0000717538-26-000037
SEC filingArrow Financial Corporation reported strong financial results for FY 2025, with net income increasing to $44.0 million from $29.7 million in FY 2024, representing a 48.1% year-over-year growth. Diluted earnings per share rose to $2.65 from $1.77. The improvement was primarily driven by a 19.2% increase in net interest income to $133.2 million, resulting from higher loan yields and a lower cost of deposits, which expanded the net interest margin to 3.17% (3.19% FTE) from 2.72% (2.74% FTE). Noninterest income grew 15.5% to $32.4 million, while noninterest expense increased 5.8% to $102.9 million. Total assets grew 3.2% to $4.45 billion, supported by loan growth of $58.6 million (1.7%) and a $111.5 million (2.9%) increase in total deposits. Asset quality improved, with nonperforming assets declining to 0.20% of total assets from 0.50%. The company maintained strong capital ratios, with a Common Equity Tier 1 Capital Ratio of 13.01%.
Arrow Financial Corporation delivered robust financial performance in FY 2025, with net income surging 48.1% to $44.0 million from $29.7 million in FY 2024. Diluted earnings per share increased to $2.65 from $1.77. Return on average assets improved to 1.00% from 0.70%, while return on average equity strengthened to 10.66% from 7.72%. The company's efficiency ratio improved to 61.97% from 67.68%, indicating better cost management relative to income. Total revenue (net interest income plus noninterest income) grew 18.8% to $165.6 million. The provision for credit losses increased to $7.3 million from $5.2 million, primarily due to a specific charge-off related to a commercial real estate participation and overall loan growth.
Revenue growth was driven by strong net interest income performance, which increased 19.2% to $133.2 million. Interest and fees on loans grew 7.4% to $184.1 million, supported by loan growth and higher average loan rates. Interest expense decreased 7.5% to $77.0 million due to lower average deposit rates and a shift toward lower-cost core deposits. The net interest margin expanded 45 basis points to 3.17% (3.19% on a tax-equivalent basis). Noninterest income increased 15.5% to $32.4 million, driven by higher wealth management, insurance, and interchange fees, as well as a net gain on securities of $542,000 compared to a net loss of $2.9 million in the prior year.
The expansion in net interest margin from 2.72% to 3.17% was the primary driver of improved profitability. This 45 basis point improvement resulted from continued yield expansion on earning assets combined with reduced cost of interest-bearing liabilities. The efficiency ratio improved significantly to 61.97% from 67.68%, reflecting better expense management relative to revenue growth. Noninterest expense increased 5.8% to $102.9 million, with salaries and employee benefits rising 6.8% to $56.3 million due to inflation-driven wage increases and rising benefit costs. The effective income tax rate remained stable at 20.6% compared to 20.5% in the prior year.
Net cash provided by operating activities was $41.3 million. The company used $61.5 million in investing activities, primarily for net loan growth of $75.2 million and net securities purchases, while financing activities provided $79.8 million, mainly from deposit growth of $111.5 million. Total assets increased 3.2% to $4.45 billion, with loans growing 1.7% to $3.45 billion. Total deposits increased 2.9% to $3.94 billion, with noninterest-bearing deposits growing 2.8% to $722.4 million. The allowance for credit losses was $34.3 million, representing 0.99% of total loans, unchanged from the prior year. Total stockholders' equity increased 7.7% to $431.9 million, with book value per share rising to $26.26 from $23.94.
The company's regulatory capital ratios remained strong, with Common Equity Tier 1 Capital Ratio at 13.01% and Total Risk-Based Capital Ratio at 14.76%, significantly exceeding 'well capitalized' regulatory standards. Management noted that loan quality improved, with nonperforming loans decreasing 59.8% to $8.5 million and representing 0.24% of total loans compared to 0.62% in the prior year. The company has contingent lines of credit totaling $1.4 billion through the FHLBNY and FRB, providing liquidity flexibility. Subsequent to year-end, the company announced an agreement to acquire Adirondack Bancorp, Inc., expected to close in late Q2 or early Q3 2026, subject to regulatory and shareholder approvals.