Key Highlights

  • Core EPS of USD 0.97 exceeded the consensus estimate of USD 0.94, while GAAP EPS was USD 0.31.
  • Revenue of USD 60.15 million topped the consensus estimate of USD 57.82 million after the Adirondack acquisition closed July 1.
  • Net interest margin widened to 3.80% from 3.42% in the prior quarter, and net interest income rose 35.6% sequentially.
  • Merger costs of USD 15.6 million cut net income to USD 5.7 million from USD 11.0 million last quarter.

Arrow Financial Corporation (NASDAQ:AROW) reported third quarter 2026 core earnings per share of USD 0.97, above the consensus estimate of USD 0.94. Core results exclude about USD 15.6 million, or USD 0.66 per share, of merger-related expenses tied to the July 1 acquisition of Adirondack Bancorp, and GAAP EPS was USD 0.31 compared with USD 0.66 in the second quarter. Revenue of USD 60.15 million exceeded the consensus estimate of USD 57.82 million, built on net interest income of USD 48.7 million and non-interest income of USD 11.4 million.

Acquisition Reshapes Margin and Expenses

Net interest margin reached 3.80% (3.81% on a fully taxable equivalent basis) against 3.42% in the second quarter, with the acquisition contributing lower cost deposits and purchase accounting accretion worth 14 basis points. Loan yield climbed to 5.69% from 5.46%, and the cost of retail deposits fell to 1.45% from 1.61%. Return on average assets was 0.42%, or 1.33% excluding merger-related expenses.

Non-interest expense jumped to USD 51.8 million from USD 27.5 million, driven by the USD 15.6 million of merger costs and USD 745 thousand of core deposit intangible amortization. Non-interest income rose from USD 8.3 million on acquired fee income, higher insurance commissions and a gain on terminating part of the cash flow hedges. The provision for credit losses eased to USD 1.5 million from USD 2.8 million, and the effective tax rate was 16.8%.

Balance Sheet, Credit and Integration Plans

The acquisition added about USD 600 million of loans and USD 900 million of deposits. Total assets reached USD 5.5 billion, up 23.8% from June 30, loans were USD 4.1 billion with organic growth of about USD 60 million, or 6.8% annualized, and deposits stood at USD 4.7 billion. The allowance for credit losses was USD 41.1 million, or 0.99% of loans, while nonperforming assets rose to USD 12.7 million, or 0.23% of assets. Annualized net charge-offs were 0.21% for the quarter.

President and Chief Executive Officer David S. DeMarco said the combined team is delivering on acquisition benefits and that the core banking system conversion is slated to finish within weeks. The company targets about 95% of anticipated cost savings by the first quarter of 2027. The common equity tier 1 ratio was 11.63% and the total risk-based capital ratio 13.46%.

Integration Milestones and Credit Markers

Several dated and quantified items frame the next report. The core system conversion is scheduled for November 7 and 8, and the quarterly dividend of USD 0.30 per share is payable November 23 to holders of record on November 11. The savings target of about 95% by the first quarter of 2027 sets a benchmark for non-interest expense.

Credit and margin measures carry specifics too: a loan fair value discount of USD 26.7 million, of which USD 21 million amortizes over about 4.5 years, a core deposit intangible of USD 16.4 million amortizing over 10 years, and goodwill of USD 44.7 million. Nonperforming assets and net charge-offs, at 0.23% and 0.21%, give a baseline against the second quarter's 0.19% and 0.08%.