2023 Consolidated Financial Statements
14 Q2 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 Comparative
Slide 15: Performance Trends
15 Performance Trends $2.22 $2.29 $2.49 $3.01 $2.95 $0.88 2018 2019 2020 2021 2022 2Q23 YTD Diluted EPS $15.09 $16.97 $18.87 $21.03 $19.95 $20.44 2018 2019 2020 2021 2022 2Q23 YTD Fully Diluted Tangible Book Value 13.96% 13.17% 12.77% 14.09% 13.55% 8.13% 2018 2019 2020 2021 2022 2Q23 YTD Return on A
Slide 16: Net Interest Margin
16 Net Interest Margin 3.05% 2.99% 2.97% 3.03% 2.79% 4.18% 3.98% 3.97% 4.00% 4.45% 0.67% 0.36% 0.10% 0.27% 1.08% 2019 2020 2021 2022 2Q23 YTD Net Interest Margin (NIM) Average Loan Yield for the Period Shown Cost of Deposits • NIM compression expected to continue, but slowing in 2H23 - Fed “higher f
Slide 17: Operating Expenses - Efficiency Trends
17 Operating Expenses - Efficiency Trends 56.6% 57.1% 52.8% 54.2% 54.3% 67.9% 2.27% 2.22% 2.02% 2.00% 2.01% 2.30% 2018 2019 2020 2021 2022 2Q23 YTD Efficiency Ratio Net Non-interest Expense / Average Assets Efficiency Ratio trend driven primarily by margin compression and by elevated expenses due to
Slide 18: Funding, Investments and Liquidity
Funding, Investments and Liquidity 18
Slide 19: Deposit Balances
19 Deposit Balances 26.5% 25.8% 27.5% 27.0% 26.5% 26.5% 24.6% 26.3% 24.3% 25.2% 47.1% 49.7% 46.2% 48.7% 48.2% 1Q22 2Q22 3Q22 4Q22 2Q23 Axis Title Deposit BalancesNon-Municipal Municipal Business Dollars in billions $3.72 $3.55 $3.80 $3.50 $3.50 • Stable deposit franchise with diverse funding sources
Slide 20: Deposit Balances
20 Deposit Balances 21.9% 23.3% 24.0% 23.9% 21.7% 31.1% 29.5% 29.3% 28.5% 24.4% 42.3% 42.4% 41.7% 41.6% 43.3% 4.8% 4.8% 4.9% 6.0% 10.5% 1Q22 2Q22 3Q22 4Q22 2Q23 Axis Title Deposit BalancesTime Deposits Savings Deposits Interest-Bearing Checking Noninterest-Bearing Dollars in billions $3.72 $3.55 $3.
Slide 21: Funding Sources & Rates
21 Funding Sources & Rates • Deposit Beta through current rate cycle Q1 2022 to Q2 2023 is 37.3% • 2023 YTD Deposit Beta is 153.3% • CD and Money Market specials are currently priced at or above 5% • Limited wholesale borrowing; short to medium-term borrowing costs are currently above 5% • Replaced
Slide 22: Investment Portfolio
22 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 duration • A change in rates of ~ 25 bps impacts Other Comprehensive Income (OCI) by ~$5MM • Q2 2023 mark-
Slide 23: Liquidity
23 Liquidity FDIC Insured Deposits 71% Uninsured Deposits 29% Total Deposits = $3.5 billion • ~ $2.4 billion in deposits are insured • ~ 9% on-balance sheet liquidity (Cash and unencumbered AFS securities) • Available Borrowing Capacity Brokered Deposits $0.8 billion Borrowing Capacity1 $1.3 billion
Slide 24: Non-Interest Income
Non-Interest Income =ArROW Financial Corporation
Slide 25: Non-Interest Income
25 Non-Interest Income • Decrease in fee income related to post-pandemic slow down in consumer use of debit cards • Wealth Management performance recovering from broader market pull-back in ’22 • Minimal gains from loan sale activity (Residential, SBA) over the last 18 months Dollars in thousands Ju
Slide 26: Wealth Management
26 Wealth Management • $1.7 billion Assets under Management (AUM) at June 30, 2023 • YTD AUM increased ~$105.3 million (6.6%) • YTD New (net) accounts contributed ~$39 million • Serving New York (Upper Hudson Valley, Capital Region, North Country) • Based in Glens Falls, NY • 33 employees • Services
Slide 27: Insurance
27 Insurance • Upstate Agency - Headquartered in South Glens Falls, NY - Total of 9 locations in New York (Capital Region, North Country) - 37 employees - Majority of policy holders reside within our geographic footprint • Insurance Products - Personal, Commercial, and Employee Benefit Plans • Reven
Slide 28: Loans
=Arrow Financial Corporation
Slide 29: Loan Balances
29 Loan Balances $2.20 $2.39 $2.37 $2.58 $2.98 $3.07 2018 2019 2020 2021 2022 2Q23 Consistent Loan Growth Excludes PPP loans Dollars in billions • 2Q23 loan growth rebounded with strong $65 million • 2Q23 loan growth exceeded 8% on an annualized basis • July 2023 annualized loan growth ~6%
Slide 30: Loan Balances
30 $2,595 $2,639 $2,644 $2,655 $2,668 $2,737 $2,845 $2,925 $2,983 $3,005 $3,070 Loan Balances Dollars in millions $305 $301 $312 $312 $316 $334 $345 $350 $350 $344 $352 $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $1,088 $923 $908 $
Slide 31: Loan Yields Steadily Increasing
31 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 3.94% 3.90% 4.04% 4.08% 3.82% 3.90% 3.85% 4.09% 4.13% 4.32% 4.57% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 Loan Portfolio Yields experiencing meaningful increase during 2023 Loan Balanc
Slide 32: Loan Portfolio Composition
32 Loan Portfolio Composition Commercial (C&I) 12.5% Commercial Real Estate 16.9% Consumer 35.4% Residential Real Estate 36.2% • No single relationship represents more than ~1.5% of total loans as of June 30, 2023 • CRE concentration ratio of ~120% of risk based capital • C&I portfolio can be a sour
Slide 33: Consumer Loan Portfolio
33 Consumer Loan Portfolio $860 $861 $893 $921 $921 $977 $1,031 $1,056 $1,065 $1,073 $1,088 3.95% 3.94% 3.92% 3.93% 3.87% 3.84% 3.83% 4.10% 4.02% 4.26% 4.61% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in mi
Slide 34: Commercial Real Estate Portfolio
34 Commercial Real Estate Portfolio $393 $407 $412 $431 $442 $441 $455 $468 $497 $507 $519 3.66% 4.90% 5.08% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • CRE loans extended to businesses / borro
Slide 35: Commercial (C&I) Portfolio
35 Commercial (C&I) Portfolio $305 $301 $312 $312 $316 $334 $346 $350 $350 $344 $352 4.17% 4.35% 4.57% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars in millions • C&I loans
Slide 36: Residential Real Estate Loans
36 Residential Real Estate Loans $923 $908 $911 $930 $946 $967 $1,012 $1,051 $1,071 $1,081 $1,111 3.83% 3.79% 3.77% 3.76% 3.73% 3.71% 3.70% 3.78% 3.80% 4.10% 4.17% 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 Period-End Loan Balance Average Loan Portfolio Yield for the Period Shown Dollars
Slide 37: Credit Quality and Capital
Credit Quality and Capital 37
Slide 38: Credit Quality
38 Credit Quality 0.25% 0.44% 0.40% 0.37% 0.21% 2020 2021 2022 1Q23 2Q23 Non Performing Loans (NPL) / Gross Loans Dollars in millions $6.4 $11.7 $12.0 $11.2 $7.1 • ACL of 1.02% available to address potential credit issues • Charge-offs were 7bps in 2Q23; down from 10bps in 1Q23 and 9bps in 4Q22 • A
Slide 39: Fully Diluted Tangible Book Value (TBV) Increasing
39 Fully Diluted Tangible Book Value (TBV) Increasing TBV in challenging industry environment
Slide 40: Capital Position
40 Capital Position 10.13% 13.34% 14.03% 15.15% 8.31% 9.92% 13.27% 13.96% 15.08% 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 Capita
Slide 41: Financial Snapshot
41 Financial Snapshot 2018 2019 2020 2021 2022 2Q23 YTD Total assets $2,988,334 $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,103,653 Loans $2,196,215 $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,069,897 Loan-to-deposit ratio 93.6% 91.2% 80.2% 75.1% 85.3% 87.7% Return on average assets 1.27% 1.24
Slide 42: Thank You
Thank You =ArROW Financial Corporation