Arrow Financial : Friday, January 30, 2015 Arrow Financial Corporation 2014 Annual Review

=t.RRow Financial Corporation

2014 ANNUAL REVIEW

Our Business Customers Shared Their Experiences

We asked our business customers why they bank with us, and they responded with great testimonials about their experiences.This positive feedback was the basis for a regional advertising campaign that underscores our commitment to quality service at all levels.

Saratoga National Bank Helped Us. Let Them Help You.

I feel that my busi- ness is truly valued at Saratoga National Bank.

I especially appreciate the personalized service that only a community bank

can provide.

David Fusco (left)

Fusco Realty Group/Colonial Car Wash

Schenectady, New York

John Wyatt (right)

Vice President, Corporate Banking, Saratoga National Bank

Equal Housing Lender I Member FDIC

60

501 N

Saratoga National Bank Expanded to Colonie

Saratoga National Bank opened its eighth office last June in the growing community of Colonie, New York. This branch has performed well in its first year, capturing both retail and commercial banking opportunities, and providing an important introduction to the Albany County market.

Cover Photo: The courtyard at Glens Falls National Bank's Main Office complex, Glens Falls, New York

To Our Shareholders, Staff and Friends:

We are pleased to announce another strong year for Arrow Financial Corporation, marked by growth and solid financial results, as described in this report.

Among the highlights,

ur two bank subsidiaries launched totally edesigned websites and added mobile

eck deposit for retail customers. In dition, Saratoga National Bank and Trust ompany continued to expand, opening eighth office last June in Colonie, New ork. This is our first branch in Albany ounty, and it positions us well to capture oth retail and commercial banking op- ortunities in the dynamic Capital Region.

Last year also brought a number of honors and recognitions. Both subsidiary banks maintained a 5-Star Superior rating from BauerFinancial, and Saratoga Nation- tal Bank was recognized as the Capital Region's No. 1 Small Community Lender by the Small Business Administration.

Plus, Arrow Financial Corporation was again named one of "America's 100 Most Trustworthy Companies" by Forbes, a "Top-Performing Mid-Sized Bank" by the ABA Banking Journal, and included on

the Sandler O'Neill "Sm-All Stars Class

of 2014" list of top-performing small-cap banks and thrifts.

Additionally, I would like to welcome former Congressman Bill Owens to the Arrow and Glens Falls National boards as of January 2015. Bill has a deep knowledge of the North Country and Plattsburgh region - important markets for our Company - and a strong commitment to

2014 Financial HigHligHts

• Record net income of $23.4 million
• Strong profitability, represented by
11.79% return on average equity (ROE),
1.07% return on average assets (ROA),
and 13.56% return on tangible equity
• 2% stock dividend distributed in
September
• Cash dividends paid to shareholders effectively increased 2%
• Continued strong levels of capital, includ- ing increases in book value per share
of 4.5% and stockholders' equity of 4.6%
• Record assets of $2.217 billion at year-end
• $131.2 million in mortgage loans originated
• Strong asset quality, represented by only
0.37% of non-performing assets at year-end
and loans charged-off just 0.05% of average
loans outstanding
• Income from fiduciary activities rose 10.9%
• Insurance income increased 6.3%

his community. We are honored to have him serve as a Director.

Looking ahead, our management team will strive to continue to deliver shareholder value by adhering to our conservative business model. We are very proud of our performance, our employees and our ser- vice to our customers, our communities and our shareholders.

We couldn't do any of this without you and your continued support. Thank you.

Sincerely,

Tom Murphy

President and Chief Executive Officer

PerFormance comParisons

$1.77 $1.76 $1.77

$1.73

$1.85

$1,908 $1,963

$2,023

$2,164 $2,217

2010 2011 2012 2013 2014

DILUTED EARNINGS PER SHARE

* For the 12 Months Ended December 31

2010 2011 2012 2013 2014

ASSETS

As of December 31 ($ in Millions)

$.89 $.92

$.95 $.97 $.99

$1,534 $1,644

$1,731

$1,842 $1,903

2010 2011 2012 2013 2014

CASH DIVIDENDS PAID PER SHARE

* For the 12 Months Ended December 31

2010 2011 2012 2013 2014

DEPOSITS

As of December 31 ($ in Millions)

$12.38 $13.33

$14.05

$15.24 $15.92

$152 $166

$176

$192 $201

2010 2011 2012 2013 2014

BOOK VALUE PER SHARE

* As of December 31

2010 2011 2012 2013 2014

STOCKHOLDERS' EQUITY

As of December 31 ($ in Millions)

*Per share amounts have been restated for stock dividends distributed.

total return PerFormance

250.00

Comparison of 5-Year Cumulative Total Return Assumes Initial Investment of $100

December 2014

200.00

150.00

100.00

50.00

0.00

2009 2010 2011 2012 2013 2014

Arrow Financial Corporation NASDAQ Banks Index Russell 2000 Index Zacks $1B-$5B Bank Assets Index

250.00

Comparison of 10-Year Cumulative Total Return Assumes Initial Investment of $100

December 2014

200.00

150.00

100.00

50.00

0.00

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Arrow

Financial

Arrow Financial Corporation NASDAQ Banks Index Russell 2000 Index Zacks $1B-$5B Bank Assets Index

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Corporation 100.00 87.41 88.53 82.68 100.95 107.59 126.91 116.09 131.35 148.40 162.86

NASDAQ

Banks Index 100.00 97.68 109.68 86.80 63.28 52.66 62.62 56.01 67.00 95.90 100.78

Russell 2000

Index 100.00 104.51 123.67 121.71 80.56 102.38 129.84 124.42 144.79 201.00 210.84

Zacks $1B-

$5B Bank

Assets Index 100.00 97.60 112.09 86.29 75.87 55.70 65.50 61.09 73.43 100.96 107.32

S ource: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980 - 2015

consolidated statements oF income (unaudited)

Years Ended December 31

Interest and Dividend Income	$ 84,972	$ 76,791	$ 69,379	$ 64,138
Interest Expense	23,695	18,679	11,957	7,922
Net Interest Income	61,277	58,112	57,422	56,216
Provision for Loan Losses	1,302	845	845	200
Net Interest Income After
Provision for Loan Losses	59,975	57,267	56,577	56,016
Total Noninterest Income	19,089	25,928	27,099	28,061
Total Noninterest Expense	47,418	51,548	51,836	53,203
Income Before Taxes	31,646	31,647	31,840	30,874
Provision for Income Taxes	9,754	9,714	9,661	9,079
Net Income	$ 21,892	$ 21,933	$ 22,179	$ 21,795

Share and Per Share Data

Diluted Average Shares

Outstanding Diluted Earnings Per Share Cash Dividends Per Share Book Value Per Share	12,352	12,466	12,502	12,573
Outstanding Diluted Earnings Per Share Cash Dividends Per Share Book Value Per Share	$ 1.77	$ 1.76	$ 1.77	$ 1.73
Outstanding Diluted Earnings Per Share Cash Dividends Per Share Book Value Per Share	.89	.92	.95	.97
Outstanding Diluted Earnings Per Share Cash Dividends Per Share Book Value Per Share	12.38	13.33	14.05	15.24
Tangible Book Value Per Share	10.97	11.19	11.94	13.17
Key Earnings Ratios Return on Average Assets	1.16%	1.13%	1.11%	1.04%
Return on Average Equity	14.56%	13.45%	12.88%	12.11%
Return on Tangible Equity	16.42%	15.84%	15.24%	14.19%
Net Interest Margin	3.58%	3.36%	3.26%	3.06%
Capital Ratios Tier 1 Leverage Ratio	8.53%	8.95%	9.10%	9.19%
Total Risk-Based Capital Ratio	15.75%	15.96%	16.26%	15.77%

Asset Quality Ratios

Nonperforming Assets to

Period-End Assets

Allowance for Loan Losses to

Period-End Loans

Share and per share amounts have been restated for stock dividends distributed.

consolidated Balance sHeets (unaudited)

As of December 31

Federal Home Loan

Boards oF directors Arrow Financial Corporation

Thomas L. Hoy (Chairman)

Retired President and CEO

John J. Carusone, Jr.

Attorney
Carusone & Carusone

Tenée R. Casaccio, AIA

President
JMZ Architects and Planners, P.C.

Michael B. Clarke

Retired President and CEO Lone Star Industries

Gary C. Dake

President
Stewart's Shops Corp.

David G. Kruczlnicki Retired President and CEO Glens Falls Hospital

Elizabeth O'Connor Little

New York State Senator
45th District

David L. Moynehan

President
Riverside Gas & Oil Company, Inc.

John J. Murphy

Retired Executive Vice President, Treasurer and CFO

Thomas J. Murphy, CPA

President and CEO

William L. Owens, Esq.

Partner
Stafford, Owens, Piller, Murnane, Kelleher & Trombley, PLLC

Dr. Colin L. Read

Chair
Department of Economics and
Finance at SUNY Plattsburgh

Richard J. Reisman, DMD Chairman - Section of Dentistry Glens Falls Hospital

Director Emeriti

Richard J. Bartlett, Esq. Jan-Eric O. Bergstedt

Herbert O. Carpenter

Mary-Elizabeth T. FitzGerald

George C. Frost

Herbert A. Heineman, Jr.

Dr. Edward F. Huntington

Michael F. Massiano (Chairman Emeritus)

Doris E. Ornstein

Glens Falls National Bank and Trust Company

Thomas L. Hoy (Chairman)

Retired President and CEO

Tenée R. Casaccio, AIA

President
JMZ Architects and Planners, P.C.

Michael B. Clarke

Retired President and CEO Lone Star Industries

David G. Kruczlnicki Retired President and CEO Glens Falls Hospital

Elizabeth O'Connor Little

New York State Senator
45th District

David L. Moynehan

President
Riverside Gas & Oil Company, Inc.

Thomas J. Murphy, CPA

President and CEO

William L. Owens, Esq.

Partner
Stafford, Owens, Piller, Murnane, Kelleher & Trombley, PLLC

Dr. Colin L. Read

Chair
Department of Economics and
Finance at SUNY Plattsburgh

Richard J. Reisman, DMD Chairman - Section of Dentistry Glens Falls Hospital

Saratoga National Bank and Trust Company

Raymond F. O'Conor (Chairman)

Retired President and CEO

John J. Carusone, Jr.

Attorney
Carusone & Carusone

Gary C. Dake

President
Stewart's Shops Corp.

James M. Dawsey

President
MLB Industries, Inc.

David S. DeMarco

President and CEO

Marianne Pompa LaRoche

Vice President
Pompa Bros.

Frank J. Parillo

President
Saratoga Prime Properties and Wilton Travel Plaza

Mary L. Passaretti, MS

Principal
Aztech Technologies, Inc.

management team Arrow Financial Corporation

Thomas J. Murphy, CPA

President and CEO

Terry R. Goodemote, CPA

Executive Vice President and CFO

David S. DeMarco

Senior Vice President

Glens Falls National Bank and Trust Company

Thomas J. Murphy, CPA

President and CEO

Terry R. Goodemote, CPA Senior Executive Vice President and CFO

Mark E. Bulmer, CPA Executive Vice President Financial Services

David D. Kaiser Executive Vice President and Chief Credit Officer

Kathleen Kelleher

Executive Vice President
and Chief Information Officer

Donna M. Perkett Executive Vice President Retail Banking

Timothy C. Badger Senior Vice President Marketing/Shareholder Relations

Suzanna M. Bernd Senior Vice President Business Development

Katherine M. Dier Senior Vice President Branch Services

Karen E. Guiseppe Senior Vice President Director of Internal Audit

Michael J. Jacobs Senior Vice President Information Technology

Laurie A. LaFountain Senior Vice President Trust/Investment Division

Peter J. Lareau Senior Vice President and Chief Risk Officer

Peter F. Luciano Senior Vice President Consumer Loan Administration

Debra A. Meier Senior Vice President Human Resources

Kurt E. Moser

Senior Vice President
Corporate Banking

Saratoga National Bank and Trust Company

David S. DeMarco

President and CEO

Richard J. Ferguson Senior Vice President Corporate Banking

stockHolder inFormation

Arrow Stock

Arrow's common stock trades on the NASDAQ Global Select MarketSM under the symbol "AROW".

Dividend Reinvestment Plan

The Arrow Financial Corporation Dividend Reinvestment Plan offers par ticipants a conve- nient and economical way to acquire common stock of Arrow Financial Corporation without payment of any brokerage commission or

ser vice charge.

Par ticipants may reinvest all cash dividends in additional shares as well as make optional cash contributions to buy shares.

Since the Plan is entirely voluntary, you may join at any time and terminate whenever you wish.

For more information, please contact: American Stock Transfer and Trust Company

6201 15th Avenue

Brooklyn, NY 11219

Tel: [phone]

amstock.com

our locations Glens Falls National Bank and Trust Company

gfnational.com

Main Office

250 Glen Street
Glens Falls, NY 12801 [phone]

Argyle Office

93 Main Street Argyle, NY 12809 [phone]

Aviation Road Office

339 Aviation Road Queensbury, NY 12804 [phone]

Bay Road Office

402 Bay Road Queensbury, NY 12804 [phone]

Broad Street Plaza Office Four Broad Street Plaza Glens Falls, NY 12801 [phone]

Cambridge Office

25 West Main Street Cambridge, NY 12816 [phone]

Chestertown Office

6353 State Route 9
Chestertown, NY 12817 [phone]

Cornelia Street Office

308 Cornelia Street Plattsburgh, NY 12901 [phone]

Exit 18 Office

221 Corinth Road Queensbury, NY 12804 [phone]

Fort Ann Office

110 George Street Fort Ann, NY 12827 [phone]

Fort Edward Office

159 Broadway
Fort Edward, NY 12828 [phone]

Granville Office

8646 State Route 22
Granville, NY 12832 [phone]

Greenwich Office

132 Main Street Greenwich, NY 12834 [phone]

Greenwich Drive-In Office

1153 State Route 29
Greenwich, NY 12834 [phone]

Kingsbury Office

3019 State Route 4
Hudson Falls, NY 12839 [phone]

Lake George Office

2252 State Route 9
Lake George, NY 12845 [phone]

Lake Luzerne Office

15 Main Street
Lake Luzerne, NY 12846 [phone]

Margaret Street Office

25 Margaret Street Plattsburgh, NY 12901 [phone]

Port Henry Office

4307 Main Street
Port Henry, NY 12974 [phone]

Queensbury Office

696 Upper Glen Street Queensbury, NY 12804 [phone]

Rt.9 - Queensbury Office

1002 State Route 9
Queensbury, NY 12804 [phone]

Salem Office

212 Main Street Salem, NY 12865 [phone]

Schroon Lake Office

1080 Main Street
Schroon Lake, NY 12870 [phone]

Schuylerville Office

73 Broad Street Schuylerville, NY 12871 [phone]

South Glens Falls Office

147 Saratoga Avenue
South Glens Falls, NY 12803 [phone]

Ticonderoga Office

123 Montcalm Street Ticonderoga, NY 12883 [phone]

Ticonderoga Drive-In Office

1127 Wicker Street Ticonderoga, NY 12883 [phone]

U.S. Avenue Office

5023 U.S. Avenue Plattsburgh, NY 12903 [phone]

Warrensburg Office

3853 Main Street Warrensburg, NY 12885 [phone]

Washington County Office

343 Broadway
Fort Edward, NY 12828 [phone]

Saratoga National Bank and Trust Company

saratoganational.com

Main Office

171 South Broadway Saratoga Springs, NY 12866 [phone]

Ballard Road Office

227 Ballard Road Wilton, NY 12831 [phone]

Clifton Park Office

386 Clifton Park Center Road
Clifton Park, NY 12065 [phone]

Colonie Office

501 New Karner Road Albany, NY 12205 [phone]

Corinth Office

238 Main Street Corinth, NY 12822 [phone]

Jones Road Office

4208 Route 50
Saratoga Springs, NY 12866 [phone]

Route 9 Wilton Office

3 Carpenter Lane
Saratoga Springs, NY 12866 [phone]

West Avenue Office

91 West Avenue
Saratoga Springs, NY 12866 [phone]

Capital Financial Group, Inc. Loomis and LaPann, Inc.

capitalfinancialgroupinc.com loomislapann.com

89 Saratoga Avenue
South Glens Falls, NY 12803 [phone]
250 Glen Street
Glens Falls, NY 12801 [phone]

Upstate Insurance Agency, LLC

upstateagency.com

Chestertown Office

93 Riverside Drive Chestertown, NY 12817 [phone]

Elizabethtown Office

223 Water Street, Suite 2
Elizabethtown, NY 12932 [phone]

Schroon Lake Office

1072 State Route 9
Schroon Lake, NY 12870 [phone]

South Glens Falls Office

89 Saratoga Avenue
South Glens Falls, NY 12803 [phone]

Ticonderoga Office

98 Montcalm Street Ticonderoga, NY 12883 [phone]

Warrensburg Office

3857 Main Street Warrensburg, NY 12885 [phone]

Willsboro Office

3423 State Route 22
Willsboro, NY 12996 [phone]

McPhillips Insurance Agency - A Division of Glens Falls National Insurance Agencies, LLC

mcpins.com

Glens Falls Office

20 East Washington Street Glens Falls, NY 12801 [phone]

Greenwich Office

132 Main Street Greenwich, NY 12834 [phone]

Lake Luzerne Office

15 Main Street
Lake Luzerne, NY 12846 [phone]

Saratoga Springs Office

171 South Broadway Saratoga Springs, NY 12866 [phone]

Warrensburg Office

3857 Main Street Warrensburg, NY 12885 [phone]

Insurance sInce 1852

The Thoroughbred of Banks

LLC

250 Glen Street • P. O. Box 307 • Glens Falls, NY 12801
Tel: [phone]

arrowfinancial.com