Arrow Reports 5.4% Increase in Net Income and Double-Digit Loan Growth

Assets Under Management and Related Noninterest Income: Assets under trust administration and investment management at June 30, 2016, increased by $3.9 million, or 0.3%, from the total at June 30, 2015, primarily due to the performance of the equity markets. However, the related income from fiduciary activities between the respective three-month periods decreased slightly by $51 thousand.

Insurance Agency Operations: Insurance commission income decreased 3.7% from $4.5 million for the first six months of 2015 to $4.3 million for the first six months of 2016. The decrease was attributable to the sale of one of our wholly-owned subsidiary insurance agencies in October 2015, 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 June 30, 2016, as measured by our comparatively low levels of nonperforming assets and net charge-offs. Nonperforming assets at June 30, 2016, of $8.2 million decreased $0.9 million from the prior-year level and a decrease of $0.7 million since year-end 2015. Our nonperforming assets represented only 0.32% of total assets at period-end, versus 0.39% at June 30, 2015. Net loan losses expressed as an annualized percentage of average loans outstanding were just 0.04% for the three-month period ended June 30, 2016, compared to 0.03% for the same period a year ago.

Our allowance for loan losses was $16.8 million at June 30, 2016, which represented 1.0% of loans outstanding, 5 basis points below our ratio one year earlier and 2 basis points below our ratio at December 31, 2015. Our provision for loan losses for the second quarter of 2016 was $669 thousand, an increase of $599 thousand from the provision for the comparable 2015 quarter. The increased size of our provision resulted from a combination of strong loan growth and a modest increase in the level of classified commercial loans during 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 $0.25 per share to shareholders in the second quarter of 2016. The cash dividend was 2% higher than the cash dividend paid in the second quarter of 2015 when adjusted for our 2% stock dividend distributed on September 28, 2015.

Capital: Total stockholders' equity was a record $225.4 million at period-end, an increase of $18.4 million, or 8.9%, above the June 30, 2015, amount. Our capital grew over the period at a faster pace than asset growth, and the capital ratios remained strong in 2016. At June 30, 2016, the Company's CET1 ratio was estimated to be 12.74% and the total risk-based capital ratio was estimated to be 14.96%. 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, which we define as all 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 for the 3-month period ended March 31, 2016, in which our return on average equity (ROE), annualized, was 12.0%, as compared to 8.1% for our peer group.

As of June 30, 2016, our ratio of loans 90 days past due and accruing, plus nonaccrual loans to total loans was 0.43%, as compared to 0.85% for our peer group, while our annualized ratio of net loan losses of 0.04% was below the peer result of 0.08%.

Industry Recognition: Arrow Financial Corporation was recently included on American Banker's "Midtier Performers" list, ranking 30^th out of more than 215 financial institutions. The list, published in a recent edition of the magazine, ranked 217 public and private companies with assets between $2 billion and $10 billion based on their three-year average returns on equity.

Additionally, Arrow's subsidiary, Glens Falls National Bank and Trust Company was recently recognized on Seifried & Brew's "Top 15^th Percentile of Community Banks" list based on its performance in 2015. To create the list, Seifried & Brew measured how institutions with assets between $10 million and $10 billion balanced risk and reward, using its Total Risk/Return Composite Ranking system. According to Seifried & Brew, to make the list is "no small feat, considering that these banks not only survived the financial crisis, but actually thrived. This supports Seifried & Brew's belief that conservative, traditional community banking is the strength of our financial system."

Both of the Company's two banking subsidiaries were again each recognized as a 5-Star Superior Bank by BauerFinancial, Inc. based on the most recently available financial data. Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company have each earned this designation for the past 37 and 29 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 June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans		$	15,708			$	13,939			$	30,732			$	27,589
Interest on Deposits at Banks		34				26				66				47
Interest and Dividends on Investment Securities:
Fully Taxable		2,018				2,013				4,105				3,957
Exempt from Federal Taxes		1,477				1,429				2,960				2,804
Total Interest and Dividend Income		19,237				17,407				37,863				34,397
INTEREST EXPENSE
NOW Accounts		311				338				621				668
Savings Deposits		224				182				446				349
Time Deposits of $100,000 or More		98				88				185				178
Other Time Deposits		164				185				333				387
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase		10				5				15				10
Federal Home Loan Bank Advances		314				301				623				451
Junior Subordinated Obligations Issued to   Unconsolidated Subsidiary Trusts		163				144				324				286
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