AROW
Arrow Financial Corporation
$40.80
Banks, Insurers & Asset Managers
85%
P/Tangible Book × ROE Quality
Mild
·
Conviction
Overvalued
Trading 2.6% above fair value
You pay
$40.80
Bear
$27.82
Fair
$39.75
Bull
$51.68
Bear
$27.82
-31.8%
ROTCE 8.1% → 0.94x TBV
Fair
$39.75
-2.6%
ROTCE 10.8% → 1.56x TBV
Bull
$51.68
+26.7%
ROTCE 12.4% → 1.93x TBV
Key Value Driver
ROTCE (10.8%) vs. cost of equity (8.4%)
Implied Market Multiple
1.66x
Summary
With ROTCE of 10.8% vs. 8.4% cost of equity, fair P/TBV is 1.56x on $24.58 tangible book, implying $39.75 per share. DDM cross-check: $19.42.
Warnings
Traditional cash flow models don't work well for banks — lending activity distorts how much cash the business actually generates.
Common valuation shortcuts don't apply here — for banks, interest payments are a core business cost, not overhead.
Dividend-based valuation: $19.42 (51% below our primary estimate). Large gaps suggest the dividend may not fully reflect the company's value.
Key Risks
- Book value quality matters as much as level — check loan loss reserves
- Interest rate sensitivity creates non-linear earnings surprises
- Insurance reserving is actuarial, not financial — errors emerge slowly