Arrow Financial Corporation (AROW) Cash Flow Statement

The bank's ability to generate operating cash flow in excess of net income, as seen in 2026Q1 (OCF/NI of 1.13) and 2025Q3 (1.17), suggests that non-cash items like depreciation and provisions are adding back to cash. This internal generation supports organic growth and maintains regulatory capital without relying on external funding. However, the dip in 2025Q4 (OCF/NI of 0.42) warrants monitoring, as it may indicate timing differences in cash flows.

The large sales of investment securities, particularly in 2025Q4, likely generated cash to fund loan growth or reduce higher-cost funding. The purchases have been more modest, indicating a net reduction in the securities book. This activity may reflect a response to the inverted yield curve or a desire to reduce duration risk. Investors should monitor whether these sales realize losses that could impact capital.

The bank's investment in loans is not directly shown in the cash flow statement, but the pattern of securities purchases and sales suggests a shift toward higher-yielding loans. However, the rising cost of deposits, as noted in the recent context, may pressure net interest margin if loan yields do not keep pace. The bank's reliance on wholesale funding appears minimal, given the lack of significant debt issuance, indicating a stable funding base.

The bank's dividend payments have been steady, with a slight increase from $4.5M in 2024Q3 to $5.0M in 2026Q1, reflecting a commitment to returning capital to shareholders. Buybacks have been minimal, with the largest being $6.0M in 2024Q1, suggesting management prefers to retain capital for organic growth and to maintain regulatory buffers. Given the recent credit event and EPS miss, the sustainability of the dividend may be questioned, but the stable payout suggests confidence in earnings.

The cash flow statement does not directly show deposit flows, but the income statement indicates rising interest expense. The bank's ability to maintain low-cost deposits is crucial, and the recent trend suggests customers are shifting to higher-yielding products. This could lead to margin compression if asset yields do not adjust. The bank's strong local market share may mitigate the impact, but investors should monitor deposit betas.

The spike in provisions in 2025Q1, which coincided with a sharp EPS decline, suggests that management recognized a specific credit issue. The subsequent quarters have seen provisions return to more normal levels, but the elevated provision in 2025Q1 may indicate a one-time event or the beginning of a trend. The recent recognition of a reserve on an isolated commercial credit in the latest quarter, as per the context, warrants close monitoring for potential follow-on reserve builds.