UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2003

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-12507

ARROW FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

New York

22-2448962

(State or other jurisdiction of

(IRS Employer Identification

incorporation or organization)

Number)

250 GLEN STREET, GLENS FALLS, NEW YORK 12801

(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code:   (518) 745-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2)  has been subject to such filing requirements for the past 90 days.

Yes    X        No        

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes    X        No        

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding as of October 31, 2003

Common Stock, par value $1.00 per share

9,800,871

PART I

FINANCIAL INFORMATION

Item 1.

Consolidated Balance Sheets

    as of September 30, 2003 and December 31, 2002

Consolidated Statements of Income

    for the Three Month and Nine Month Periods ended September 30, 2003 and 2002

Consolidated Statements of Changes in Shareholders’ Equity

    for the Nine Month Periods Ended September 30, 2003 and 2002

Consolidated Statements of Cash Flows

    for the Nine Month Periods Ended September 30, 2003 and 2002

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

Item 1

Legal Proceedings

Item 2

Changes in Securities and Use of Proceeds

Item 3

Defaults Upon Senior Securities

Item 4

Submission of Matters to a Vote of Security Holders

Item 5

Other Information

Item 6

Exhibits and Reports on Form 8-K

SIGNATURES

September 30,

2003   

December 31,

2002      

ASSETS

Cash and Due from Banks

$     38,409

$     29,141

Federal Funds Sold

      29,400

        3,000

  Cash and Cash Equivalents

      67,809

      32,141

Securities Available-for-Sale

311,407

326,661

Securities Held-to-Maturity  (Approximate Fair    

  Value of $109,152 in 2003 and $79,476 in 2002)

106,449

 74,505

Loans

867,338

811,292

  Allowance for Loan Losses

     (11,778)

       (11,193)

     Net Loans

     855,560

     800,099

Premises and Equipment, Net

 14,073

 13,715

Other Real Estate and Repossessed Assets, Net

 207

 194

Goodwill

9,297

9,297

Other Intangible Assets, Net

502

418

Other Assets

        18,889

         14,391

      Total Assets

$1,384,193

$1,271,421

LIABILITIES          

Deposits:            

  Demand

$   157,672

$   133,644

  Regular Savings, N.O.W. & Money Market Deposit Accounts

633,392

565,545

  Time Deposits of $100,000 or More

 71,772

 60,095

  Other Time Deposits

      186,808

      198,723

      Total Deposits

  1,049,644

     958,007

Short-Term Borrowings:

  Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

46,498

44,078

  Other Short-Term Borrowings

 3,235

 4,420

Federal Home Loan Bank Advances

150,000

145,000

Guaranteed Preferred Beneficial Interests in

   Corporation’s Junior Subordinated Debentures

15,000

5,000

Other Liabilities

      15,719

      13,514

      Total Liabilities

 1,280,096

 1,170,019

SHAREHOLDERS’ EQUITY

Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized

---

---

Common Stock, $1 Par Value; 20,000,000 Shares Authorized

   (13,086,119 Shares Issued at September 30, 2003 and

   10,468,895 Shares at December 31, 2002)

13,086

10,469

Surplus

113,127

115,110

Undivided Profits

21,673

13,611

Unallocated ESOP Shares (121,515 Shares at September 30, 2003

    and 97,212 Shares at December 31, 2002)

(1,822)

(1,822)

Accumulated Other Comprehensive Income

 1,067

 3,253

Treasury Stock, at Cost (3,156,984 Shares at September 30,    

  2003 and 2,440,090 Shares at December 31, 2002)

      (43,034)

      (39,219)

      Total Shareholders’ Equity

     104,097

     101,402

      Total Liabilities and Shareholders’ Equity

$1,384,193

$1,271,421

Three Months      

Nine Months     

Ended Sept. 30,  

Ended Sept. 30,  

2003

2002

2003

2002

INTEREST AND DIVIDEND INCOME

Interest and Fees on Loans

$13,542

$14,343

$41,326

$42,686

Interest on Federal Funds Sold

  29

133

74

215

Interest and Dividends on Securities Available-for-Sale

2,634

3,618

8,919

10,817

Interest on Securities Held-to-Maturity

      959

      828

   2,651

   2,503

Total Interest and Dividend Income

 17,164

 18,922

 52,970

 56,221

INTEREST EXPENSE

Interest on Deposits:

Time Deposits of $100,000 or More

 444

 516

1,366

1,824

Other Deposits

2,739

3,757

 9,102

11,403

Interest on Short-Term Borrowings:

Federal Funds Purchased and Securities Sold

Under Agreements to Repurchase

 78

138

269

376

Other Short-Term Borrowings

        2

       12

        5

       37

Federal Home Loan Bank Advances

    1,709

    1,773

    5,130

    4,840

Guaranteed Preferred Beneficial Interests in

   Corporation’s Junior Subordinated Debentures

      244

     119

      482

      356

Total Interest Expense

   5,216

 6,315

  16,354

  18,836

NET INTEREST INCOME

11,948

12,607

36,616

37,385

Provision for Loan Losses

      405

     615

    1,215

   1,845

NET INTEREST INCOME AFTER

  PROVISION FOR LOAN LOSSES

 11,543

11,992

  35,401

  35,540

OTHER INCOME

Income from Fiduciary Activities

894

878

2,688

2,927

Fees for Other Services to Customers

1,747

1,660

5,072

4,507

Net Gains on Securities Transactions

245

---

754

173

Other Operating Income

      321

      305

      980

      781

Total Other Income

   3,207

   2,843

   9,494

   8,388

OTHER EXPENSE  

Salaries and Employee Benefits

4,831

4,814

14,257

13,958

Occupancy Expense of Premises, Net

648

581

1,915

1,777

Furniture and Equipment Expense

685

585

2,102

1,843

Other Operating Expense

   2,036

  1,783

    6,004

   5,715

Total Other Expense

   8,200

  7,763

 24,278

  23,293

INCOME BEFORE PROVISION FOR INCOME TAXES

6,550

7,072

20,617

20,635

Provision for Income Taxes

   1,981

   2,198

     6,487

    6,517

NET INCOME

  $ 4,569

  $ 4,874

 $14,130

 $14,118

Average Shares Outstanding:

  Basic

9,841

9,958

9,866

9,987

  Diluted

10,080

10,212

10,090

10,228

Per Common Share:   

  Basic Earnings

$   .46

$   .49

$1.43

$1.41

  Diluted Earnings

    .45

    .48

  1.40

  1.38

Accumulated

Unallo-

Other Com-

cated

prehensive

Shares

Common

Undivided

ESOP

(Loss)

Treasury

Issued

Stock

Surplus

Profits

Shares

 Income

Stock

Total

Balance at December 31, 2002

10,468,895

$10,469

$115,110

$13,611

$(1,822)

$ 3,253

$(39,219)

$101,402

Comprehensive Income, Net of Tax:

  Net Income

---

---

---

14,130

---

---

---

   14,130

  Net Unrealized Securities Holding

    Losses Arising During the Period,

    Net of Tax (Pre-tax $2,882)   

---

---

---

---

---

 (1,733)

---

 (1,733)

  Reclassification Adjustment for

    Net Securities Gains Included in

    Net Income, Net of Tax

    (Pre-tax $754)

---

---

---

---

---

   (453)

---

     (453)

      Other Comprehensive Loss

  (2,186)

        Comprehensive Income

  11,944

Five for Four Stock Split

2,617,224

2,617

(2,617)

---

---

---

---

---

Cash Dividends Declared,

  $.62 per Share

---

---

---

(6,068)

---

---

---

(6,068)

Stock Options Exercised

  (46,776 Shares)

---

---

 268

---

---

---

331

599

Shares Issued Under the Directors’

  Stock Plan (1,100 Shares)

---

---

 21

---

---

---

  8

 29

Shares Issued Under the Employee

  Stock Purchase Plan (20,558

  Shares)

---

---

282

---

---

---

154

436

Tax Benefit for Disposition of

  Stock Options

---

---

63

---

---

---

---

63

Purchase of Treasury Stock

  (175,305 Shares)

              ---

         ---

           ---

          ---

        ---

        ---

    (4,308)

    (4,308)

Balance at September 30, 2003

13,086,119

$13,086

$113,127

$21,673

$(1,822)

$ 1,067

$(43,034)

$104,097

Accumulated

Unallo-

Other Com-

cated

prehensive

Shares

Common

Undivided

ESOP

(Loss)

Treasury

Issued

Stock

Surplus

Profits

Shares

 Income

Stock

Total

Balance at December 31, 2001

9,970,376

$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,

  $.56 per Share

---

---

---

(5,558)

---

---

---

(5,558)

Stock Options Exercised

  (46,500 Shares)

---

---

186

---

---

---

329

515

Shares Issued Under the Directors’

   Stock Plan (715 Shares)

---

---

 11

---

---

---

  6

 17

Shares Issued Under the Employee

  Stock Purchase Plan (20,229

  Shares)

---

---

258

---

---

---

143

401

Tax Benefit for Disposition of

  Stock Options

---

---

78

---

---

---

---

78

Purchase of Treasury Stock

  (164,483 Shares)

---

---

---

---

---

---

(3,735)

(3,735)

Allocation of ESOP Stock

  (7,738 Shares)

            ---

        ---

           63

         ---

       119

        ---

           ---

         182

Balance at September 30, 2002

9,970,376

$9,970

$100,055

$25,828

$(1,822)

$ 4,049

$(38,071)

$100,009

Nine Months

Ended September 30,      

2003

2002

Operating Activities:

Net Income

 $14,130

 $14,118

Adjustments to Reconcile Net Income to Net Cash

Provided by Operating Activities:

Provision for Loan Losses

1,215

1,845

Depreciation and Amortization

4,197

2,142

Compensation Expense for Allocated ESOP Shares

---

182

Gains on the Sale of Securities Available-for-Sale

(980)

(173)

Losses on the Sale of Securities Available-for-Sale

 226

 ---

Loans Originated and Held-for-Sale

(17,943)

(6,839)

Proceeds from the Sale of Loans Held-for-Sale

18,432

6,919

    Net Gains on the Sale of Loans, Premises and Equipment,

Other Real Estate Owned and Repossessed Assets

(416)

(29)

Tax Benefit for Disposition of Stock Options

63

78

(Increase) Decrease in Deferred Tax Assets

(1,842)

 448

Increase in Interest Receivable

(265)

 (478)

Decrease in Interest Payable

   (118)

(135)

Increase in Other Assets

(1,168)

 (2,472)

Increase in Other Liabilities

    2,324

      177

Net Cash Provided By Operating Activities

  17,855