GLENS FALLS, N.Y. (July 24, 2025) – Arrow Financial Corporation (NasdaqGS® – AROW) ("Arrow" or "the Company") announced financial results for the three-month period ended June 30, 2025. Reported net income for the second quarter of 2025 was $10.8 million and fully diluted earnings per share ("EPS") was $0.65, versus net income of $6.3 million and EPS of $0.38 for the first quarter of 2025.
The Board of Directors of Arrow declared a quarterly cash dividend of $0.29 per share, an increase of $0.01 or 3.6% from the prior quarter, payable August 25, 2025 to shareholders of record as of August 11, 2025.
This quarter's results include approximately $1.1 million ($0.05 per share) of non-core unification costs related to Arrow’s system conversion and operational merger of its two banking subsidiaries, which were successfully completed in July 2025.
This Earnings Release and related commentary should be read in conjunction with the Company's July 24, 2025 Form 8-K and related Second Quarter 2025 Investor Presentation, which can also be found on Arrow's website: arrowfinancial.com/documents/investor-presentations.
Arrow President and CEO David S. DeMarco:
"We delivered strong second-quarter results, including return on average assets reaching 1.00%, with net interest margin and other key metrics approaching our strong historic levels. Simultaneously, we recently successfully completed our bank unification by consolidating our multi-bank systems and bank software applications into a single core banking platform, the last major milestone in our rebrand to Arrow Bank. This was an important step on our path toward improving customer experience and gaining operational efficiencies, further solidifying our position as a premier community bank under a strong, single recognizable brand. Our amazing team worked incredibly hard to make this transition as easy as possible for our customers, and I want to extend my deepest appreciation for their unwavering commitment and care. As we look ahead, Arrow is poised to advance our strategic priorities and continue to deliver value for our communities and shareholders."
Second-Quarter Highlights and Key Metrics
- Net Income of $10.8 million (EPS of $0.65)
- Record Net Interest Income of $32.5 million
- Net Interest Margin improved to 3.15% (3.16% FTE1), up from 3.07% (3.08% FTE) in the prior quarter
- Return on Average Assets (ROA) improved to 1.00%
- Excluding unification related expenses, ROA was 1.08%
- Loan-to-Deposit ratio of 87.2%
- Quarter-end loan exit rates2 increased to 5.51% at June 30, 2025 vs. 5.45% at March 31, 2025
- Tangible Book Value per share increased to $23.23
- Repurchased $5.1 million of shares (196,497 shares at an average cost of $26.06 per share)
- Additional $5.0 million authorized for potential future share repurchases
1 FTE Net interest margin is a non-GAAP measure. See reconciliation on Note 3 to the Selected Quarterly Information.
2 The “loan exit rate” is the point in time interest rate in effect at the end of the reporting period.
Income Statement
- Net Income: Net income for the second quarter of 2025 was $10.8 million, increasing from $6.3 million in the first quarter of 2025.
- Compared to the prior quarter, net income benefited from an increase of $1.2 million in net interest income, a decrease in the provision for credit losses of $4.4 million and a slight decrease in non-interest expense of $0.4 million.
- Net Interest Income: Net interest income for the second quarter of 2025 was $32.5 million, increasing 3.8% from the first quarter of 2025.
- Total interest and dividend income was $51.6 million for the second quarter of 2025, an increase from $50.4 million in the first quarter of 2025. Interest expense for the second quarter of 2025 was $19.0 million, consistent with the first quarter of 2025.
- Net Interest Margin: Net interest margin, on an FTE basis, for the second quarter of 2025 increased to 3.16%, compared to 3.08% for the first quarter of 2025. The increase in net interest margin compared to the first quarter of 2025 was primarily the result of continued yield expansion on earning assets combined with the moderating cost of interest-bearing liabilities.
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Three Months Ended |
| |
(Dollars in Thousands) |
| |
June 30, 2025 |
March 31, 2025 |
June 30, 2024 |
| Interest and Dividend Income |
$ 51,573 |
$ 50,366 |
$ 47,972 |
| Interest Expense |
19,040 |
19,009 |
20,820 |
| Net Interest Income |
32,533 |
31,357 |
27,152 |
| Average Earning Assets(A) |
4,142,993 |
4,143,939 |
4,083,813 |
| Average Interest-Bearing Liabilities |
3,191,906 |
3,184,196 |
3,127,417 |
| |
|
|
|
| Yield on Earning Assets(A) |
4.99% |
4.93% |
4.72% |
| Cost of Interest-Bearing Liabilities |
2.39 |
2.42 |
2.68 |
| Net Interest Spread |
2.60 |
2.51 |
2.04 |
| Net Interest Margin |
3.15 |
3.07 |
2.67 |
| Net Interest Margin - FTE |
3.16 |
3.08 |
2.69 |
| |
|
|
|
| (A) Includes Nonaccrual Loans. |
|
|
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- Provision for Credit Losses: For the second quarter of 2025, the provision for credit losses was $0.6 million compared to $5.0 million in the first quarter of 2025. The sizeable quarter-over-quarter decrease in the second quarter provision reflects the recognition of a specific reserve on a large commercial loan participation in the first quarter of 2025.
- Non-Interest Income: Non-interest income for the three months ended June 30, 2025, was $7.6 million, a decrease from $7.8 million in the first quarter of 2025. Revenue related to wealth management decreased from the prior quarter as a result of weaker overall market performance. Interchange fees improved in the second quarter from the linked quarter. Other operating income was negatively affected by small valuation adjustments to other assets.
- Non-Interest Expense: Non-interest expense for the second quarter of 2025 was $25.7 million, a decrease from $26.0 million in the first quarter of 2025. The second quarter of 2025 included unification expenses of approximately $1.1 million as compared to $0.6 million in the first quarter of 2025. The unification expenses were primarily comprised of project management and information technology costs related to the July 2025 system conversion. Arrow continues to focus on overall expense management.
- Provision for Income Taxes: The provision for income taxes and effective tax rate were $3.1 million and 22.2%, respectively, for the second quarter of 2025, and $1.8 million and 22.4%, respectively, for the first quarter of 2025.
Balance Sheet
- Total Assets: Total assets were $4.4 billion at June 30, 2025, a decrease of $34.2 million, or 0.8%, as compared to March 31, 2025. For the second quarter of 2025, overall change in the balance sheet was primarily attributable to fluctuations in cash balances, maturities of investments and growth in the loan portfolio.
- Investments: Total investments were $528.4 million as of June 30, 2025, a decrease of $24.6 million, or 4.4%, compared to March 31, 2025. The decrease from March 31, 2025 was driven primarily by paydowns and maturities. There were no credit quality issues related to the investment portfolio.
- Loans3: Total loans were $3.4 billion as of June 30, 2025. Loan growth for the second quarter of 2025 was $7.9 million. Loan growth was primarily driven by an increase in residential real estate loans and to a lesser extent by commercial loan relationships. Please see the loan detail included in the Consolidated Financial Information table on page 12.
- Allowance for Credit Losses: The allowance for credit losses was $34.2 million as of June 30, 2025, which represented 1.00% of loans outstanding, as compared to $37.8 million, or 1.11%, at March 31, 2025. The decrease in the allowance for credit losses was primarily driven by the recognition of a specific reserve of $3.75 million in the first quarter of 2025 and subsequent charge-off of the reserved loan balances during the second quarter. The remaining loan balance has been reclassified to Other Assets after the participating banks assumed control of the collateral properties and appointed a property manager to manage the day-to-day activities while exploring further options. The properties itself are being held in an unconsolidated LLC in which Arrow has an ownership interest equivalent to its rights under the former loan participation. As previously disclosed, the properties are generating positive cash flow and a majority is tenant occupied. Net charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.49% for the three-month period ended June 30, 2025, as compared to 0.10% for the three-month period ended March 31, 2025. The increase was the result of the charge-off of the previously reserved commercial loan participation. Nonperforming assets were $7.0 million as of June 30, 2025, representing 0.16% of period-end assets, compared to 0.44% at March 31, 2025.
- Deposits: At June 30, 2025, deposit balances were $3.9 billion, a decrease of $38.8 million from March 31, 2025. The change from March 31, 2025 was primarily attributable to the seasonality of municipal deposits. Please refer to page 7 for further details related to deposits.
- Capital: Total stockholders’ equity was $408.5 million at June 30, 2025, an increase of $4.1 million, or 1.0%, from March 31, 2025. The increase from March 31, 2025 was primarily attributable to net income of $10.8 million and other comprehensive income of $2.6 million offset by dividends of $4.7 million and share repurchases of $5.1 million and other stock-based activity. Arrow's regulatory capital ratios remain strong. As of June 30, 2025, Arrow's Common Equity Tier 1 Capital Ratio was 12.73% and Total Risk-Based Capital Ratio was 14.51%. Regulatory capital ratios are estimated, subject to finalization as part of the current quarter Call Report. The capital ratios of Arrow and its subsidiary bank continued to exceed the “well capitalized” regulatory standards.
3 Excludes both $3.2 million fair value hedge adjustment at June 30, 2025 and $3.3 million fair value hedge adjustment at March 31, 2025.
Additional Commentary
- BauerFinancial Ratings: Arrow Bank National Association ("Arrow Bank") received a 5-Star Superior rating from BauerFinancial, Inc., the nation’s premier bank rating firm. Arrow Bank has earned this designation for 73 consecutive quarters, securing its prominent position as an “Exceptional Performance Bank.”
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About Arrow: Arrow Financial Corporation is a holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York. The Company is the parent of Arrow Bank, a full-service commercial bank, and Upstate Agency, LLC, a comprehensive insurance agency.
Non-GAAP Financial Measures Reconciliation: In addition to presenting information in conformity with accounting principles generally accepted in the United States of America (GAAP), this news release contains financial information determined by methods other than GAAP (non-GAAP). The following measures used in this release, which are commonly utilized by financial institutions, have not been specifically exempted by the Securities and Exchange Commission ("SEC") and may constitute "non- GAAP financial measures" within the meaning of the SEC's rules. Certain non-GAAP financial measures include: tangible book value, tangible equity, return on tangible equity, tax-equivalent adjustment and related net interest income, tax-equivalent net interest margin and the efficiency ratio. Management believes that the non-GAAP financial measures disclosed by Arrow from time to time are useful in evaluating Arrow's performance and that such information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Non-GAAP financial measures may differ from similar measures presented by other companies. See the reconciliation of GAAP to non-GAAP measures in the section "Selected Quarterly Information."
Safe Harbor Statement: The information contained in this news release may contain statements that are not historical in nature but rather are based on management’s beliefs, assumptions, expectations, estimates and projections about the future. These statements may be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, involving a degree of uncertainty and attendant risk. In the case of all forward-looking statements, actual outcomes and results may differ materially from what the statements predict or forecast, explicitly or by implication. Arrow undertakes no obligation to revise or update these forward-looking statements to reflect the occurrence of unanticipated events. This News Release should be read in conjunction with Arrow’s Annual Report on Form 10-K for the year ended December 31, 2024, and other filings with the SEC.
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