Executive Summary

Q2 results showed stronger profitability and margin expansion: GAAP diluted EPS $0.65 on net income of $10.8M; net interest margin (FTE) rose 8 bps q/q to 3.16% and ROA reached 1.00% .
S&P Global consensus for Q2 EPS was $0.60; “Primary EPS” actual registered $0.70 vs $0.60, a beat; revenue came in at ~$39.55M vs ~$39.90M est., a slight miss (1 estimate each; S&P data) [Values retrieved from S&P Global].
Credit normalization post a Q1-specific reserve: provision fell to $0.6M vs $5.0M in Q1; NPLs declined to 0.19% of loans as foreclosed, previously reserved CRE participation moved off loans into other assets .
Capital return accelerated: dividend raised to $0.29 (+3.6% q/q) and an additional $5M repurchase authorization; Q2 repurchases totaled ~$5.1M (~196.5K shares at $26.06) .
Management highlighted completion of core system unification and expects continued, but slower, NIM expansion in 2H25—positioning and rate path are the catalysts to watch .

What Went Well and What Went Wrong

What Went Well

Margin traction and core earnings: Record net interest income ($32.5M) with FTE NIM up to 3.16% drove ROA to 1.00% and improved efficiency ratio to 63.4% .
Credit normalization: Provision dropped to $0.6M as the Q1-specific CRE participation reserve was followed by charge-off/foreclosure in Q2; NPLs fell to 0.19% of loans and ACL coverage of NPLs rose to 533% .
Strategic execution: “We…successfully completed our bank unification…into a single core banking platform…improving customer experience and gaining operational efficiencies,” CEO David S. DeMarco said .

What Went Wrong

Fee softness: Non-interest income declined modestly q/q ($7.6M vs $7.8M) on weaker wealth management markets and valuation adjustments in “other assets” .
Seasonality and deposits: Total deposits decreased ~$38.8M q/q, primarily due to seasonal municipal deposit outflows, lifting the loan-to-deposit ratio to 87.2% .
Residual unification costs: Q2 included ~~$1.1M of non-core unification spend (~~$0.05 EPS headwind), though management indicates Q2 is the last quarter with significant unification spend .

Financial Results

Core P&L and Profitability vs prior periods

Metric	Q2 2024	Q1 2025	Q2 2025
Net Interest Income ($M)	27.15	31.36	32.53
Non-Interest Income ($M)	7.86	7.84	7.61
Provision for Credit Losses ($M)	0.78	5.02	0.59
Net Income ($M)	8.60	6.31	10.81
Diluted EPS ($)	0.52	0.38	0.65
Net Interest Margin (FTE, %)	2.69	3.08	3.16
ROA (%)	0.82	0.59	1.00
Efficiency Ratio (%)	66.29	66.52	63.41

Balance Sheet and Asset Quality

Metric	Q4 2024	Q1 2025	Q2 2025
Total Loans ($M)	3,394.54	3,416.87	3,424.75
Total Deposits ($M)	3,827.93	3,968.17	3,929.33
Loan-to-Deposit Ratio (%)	88.7 (FY24)	86.1	87.2
CET1 Ratio (%)	12.71	12.59	12.73
TBV/Share ($)	22.40	22.72	23.23
NPLs / Loans (%)	0.62	0.56	0.19
ACL / Loans (%)	0.99	1.11	1.00

Segment/Portfolio Mix (Loans)

Category ($M)	Dec 31, 2024	Jun 30, 2025
Commercial (C&I)	158.99	162.20
Commercial Real Estate	796.37	808.17
Consumer	1,118.98	1,109.27
Residential Real Estate	1,320.20	1,345.11
Total Loans	3,394.54	3,424.75

Estimates vs Actuals (S&P Global)

Metric	Q2 2025 Consensus	Q2 2025 Actual
EPS ($, Primary)	0.60*	0.70*
Revenue ($M)	39.90*	39.55*
Values retrieved from S&P Global.

Notes: GAAP diluted EPS reported by the company was $0.65; S&P “Primary EPS” may differ from GAAP diluted EPS due to methodology .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Dividend per share	Q3 2025	$0.28 (Q2 dividend)	$0.29	Raised
Share repurchase authorization	Ongoing	Existing program	+$5.0M incremental authorization	Increased
Net Interest Margin (directional)	2H 2025	NIM expanding	“Continued, but slower NIM expansion in 2H25”	Qualitative update
Operating/unification costs	2025	Ongoing through mid-year	Q2’25 is last quarter with significant unification spend	Winding down

No formal quantitative guidance provided for revenues, EPS, or tax rate in Q2 materials .

Earnings Call Themes & Trends

Note: A Q2 2025 earnings call transcript was not available in our document set; themes derive from the press release and investor presentation .

Topic	Previous Mentions (Q4’24, Q1’25)	Current Period (Q2’25)	Trend
NIM trajectory	NIM improved to 2.83% in Q4; to 3.08% in Q1 on loan repricing and moderating deposit costs	FTE NIM 3.16%; management expects continued but slower expansion in 2H25	Positive, moderating
Credit quality	Q1 included a $3.75M specific CRE reserve; otherwise metrics trending favorably	Charge-off/foreclosure of previously reserved loan; NPLs down to 0.19%	Improved post event
Deposits/funding	Seasonal municipal inflows boosted Q1 deposits; disciplined pricing	Seasonal municipal outflows reduced Q2 deposits; disciplined pricing continues; CD specials repriced	Managed mix/costs
Expenses/efficiency	Q4 non-core items; Q1 unification costs ~$0.6M	Q2 unification ~$1.1M; efficiency ratio 63.4%; unification spend winding down	Improving core efficiency
Capital return	Dividend increased to $0.28 in Q4	Dividend to $0.29; added $5M buyback; $5.1M repurchased in Q2	Increasing returns

Management Commentary

“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… [and] successfully completed our bank unification… into a single core banking platform,” said CEO David S. DeMarco .
Investor presentation highlights: “Continued, but slower NIM expansion in 2H25… Low NPLs post 1Q credit event – no further signs of material stress… 2Q25 is last quarter with significant unification related spend” .

Non-GAAP reminders: FTE NIM, efficiency ratio, and TBV per share are defined and reconciled in the materials .

Q&A Highlights

A Q2 2025 earnings call transcript was not available; no Q&A highlights or clarifications could be reviewed from a transcript. The company furnished an investor presentation and an earnings release alongside the 8-K .

Estimates Context

EPS: S&P “Primary EPS” actual $0.70 vs $0.60 consensus (beat); 1 estimate contributed. Revenue: $39.55M actual vs $39.90M consensus (slight miss); 1 estimate contributed. Limited coverage implies estimate dispersion is minimal (S&P data). Values retrieved from S&P Global.
Street may lift outer-period NIM and profitability assumptions modestly, given continued NIM expansion and lower-than-expected provision, though fee softness and seasonality in deposits temper top-line momentum .

Key Takeaways for Investors

NIM-led EPS resilience: Loan repricing and disciplined deposit costs pushed FTE NIM to 3.16%; management signals continued but slower expansion in 2H25—positioning for rate cuts could add upside .
Credit overhang eased: The Q1-specific CRE issue was largely resolved (foreclosure/charge-off), dropping NPLs to 0.19% and stabilizing provision; underlying loss metrics remain benign ex-event .
Cost line improving: Efficiency ratio improved to 63.4% and unification spend is winding down after Q2, setting the stage for better core operating leverage into 2H25 .
Capital return accelerating: Dividend up to $0.29 and added $5M buyback authorization; $5.1M repurchased in Q2 with TBV/share up to $23.23 supports shareholder yield .
Watch deposit seasonality and mix: Municipal seasonality drove q/q deposit decline; exit-rate data and repriced CD specials suggest continued discipline on funding costs .
Trading lens: Near-term upside skewed to any Fed cut(s) and incremental NIM gains; downside risks include slower fee income and macro sensitivity of funding costs/mix .

Additional Detail and Sources

Q2 2025 press release (earnings and KPIs) .
Q2 2025 Form 8-K Items 2.02/7.01/8.01 and exhibits (earnings release, investor presentation; dividend/buyback actions) .
Prior quarters’ press releases for trend: Q1 2025 (EPS $0.38; FTE NIM 3.08%) ; Q4 2024 (EPS $0.27; FTE NIM 2.85%) .
Company web posting of Q2 2025 tables and investor presentation corroborates the above .

S&P Global estimates used: EPS and revenue consensus/actual for Q2 2025 (1 estimate each). Values retrieved from S&P Global.

ARROW FINANCIAL CORP (AROW)·Q2 2025 Earnings Summary