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ARROW FINANCIAL CORP (AROW)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 net income was $6.3M and diluted EPS was $0.38; net interest margin expanded to 3.07% (3.08% FTE) on lower deposit costs and earning asset yield expansion, offset by a $3.75M specific reserve and $0.6M unification costs .
  • Record net interest income of $31.4M; non-interest income rebounded to $7.8M with the absence of Q4 portfolio repositioning losses; efficiency ratio improved to 66.52% vs 69.32% in Q4 .
  • Balance sheet growth continued: total assets rose to $4.45B (+3.3% q/q); deposits increased to $4.0B; CET1 remained strong at 12.59% .
  • Consensus EPS for Q1 was ~$0.425 vs actual $0.38 (miss), while consensus “Revenue” ~$39.26M vs actual ~$34.18M per S&P Global; near-term stock narrative hinges on margin expansion and credit resolution of the foreclosed CRE participation *.
  • Board declared a $0.28/share dividend for Q2 and increased repurchase authorization by $5.0M to $6.6M total—providing capital return flexibility .

What Went Well and What Went Wrong

  • What Went Well

    • “We delivered another quarter of strong margin expansion along with continued loan growth, further improving core profitability…” — CEO David S. DeMarco; NIM rose to 3.07% (3.08% FTE), net interest income hit a record $31.4M .
    • Deposit cost management: cost of interest-bearing deposits fell 23bps q/q to 2.41%; non-interest income recovered to $7.8M with no securities losses in Q1 .
    • Capital and liquidity intact: CET1 12.59%; efficiency ratio improved to 66.52%; tangible book value/share increased to $22.72 .

  • What Went Wrong

    • Specific reserve: $3.75M charge tied to a $15M CRE loan participation; provision for credit losses rose to $5.0M; subsequent foreclosure of collateral occurred post quarter-end .
    • EPS missed consensus (S&P Global) on higher provision and unification expenses; ROA 0.59% reported (0.91% excluding the reserve and unification costs) suggests near-term earnings drag from credit and integration costs *.
    • Deposit mix pressure persists (migration to higher-cost products), even as pricing discipline reduced overall funding cost .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Net Income ($USD Millions)$7.660 $4.470 $6.310
Diluted EPS ($USD)$0.45 $0.27 $0.38
Net Interest Income ($USD Millions)$26.455 $29.687 $31.357
Non-Interest Income ($USD Millions)$7.858 $4.227 $7.839
Provision for Credit Losses ($USD Millions)$0.617 $2.854 $5.019
Net Interest Margin (FTE, %)2.62% 2.85% 3.08%
Efficiency Ratio (%)69.54% 69.39% 66.52%

Balance sheet and capital:

MetricQ4 2024Q1 2025
Total Assets ($USD Millions)$4,306.3 $4,448.9
Total Deposits ($USD Millions)$3,827.9 $3,968.2
Total Loans ($USD Millions)$3,394.5 $3,416.9
CET1 Ratio (%)12.71% 12.59%

KPIs:

KPIQ1 2024Q4 2024Q1 2025
ROA (annualized, %)0.73% 0.41% 0.59%
Net Interest Margin (FTE, %)2.62% 2.85% 3.08%
Cost of Interest-Bearing Liabilities (%)2.62% 2.65% 2.42%
Tangible Book Value/Share ($)$21.25 $22.40 $22.72

Segment (Loan portfolio) breakdown:

Loan Category ($USD Thousands)12/31/20243/31/2025
Commercial Loans$158,991 $154,275
Commercial Real Estate Loans$796,365 $804,015
Consumer Loans$1,118,981 $1,118,735
Residential Real Estate Loans$1,320,204 $1,339,843
Total Loans$3,394,541 $3,416,868

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQ2 2025$0.28 (Q1 rate) $0.28 payable May 23, 2025 Maintained
Share Repurchase AuthorizationCurrent$1.6M implied (prior)$6.6M total; +$5.0M increase Raised
Revenue/EPS Guidance2025Not providedNot providedMaintained (no formal guidance)
Integration/Unification Timing2025Legal unification completed Dec 31, 2024 System conversion planned July 2025 Updated timing milestone

Earnings Call Themes & Trends

Note: A Q1 2025 earnings call transcript was not available via our sources. Themes below reflect management’s prepared remarks and recent quarters’ disclosures.

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Net Interest Margin & Funding CostsNIM expanded to 2.79% in Q3; stabilization of funding costs; pricing discipline NIM to 3.07% (3.08% FTE); cost of interest-bearing deposits down to 2.41% Improving
Credit Quality & Specific ReserveAllowance coverage stable; NPAs ~0.51% $3.75M specific reserve on $15M CRE participation; allowance to 1.11% of loans; subsequent foreclosure Mixed—isolated credit event amid otherwise strong metrics
Deposit Mix & LiquidityBrokered CDs used to replace borrowings; deposit growth Deposits +$140M q/q; added $125M brokered CDs; cost moderation Balanced—mix still higher-cost but managed
Strategic InitiativesInsurance agency and branch acquisitions; Piper Sandler Sm-All Stars recognition Corporate Banking team expansion; bank system conversion progress Ongoing execution
Hedging & Balance SheetCash flow/fair value swaps on brokered deposits and loan portfolio Continued use of swaps; hedge disclosures updated Active ALM posture

Management Commentary

  • “We delivered another quarter of strong margin expansion along with continued loan growth, further improving core profitability during these volatile economic times.” — David S. DeMarco, President and CEO .
  • “Our overall credit quality remains extremely strong, despite the recent development in one of our larger commercial credit exposures… We believe this to be an isolated incident as all credit metrics outside of this particular exposure are trending favorably.” — DeMarco .
  • “We are moving closer to finalizing our bank unification efforts to better serve our growing market and drive stronger operating performance under one brand.” — DeMarco .

Q&A Highlights

A full Q1 2025 transcript was not available. Based on disclosed materials:

  • Analysts likely probed sustainability of NIM expansion and deposit pricing trajectory; management highlighted yield expansion and moderating liability costs .
  • Clarifications on the $3.75M specific reserve and collateral recovery path; management characterized the event as isolated, with foreclosure executed subsequent to quarter-end .
  • Integration costs and timing for July 2025 system conversion; ~$0.6M unification expenses in Q1 and ongoing execution .

Estimates Context

MetricQ1 2025 ConsensusQ1 2025 Actual
Primary EPS ($)0.425*0.38
Revenue ($USD Millions)39.26*34.18*

Values retrieved from S&P Global.*
Result: EPS missed consensus; “Revenue” (per S&P Global classification) below consensus. Management pointed to core margin expansion and non-interest income normalization offset by higher provision and unification costs .

Key Takeaways for Investors

  • Margin-driven earnings power is improving: NIM at 3.07% (3.08% FTE) with disciplined deposit pricing; watch for sustainability as rate paths evolve .
  • Credit event appears contained: specific reserve on one CRE loan participation; allowance strengthened; subsequent foreclosure suggests active workout—monitor loss severity and recoveries .
  • Capital return is active: dividend maintained at $0.28/share and repurchases increased to $6.6M authorization—supports TSR while CET1 stays robust at 12.59% .
  • Non-interest income normalized: rebound from Q4 securities losses underscores earnings diversification; fee businesses remained resilient .
  • Integration catalyst: July 2025 system conversion should unlock operational efficiencies; near-term unification costs are modest vs strategic benefits .
  • Near-term stock drivers: EPS miss vs consensus and specific reserve headlines vs positive NIM/efficiency trajectory and capital return; positioning into Q2 hinges on credit resolution pace and deposit cost behavior .
  • Medium-term thesis: local-market growth, conservative credit profile, and active ALM/hedging can support ROA and TBV accretion as rate and mix headwinds moderate .