Arrow Financial : 2020 Annual Review

ANNUAL REVIEW

Performance Comparisons

As of December 31

For the 12 Months Ended December 31*

($ in Millions)

As of December 31

For the 12 Months Ended December 31*

($ in Millions)

BOOK VALUE PER SHARE	SHAREHOLDERS' EQUITY
As of December 31*	As of December 31
($ in Millions)
*Per share amounts have been restated for stock dividends distributed.

Fellow Shareholders:

Arrow Financial Corporation remained strong through 2020, rising to meet challenges presented by the COVID-19 pandemic. Through it all, Arrow

Financial Corporation and its Family of Companies have been here for our customers, our employees and the communities we serve.

As we look back, we are proud to have delivered temporary financial assistance, stimulus program support, Paycheck Protection Program loans and charitable contributions when it was most needed. We continued to operate with a focus on health and safety, ensuring that essential banking services were available, even as we were all socially distant.

Additionally, 2020 was a year of continued shareholder value with record earnings, steady growth, sustained profitability and credit quality.

Our measured and thoughtful approach keeps us focused on long-term opportunities that will help us maintain our strong organic growth as we continue to face an uncertain future.

Among the highlights from 2020, we:

• • Provided PPP loans to more than 1,500 small businesses, allowing them to remain open, or reopen, which helped them pay their employees

• • Opened our 12th Saratoga National Bank branch in Latham, New York and optimized our Glens Falls National Bank branch network by consolidating overlapping offices in Queensbury and Greenwich, giving us 40 branches in eight counties within our combined banking network

• • Opened a Capital Region Business Develop- ment Office in Latham, New York

• • Enhanced our customer experience with website upgrades and the formation of a Cus- tomer Experience Unit of Retail Banking during these very difficult times

2020 FINANCIAL HIGHLIGHTS

Net Income: $40.8 million, up 8.9%

Total Loans: $2.6 billion, up 8.8%

Total Deposits: $3.2 billion, up 23.6%

Total Assets: $3.69 billion, up 15.8%

Return on Average Equity: 12.77%

Return on Average Assets: 1.17%

Return on Tangible Equity: 13.78%

Stock Dividend: 3% distributed in Sept.

Current Quarterly Cash Dividend: $0.26

Book Value Per Share: Increase of 10.3%

Shareholders' Equity: Increase of 10.8%

• • Maintained 5-Star "Superior" ratings from BauerFinancial for both Glens Falls National Bank and Saratoga National Bank.

• • Gave back almost $470,000 in charitable con-tributions and our Arrow Team donated more than 3,300 volunteer hours to our communities.

As these challenging times continue into 2021,

I need to thank our Team for their commitment to safety while also demonstrating flexibility in adapting to the changing needs of our cus- tomers. The dedication of our Arrow Team is the driving force behind all of our accomplishments.

Their passion for improving our customer expe- rience, serving our communities, and delivering value for shareholders keeps us competitive and strong.

Thank you for your investment in Arrow Financial Corporation. We appreciate your trust and sup-port and will continue to work in partnership with you toward creating value for your investment.

Tom Murphy

President and CEO

Consolidated Statements of Income (Unaudited)

Years Ended December 31

(in thousands, except per-share amounts)

Net Interest Income 71,559

2016

Interest and Dividend Income

$ 76,915

Interest Expense 5,356

Provision for Loan Losses 2,033 Net Interest Income after

Provision for Loan Losses 69,526

Total Noninterest Income 27,832

Total Noninterest Expense 59,609

Income Before Taxes 37,749

Provision for Income Taxes 11,215

Net Income

Share and Per Share Data Diluted Average Shares

Outstanding

Diluted Earnings Per Share Cash Dividends Per Share Book Value Per Share Tangible Book Value Per Share

Key Earnings Ratios

Return on Average Assets Return on Average Equity Return on Tangible Equity Net Interest Margin

Capital Ratios

Tier 1 Leverage Ratio

Total Risk-Based Capital Ratio

Asset Quality Ratios Nonperforming Assets to

Period-End Assets

Allowance for Loan Losses to

Period-End Loans

$ 26,534

• 15,168 15,283

$ 29,326

2017	2018	2019	2020
$ 84,657	$ 96,503	$ 109,759	$ 111,896
7,006	12,485	21,710	12,694
77,651	84,018	88,049	99,202
2,736	2,607	2,079	9,319
74,915	81,411	85,970	89,883
27,645	28,949	28,555	32,658
62,705	65,055	67,450	70,678
39,855	45,305	47,075	51,863
10,529	9,026	9,600	11,036
$ 37,475	$ 40,827
15,433	15,479

$ $ $ $

1.75 .86 15.35 13.73

1.06% 11.79% 13.25% 3.00%

9.47% 15.15%

0.28% 0.97%

$ 36,279

15,370

• $ 1.92

• $ .89

• $ 16.40

• $ 14.82

1.09% 12.14% 13.51% 3.02%

9.49% 14.98%

0.28% 0.95%

• $ 2.36

• $ . 94

$ $

17.55 16.01

• $ 2.43

• $ .99

• $ 19.53

• $ 18.01

• $ 2.64

• $ 1.02

• $ 21.55

• $ 20.02

1.27% 13.96% 15.38% 3.07%

9.61% 14.86%

0.23% 0.92%

1.24% 1.17%

13.17% 12.77%

14.36% 13.78%

3.05% 2.99%

9.98% 9.07%

14.78% 15.48%

0.18% 0.18%

0.89% 1.13%

Consolidated Balance Sheets (Unaudited)

As of December 31

(in thousands)

2016

2017

2018

2019

2020

Assets

Cash and Due from Banks

Interest-Bearing Deposits at Banks

Investment Securities Loans

Allowance for Loan Losses

Net Loans

Premises and Equipment, Net

Goodwill and Intangible

Assets, Net

Other Assets

Total Assets

Liabilities and Shareholders' Equity Noninterest-Bearing Deposits Interest-Bearing Checking and Savings Deposits

Time Deposits

Total Deposits

Short-Term Borrowings

Federal Home Loan

Bank Term Advances

Other Long-Term Debt

Other Liabilities

Total Liabilities

Total Shareholders' Equity

Total Liabilities and Shareholders' Equity

$ 43,024 $ 42,562 $

14,331 30,276 703,335 646,056

$ 387,280 $ 441,945 $ 472,768 $ 484,944

1,753,268

(17,012)

1,736,256 26,938 24,569 56,789

$2,605,242 $2,760,465 $ 2,988,334 $ 3,184,275

1,529,953

199,313 2,116,546 158,836 55,000 20,000 22,008

2,372,390

232,852

$2,605,242 $2,760,465 $ 2,988,334 $ 3,184,275

2,510,862 249,603

1,950,770

(18,586)

1,932,184 27,619 24,162 57,606

1,601,888 201,283 2,245,116 169,966 55,000 20,000 20,780

1,608,829

263,987 2,345,584 288,659 45,000 20,000 19,507

2,718,750 269,584

2,176,019 30,446 23,725 55,614

2,196,215 (20,196)

618,291 614,779 590,677

56,529 $ 47,035

27,710 23,186 338,875

• 2,364,933 2,565,798

• 40,629 42,612

• 23,534 23,823

• 70,179 84,735

2,616,054 3,234,726

• 181,099 17,486

• 30,000 45,000

• 20,000 20,000

• 35,394 37,032

2,386,120

(21,187)

1,735,789 395,321

2,882,547

301,728

Total Return Performance

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

2015	2016	2017	2018	2019	2020
Arrow Financial Corporation	100.00	158.47	140.88	140.81	176.56	148.98
NASDAQ Banks Index	100.00	135.40	144.24	119.76	150.57	141.32
Russell 2000 Index	100.00	121.31	139.08	123.76	155.35	186.36
Zacks $1B-$5B Bank Assets Index	100.00	135.72	148.54	135.24	156.49	133.30

Comparison of 15-Year Cumulative Total Return • Assumes Initial Investment of $100

2005 2006 2007

2008

2009

2010

2011 2012

Arrow Financial Corporation

100.00 101.53 95.03 116.30 124.14 146.78 134.55

NASDAQ Banks Index

Russell 2000 Index

100.00 112.29 88.87 100.00 118.37 116.51

Zacks $1B-$5B Bank Assets Index

100.00 111.25 96.06

• 64.79 53.91 64.11 57.34

• 77.14 98.10 124.44 119.24

• 73.51 63.62 69.27 66.86

2013

2014 2015 2016

• 152.12 171.64 188.10

  2017

  2018

  2019

  196.65 311.63 277.05 276.90 347.21 292.97

• 68.60 98.18 103.17 112.37 152.14 162.08 134.57 169.18 158.79

• 138.74 192.59 202.01 193.10 234.25

268.57 239.00 300.01 359.89

78.77 179.70 163.61 189.32 161.27

99.79 111.03 120.98 164.19

Source: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2021.

2020

Arrow Financial Corporation

Board of Directors

Thomas L. Hoy (Chairman)	Gary C. Dake	Raymond F. O'Conor
Retired President and CEO	President	Chairman, Retired President and CEO
Arrow Financial Corporation/	Stewart's Shops Corp.	Saratoga National Bank
Glens Falls National Bank
David G. Kruczlnicki	William L. Owens, Esq.
Mark L. Behan	Retired President and CEO	Partner
President	Glens Falls Hospital	Stafford, Owens, Piller, Murnane,
Behan Communications, Inc.	Kelleher and Trombley, PLLC
Elizabeth A. Miller
Tenée R. Casaccio, AIA	President and CEO	Colin L. Read, PhD
President	Miller Mechanical Services, Inc.	Professor of Economics/Finance
JMZ Architects and Planners, PC	SUNY Plattsburgh
Thomas J. Murphy
Michael B. Clarke	President and CEO	Richard J. Reisman, DMD
Retired President and CEO	Arrow Financial Corporation/	Chairman - Section of Dentistry
Lone Star Industries	Glens Falls National Bank	Glens Falls Hospital
Directors Emeriti
Herbert O. Carpenter	Herbert A. Heineman, Jr.	David L. Moynehan
John J. Carusone, Jr.	Elizabeth O'Connor Little	John J. Murphy
Mary-Elizabeth T. FitzGerald	Michael F. Massiano	Doris E. Ornstein
(Chairman Emeritus)
Corporate Officers
Thomas J. Murphy	David S. DeMarco	Andrew J. Wise
President and CEO	Senior Vice President	Senior Vice President
and Chief Banking Officer	and Chief Operating Officer
Edward J. Campanella
Senior Vice President,	David D. Kaiser
Treasurer and Chief Financial	Senior Vice President
Officer	and Chief Credit Officer

Shareholder 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 participants a convenient and economical way to acquire common stock of Arrow Financial Corporation without payment of any brokerage commission or service charges.

Participants 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 & Trust Company 6201 15th Avenue

Brooklyn, NY 11219

Tel: [phone] or astfinancial.com

250 Glen Street, PO Box 307, Glens Falls, NY 12801

[phone] | arrowfinancial.com