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PART I	FINANCIAL INFORMATION
Item 1.	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001
	Consolidated Statements of Income for the
	Three Month and Nine Month Periods ended September 30, 2002 and 2001
	Consolidated Statements of Changes in Shareholders' Equity for the
	Nine Month Periods Ended September 30, 2002 and 2001
	Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2002 and 2001
	Notes to Unaudited Consolidated Interim Financial Statements
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II	OTHER INFORMATION
SIGNATURES
CERTIFICATIONS	Required Under Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and the Chief Financial Officer

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)(Unaudited)

	9/30/2002	12/31/2001
ASSETS
Cash and Due from Banks	$ 32,995	$ 27,944
Federal Funds Sold	30,600	14,000
Cash and Cash Equivalents	63,595	41,944
Securities Available-for-Sale	311,975	251,694
Securities Held-to-Maturity (Approximate Fair Value of
$80,000 in 2002 and $75,786 in 2001)	74,608	74,956
Loans	785,941	755,124
Allowance for Loan Losses	(11,008)	(9,720)
Net Loans	774,933	745,404
Premises and Equipment, Net	13,464	13,095
Other Real Estate and Repossessed Assets, Net	331	360
Goodwill, Net	9,297	9,297
Other Intangible Assets, Net	662	641
Other Assets	14,100	13,616
Total Assets	$1,262,965	$1,151,007
LIABILITIES
Deposits:
Demand	$ 135,467	$ 124,777
Regular Savings, N.O.W. & Money Market Deposit Accounts	541,217	457,171
Time Deposits of $100,000 or More	64,905	109,023
Other Time Deposits	205,262	194,527
Total Deposits	946,851	885,498
Short-Term Borrowings:
Securities Sold Under Agreements to Repurchase	44,369	32,310
Other Short-Term Borrowings	5,335	5,335
Federal Home Loan Bank Advances	145,000	115,000
Guaranteed Preferred Beneficial Interests in Corporation's Junior Subordinated Debentures	5,000	5,000
Other Liabilities	16,401	16,360
Total Liabilities	1,162,956	1,059,503
SHAREHOLDERS' EQUITY
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized	---	---
Common Stock, $1 Par Value; 20,000,000 Shares Authorized
(10,468,895 Shares Issued in 2002 and 9,970,376 in 2001)	9,970	9,970
Surplus	100,055	99,459
Undivided Profits	25,828	17,268
Unallocated ESOP Shares (97,212 Shares in 2002 and 98,478 Shares in 2001)	(1,822)	(1,941)
Accumulated Other Comprehensive Income	4,049	1,562
Treasury Stock, at Cost (2,429,055 Shares in 2002 and 2,239,451 Shares in 2001)	(38,071)	(34,814)
Total Shareholders' Equity	100,009	91,504
Total Liabilities and Shareholders' Equity	$1,262,965	$1,151,007

September 30, 2002 shares have been restated for the 5% stock dividend declared October 23, 2002.

See Notes to Unaudited Consolidated Interim Financial Statements.

Share and per share amounts have been restated for the 5% stock dividend declared October 23, 2002.

See notes to Unaudited Consolidated Interim Financial Statements.

(In Thousands, Except Share and Per Share Amounts) (Unaudited)

					Accumulated
				Unallo-	Other Com-
				cated	prehensive
	Common		Undivided	ESOP	(Loss)	Treasury
	Stock	Surplus	Profits	Shares	Income	Stock	Total
Balance at December 31, 2001	$9,970	$99,459	$17,268	$(1,941)	$ 1,562	$(34,814)	$91,504
Comprehensive Income, Net of Tax:
Net Income	---	---	14,118	---	---	---	14,118
Increase in Additional Pension Liability Over Unrecognized Prior Service Costs (Pre-tax $147)	---	---	---	---	(88)	---	(88)
Net Unrealized Securities Holding Gains Arising During the Period, Net of Tax (Pre-tax $4,482)	---	---	---	---	2,680	---	2,680
Reclassification Adjustment for Net Securities Gains Included in Net Income, Net of Tax (Pre-tax $173)	---	---	---	---	(105)	---	(105)
Other Comprehensive Income							2,487
Comprehensive Income							16,605
Cash Dividends Declared, $.70 per Share	---	---	(5,558)	---	---	---	(5,558)
Stock Options Exercised (37,200 Shares)	---	186	---	---	---	329	515
Shares Issued Under the Directors' Stock Plan (572 Shares)	---	11	---	---	---	6	17
Shares Issued Under the Employee Stock Purchase Plan (16,183 Shares)	---	258	---	---	---	143	401
Tax Benefit for Disposition of Stock Options	---	78	---	---	---	---	78
Purchase of Treasury Stock (131,586 Shares)	---	---	---	---	---	(3,735)	(3,735)
Allocation of ESOP Stock (6,190 Shares)	---	63	---	119	---	---	182
Balance at September 30, 2002	$9,970	$100,055	$25,828	$(1,822)	$ 4,049	$(38,071)	$100,009

Balance at December 31, 2000	$9,496	$85,531	$ 21,920	$ ( 178)	$(2,358)	$(33,630)	$80,781
Comprehensive Income, Net of Tax:
Net Income	---	---	11,455	---	---	---	11,455
Net Unrealized Securities Holding Gains Arising During the Period, Net of Tax (Pre-tax $5,793)	---	---	---	3,476	---	---	3,476
Reclassification Adjustment for Net Securities Gains Included in Net Income, Net of Tax (Pre-tax $195)	---	---	---	(116)	---	---	(116)
Other Comprehensive Income							3,360
Comprehensive Income							14,815
Cash Dividends Declared, $.61 per Share	---	---	(4,870)	---	---	---	(4,870)
Stock Options Exercised (38,594 Shares)	---	12	---	---	---	406	418
Shares Issued Under the Directors' Stock Plan (822 Shares)	---	11	---	---	---	7	18
Shares Issued Under the Employees' Stock Purchase Plan (22,054 Shares)	---	189	---	---	---	198	387
Purchase of Treasury Stock (48,242 Shares)	---	---	---	---	---	(1,140)	(1,140)
Tax Benefit for Disposition of Stock Options	---	33	---	---	---	---	33
Acquisition of Common Stock By ESOP (6,725 Shares)	---	---	---	---	(105)	---	(105)
Allocation of ESOP Stock (17,341 Shares)	---	36	---	---	321	---	357
Balance at September 30, 2001	$9,496	$85,812	$28,505	$ 3,182	$(2,142)	$(34,159)	$90,694

Shares and per share amounts have been restated for the 5% stock dividend declared October 23, 2002.

See Notes to Unaudited Consolidated Interim Financial Statements.

See Notes to Unaudited Consolidated Interim Financial Statements.

1. Financial Statement Presentation

In the opinion of the management of Arrow Financial Corporation (the "Company"), the accompanying unaudited consolidated interim financial statements contain all of the adjustments necessary to present fairly the financial position as of September 30, 2002 and December 31, 2001; the results of operations for the three month and nine month periods ended September 30, 2002 and 2001; and the changes in shareholders' equity and cash flows for the nine month periods ended September 30, 2002 and 2001. All such adjustments are of a normal recurring nature. Certain items have been reclassified to conform to the 2002 presentation. These consolidated interim financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for December 31, 2001.

2. Accumulated Other Comprehensive Income (Loss) (In Thousands)

The following table presents the components, net of tax, of accumulated other comprehensive income (loss) as of September 30, 2002 and December 31, 2001:

	2002	2001
Excess of Additional Pension Liability Over Unrecognized Prior Service Cost	$ (177)	$ (89)
Net Unrealized Holding Gains on Securities Available-for-Sale	4,226	1,651
Total Accumulated Other Comprehensive Income	$4,049	$1,562

3. Earnings Per Common Share (In Thousands, Except Per Share Amounts)

The following table presents a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per common share (EPS) for the three and nine month periods ended September 30, 2002 and 2001. All share and per share amounts have been restated for the 5% stock dividend declared October 23, 2002.

	Income	Shares	Per Share
	(Numerator)	(Denominator)	Amount
For the Three Months Ended September 30, 2002:
Basic EPS	$4,874	7,966	$.61
Dilutive Effect of Stock Options	---	203
Diluted EPS	$4,874	8,169	$.60
For the Three Months Ended September 30, 2001:
Basic EPS	$4,117	8,033	$.51
Dilutive Effect of Stock Options	---	169
Diluted EPS	$4,117	8,202	$.50

For the Nine Months Ended September 30, 2002:
Basic EPS	$14,118	7,989	$1.77
Dilutive Effect of Stock Options	---	193
Diluted EPS	$14,118	8,182	$1.73
For the Nine Months Ended September 30, 2001:
Basic EPS	$11,455	8,017	$ 1.43
Dilutive Effect of Stock Options	---	123
Diluted EPS	$11,455	8,140	$ 1.41

4. Goodwill and Other Intangible Assets (In Thousands)

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (which superseded SFAS No. 121).

The unidentifiable intangible asset acquired in the acquisition of a bank or thrift (including acquisitions of branches), where the fair value of the liabilities assumed exceeded the fair value of the assets acquired, was formerly amortized to expense under SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions." The FASB undertook a project to determine whether unidentifiable intangible assets recorded under SFAS No. 72 should continue to be amortized or, instead, be accounted for using the non-amortization approach specified for goodwill under SFAS No. 142. In an exposure draft of a proposed statement issued in May 2002, the FASB made a preliminary decision that any unidentifiable intangible asset recognized as a result of applying SFAS No. 72 should continue to be amortized unless both of the following criteria were met: (1) the transaction in which the unidentifiable intangible asset arose was a business combination as defined by SFAS No. 141, and (2) at the date the transaction was initially recorded, the depositor relationship intangible was recognized separate from goodwill and was accounted for separate from goodwill since that time.

In early October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions," which departed from the tentative conclusions in the exposure draft noted above. SFAS No. 147 states that if the transaction that gave rise to the unidentifiable intangible asset was a business combination (including certain acquisitions of branches), the carrying amount of that asset should be reclassified to goodwill (reclassified goodwill) as of the date SFAS No. 142 was applied in its entirety, which for the Company was January 1, 2002. The carrying amounts of any recognized intangible assets that meet the recognition criteria of SFAS No. 141 that have been included in the amount reported as an unidentifiable intangible asset and for which separate accounting records have been maintained should be reclassified and accounted for apart from the unidentifiable intangible asset and should not be reclassified to goodwill. The reclassified goodwill should be accounted for and reported prospectively as goodwill under SFAS No. 142, for which amortization is not required, but must be evaluated annually for impairment.

SFAS No. 147 is effective on October 1, 2002, but permits early application. The Company elected to adopt SFAS No. 147 effective for the quarter ended September 30, 2002. The Company has concluded that the branch acquisitions that gave rise to the unidentifiable intangible assets were business combinations under SFAS No. 147, and therefore, in accordance with the transition provisions of SFAS No. 147, the Company has restated the prior quarters in 2002 to remove the amortization expense related to the reclassified goodwill. The carrying amount of unidentifiable intangible assets related to the branch acquisitions and reclassified as goodwill was $9,297 as of January 1, 2002. The impact on net income as a result of restating the first two quarters of 2002 to remove the amortization expense related to the reclassified goodwill was $135 in each of the first and second quarters of 2002. For the third quarter of 2002, the adoption of SFAS No. 147 also had the effect of increasing net income by $135, and the effect for the nine months ended September 30, 2002 was an increase in net income of $405.

The provisions of SFAS No. 147 require the Company to complete, by December 31, 2002, the transitional impairment testing for the reclassified goodwill as of January 1, 2002. Management has not yet completed the transitional impairment testing required, however, it is currently expected that the reclassified goodwill will not be impaired.

The following table presents information on the Company's intangible assets (other than reclassified goodwill) as of September 30, 2002:

Other Intangible Assets (in Thousands)	Depositor Intangibles	Mortgage Servicing Rights	Intangible Pension Asset	Total
Gross Carrying Amount	$560	$ 5	$556	$1,121
Accumulated Amortization	455	4	---	459
Net Carrying Amount	$ 105	$ 1	$556	$ 662
Year-to-Date 2002 Amortization Expense	$28	$ ---	$ ---	$28
Estimated Annual Amortization Expense:
2002	$37	$ 1	$ ---	$38
2003	37	---	---	37
2004	37	---	---	37
2005	22	---	---	22
2006	---	---	---	---
During 2002, there were no branch or other acquisitions and no impairment losses were recognized with respect to the Company's existing intangible assets.

Independent Auditors' Review Report

The Board of Directors and Shareholders

Arrow Financial Corporation

We have reviewed the accompanying consolidated balance sheet of Arrow Financial Corporation and subsidiaries (the "Company") as of September 30, 2002, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2002 and 2001, and consolidated statements of changes in shareholders' equity and cash flows for the nine-month periods ended September 30, 2002 and 2001. These consolidated financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Arrow Financial Corporation and subsidiaries as of December 31, 2001, and the related consolidated statements of income, changes in shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated January 29, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Albany, New York

October 21, 2002

Item 2.

Cautionary Statement under Federal Securities Laws: The information contained in this Quarterly Report on Form 10-Q contains 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 are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and involve a degree of uncertainty and attendant risk. Words such as "expects," "believes," "anticipates," "should," "plans," "will," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. Some of these statements are merely presentations of what future performance or changes in future performance would look like based on hypothetical assumptions and on simulation models. Others are based on management's general perceptions of market conditions and trends in activity, both locally and nationally, as well as current management strategies for future operations and development.

Examples of forward-looking statements in this Report are (i) the statements in the fourth and sixth paragraphs under the interest rate table set forth in the section entitled: "Key Interest Rate Changes 1999-2002" regarding the anticipated impact on the Company's cost of deposits, net interest margin and net interest income of possible future Federal Reserve interest rate cuts, and (ii) the statements in the first paragraph under the caption "Quarterly Taxable Equivalent Yield on Loans" regarding loan yields in upcoming periods. Forward-looking statements in this Report are not guarantees of future performance and involve certain risks and uncertainties that are difficult to quantify or, in some cases, to identify. In the case of all forward-looking statements, actual outcomes and results may differ materially from what the statements predict or forecast. Factors that could cause or contribute to such differences include, but are not limited to, unexpected changes in economic and market conditions, including unanticipated fluctuations in interest rates, new developments in state and federal regulation, enhanced competition from unforeseen sources, new emerging technologies, sharp fluctuations in capital markets and similar risks inherent in banking operations. Significant geopolitical developments, whether or not anticipated, also may cause differences between expected future outcomes as expressed in forward-looking statements and actual outcomes. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as expressly required under applicable laws and regulations, the Company undertakes no obligation to revise or update these forward-looking statements to reflect the occurrence of unanticipated events. This quarterly report should be read in conjunction with the Company's Annual Report on Form 10-K for December 31, 2001.

Arrow Financial Corporation (the "Company") is a two bank holding company headquartered in Glens Falls, New York. Its banking subsidiaries are Glens Falls National Bank and Trust Company ("GFNB") whose main office is located in Glens Falls, New York, and Saratoga National Bank and Trust Company ("SNB") whose main office is located in Saratoga Springs, New York.

Peer Group Comparisons: At certain points in the ensuing discussion and analysis, the Company's performance is compared with that of its peer group of financial institutions. Peer data has been obtained from the Federal Reserve Board's "Bank Holding Company Performance Reports." The Company's peer group is comprised of 162 domestic bank holding companies located throughout the United States with $1 to $3 billion in total consolidated assets.

OVERVIEW

Selected Quarterly Information:

(Dollars In Thousands, Except Per Share Amounts)

The first two quarters of 2002 have been restated for the adoption of SFAS No. 147 (see note 4 to the unaudited consolidated interim financial statements).

Per share amounts have been restated for the 5% stock dividend declared October 23, 2002.

	Sep 2002	Jun 2002	Mar 2002	Dec 2001	Sep 2001
Net Income	$4,874	$4,777	$4,467	$4,361	$4,117
Net Securities Gains, Net of Tax	---	(92)	(12)	---	(30)
Net Other Non-Core Items, Net of Tax	(2)	(55)	(12)	4	8
Net Income, Based on Core Earnings	4,872	4,630	4,443	4,365	4,095
Diluted Earnings Per Share	.60	.58	.54	.53	.50
Diluted Earnings Per Share, Based on Core Net Income 1	.60	.57	.54	.53	.50
Diluted Earnings Per Share, Cash Basis 2	.60	.57	.54	.55	.52
Dividends Declared	.24	.24	.22	.22	.21
Average Assets	$1,227,012	$1,197,864	$1,151,306	$1,155,623	$1,119,573
Average Equity	99,009	94,873	92,949	92,016	88,593
Return on Average Assets	1.58%	1.60%	1.58%	1.50%	1.46%
Return on Average Equity	19.53	20.22	19.51	18.80	18.44
Return on Average Assets, Based on Core Net Income 1	1.58	1.55	1.57	1.50	1.45
Return on Average Equity, Based on Core Net Income 1	19.52	19.60	19.41	18.82	18.37
Average Earning Assets	$1,168,305	$1,140,927	$1,094,530	$1,100,543	$1,061,280
Average Paying Liabilities	972,168	957,477	916,413	919,895	885,124
Interest Income, Tax-Equivalent	19,457	19,428	18,935	19,899	20,014
Interest Expense	6,315	6,371	6,151	6,851	7,727
Net Interest Income, Tax-Equivalent	13,142	13,057	12,784	13,048	12,287
Net Interest Margin 3	4.46%	4.59%	4.74%	4.70%	4.59%
Efficiency Ratio 4	47.10%	49.32%	50.43%	49.94%	51.27%
Tier 1 Leverage Ratio	7.52%	7.50%	7.61%	7.45%	7.43%
Book Value per Share	$12.59	$12.17	$11.56	$11.42	$11.32
Tangible Book Value per Share	11.34	10.91	10.22	10.17	10.04

¹ Core Net Income excludes net gains/losses on securities and OREO transactions and one time material non-core income and expense items.

² Cash Earnings Per Share adds back to Core Net Income, in 2001, the amortization, net of tax, of intangible assets associated with prior

branch acquisitions.

³ Net Interest Margin is the ratio of tax-equivalent net interest income to average earning assets.

⁴ The Efficiency Ratio is the ratio of core noninterest expense less intangible asset amortization to the sum of tax-equivalent core net

interest income and core noninterest income.

The Company reported earnings of $4.9 million for the third quarter of 2002, an increase of $757 thousand, or 18.4%, as compared to $4.1 million for the third quarter of 2001. Diluted earnings per share were $.60 and $.50 for the two respective periods for a period to period increase of $.10, or 20.0%. On a year-to-date basis, net income was $14.1 million for the first nine months of 2002, an increase of $2.7 million, or 23.2%, as compared to earnings of $11.5 million for the 2001 period. Diluted earnings per share for the nine month periods were $1.73 and $1.41, respectively, a period-to-period increase of $.32, or 22.7%. The adoption of SFAS No. 147 (see Note 4 to the unaudited consolidated interim financial statements) resulted in a $.02 increase in the quarterly diluted earnings per share and a $.05 increase in the nine month diluted earnings per share, from the reversal of previously recognized amortization expense related to reclassified goodwill.

The returns on average assets were 1.58% and 1.46% for the third quarters of 2002 and 2001, respectively, an increase of 12 basis points, or 8.2% . The returns on average equity were 19.53% and 18.44% for the third quarters of 2002 and 2001, respectively, an increase of 109 basis points, or 5.9%. On a year-to-date basis, the returns on average assets were 1.58% and 1.38% for the first nine months of 2002 and 2001, respectively, an increase of 20 basis points, or 14.5%. The returns on average equity were 19.72% and 17.94% for the first nine months of 2002 and 2001, respectively, an increase of 178 basis points, or 9.9%.

The net interest margin for the quarter was 4.46%, down 13 basis points or 2.8% from the third quarter of 2001. This marked the second quarter-to-quarter decline in the net interest margin after five consecutive quarter-to-quarter increases.

Total assets were $1,263.0 million at September 30, 2002 which represented an increase of $112.0 million, or 9.7%, from December 31, 2001, and an increase of $120.8 million, or 10.6%, above the level at September 30, 2001.

During the first nine months of 2002, shareholders' equity increased $8.5 million to $100.0 million. The Company's risk-based capital ratios and Tier 1 leverage ratio continued to exceed regulatory minimum requirements at period-end. Both Company banks qualified as "well-capitalized" under federal bank guidelines. Efficient utilization of capital remains a high priority of the Company.

CHANGE IN FINANCIAL CONDITION

Summary of Selected Consolidated Balance Sheet Data

(Dollars in Thousands)

				$ Change	$ Change	% Change	% Change
	Sep 2002	Dec 2001	Sep 2001	From Dec	From Sep	From Dec	From Sep
Federal Funds Sold	$ 30 ,600	$ 14,000	$ 32,700	$ 16,600	$ (2,100)	118.6	(6.4)
Securities Available for Sale	311,975	251,694	235,011	60,281	76,964	24.0	32.7
Securities Held to Maturity	74,608	74,956	72,184	(348)	2,424	(0.5)	3.4
Loans, Net of Unearned Income (1)	785,941	755,124	750,377	30,817	35,564	4.1	4.7
Allowance for Loan Losses	11,008	9,720	9,241	1,288	1,767	13.3	19.1
Earning Assets (1)	1,203,124	1,095,774	1,090,272	107,350	112,852	9.8	10.4
Total Assets	1,262,965	1,151,007	1,142,214	111,958	120,751	9.7	10.6
Demand Deposits	135,467	$124,777	132,122	10,690	3,345	8.6	2.5
N.O.W., Regular Savings &
Money Market Savings Accounts	541,217	457,171	423,715	84,046	117,502	18.4	27.7
Time Deposits of $100,000 or More	64,905	109,023	124,208	(44,118)	(59,303)	(40.5)	(47.7)
Other Time Deposits	205,262	194,527	199,933	10,735	5,329	5.5	2.7
Total Deposits	946,851	$885,498	879,978	61,353	66,873	6.9	7.6
Short-Term Borrowings	49,704	$ 37,645	37,438	12,059	12,266	32.0	32.8
Federal Home Loan Bank Advances	145,000	115,000	115,000	30,000	30,000	26.1	26.1
Shareholders' Equity	100,009	91,504	90,694	8,505	9,315	9.3	10.3

(1) Includes Nonaccrual Loans

Total assets at September 30, 2002 amounted to $1,263.0 million, an increase of $112.0 million, or 9.7%, from year-end 2001 and an increase of $120.8 million, or 10.6%, from September 30, 2001.

Increases in Sources of Funds: Increases in internally generated deposit balances (a net increase of $66.9 million, or 7.6%, from September 30, 2001 to September 30, 2002) accounted for over 60% of the increase in the Company's sources of funds. During this twelve month period, however, the Company experienced large shifts in the mix of deposit product balances. The largest shift was the transfer of maturing large balance municipal time deposits into non-maturity balance accounts triggered by the low interest rate environment. Other sources of funds which increased over this twelve month period included short term borrowings ($12.3 million), Federal Home Loan Bank (FHLB) advances ($30.0 million) and retained earnings ($8.6 million).

Deployment of Funds into Earning Assets: Total loans at September 30, 2002 amounted to $785.9 million, an increase of $30.8 million, or 4.1%, from December 31, 2001, and an increase of $35.6 million, or 4.7%, from September 30, 2001. The area of the loan portfolio experiencing the greatest increase over the twelve month period was residential real estate loans, followed by commercial and commercial real estate loans. This represented a change from earlier periods, when the Company regularly experienced the greatest portfolio growth in indirect consumer lending (principally auto loans financed through local dealerships where the Company acquires the dealer paper). Indirect consumer loans still represent the largest single category of loans within the portfolio, but since the fall of 2001, indirect loan balances have slowly declined in the face of manufacturers' subsidized vehicle financing programs. Management expects that this segment of the portfolio will continue to face competitive pressures in forthcoming periods.

While it is the intent of the Company to invest the greatest portion of its earning assets into high quality loans, most of the increase in the sources of funds from September 30, 2001 to September 30, 2002 was redeployed into the investment securities portfolio. As reported on the Consolidated Statement of Cash Flows, the cash flow received from the maturities and calls of securities in the available-for-sale portfolio amounted to $59.1 million for the first nine months of 2002. Most of these cash flows are from the monthly amortization of mortgage-backed securities. Among other needs, this cash flow is available to fund loan growth or for redeployment in the available-for-sale portfolio.

Deposit Trends

The following two tables provide information on trends in the balance and mix of the Company's deposit portfolio by presenting the quarterly average balance by deposit type and the relative proportion of each deposit type for each of the last five quarters.

Quarterly Average Deposit Balances

(Dollars in Thousands)

		Quarter Ending
		Sep 2002	Jun 2002	Mar 2002	Dec 2001	Sep 2001
Demand Deposits		$138,336	$129,844	$124,543	$127,021	$131,365
Interest-Bearing Demand Deposits		273,069	287,832	254,496	242,948	203,338
Regular and Money Market Savings		236,890	217,526	210,767	204,514	202,618
Time Deposits of $100,000 or More		71,257	93,760	98,382	118,678	123,042
Other Time Deposits		206,136	198,910	196,718	199,234	198,342
Total Deposits		$925,688	$927,872	$884,906	$892,395	$858,705

Percentage of Average Quarterly Deposits

		Quarter Ending
		Sep 2002	Jun 2002	Mar 2002	Dec 2001	Sep 2001
Demand Deposits		14.9%	14.0%	14.1%	14.2%	15.3%
Interest-Bearing Demand Deposits		29.5	31.1	28.8	27.2	23.7
Regular and Money Market Savings		25.6	23.4	23.8	22.9	23.6
Time Deposits of $100,000 or More		7.7	10.1	11.1	13.3	14.3
Other Time Deposits		22.3	21.4	22.2	22.4	23.1
Total Deposits		100.0%	100.0%	100.0%	100.0%	100.0%

The Company's deposit growth is moderately affected by seasonality. There is generally little net deposit growth in the first quarter of the year. In the first quarter of 2002, total deposit balances actually declined by 2.0%. After experiencing a 4.9% increase in the average balance of total deposits in the second quarter of 2002, total average balances again decreased, by 0.2%, during the third quarter of 2002. Time deposits of $100,000 or more decreased during the third quarter while demand deposits and regular and money market savings balances increased. During the period of low interest rates in 2001 and 2002, a significant portion of maturing time deposits was transferred to non-maturity balances, both by municipal depositors and by individual depositors. The average balances of time deposits under $100,000 remained fairly constant over the last two quarters of 2001 and the first two quarters of 2002, and increased moderately for the third quarter of 2002. Those depositors that have maintained their maturing balances in time deposits have primarily reinvested maturing time deposits in certificates with relatively short-term maturities.

Quarterly Average Rate Paid on Deposits

		Quarter Ending
		Sep 2002	Jun 2002	Mar 2002	Dec 2001	Sep 2001
Demand Deposits		---%	---%	---%	---%	---%
Interest-Bearing Demand Deposits		1.49	1.66	1.59	1.64	1.89
Regular and Money Market Savings		1.38	1.45	1.47	1.74	2.30
Time Deposits of $100,000 or More		2.87	2.76	2.73	3.15	4.06
Other Time Deposits		3.67	3.88	4.09	4.37	4.79
Total Deposits		1.83	1.97	2.02	2.24	2.68

Key Interest Rate Changes 1999 - 2002

		Federal
Date	Discount Rate	Funds Rate	Prime Rate
November 6, 2002	.75%	1.25%	4.25%
December 11, 2001	1.25	1.75	4.75
November 6, 2001	1.50	2.00	5.00
October 2, 2001	2.00	2.50	5.50
September 17, 2001	2.50	3.00	6.00
August 21, 2001	3.00	3.50	6.50
June 27, 2001	3.25	3.75	6.75
May 15, 2001	3.50	4.00	7.00
April 18, 2001	4.00	4.50	7.50
March 20, 2001	4.50	5.00	8.00
January 31, 2001	5.00	5.50	8.50
January 3, 2001	5.50	6.00	9.00
May 16, 2000	6.00	6.50	9.50
March 21, 2000	5.50	6.00	9.00
February 2, 2000	5.25	5.75	8.75
November 16, 1999	5.00	5.50	8.50
August 25, 1999	4.75	5.25	8.25
September 30, 1999	4.50	5.00	8.00

The Company's net interest margin, and ultimately its net interest income, has been influenced for the past several years by changes in prevailing interest rates. Generally, the Company's net interest margin has been negatively correlated with prevailing market rates. Increasing rates have had a negative short-to-medium term impact on net interest income; decreasing rates have had a positive short-to-medium term impact on both the margin and income, although net interest income may continue to rise even in periods of decreasing margins if total interest-bearing assets increase more rapidly than the margin shrinks. Decreasing market rates have had a positive impact on the Company's net interest margin and net interest income, principally because deposit liabilities have tended to reprice more rapidly than loans.

As indicated in the table above, prevailing interest rates economy-wide increased in the second half of 1999 through the second half of 2000. This followed a long period of flat or slowly-declining prevailing interest rates. The 1999 and 2000 rate hikes had a moderately negative effect on the Company's operating results for 1999 and 2000 as reflected in reductions in both the net interest spread and the net interest margin in each year.

In the first quarter of 2001, the Federal Reserve Board reversed direction and began decreasing short-term interest rates rapidly and significantly in response to perceived weakening in the economy. The total decrease in prevailing short-term interest rates for 2001 was 475 basis points. As a result, the Company experienced a decrease in the cost of deposits in all quarters of 2001, which continued during the first two quarters of 2002, even though prevailing interest rates leveled off in the first three quarters of 2002. The Company expects that its deposit costs may continue at present historically low levels or perhaps decrease a bit further for a short period, as maturing time deposits continue to reprice at lower rates. The early 2001 decreases in deposit rates were not initially matched by decreased yields on earning assets. Ultimately, the Company did experience a decrease in the average yield in its loan portfolio in the second half of 2001. See the "Loan Portfolio" section in the discussion of "Financial Condition" in a subsequent section of this Report for a more complete analysis of yield trends in the loan portfolio.

The 50 basis point decrease effected by the Federal Reserve in the targeted Federal Funds rate on November 6, 2002 may have a limited impact on the Company's deposit rates, both because further decreases in deposit rates may accelerate disintermediation out of the Company's deposits and because rates on several of the Company's deposit products, such as savings and NOW accounts, are already priced at such low levels that further decreases in rates may not be practical or sustainable. This decrease in prevailing interest rates will, however, have a continuing impact on the Company's yield on loans, further compressing margins. See "Quarterly Taxable Equivalent Yields on Loans," below.

In both rising and falling rate environments, the Company faces significant competitive pricing pressures in its marketplace for both deposits and loans.

Non-Deposit Sources of Funds

The Company has borrowed funds from the Federal Home Loan Bank ("FHLB") under a variety of programs, including fixed and variable rate short-term borrowings and borrowings in the form of "convertible advances." These convertible advances have final maturities of 5 - 10 years and are callable by the FHLB at certain dates. If the advances are called, the Company may elect to have the funds replaced by the FHLB at the then prevailing market rate of interest.

In 1999, the Company established a financing vehicle, Arrow Capital Trust I (the "Trust"). The Trust issued 30 year guaranteed preferred beneficial interests in junior subordinated debentures of the Company ("capital securities") in the aggregate amount of $5.0 million at a fixed rate of 9.5%, and used the proceeds from the sale of the capital securities to acquire 9.5% junior subordinated debentures issued by the Company. The capital securities-backed debentures, with associated expense that is tax deductible, qualify as Tier I capital for the purposes of bank regulatory capital guidelines. See "Capital Resources" below.

Management continuously explores and evaluates other non-deposit sources of funds.

Loan Trends

The following two tables present the Company's quarterly average balances by loan type and the proportion of each loan type to overall loans for each of the last five quarters.

Quarterly Average Loan Balances

(Dollars in Thousands)

		Quarter Ending
		Sep 2002	Jun 2002	Mar 2002	Dec 2001	Sep 2001
Commercial and Commercial Real Estate		$168,204	$162,611	$154,732	$151,742	$148,575
Residential Real Estate		235,248	227,530	219,264	210,656	205,973
Home Equity		29,468	28,701	28,709	29,013	29,089
Indirect Consumer Loans		308,681	307,486	312,912	321,265	324,330
Direct Consumer Loans		37,441	38,781	40,457	41,592	42,000
Total Loans		$779,042	$765,109	$756,074	$754,268	$749,967

Percentage of Quarterly Average Loans

		Quarter Ending
		Sep 2002	Jun 2002	Mar 2002	Dec 2001	Sep 2001
Commercial and Commercial Real Estate		21.6%	21.3%	20.4%	20.1%	19.8%
Residential Real Estate		30.2	29.7	29.0	27.9	27.5
Home Equity		3.8	3.8	3.8	3.8	3.9
Indirect Consumer Loans		39.6	40.1	41.4	42.6	43.2
Direct Consumer Loans		4.8	5.1	5.4	5.6	5.6
Total Loans		100.0%	100.0%	100.0%	100.0%	100.0%

Total average loans increased in each of the four most recent quarters, with total portfolio growth of 3.9% over the twelve month period. The Company experienced growth in two of its three major loan categories: commercial and commercial real estate and residential real estate. Each of these categories increased relative to the other categories as a percentage of the overall loan portfolio, to 21.6% and 30.2%, respectively. The Company continues to experience moderate demand in both of these categories.

In the several years preceding the third quarter of 2001, indirect consumer lending (principally auto loans financed through local dealerships where the Company acquires the dealer paper) was the fastest growing segment of the Company's loan portfolio. Although the percentage of average indirect loans to total average loans has decreased over the past five quarters, these loans still represent the largest category of loans (39.6%) in the portfolio. In the fall of 2001, as discussed under "Deployment of Funds into Earning Assets," this absolute growth of indirect loans was halted in the face of an aggressive campaign of zero rate financing offered by the auto manufacturers. As a result, the Company's indirect loan balances decreased in the ensuing twelve months. Towards the end of the third quarter of 2002, however, the balance of indirect loans stabilized and actually increased slightly. Nevertheless, this persistence of manufacturers' subsidized financing programs is likely to continue to have a depressing effect on the Company's dealer paper program.

Quarterly Taxable Equivalent Yield on Loans

		Quarter Ending
		Sep 2002	Jun 2002	Mar 2002	Dec 2001	Sep 2001
Commercial and Commercial Real Estate		7.24%	7.26%	7.42%	7.99%	8.28%
Residential Real Estate		7.16	7.29	7.46	7.43	7.58
Home Equity		6.02	6.19	6.43	7.29	7.83
Indirect Consumer Loans		7.48	7.70	7.81	7.96	8.14
Direct Consumer Loans		8.99	8.88	8.92	9.07	9.20
Total Loans		7.35	7.49	7.64	7.85	8.06

In general, management expects the yield on the Company's loan portfolio and other earning assets will be impacted by actions the Federal Reserve Board takes from time to time affecting prevailing interest rates. Many of the loans in the commercial portfolio have variable rates tied to prime, FHLB or U.S. Treasury indices. Additionally, there is a significant amount of cash flow from normal amortization and prepayments in all loan categories, and this cash flow reprices at current rates as new loans are generated at the lower current yields. The effect of the Federal Reserve Board's recent rate decisions on deposit rates is discussed above under the heading "Key Interest Rate Changes 1999-2002." As noted, the generally declining rate environment is 2001 led to a sustained decrease in the Company's cost of deposits throughout 2001 and in the first two quarters of 2002. There was a greater time lag, however, between the Federal Reserve's changes in prevailing rates and the impact of those changes on the Company's loan portfolio, exceeding the time lag between the rate changes and the declines in the deposit portfolio. Yields in the Company's loan portfolio did begin to decrease in the second half of 2001 and through the first three quarters of 2002, although the decrease in average yields was less rapid than the decrease in average rates paid on deposits and, as mentioned, commenced later. As a result, the net interest margin expanded during 2001 and the first quarter of 2002. As prevailing rates and the Company's deposit rates began to flatten out in mid-2002, however, loan yields continued to decline and further declines in the yields may be expected as a result of the Federal Reserve's actions in November 2002 to decrease prevailing rates by 50 basis points. As a result, the net interest margin began to contract in the second quarter of 2002, by 15 basis points, the first decline in five consecutive quarters, followed by a 13 basis point decrease in the third quarter of 2002. It is expected that the net interest margin will continue to decrease in the fourth quarter of 2002.

The following table presents information related to the Company's allowance and provision for loan losses for the past five quarters. The provisions for loan losses and net charge-offs are annualized for the purpose of calculating the performance ratios at the end of the table.

Summary of the Allowance and Provision for Loan Losses

(Dollars in Thousands)(Loans Stated Net of Unearned Income)

	Sep 2002	Jun 2002	Mar 2002	Dec 2001	Sep 2001
Loan and Asset Balances:
Period-End Loans	$ 785,941	$ 775,436	$ 758,258	$ 755,124	$ 750,377
Average Loans, Year-to-Date	766,826	760,617	756,075	748,323	746,313
Average Loans, Quarter-to-Date	779,042	765,109	756,075	754,268	749,967
Period-End Total Assets	1,262,965	1,193,702	1,154,089	1,151,007	1,142,214
Allowance for Loan Losses Year-to-Date:
Allowance for Loan Losses, Beginning of Period	$ 9,720	$ 9,720	$ 9,720	$ 8,727	$ 8,727
Provision for Loan Losses, Y-T-D	1,845	1,230	615	2,289	1,522
Net Charge-offs, Y-T-D	(557)	(355)	(235)	(1,296)	(1,008)
Allowance for Loan Losses, End of Period	$11,008	$10,595	$10,100	$ 9,720	$ 9,241
Allowance for Loan Losses Quarter-to-Date:
Allowance for Loan Losses, Beginning of Period	$10,595	$10,100	$ 9,720	$ 9,241	$ 8,805
Provision for Loan Losses, Q-T-D	615	615	615	767	656
Net Charge-offs, Q-T-D	(202)	(120)	(235)	(288)	(220)
Allowance for Loan Losses, End of Period	$11,008	$10,595	$10,100	$ 9,720	$ 9,241
Nonperforming Assets at End of Quarter:
Nonaccrual Loans	$3,270	$3,196	$3,414	$3,200	$2,341
Loans Past due 90 Days or More
and Still Accruing Interest	125	68	---	238	114
Loans Restructured and in
Compliance with Modified Terms	---	---	---	---	---
Total Nonperforming Loans	3,395	3,264	3,414	3,438	2,455
Repossessed Assets	258	190	273	66	244
Other Real Estate Owned	73	41	---	294	276
Total Nonperforming Assets	$3,726	$3,495	$3,687	$3,798	$2,975

Performance Ratios:
Allowance to Nonperforming Loans	324.24%	324.60%	295.84%	282.72%	376.42%
Allowance to Period-End Loans	1.40	1.37	1.33	1.29	1.23
Provision to Average Loans (QTD)	0.31	0.32	0.33	0.40	0.35
Provision to Average Loans (YTD)	0.32	0.33	0.33	0.31	0.27
Net Charge-offs to Average Loans (QTD)	0.10	0.06	0.13	0.15	0.12
Net Charge-offs to Average Loans (YTD)	0.10	0.09	0.13	0.17	0.18
Nonperforming Loans to Total Loans	0.43	0.42	0.45	0.46	0.33
Nonperforming Assets to Loans, OREO & Repossessed Assets	0.47	0.45	0.49	0.50	0.40
Nonperforming Assets to Total Assets	0.30	0.29	0.32	0.33	0.26

The quality of the Company's loan portfolio remained strong at the current quarter-end and has not been materially affected either by the loan growth experienced in recent periods or by the slow-down of the domestic economy during the past two years. Nonperforming loans at September 30, 2002 amounted to $3.4 million, a slight decrease from December 31, 2001. At period-end, nonperforming loans represented .43% of loans outstanding, a decrease from .46% at year-end 2001 and an increase from .33% at September 30, 2001. At June 30, 2002, this ratio for the Company's peer group was .56%.

At September 30, 2002, the Company had identified only one credit that exhibited such significant weakness as to warrant mention as a potential problem loan. This was the same credit identified as a potential problem credit at year-end 2001 and all intervening periods. A portion of this commercial credit, totaling $719 thousand, has been on nonaccrual status since the fourth quarter of 2001, and by itself accounted for most of the increase in nonperforming assets from September 30, 2001 to September 30, 2002. The remaining amount of the credit, totaling $2.4 million, has been identified as a potential problem loan, but continues to accrue interest.

On an annualized basis, the ratio of the year-to-date 2002 net charge-offs to average loans was .10%, compared to a provision for loan losses to average loans of .32%. The provision for loan losses was $1.8 million for the first nine months of 2002, compared to a provision of $1.5 million for the first nine months of 2001. The increase in the provision for loan losses was due primarily to the continued growth in the loan portfolio and continued economic weakness.

The allowance for loan losses at September 30, 2002 amounted to $11.0 million. The ratio of the allowance to outstanding loans at September 30, 2002, was 1.40%, 11 basis points higher than the ratio at December 31, 2001. This ratio for the Company's peer group was 1.43% at June 30, 2002.

CAPITAL RESOURCES

During the first nine months of 2002, shareholders' equity increased $8.5 million to $100.0 million. The increase was primarily attributable to retained earnings of $8.6 million. During the first nine months of 2002, the Company repurchased 132 thousand shares, or approximately 1.6% of outstanding shares at the beginning of the period, in the open market for an aggregate purchase price of $3.7 million. This decrease in shareholders' equity was offset in part by a $2.7 million increase in unrealized gains on securities available-for-sale, net of tax, reflected as a component of shareholders' equity. The Company generally utilizes repurchased shares (i.e., treasury shares) for its stock-based compensation plans, including its stock option plan, employee stock purchase plan and a director stock plan. Funds borrowed by the Company's ESOP to acquire the Company's common stock are reflected as a reduction of shareholders' equity until the shares are allocated to individual employees in the ESOP. The amount of unallocated ESOP shares decreased by $119 thousand, net, from December 31, 2001 to September 30, 2002.

The Company and its subsidiaries are currently subject to two sets of regulatory capital measures, a leverage ratio test and risk-based capital guidelines. The risk-based guidelines assign risk weightings to all assets and certain off-balance sheet items of financial institutions and establish an 8% minimum ratio of qualified total capital to risk-weighted assets. At least half of total capital must consist of "Tier 1" capital, which comprises common equity and common equity equivalents, retained earnings and a limited amount of permanent preferred stock, less intangible assets. Up to half of total capital may consist of so-called "Tier 2" capital, comprising a limited amount of subordinated debt, other preferred stock, certain other instruments and a limited amount of the allowance for loan losses. The second regulatory capital measure, the leverage ratio test, establishes minimum limits on the ratio of Tier 1 capital to total tangible assets, without risk weighting. For top-rated companies, the minimum leverage ratio is 3%, but lower-rated or rapidly expanding companies may be required to meet substantially higher minimum leverage ratios. Federal banking law mandates certain actions to be taken by banking regulators for financial institutions that are deemed undercapitalized as measured by these ratios. The law establishes five levels of capitalization for financial institutions ranging from "critically undercapitalized" to "well-capitalized." The Gramm-Leach-Bliley Financial Modernization Act also ties the ability of banking organizations to engage in certain types of non-banking financial activities to such organizations' continuing to qualify as "well-capitalized" under these standards. As of September 30, 2002, the Tier 1 leverage and risk-based capital ratios for the Company and the Company banks were as follows:

Summary of Capital Ratios

		Tier 1	Total
		Risk-Based	Risk-Based
	Leverage	Capital	Capital
	Ratio	Ratio	Ratio
Arrow Financial Corporation	7.52%	11.54%	12.79%
Glens Falls National Bank & Trust Co.	7.53	12.16	13.41
Saratoga National Bank & Trust Co.	8.24	9.25	12.74
Regulatory Minimum	3.00	4.00	8.00
FDICIA's "Well-Capitalized" Standard	5.00	6.00	10.00

All capital ratios for the Company and its subsidiary banks at September 30, 2002 were above minimum capital standards for financial institutions, as well as the FDICIA "well- capitalized" standard.

The Company's common stock is traded on The Nasdaq Stock Market^SM under the symbol AROW. The high and low prices listed below represent actual sales transactions, as reported by Nasdaq. On October 23, 2002, the Company announced a 5% stock dividend payable on November 18, 2002 and a $.25 cash dividend payable on December 13, 2002. The share prices and cash dividends listed below have been restated for the 5% stock dividend declared on October 23, 2002.

Quarterly Per Share Stock Prices and Dividends

				Cash
		Sales Price		Dividends
		High	Low	Declared
2001	1st Quarter	$21.43	$16.32	$.19
	2nd Quarter	23.13	17.57	.21
	3rd Quarter	27.10	20.90	.21
	4th Quarter	28.57	25.95	.22
2002	1st Quarter	28.81	26.67	.22
	2nd Quarter	34.21	26.52	.24
	3rd Quarter	34.50	26.70	.24
	4th Quarter (payable December 13, 2002)			.25

	2002	2001
Third quarter Core Diluted Earnings Per Share	$.60	$.50
Dividend Payout Ratio: (Fourth quarter dividends as
a percent of third quarter core diluted earnings per share)	41.67%