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ARROW FINANCIAL CORP (AROW)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered a clean beat versus S&P Global consensus: diluted EPS of $0.77 vs $0.72 estimate and net revenue of ~$42.85M vs ~$41.0M estimate, driven by record net interest income, NIM expansion, and stronger non-interest income . EPS and revenue estimates retrieved from S&P Global.*
  • NIM (FTE) expanded to 3.24% from 3.16% in Q2 and 2.79% in Q3 2024, reflecting yield expansion on earning assets and stabilizing liability costs; ROA improved to 1.16% and efficiency ratio to 59.56% .
  • Management highlighted a liability-sensitive balance sheet and expects additional NIM tailwinds from late-Q3 and late-October Fed rate cuts; deposit costs are declining with ~$2B of deposits subject to repricing .
  • Capital actions remained supportive: dividend maintained at $0.29/share, TBV/share rose 2.7% q/q to $23.85, and repurchases of ~$1.4M in Q3 with $5.1M remaining authorization; CET1 of 13.07% remains well above regulatory minimums .
  • A shareholder derivative settlement received preliminary court approval with no material financial impact, removing an overhang and improving visibility .

What Went Well and What Went Wrong

What Went Well

  • Record net interest income ($34.1M) and continued NIM expansion (FTE 3.24%), lifting core profitability and driving an EPS beat; “EPS increased by almost 20% from the prior quarter… record net interest income, solid net interest margin expansion” — CEO David S. DeMarco .
  • Non-interest income improved q/q (+$1.1M), supported by wealth management AUM growth and a positive valuation adjustment in an equity position .
  • Asset quality strengthened: NCOs 10 bps annualized, NPLs fell to 0.18% of loans, ACL-to-NPL coverage rose to ~542%, and nonperforming assets dropped to $6.7M (0.15% of assets) .

What Went Wrong

  • Provision for credit losses ticked up to $815K vs $594K in Q2 due to Q3 charge-offs, modestly offsetting revenue gains .
  • Interest expense increased sequentially ($19.5M vs $19.0M in Q2), reflecting ongoing deposit repricing and mix amid higher-cost products, even as retail deposit costs fell 9 bps to 1.68% .
  • Unification costs persisted ($600K; $0.03/share), though management expects no further expenses; Q1’s CRE participation specific reserve (and related charge-off in Q2) impacted YTD provision and NCO metrics .

Financial Results

Core P&L/Margin Comparisons

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions; NII + Non-Interest Income)$36.57 $39.20 $40.14 $42.85
Diluted EPS ($)$0.53 $0.38 $0.65 $0.77
Net Interest Margin (FTE, %)2.79% 3.08% 3.16% 3.24%
Net Interest Income ($USD Millions)$28.44 $31.36 $32.53 $34.13
Non-Interest Income ($USD Millions)$8.13 $7.84 $7.61 $8.72
Efficiency Ratio (%)65.59% 66.52% 63.41% 59.56%
ROA (%)0.84% 0.59% 1.00% 1.16%
ROE (%)9.20% 6.33% 10.66% 12.32%

Actual vs S&P Global Consensus (Q3 2025)

MetricConsensusActualSurprise
EPS ($)0.72*0.77 +0.05 (beat)
Revenue ($USD Millions)41.00*42.85 +1.85 (beat)

Values retrieved from S&P Global.*

Segment/Portfolio

Loans ($USD Billions)Q3 2025 Mix (%)Amount ($USD Billions)
Residential Real Estate (RRE)39.8% $1.373
Consumer31.7% $1.089
Commercial Real Estate (CRE)17.3% $0.810
Commercial (C&I)11.2% $0.170
Total Loans100%$3.442

KPIs and Balance Sheet

KPIQ3 2025
Tangible Book Value per Share ($)$23.85
CET1 Ratio (%)13.07%
Loan-to-Deposit Ratio (%)84.0%
Deposits ($USD Billions)$4.100
Loans ($USD Billions)$3.442
Cost of Retail Deposits (Exit Rate, %)1.68%
NPLs / Loans (%)0.18%
ACL / NPL Coverage (%)541.96%
Annualized Net Charge-offs (%)0.10%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin (FTE)Through YE 2025Not provided“Accelerating NIM expansion through Y/E” Raised narrative
Deposit PricingQ4 2025Not providedFRB cuts “will lead to further deposit rate decreases”; ~$2.0B deposits subject to repricing Lower rates expected
Unification CostsQ4 2025 onwardResidual expenses in Q2–Q3~$600K in Q3; management does not expect additional costs Ending costs
DividendQ4 2025$0.29 (Q3 declared)$0.29/share declared for Q4 Maintained
Share RepurchasesOngoing$5.0M addition in Q2$5.1M remaining authorization Maintained capacity

Earnings Call Themes & Trends

Note: No Q3 earnings call transcript was available in our document set. We reviewed the Q3 investor presentation and earnings releases to assess themes.

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
NIM trajectory/liability sensitivityNIM improved 3.08%→3.16%; liability-sensitive posture noted NIM 3.24%; “Accelerating NIM expansion through Y/E” Improving
Deposit costs/repricingActive pricing; Q2 retail exit rates ~1.77% Retail exit rates down to 1.68%; FRB cuts to reduce rates further; ~$2B deposits repricing Improving
Credit qualityQ1 specific reserve; Q2 charge-off of reserved CRE participation; NPLs 0.19% NPLs 0.18%; ACL/NPL ~542%; NCOs 10 bps; over $4M NPLs making payments Stabilizing to improving
Regulatory/legalNo settlement outcome; complaint outstanding Preliminary approval of settlement; no material financial impact Overhang easing
Technology/unificationJuly 2025 system conversion; opex tied to unification Residual $600K spend; no further costs expected Cost tailwind ahead
Capital actionsDividend increased to $0.29 in Q2; buybacks authorized Dividend $0.29 maintained; $1.4M Q3 buybacks; $5.1M remaining Shareholder-friendly

Management Commentary

  • “EPS increased by almost 20% from the prior quarter and ROA improved by 16 bps to 1.16%… Our third quarter delivered record net interest income, solid net interest margin expansion and more than 10% annualized growth in tangible book value.” — David S. DeMarco, President & CEO .
  • “With the Federal Reserve enacting a first round of interest rate cuts late in the third quarter and again in late October, Arrow is well-positioned with our near-term liability sensitive balance sheet to deliver another great quarter to end the year.” .
  • Pricing discipline and deposit mix management continue to support lower retail deposit costs and expanding spreads, while wealth management and insurance contributed to non-interest income growth .

Q&A Highlights

  • No published Q3 earnings call transcript was available in our document set; therefore, no Q&A highlights or clarifications beyond the press release and investor presentation could be extracted . We searched specifically for an “earnings-call-transcript” and found none.

Estimates Context

  • Q3 2025 results exceeded consensus EPS ($0.77 vs $0.72*) and revenue ($42.85M vs $41.0M*) on NIM expansion, lower retail deposit exit rates, and stronger non-interest income; only one estimate was recorded for both EPS and revenue in SPGI, which can amplify realized vs expected variance . EPS, revenue estimates and count retrieved from S&P Global.*
  • Potential estimate revisions: upward bias for Q4/YE on NIM trajectory, deposit repricing tailwinds, and stabilized credit metrics; watch for moderation in interest expense and any further non-interest income variability .

Key Takeaways for Investors

  • Core profitability inflected: NIM expansion and net revenue strength drove an EPS beat; operating efficiency improved to 59.6% and ROA to 1.16% .
  • Liability-sensitive balance sheet should benefit from recent and prospective rate cuts; ~$2B deposits are poised to reprice lower, supporting margins and earnings into Q4 .
  • Credit normalization underway post Q1 event: NPLs at 0.18%, ACL/NPL ~542%, NCOs at 10 bps; coverage and low NPL levels underpin resilient credit costs .
  • Capital return continues: dividend maintained at $0.29, TBV/share up 2.7% q/q to $23.85, and ongoing buybacks with $5.1M capacity; CET1 at 13.07% offers flexibility .
  • Deposit cost tailwinds are an immediate catalyst; pricing discipline is visible in lower exit rates and mix management, supporting spread expansion .
  • Non-interest income diversification (wealth management, insurance) adds incremental earnings stability; AUM increased and insurance revenue rose YoY .
  • Legal overhang reduced: preliminary settlement approval with no material financial impact improves narrative and reduces headline risk .

Notes:

  • We read in full: Q3 earnings 8-K (Item 2.02 press release and investor presentation), Q3 earnings press release, Q2 and Q1 press releases, and the settlement press release .
  • No Q3 2025 earnings call transcript was available in our document set.