Arrow Financial Corporation · NASDAQ:AROW
Arrow Financial — Q2 2024 Earnings Presentation
48 slides from Arrow Financial's earnings presentation, Jul 25, 2024
Slide 1: 2Q 2024 Investor Presentation
2Q 2024 Investor Presentation July 25, 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 • 2Q 2024 Results and Performance Metrics • Non-Interest Income/Expense • Loans • Deposits/Funding Sources • Credit Quality • Capital Actions & Strategy • Liquidity and Investments • Arrow Overview and History 3
Slide 4: 2Q 2024 Results
2Q 2024 Results 4 =ArRROW Financial Corporation
Slide 5: Takeaways & Themes
Takeaways & Themes • Rebound in Earnings & Performance Metrics • Robust Loan Growth • Expanding Net Interest Margin • Excellent Credit Profile • Strong Capital Base • Diversified Revenue Sources Core Banking Wealth Management Insurance • Ample Liquidity & Moderating Deposit Costs 5
Slide 6: 2Q 2024 Highlights
2Q 2024 Highlights • Net income of $8.6 million; Earnings per share (EPS) of $0.52 • Gross loans grew approximately $57.6 million or 7.1% on an annualized basis • Net interest margin improved to 2.67% (2.69% FTE), up from 2.60% (2.62% FTE) from the prior quarter • Average loan yields increased to 5.
Slide 7: 2Q 2024 Consolidated Financial Statements
2Q 2024 Consolidated Financial Statements Comparative Quarter UNAUDITED Dollars in millions, except per share data Fav/(Unfav) YTD YTD Fav/(Unfav) Income Statement 2Q24 1Q24 Income Statement Var1 2Q24 2Q23 Var1 Total Interest Income $ 48.0 $ 46.7 1.3 Total Interest Income $ 94.6 $ 76.1 18.5 Total In
Slide 8: 2Q 2024 Consolidated Financial Statements
2Q 2024 Consolidated Financial Statements Linked Quarter UNAUDITED Dollars in millions, except per share data 2Q24 vs 2Q24 vs Balance Sheet 2Q24 1Q24 4Q23 1Q241 4Q231 Cash & Cash Equivalents $ 200.2 $ 282.5 $ 142.5 (82.3) 57.7 Investment Securities 556.4 620.0 636.1 (63.6) (79.7) Loans Receivable, n
Slide 9: YTD 2024 Results
YTD 2024 Results 2Q24 YTD 2Q24 Earnings per Share $ 0.52 $ 0.97 Net Interest Margin* 2.67% 2.64% Profitability Net Revenue $35.0 million $69.3 million Return on Average Assets (ROA) 0.82% 0.77% Return on Average Equity (ROE) 9.15% 8.63% $3.32 billion of gross loans 90.0% loan-to-deposit ratio Balanc
Slide 10: Performance Trends
Performance Trends History of strong earnings and performance metrics Diluted EPS Fully Diluted Tangible Book Value $21.54 $21.06 $21.25 $2.92 $2.86 $20.42 $2.41 $19.37 $1.77 $18.32 $0.45 $0.52 2020 2021 2022 2023 1Q24 2Q24 2020 2021 2022 2023 1Q24 2Q24 Return on Average Equity Return on Average Ass
Slide 11: Net Interest Margin
Net Interest Margin NIM Trend 3.14% 3.08% 2.97% 3.03% 3.02% 2.65% 2.67% 2.96% 2.60% 2.90% 5.01% 5.17% 4.62% 3.97% 4.00% 2.67% 2.06% 2.12% 2.61% 2.60% 1.43% 2.53% 2.53% 0.10% 0.27% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 2021 2022 2023 1Q24 2Q24 NIM 1 Average Loan Yield for the Period Shown
Slide 12: Non-Interest Income/Expense
Non-Interest Income/Expense 12
Slide 13: 2Q24 Non-Interest Income
2Q24 Non-Interest Income Dollars in thousands Three Months Ended June 30, 2024 March 31, 2024 June 30, 2023 Fees for Other Services to Customers $ 2,706 $ 2,543 $ 2,717 Fiduciary Activities/Wealth Management 2,451 2,457 2,428 Insurance Commissions 1,662 1,682 1,560 Other Operating Income 1,037 1,176
Slide 14: 2Q24 Non-Interest Expense
2Q24 Non-Interest Expense Dollars in thousands Three Months Ended June 30, 2024 March 31, 2024 June 30, 2023 Compensation & Benefits $ 13,036 $ 12,893 $ 12,039 Occupancy & Equipment 1,774 1,771 1,583 Data Processing & Technology 4,734 4,820 4,362 Advertising & Contributions 278 205 294 Legal & Profe
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 ~ $3.32 billion Commercial (C&I)1 11.0% • No single relationship represents more than ~1.75% of Residential Commercial total loans as of June 30, 2024 Real Estate Real Estate 37.9% 16.9% • CRE concentration ratio of ~130% of risk-based capital Consumer
Slide 18: Loan Balances
Loan Balances Dollars in millions Consistent Loan Growth Across Multiple Portfolios Residential Real Estate (RRE) Consumer Commercial Real Estate (CRE) Commercial (C&I) ~9.6% CAGR $3,257 $3,315 $3,207 $2,983 $2,668 $1,255 $1,194 $1,218 $1,071 $946 $1,112 $1,126 $1,139 $1,065 $921 $497 $544 $555 $561
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% 5.06% 5.17% Rate by Vintage 4.70% 4.57% $3.32 4.32% 4.09% 4.13% $3.26 4.04% 4.08% $3.21 3.94% 3.90% 3.82% 3.90% 3.85% $3.14 $3.07 2024 $2.98 $3.01
Slide 20: Consumer Loan Portfolio
Consumer Loan Portfolio Dollars in millions • 99.6% of the portfolio, or $1.13 billion are 5.61% collateralized auto loans; only $4 million in 5.11% 5.36% unsecured personal 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
Slide 21: Commercial Real Estate Portfolio
Commercial Real Estate Portfolio Dollars in millions 5.08%5.19% • CRE loans extended to businesses / borrowers 5.07%5.18% 4.90% 4.88% primarily located in our regional market area • No CRE exposure to large metropolitan areas – e.g., 3.66% $555 $561 $543 no NYC exposure $529 $519 $507 $497 • As of J
Slide 22: Commercial (C&I) Portfolio
Commercial (C&I) Portfolio Dollars in millions 5.53% 5.66% $450 5.38% 4.89% 4.35% 4.57% • C&I loans extended to businesses/ $400 4.17% borrowers primarily located in our $352 $354 $359 $358 $360 regional market area $346 $350 $350 $344 $350 $334 • C&I portfolio a potential source for $312 $312 $316
Slide 23: Residential Real Estate Loans
Residential Real Estate Loans Dollars in millions • 2Q24 yields include ~22bps related to FV 4.67% balance sheet hedge 4.52% 4.57% 4.10% 4.17% 4.25% • 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 mortgages on $1,19
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 47.0% 49.8% 46.2% 48.7% 47.4% 48.3% 46.7% 49.5% 48.3% 49.5% 26.5% 26.3% 24.3% 27.1% 25.2% 26.8% 23.3% 26.5% 24.6% 24.3% 26.5% 25.8% 27.5% 27.0% 25.5%
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 4.8% 4.8% 4.9% 6.0% 8.5% 10.5% 12.3% 13.9% 13.9% 14.2% 42.4% 42.5% 41.8% 41.7% 42.3% 43.
Slide 27: Funding Sources and 2Q24 Exit Rates
Funding Sources and 2Q24 Exit Rates Dollars in millions Consumer Business Municipal Total Balance Rate Balance Rate Balance Rate Balance Rate Demand (Non-Interest Bearing) $ 297 0.00% $ 399 0.00% $ 8 0.00% $ 705 0.00% Interest Bearing Checking 307 0.06% 267 3.16% 283 0.15% 857 1.06% Savings and Mone
Slide 28: Deposit Rate Analysis
Deposit Rate Analysis 2Q 2024 1Q 2024 Variance Balance Exit Rate1 Balance Exit Rate1 Balance Exit Rate1 Demand (Non-Interest Bearing) $705 0.00% $697 0.00% $8 0.00% Interest Bearing Checking $857 1.06% $908 0.97% -$52 0.09% Savings and Money Market $1,447 2.84% $1,497 2.81% -$51 0.03% 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% 0.44% 0.40% 0.46% • One NPL relationship 0.37% • Well collateralized • No specific reserve required 0.25% 0.21% 0.20% 0.18% 2020 2021 2022 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 $6.4 $11.7 $12.0 $11.2 $6.5 $6.3 $21.
Slide 31: Allowance for Credit Losses
Allowance for Credit Losses Provision for Credit Losses $775K 31
Slide 32: Allowance for Credit Losses
Allowance for Credit Losses Provision for Credit Losses $1.4M 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 • Declared 3rd Quarter Dividend of $0.27 payable August 23, 2024 • 45th consecutive quarter of dividends • YTD ~$6.4 million of stock repurchases (263K shares) Equivalent of additional $0.37 per share dividend Capital Strategy • Evaluating poten
Slide 35: Fully Diluted Tangible Book Value (TBV)
Fully Diluted Tangible Book Value (TBV) TBV growth despite challenging economic environment and aggressive share repurchase activity 35
Slide 36: Capital Position
Capital Position Capital Ratios – Arrow Tangible Common Equity 8.24% 8.53% 8.00% Total Risk-Based Capital 14.57% 14.57% 6.00% Tier 1 Risk-Based Capital 13.50% 13.53% 4.50% Common Equity Tier 1 Capital 12.84% 12.88% 4.00% Tier 1 Leverage Ratio 9.63% 9.74% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13%
Slide 37: Liquidity and Investments
Liquidity and Investments 37
Slide 38: Liquidity
Liquidity Total Deposits = $3.68 billion • ~ $2.5 billion in deposits are insured • ~ 9% on-balance sheet liquidity (cash and unencumbered AFS securities) at June 30, 2024 • ~$166 million of unencumbered securities at June Uninsured Deposits 30, 2024 ~30% • Available Borrowing Capacity: FDIC Insured
Slide 39: Investment Portfolio – AFS and HTM
Investment Portfolio – AFS and HTM Dollars in thousands June 30, 2024 Wtd Avg Wtd Avg Current BookBook Current Unrealized Unrealized Gain Remaining Life CategoryCategoy Market Market Value Value Book YieldYield Book Remaining Life Duration Duration ValueValue / (Loss) Gain / (Loss)1 1 US Treasuries
Slide 40: Overview and History
Overview and History 40 =ARROW Financial Corporation
Slide 41: 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 • $4.2 billion in assets • 550 plus employees • Primary service area population of more than 1.1 million 37 Bank Branch
Slide 42: Financial Snapshot
Financial Snapshot Dollars in thousands, except per share amounts 2019 2020 2021 2022 2023 2Q24 YTD Total assets $3,184,275 $3,688,636 $4,027,952 $3,969,509 $4,169,868 $4,244,407 Loans $2,386,120 $2,595,030 $2,667,941 $2,983,207 $3,212,908 $3,315,524 Loan-to-deposit ratio 91.2% 80.2% 75.1% 85.3% 87.
Slide 43: 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 44: 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 45: 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 46: 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 47: 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 48: Thank You
Thank You =ARROW Financial Corporation