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, 2004

[   ] 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 29, 2004

Common Stock, par value $1.00 per share

10,111,043

PART I

FINANCIAL INFORMATION

Page

Item 1.

Financial Statements:

Consolidated Balance Sheets

    as of September 30, 2004 and December 31, 2003

3

Consolidated Statements of Income

    for the Three Month and Nine Month Periods Ended September 30, 2004 and 2003

4

Consolidated Statements of Changes in Shareholders’ Equity

    for the Nine Month Periods Ended September 30, 2004 and 2003

5

Consolidated Statements of Cash Flows

    for the Nine Month Periods Ended September 30, 2004 and 2003

7

Notes to Unaudited Consolidated Interim Financial Statements

8

Report of Independent Registered Public Accounting Firm

11

Item 2.

Management's Discussion and Analysis of

   Financial Condition and Results of Operations

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

39

PART II

OTHER INFORMATION

Item 1

Legal Proceedings

39

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3

Defaults Upon Senior Securities

39

Item 4

Submission of Matters to a Vote of Security Holders

40

Item 5

Other Information

40

Item 6

Exhibits

40

SIGNATURES

40

September 30,

2004

December 31,

2003

ASSETS

Cash and Due from Banks

$             38,301

$             27,526

Federal Funds Sold

                     5,000

                     5,800

  Cash and Cash Equivalents

                43,301

                 33,326

Securities Available-for-Sale

324,172

349,831

Securities Held-to-Maturity  (Approximate Fair Value of $113,073 at September 30, 2004

   and $110,341 at December 31, 2003)

109,255

105,776

Loans

876,939

855,178

  Allowance for Loan Losses

             (12,056)

              (11,842)

     Net Loans

           864,883

            843,336

Premises and Equipment, Net

 14,878

 14,174

Other Real Estate and Repossessed Assets, Net

 123

 180

Goodwill

9,297

9,297

Other Intangible Assets, Net

181

166

Other Assets

                18,703

                17,834

      Total Assets

$1,384,793

$1,373,920

LIABILITIES          

Deposits:            

  Demand

$       169,992

$       151,847

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

634,805

646,544

  Time Deposits of $100,000 or More

 75,024

 65,585

  Other Time Deposits

           170,770

            182,640

      Total Deposits

    1,050,591

    1,046,616

Short-Term Borrowings:

  Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

48,167

39,515

  Other Short-Term Borrowings

 1,870

 1,421

Federal Home Loan Bank Advances

139,800

150,000

Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts

15,000

15,000

Other Liabilities

                 16,214

                 15,503

      Total Liabilities

     1,271,642

     1,268,055

SHAREHOLDERS’ EQUITY

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

---

---

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

   (13,478,703 Shares Issued at September 30, 2004 and 13,086,119 at December 31, 2003)

13,479

13,086

Surplus

125,327

113,335

Undivided Profits

20,746

24,303

Unallocated ESOP Shares (103,164 Shares at September 30, 2004

    and 117,964 Shares at December 31, 2003)

(1,502)

(1,769)

Accumulated Other Comprehensive Income

 672

 1,084

Treasury Stock, at Cost (3,266,621 Shares at September 30,    

  2004 and 3,189,550 Shares at December 31, 2003)

              (45,571)

             (44,174)

      Total Shareholders’ Equity

            113,151

           105,865

      Total Liabilities and Shareholders’ Equity

$1,384,793

$1,373,920

Three Months

Nine Months

Ended September 30,

Ended September 30,

2004

2003

2004

2003

INTEREST AND DIVIDEND INCOME

Interest and Fees on Loans

$12,645

$13,542

$37,923

$41,326

Interest on Federal Funds Sold

 5

 29

67

74

Interest and Dividends on Securities Available-for-Sale

3,414

2,634

10,452

8,919

Interest on Securities Held-to-Maturity

                  974

                 959

          2,960

          2,651

Total Interest and Dividend Income

     17,038

     17,164

     51,402

     52,970

INTEREST EXPENSE   

Interest on Deposits:

Time Deposits of $100,000 or More

 387

 444

1,086

1,366

Other Deposits

2,140

2,739

 7,536

 9,102

Interest on Short-Term Borrowings:  

Federal Funds Purchased and Securities Sold   

Under Agreements to Repurchase

125

 78

249

269

Other Short-Term Borrowings

        1

        2

        5

        5

Federal Home Loan Bank Advances

    1,597

    1,709

    4,755

    5,130

Junior Subordinated Obligations Issued to Unconsolidated

   Subsidiary Trusts

286

---

854

---

Guaranteed Preferred Beneficial Interests in

   Corporation’s Junior Subordinated Debentures

                       ---

                 244

                         ---

                  482

Total Interest Expense

         4,536

         5,216

      14,485

      16,354

NET INTEREST INCOME

12,502

11,948

36,917

36,616

Provision for Loan Losses

                 205

                 405

                  744

          1,215

NET INTEREST INCOME AFTER

  PROVISION FOR LOAN LOSSES

     12,297

     11,543

      36,173

      35,401

OTHER INCOME

Income from Fiduciary Activities

1,112

894

3,228

2,688

Fees for Other Services to Customers

1,922

1,747

5,517

5,072

Net (Losses) Gains on Securities Transactions

(9)

245

201

754

Other Operating Income

                 241

                 321

                  679

                  980

Total Other Income

         3,266

         3,207

          9,625

          9,494

OTHER EXPENSE  

Salaries and Employee Benefits

5,059

4,831

14,642

14,257

Occupancy Expense of Premises, Net

674

648

2,068

1,915

Furniture and Equipment Expense

655

685

2,044

2,102

Other Operating Expense

        1,902

        2,036

           5,835

           6,004

Total Other Expense

        8,290

        8,200

     24,589

     24,278

INCOME BEFORE PROVISION FOR INCOME TAXES

7,273

6,550

21,209

20,617

Provision for Income Taxes

        2,305

        1,981

          6,678

          6,487

NET INCOME

$    4,968

$    4,569

 $14,531

 $14,130

Average Shares Outstanding:

  Basic

10,108

10,136

10,116

10,162

  Diluted

10,342

10,383

10,352

10,393

Per Common Share:   

  Basic Earnings

$    .49

$    .45

$   1.44

$   1.39

  Diluted Earnings

    .48

    .44

 1.40

 1.36

Shares

Issued

Common

Stock

Surplus

Undivided

Profits

Unallo-

cated

ESOP

Shares

Accumulated

Other Com-

prehensive

 Income

Treasury

Stock

Total

Balance at December 31, 2003

13,086,119

$13,086

$113,335

$24,303

$(1,769)

$1,084

$(44,174)

$105,865

Comprehensive Income, Net of Tax:

  Net Income

---

---

---

14,531

---

---

---

    14,531

  Increase in Additional Pension

    Liability Over Unrecognized

    Prior Service Cost (Pre-tax $40)

---

---

---

---

---

(24)

---

(24)

  Net Unrealized Securities Holding

    Losses Arising During the Period,

    Net of Tax (Pre-tax $444)

---

---

---

---

---

(267)

---

(267)

  Reclassification Adjustment for

    Net Securities Gains Included in

    Net Income, Net of Tax

    (Pre-tax $201)

---

---

---

---

---

  (121)

---

              (121)

      Other Comprehensive Loss

              (412)

        Comprehensive Income

       14,119

3% Stock Dividend

392,584

393

11,032

(11,425)

---

---

---

---

Cash Dividends Declared,

  $.66 per Share

---

---

---

(6,663)

---

---

---

(6,663)

Stock Options Exercised

  (76,515 Shares)

---

---

 133

---

---

---

600

733

Shares Issued Under the Employee

  Stock Purchase Plan (18,090

  Shares)

---

---

298

---

---

---

143

441

Shares Issued Under the Directors’

  Stock Plan (1,206 Shares)

---

---

26

---

---

---

10

36

Tax Benefit for Disposition of

  Stock Options

---

---

249

---

---

---

---

249

Allocation of ESOP Stock

  (18,339 Shares)

---

---

254

---

267

---

---

521

Purchase of Treasury Stock

  (77,199 Shares)

                         ---

                ---

                    ---

                ---

              ---

         ---

      (2,150)

         (2,150)

Balance at September 30, 2004

13,478,703

$13,479

$125,327

$20,746

$(1,502)

$   672

$(45,571)

$113,151

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,

  $.60 per Share

---

---

---

(6,068)

---

---

---

(6,068)

Stock Options Exercised

  (48,179 Shares)

---

---

 268

---

---

---

331

599

Shares Issued Under the Directors’

  Stock Plan (1,133 Shares)

---

---

 21

---

---

---

  8

 29

Shares Issued Under the Employee

  Stock Purchase Plan (21,175

  Shares)

---

---

282

---

---

---

154

436

Tax Benefit for Disposition of

  Stock Options

---

---

63

---

---

---

---

63

Purchase of Treasury Stock

  (180,564 Shares)

              ---