AROW
Arrow Financial Corporation
$36.39
Banks, Insurers & Asset Managers
85%
P/Tangible Book × ROE Quality
Mild
·
Conviction
Fair Value
Trading 8.5% below fair value
You pay
$36.39
Bear
$27.82
Fair
$39.75
Bull
$51.68
Bear
$27.82
-23.5%
ROTCE 8.1% → 0.95x TBV
Fair
$39.75
+9.2%
ROTCE 10.8% → 1.57x TBV
Bull
$51.68
+42.0%
ROTCE 12.4% → 1.94x TBV
Adjust Assumptions
10.8%
8.3%
Key Value Driver
ROTCE (10.8%) vs. cost of equity (8.3%)
Implied Market Multiple
1.48x
Summary
With ROTCE of 10.8% vs. 8.3% cost of equity, fair P/TBV is 1.57x on $24.58 tangible book, implying $39.75 per share. DDM cross-check: $19.63.
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: $19.63 (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