Arrow Reports 4th Quarter Net Income of $14.0 Million or $0.85 per Share and $44.0 Million or $2.65 per Share for 2025; Declares 1st Quarter Dividend of $0.30 per Share

This Earnings Release and related commentary should be read in conjunction with our Form 8-K filed January 29, 2026 and related Fourth Quarter 2025 Investor Presentation, which can be found on our website: arrowfinancial.com/documents/investor-presentations. 

Arrow President and CEO David S. DeMarco: 

"Arrow finished the year by delivering fourth quarter record operating results with record net income of $14 million or $0.85 per share. For the year, Arrow is reporting strong net interest margin expansion, reaching a record 3.19%, and tangible book value growth of over 10%. Return on average assets exceeded 1.20%. Our outstanding team was able to deliver such exceptional results and continue executing on our strategic plan after recently completing the system integration of our former two subsidiary banks transforming Arrow Bank. Our strategy has enabled us to grow EPS 50% in 2025 as we enter 2026 with significant momentum and begin celebrating our 175th anniversary, we look forward to another strong year."

Fourth Quarter Highlights and Key Metrics

• Reported Record Net Income of $14.0 million or $0.85 EPS
• Record Net Interest Income of $35.1 million
• Record Net Interest Margin of 3.24% (3.25% FTE¹) versus 3.22% (3.24% FTE) in the prior quarter
  • Elevated average municipal deposits negatively impacted FTE NIM by 4bps
• Tangible Book Value² per share of $24.71, an increase from $23.85 or 3.6% from the prior quarter
• Return on Average Assets of 1.24%, favorably impacted by 9bps from the successful implementation of tax strategies
• Net Charge-Offs remained low at 0.08% (annualized) for the quarter

Select 2025 Highlights and Key Metrics

• Reported Net Income of $44.0 million or $2.65 EPS
• Record Net Interest Margin improved to 3.17% (3.19% FTE³), up from 2.72% (2.74% FTE) in the prior year
• Tangible Book Value⁴ per share of $24.71, an increase from $22.40 or 10.3% from the prior year
• Return on Average Assets of 1.00%
• Net Charge-Offs were 0.19% for the year

Income Statement

• Net Income: Net income for the fourth quarter of 2025 was $14.0 million, increasing from $12.8 million in the third quarter of 2025. Net income for 2025 was $44.0 million, up from $29.7 million for 2024.
  • Compared to the prior quarter, net income benefited from an increase of $1.0 million in net interest income, as interest expense remained flat to the previous quarter. During the fourth quarter of 2025, the Company successfully implemented tax planning strategies that lowered the effective tax rate versus the prior reported quarter.  
  • Compared to the prior year, the increase in net income was primarily the result of an increase in net interest income of $21.4 million as well as an increase in non-interest income of $4.4 million offset by an increase of non-interest expense of $5.7 million and a $2.1 million increase in the provision for credit losses.
    
    
• Net Interest Income: Net interest income for the fourth quarter of 2025 was $35.1 million, an increase of $1.0 million compared to the third quarter of 2025. Net interest income for the year ended December 31, 2025 was $133.2 million, an increase of $21.4 million, or 19.2%, from the prior year.
  • Compared to the prior quarter, interest income increased $1.0 million while interest expense remained unchanged as a result of seasonally lower deposit balances and continued pricing discipline.
  • Compared to the prior year, the increase was primarily due to the combination of increased interest income and decreased interest expense. Interest and fees on loans were $184.1 million for the year ended December 31, 2025, an increase of 7.4% from the $171.3 million for the year ended December 31, 2024. The increase was primarily driven by loan growth and higher loan rates. Interest expense for the year ended December 31, 2025 was $77.0 million. This represents a decrease of $6.3 million, or 7.5%, from the $83.3 million in interest expense for the prior year. The decrease in the interest expense was driven primarily by lower deposit rates and changes in deposit composition.
    
    
• Net Interest Margin: In the fourth quarter of 2025, the net interest margin was 3.24% (3.25% FTE), as compared to 3.22% (3.24% FTE) for the third quarter of 2025. Net interest margin was 3.17% (3.19% FTE) for the year ended December 31, 2025, as compared to 2.72% (2.74% FTE) for the year ended December 31, 2024. The increase in net interest margin compared to the third quarter of 2025 as well as the prior year was primarily the result of continued yield expansion on earning assets combined with the reduced cost of interest-bearing liabilities.

• Provision for Credit Losses: For the year ended December 31, 2025, the provision for credit losses related to the loan portfolio was $7.3 million, compared to $5.2 million in the prior year. The key drivers for the increase in provision for credit losses for 2025 were primarily the charge-off of the previously disclosed commercial loan participation in the second quarter of 2025 and overall loan growth.
  
  
• Non-Interest Income: Non-interest income was $8.3 million for the fourth quarter of 2025, a decrease from $8.7 million for the previous quarter. Non-interest income was $32.4 million for the year ended December 31, 2025, an increase of 15.5%, as compared to $28.1 million for the year ended December 31, 2024. The decrease from the prior quarter was primarily driven by a positive valuation adjustment related to an equity position recorded in the third quarter. The increase in non-interest income from the previous year was primarily driven by a 2024 net loss on securities from the repositioning of the investment portfolio as well as increases in 2025 revenue related to wealth management, insurance and interchange fees.
  
  
• Non-Interest Expense: Non-interest expense was $25.8 million for the fourth quarter of 2025, consistent with the fourth quarter of 2024. Non-interest expense for the year ended December 31, 2025 increased by $5.7 million, or 5.8%, to $102.9 million, as compared to $97.3 million in 2024. The largest component of non-interest expense is salaries and benefits paid to our employees, which totaled $56.3 million in 2025 and increased $3.6 million, or 6.8%, from the prior year. Salaries and benefits were impacted by inflation-driven wage increases and rising benefit costs.
  
  
• Provision for Income Taxes: The provision for income taxes for 2025 was $11.4 million, compared to $7.6 million for 2024. The effective income tax rates for 2025 and 2024 were 20.6% and 20.5%, respectively.

Balance Sheet

• Total Assets: Total assets were $4.4 billion at December 31, 2025, an increase of $139.5 million, or 3.2%, compared to December 31, 2024 and a decrease of $141.3 million, or 3.1%, from September 30, 2025. The increase over the prior year end was primarily driven by loan growth and an overall increase in deposits. The decrease in cash balances in the fourth quarter was primarily driven by the seasonal decrease of municipal deposit balances as of December 31, 2025.
  
  
• Investments: Total investments were $572.8 million at December 31, 2025, an increase of $2.0 million, or 0.4%, compared to December 31, 2024. The increase reflected the reinvestment of the cash generated from paydowns and maturities of investments into higher yielding investments. There were no credit quality issues related to the investment portfolio.
  
  
• Loans: At December 31, 2025, total loan balances reached $3.5 billion. Loan growth for the fourth quarter was $11 million. Loan growth for the year was $59 million or 1.7%. Please see the loan detail included in the Consolidated Financial Information table.
  
  
• Allowance for Credit Losses: The allowance for credit losses was $34.3 million at December 31, 2025, an increase of $0.7 million from December 31, 2024. The allowance for credit losses at December 31, 2025 represented 0.99% of loans outstanding, unchanged from 0.99% at year end 2024. Asset quality remained strong at December 31, 2025. Net loan charge-offs, expressed as an annualized percentage of average loans outstanding, were 0.19% for the year ended December 31, 2025, as compared to 0.09% for the prior year. The increase was the result of a charge-off of a previously reserved commercial loan participation in the second quarter of 2025. Nonperforming assets of $8.7 million at December 31, 2025, represented 0.20% of year end assets, compared to $21.5 million or 0.50% at December 31, 2024.
  
  
• Deposits: At December 31, 2025, total deposit balances were $3.9 billion, an increase of $111.5 million, or 2.9%, from the prior-year end level. Deposits decreased in the fourth quarter by $160.6 million. The decrease in the fourth quarter was primarily driven by the seasonality of municipal deposits. Non-municipal deposits, excluding brokered CDs, increased by $131.6 million and municipal deposits decreased by $20.1 million, each as compared to December 31, 2024. Non-interest bearing deposits increased by $19.4 million, or 2.8%, during 2025. At December 31, 2025, total time deposits, excluding brokered CDs, increased $3.2 million from the prior-year end level.
  
  
• Capital: Total shareholders' equity was $431.9 million at December 31, 2025, an increase of $31.0 million, or 7.7%, from December 31, 2024 and an increase of $14.2 million in the fourth quarter. The increase from the third quarter was primarily attributable to net income of $14.0 million, other comprehensive income of $4.6 million and various capital items of $0.5 million, partially offset by dividends of $4.8 million. The increase in stockholders' equity from December 31, 2024 was primarily attributable to net income of $44.0 million, other comprehensive income of $14.4 million and various capital items of $1.7 million partially offset by dividends of $18.9 million and stock repurchases of $9.9 million. The change to other comprehensive income is primarily attributable to fair value adjustments on the available for sale investment portfolio. Arrow's regulatory capital ratios remained strong in 2025. At December 31, 2025, Arrow's Common Equity Tier 1 Capital Ratio was 13.10% and Total Risk-Based Capital Ratio was 14.86%. The capital ratios of Arrow and its subsidiary bank, Arrow Bank, continued to significantly exceed the "well capitalized" regulatory standards.

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 75 consecutive quarters, securing its prominent position as an "Exceptional Performance Bank."

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 titled "Selected Quarterly Information."

Safe Harbor Statement: The information contained in this earnings 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 can sometimes be identified by Arrow's use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend." 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 because of various factors, including changes in economic conditions or interest rates, credit risk, inflation, tariffs, cybersecurity risks, changes in FDIC assessments, bank failures, difficulties in managing the Arrow's growth, competition, changes in law or the regulatory environment, and changes in general business and economic trends. Arrow undertakes no obligation to revise or update these forward-looking statements to reflect the occurrence of unanticipated events. This earnings 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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SOURCE Arrow Financial Corporation