Arrow's Third-Quarter NIM Rebounds After Adirondack Close

The Tip Desk · November 9, 2026 · 3 min read

Third-quarter 2026 net interest income was $48.7 million and core EPS $0.97 as merger costs of $15.6 million cut GAAP profit to $5.7 million.

Arrow Financial Corporation (AROW), a Glens Falls, New York, regional bank, closed its July 1 acquisition of Adirondack Bancorp in the third quarter of 2026 and posted net interest income of $48.7 million, up 35.6% from $35.9 million in the second quarter, as average earning assets rose to $5.09 billion from $4.21 billion. Merger-related expenses of $15.6 million contributed to a decline in GAAP net income to $5.7 million from $11.0 million in the second quarter.

GAAP net income was $5.7 million, or $0.31 a share, versus $11.0 million, or $0.66, in the second quarter. The company excluded about $15.6 million, or $0.66 a share, of merger-related expenses tied to the Adirondack deal and reported core earnings of $0.97 a share and core return on average assets of 1.33%.

The net interest margin reversed a prior-quarter compression. It was 3.80%, or 3.81% on a fully taxable-equivalent basis, compared with 3.42% (3.43% FTE) in the second quarter, after 3.47% (3.48% FTE) in the first quarter. Arrow attributed the lift to lower-cost acquired deposits, continued loan-yield expansion, and 14 bps of purchase-accounting accretion, of which 9 bps related to the net accretion of purchase-accounting adjustments and 5 bps to the acquired investment portfolio.

Loan yield rose to 5.69% from 5.46% in the second quarter. The cost of retail deposits fell to 1.45% from 1.61%. Interest and dividend income was $68.1 million. Interest expense was $19.3 million.

Total loans were $4.1 billion at September 30, 2026, up $648.0 million from June 30, 2026, including about $60 million of organic growth, or 6.8% annualized, after $57.6 million, or 6.7% annualized, in the second quarter. Average loans were $4.11 billion. Deposits were $4.7 billion, up $1.1 billion from June 30, 2026, primarily from the acquisition, which added about $900 million of deposits, plus seasonal municipal inflows. Average deposits were $4.57 billion. Total assets were $5.5 billion.

Non-interest income was $11.4 million, up from $8.3 million in the second quarter, on acquisition fee income, higher insurance commissions including one month from Skene Valley Agency, bank-owned life insurance income, and a gain on terminating part of cash-flow hedges. Non-interest expense was $51.8 million, including $15.6 million of merger-related expenses versus $1.0 million in the second quarter and $745 thousand of core-deposit-intangible amortization. The GAAP efficiency ratio was 84.77%; core efficiency was 58.83%.

The provision for credit losses was $1.5 million, down from $2.8 million in the second quarter, which had included a $1.6 million specific reserve on a commercial loan later charged off. Net charge-offs were an annualized 0.21% of average loans in the third quarter, versus an annualized 0.08% in the second quarter. Nonperforming assets were $12.7 million, or 0.23% of assets, after a $3.8 million commercial loan moved to non-performing in the second quarter. The allowance for credit losses was $41.1 million, or 0.99% of loans, versus $36.2 million, or 1.03%, at June 30, 2026; the increase was primarily $5.7 million of reserve on acquired loans.

Common Equity Tier 1 capital was 11.63% and total risk-based capital 13.46%, down from 13.21% and 14.98% at June 30, 2026. Arrow issued 1.98 million shares, about $81 million, for the acquisition and declared a $0.30 quarterly dividend. Core system conversion is scheduled for November 7 and 8. President and CEO David S. DeMarco said the company expects to complete the core banking system integration over the next few weeks and remain on track to realize approximately 95 percent of anticipated cost savings by the first quarter of 2027.