Arrow Reports 13.6% Net Income Increase, Double-Digit Loan Growth

Loan Growth:  At September 30, 2016, our total loan balance increased $170.3 million from a year earlier to a record high of $1.7 billion. Over the nine-month period ended September 30, 2016, total loans grew $133.3 million, or 8.5%, with growth in all three of our major loan segments: commercial, consumer (primarily indirect automobile) and residential real estate.

During the first nine months of 2016, we experienced an increase of $59 million, or 12.7%, in our consumer loan portfolio, which reached a period-end balance of $524 million, exceeding the September 30, 2015, balance by $64.8 million, or 14.1%. This increase was primarily a result of growth in our indirect automobile lending program. In the third quarter, we originated $69.5 million in new loans for new and used automobiles. Additionally, total outstanding commercial loans increased 9.1% during the first nine months, reaching a balance of $532.1 million on September 30, 2016, up $55.5 million, or 11.6%, from September 30, 2015. Finally, our residential real estate loan portfolio increased by $29.5 million, or 4.8%, during the first nine months of 2016, with a balance at period end of $651 million. We originated approximately $36.7 million of residential real estate loans during the quarter, down $11.1 million from the comparable 2015 quarter.

Deposit Growth:  At September 30, 2016, deposit balances reached $2.2 billion, an increase of $131.1 million, or 6.3%, from the prior-year level. The strategic expansion of our branch network in the Capital District in recent years has been effective in raising new deposits, as well as new loan opportunities. Noninterest-bearing demand deposits increased $33.8 million, or 9.7%, from the prior-year level, which has positively impacted net interest margin. Noninterest-bearing demand deposits represented 17.2% of total deposits at September 30, 2016, an increase from 16.7% as of September 30, 2015.

Assets Under Management and Related Noninterest Income:  Assets under trust administration and investment management reached a record high at September 30, 2016. They were up $88.4 million, or 7.4%, from the total at September 30, 2015, primarily due to the performance of the equity markets. However, the related income from fiduciary activities between the respective nine-month periods decreased $53 thousand, primarily as a result of the timing of our periodic fee assessments.

Insurance Agency Operations:  Insurance commission income for the first nine months of 2016 declined to $6.5 million, down 5.6% from $6.8 million during the same period in 2015. The decrease was directly attributable to the sale in October 2015 of one of our wholly-owned subsidiary insurance agencies, which specialized in servicing sports accident and health insurance needs of customers primarily located outside of New York State.

Asset Quality:  Asset quality remained strong at September 30, 2016, as measured by our comparatively low levels of nonperforming assets and net charge-offs. Nonperforming assets at September 30, 2016, of $7.8 million were down by $2.2 million from the prior-year level and down $1.1 million from year-end 2015, despite in each case a substantial increase in total assets during each intervening period. Our nonperforming assets represented only 0.30% of total assets at period-end, versus 0.41% at September 30, 2015. Net loan losses expressed as an annualized percentage of average loans outstanding were just 0.07% for the three-month period ended September 30, 2016, compared to 0.09% for the same period a year ago.

Our allowance for loan losses was $17.0 million at September 30, 2016, which represented 0.99% of loans outstanding, 4 basis points below our ratio one year earlier and 3 basis points below our ratio at December 31, 2015. Our provision for loan losses for the third quarter of 2016 was $480 thousand, down $57 thousand from the provision for the comparable 2015 quarter. The decrease reflected a modest decline in the level of classified commercial loans between the periods. Our coverage ratio at period-end continued to reflect the strong quality of our loan portfolio.

Cash and Stock Dividends:  We distributed a cash dividend of $0.243 per share to shareholders in the third quarter of 2016. The cash dividend was 3% higher than the cash dividend paid in the third quarter of 2015 when adjusted for our 3% stock dividend distributed on September 29, 2016.

Capital:  Total stockholders' equity was a record $229.2 million at period-end, up $18.1 million, or 8.6%, above the prior-year amount. Our capital grew over the period at a faster pace than total asset growth of 6.7%, and the capital ratios remained strong in 2016. At September 30, 2016, the Company's Capital Equity Tier 1 ratio was estimated to be 12.80% and the total risk-based capital ratio was estimated to be 14.99%. The capital ratios of the Company and both its subsidiary banks continue to significantly exceed the "well capitalized" regulatory standards, which places us in the highest current regulatory category.

Peer Group:  Many of our key operating ratios have consistently compared favorably to our peer group, defined as U.S. bank holding companies having $1 billion to $3 billion in total assets, as identified in the Federal Reserve Bank's "Bank Holding Company Performance Report" (FRB Report). The most current peer data available in the FRB Report is as of and for the six-month period ended June 30, 2016, in which our return on average equity (ROE) annualized was 11.95%, as compared to 8.47% for our peer group. As of September 30, 2016, our ratio of loans 90 days past due and accruing, plus nonaccrual loans to total loans was 0.40%, as compared to 0.84% for our peer group, while our annualized ratio of net loan losses of 0.05% was below the peer result of 0.07%.

Industry Recognition:  Arrow Financial Corporation was again named one of "America's 50 Most Trustworthy Financial Companies" by Forbes, the fifth consecutive year we have received this recognition. Arrow was also recently recognized in Bank Director Magazine's annual "Bank Performance Scorecard" as one of the top-performing banks in the country. We ranked 37th among the top 166 U.S. banks with $1 billion to $5 billion in assets, based on profitability, capitalization and asset quality, earning the highest ranking among its peers in New York State.

Both of the Company's two banking subsidiaries also maintained their 5-Star Superior Bank by BauerFinancial, Inc. Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company have each earned this designation for the past 38 and 30 quarters, respectively.

Arrow Financial Corporation is a multi-bank holding company headquartered in Glens Falls, New York, serving the financial needs of northeastern New York. The Company is the parent of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company. Other subsidiaries include North Country Investment Advisers, Inc.; two property and casualty insurance agencies: Upstate Agency, LLC, and McPhillips Insurance Agency, a division of Glens Falls National Insurance Agencies, LLC; and Capital Financial Group, Inc., an insurance agency specializing in the sale and servicing of group health plans.

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 equity, return on tangible equity, tax-equivalent adjustment and related net interest income - tax equivalent, and the efficiency ratio. Management believes that the non-GAAP financial measures disclosed by the Company from time to time are useful in evaluating the Company'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. Our 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 "Select Quarterly Information."

The information contained in this news 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 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. The Company undertakes no obligation to revise or update these forward-looking statements to reflect the occurrence of unanticipated events. This News Release should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and our other filings with the Securities and Exchange Commission.

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts - Unaudited)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2016				2015				2016				2015
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans		$	15,833			$	14,364			$	46,565			$	41,953
Interest on Deposits at Banks		34				13				100				60
Interest and Dividends on Investment Securities:
Fully Taxable		1,889				1,979				5,994				5,936
Exempt from Federal Taxes		1,526				1,475				4,486				4,279
Total Interest and Dividend Income		19,282				17,831				57,145				52,228
INTEREST EXPENSE
NOW Accounts		320				292				941				960
Savings Deposits		231				189				677				538
Time Deposits of $100,000 or More		128				89				313				267
Other Time Deposits		164				179				497				566
Federal Funds Purchased and   Securities Sold Under Agreements to Repurchase		9				5				24				15
Federal Home Loan Bank Advances		390				353				1,013				804
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