Document

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts) (Unaudited)

	September 30, 2016			December 31, 2015			September 30, 2015
ASSETS
Cash and Due From Banks	$	66,556		$	34,816		$	43,870
Interest-Bearing Deposits at Banks	35,503			16,252			25,821
Investment Securities:
Available-for-Sale	339,190			402,309			397,559
Held-to-Maturity (Approximate Fair Value of $347,441 at September 30, 2016; $325,930 at December 31, 2015; and $324,009 at September 30, 2015)	338,238			320,611			317,480
Federal Home Loan Bank and Federal Reserve Bank Stock	5,371			8,839			5,143
Loans	1,707,216			1,573,952			1,536,925
Allowance for Loan Losses	(16,975		)	(16,038		)	(15,774		)
Net Loans	1,690,241			1,557,914			1,521,151
Premises and Equipment, Net	26,718			27,440			28,186
Goodwill	21,873			21,873			22,003
Other Intangible Assets, Net	2,802			3,107			3,263
Other Assets	53,993			53,027			55,075
Total Assets	$	2,580,485		$	2,446,188		$	2,419,551
LIABILITIES
Noninterest-Bearing Deposits	$	381,760		$	358,751		$	347,963
NOW Accounts	993,221			887,317			971,252
Savings Deposits	629,201			594,538			568,022
Time Deposits of $100,000 or More	79,222			59,792			60,978
Other Time Deposits	129,783			130,025			133,836
Total Deposits	2,213,187			2,030,423			2,082,051
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	38,589			23,173			24,414
Federal Home Loan Bank Overnight Advances	—			82,000			—
Federal Home Loan Bank Term Advances	55,000			55,000			55,000
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	20,000			20,000			20,000
Other Liabilities	24,501			21,621			26,944
Total Liabilities	2,351,277			2,232,217			2,208,409
STOCKHOLDERS’ EQUITY
Preferred Stock, $5 Par Value; 1,000,000 Shares Authorized	—			—			—
Common Stock, $1 Par Value; 20,000,000 Shares Authorized (17,943,201 Shares Issued at September 30, 2016; 17,420,776 at December 31, 2015 and 17,420,776 at September 30, 2015)	17,943			17,421			17,421
Additional Paid-in Capital	269,680			250,680			249,931
Retained Earnings	25,400			32,139			28,791
Unallocated ESOP Shares (38,396 Shares at September 30, 2016; 55,275 Shares at December 31, 2015; and 55,185 Shares at September 30, 2015)	(750		)	(1,100		)	(1,100		)
Accumulated Other Comprehensive Loss	(5,442		)	(7,972		)	(6,520		)
Treasury Stock, at Cost (4,479,257 Shares at September 30, 2016; 4,426,072 Shares at December 31, 2015; and 4,460,654 Shares at September 30, 2015)	(77,623		)	(77,197		)	(77,381		)
Total Stockholders’ Equity	229,208			213,971			211,142
Total Liabilities and Stockholders’ Equity	$	2,580,485		$	2,446,188		$	2,419,551

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) (Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans	$	15,833	$	14,364	$	46,565	$	41,953
Interest on Deposits at Banks	34		13		100		60
Interest and Dividends on Investment Securities:
Fully Taxable	1,889		1,979		5,994		5,936
Exempt from Federal Taxes	1,526		1,475		4,486		4,279
Total Interest and Dividend Income	19,282		17,831		57,145		52,228
INTEREST EXPENSE
NOW Accounts	320		292		941		960
Savings Deposits	231		189		677		538
Time Deposits of $100,000 or More	128		89		313		267
Other Time Deposits	164		179		497		566
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase	9		5		24		15
Federal Home Loan Bank Advances	390		353		1,013		804
Junior Subordinated Obligations Issued to Unconsolidated Subsidiary Trusts	163		146		487		432
Total Interest Expense	1,405		1,253		3,952		3,582
NET INTEREST INCOME	17,877		16,578		53,193		48,646
Provision for Loan Losses	480		537		1,550		882
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	17,397		16,041		51,643		47,764
NONINTEREST INCOME
Income From Fiduciary Activities	1,923		1,923		5,854		5,907
Fees for Other Services to Customers	2,491		2,331		7,144		6,904
Insurance Commissions	2,127		2,343		6,468		6,849
Net Gain on Securities Transactions	—		—		144		106
Net Gain on Sales of Loans	310		236		649		488
Other Operating Income	263		304		925		1,183
Total Noninterest Income	7,114		7,137		21,184		21,437
NONINTEREST EXPENSE
Salaries and Employee Benefits	8,693		8,699		25,223		24,577
Occupancy Expenses, Net	2,425		2,275		7,223		7,106
FDIC Assessments	217		297		844		873
Other Operating Expense	3,747		3,579		11,047		10,632
Total Noninterest Expense	15,082		14,850		44,337		43,188
INCOME BEFORE PROVISION FOR INCOME TAXES	9,429		8,328		28,490		26,013
Provision for Income Taxes	2,691		2,395		8,556		7,920
NET INCOME	$	6,738	$	5,933	$	19,934	$	18,093
Average Shares Outstanding:
Basic	13,407		13,275		13,374		13,273
Diluted	13,497		13,317		13,439		13,314
Per Common Share:
Basic Earnings	$	0.50	$	0.45	$	1.49	$	1.36
Diluted Earnings	0.50		0.45		1.48		1.36

ARROW FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net Income	$	6,738		$	5,933		$	19,934		$	18,093
Other Comprehensive Income, Net of Tax:
Net Unrealized Securities Holding (Losses) Gains Arising During the Period	(810		)	543			2,309			384
Reclassification Adjustments for Securities Gains Included in Net Income	—			—			(88		)	(65		)
Amortization of Net Retirement Plan Actuarial Loss	111			117			314			352
Accretion of Net Retirement Plan Prior Service Credit	(1		)	(9		)	(5		)	(25		)
Other Comprehensive Income Gain (Loss)	(700		)	651			2,530			646
Comprehensive Income	$	6,038		$	6,584		$	22,464		$	18,739



	Common Stock		Additional Paid-In Capital		Retained Earnings			Unallo-cated ESOP Shares			Accumu-lated Other Com- prehensive Loss			Treasury Stock			Total
Balance at December 31, 2015	$	17,421	$	250,680	$	32,139		$	(1,100	)	$	(7,972	)	$	(77,197	)	$	213,971
Net Income	—		—		19,934			—			—			—			19,934
Other Comprehensive Income	—		—		—			—			2,530			—			2,530
3% Stock Dividend (522,425 Shares)	522		16,415		(16,937		)	—			—			—			—
Cash Dividends Paid, $.728 per Share	—		—		(9,736		)	—			—			—			(9,736		)
Stock Options Exercised, Net (80,449 Shares)	—		980		—			—			—			795			1,775
Shares Issued Under the Directors’ Stock Plan (3,522 Shares)	—		76		—			—			—			36			112
Shares Issued Under the Employee Stock Purchase Plan (13,041 Shares)	—		229		—			—			—			129			358
Shares Issued for Dividend Reinvestment Plans (44,448 Shares)	—		862		—			—			—			440			1,302
Stock-Based Compensation Expense	—		215		—			—			—			—			215
Tax Benefit from Exercise of Stock Options	—		63		—			—			—			—			63
Purchase of Treasury Stock (64,146 Shares)	—		—		—			—			—			(1,826		)	(1,826		)
Allocation of ESOP Stock (17,997 Shares)	—		160		—			350			—			—			510
Balance at September 30, 2016	$	17,943	$	269,680	$	25,400		$	(750	)	$	(5,442	)	$	(77,623	)	$	229,208

Balance at December 31, 2014	$	17,079	$	239,721	$	29,458		$	(1,450	)	$	(7,166	)	$	(76,716	)	$	200,926
Net Income	—		—		18,093			—			—			—			18,093
Other Comprehensive Income	—		—		—			—			646			—			646
2% Stock Dividend (341,400 Shares)	342		8,939		(9,281		)	—			—			—			—
Cash Dividends Paid, $.714 per Share ¹	—		—		(9,479		)	—			—			—			(9,479		)
Stock Options Exercised, Net (24,554 Shares)	—		289		—			—			—			242			531
Shares Issued Under the Directors’ Stock Plan (4,579 Shares)	—		73		—			—			—			45			118
Shares Issued Under the Employee Stock Purchase Plan (13,990 Shares)	—		222		—			—			—			137			359
Shares Issued for Dividend Reinvestment Plans (16,112 Shares)	—		281		—			—			—			158			439
Stock-Based Compensation Expense	—		233		—			—			—			—			233
Tax Benefit for Disposition of Stock Options	—		31		—			—			—			—			31
Purchase of Treasury Stock (46,403 Shares)	—		—		—			—			—			(1,247		)	(1,247		)
Allocation of ESOP Stock (17,645 Shares)	—		142		—			350			—			—			492
Balance at September 30, 2015	$	17,421	$	249,931	$	28,791		$	(1,100	)	$	(6,520	)	$	(77,381	)	$	211,142



	Nine Months Ended September 30,
Cash Flows from Operating Activities:	2016			2015
Net Income	$	19,934		$	18,093
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses	1,550			882
Depreciation and Amortization	4,605			4,844
Allocation of ESOP Stock	510			492
Gains on the Sale of Securities Available-for-Sale	(144		)	(106		)
Loans Originated and Held-for-Sale	(20,025		)	(15,733		)
Proceeds from the Sale of Loans Held-for-Sale	19,557			15,615
Net Gains on the Sale of Loans	(649		)	(488		)
Net Losses on the Sale of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	120			136
Contributions to Retirement Benefit Plans	(534		)	(574		)
Deferred Income Tax (Benefit) Expense	(464		)	1,242
Shares Issued Under the Directors’ Stock Plan	112			118
Stock-Based Compensation Expense	215			233
Net Increase in Other Assets	(3,045		)	(9,134		)
Net Increase in Other Liabilities	3,427			4,393
Net Cash Provided By Operating Activities	25,169			20,013
Cash Flows from Investing Activities:
Proceeds from the Sale of Securities Available-for-Sale	10,568			21,449
Proceeds from the Maturities and Calls of Securities Available-for-Sale	65,965			70,971
Purchases of Securities Available-for-Sale	(10,920		)	(124,906		)
Proceeds from the Maturities and Calls of Securities Held-to-Maturity	42,295			38,403
Purchases of Securities Held-to-Maturity	(60,786		)	(54,796		)
Net Increase in Loans	(133,616		)	(125,942		)
Proceeds from the Sales of Premises and Equipment, Other Real Estate Owned and Repossessed Assets	1,743			997
Purchase of Premises and Equipment	(1,083		)	(1,231		)
Proceeds from the Sale of a Subsidiary, Net	72			—
Net Decrease (Increase) in Other Investments	3,468			(292		)
Net Cash Used By Investing Activities	(82,294		)	(175,347		)
Cash Flows from Financing Activities:
Net Increase in Deposits	182,764			179,103
Net Decrease in Short-Term Borrowings	(66,584		)	(36,007		)
Federal Home Loan Bank Advances	—			45,000
Purchase of Treasury Stock	(1,826		)	(1,247		)
Stock Options Exercised, Net	1,775			531
Shares Issued Under the Employee Stock Purchase Plan	358			359
Tax Benefit from Exercise of Stock Options	63			31
Shares Issued for Dividend Reinvestment Plans	1,302			439
Cash Dividends Paid	(9,736		)	(9,479		)
Net Cash Provided By Financing Activities	108,116			178,730
Net Increase in Cash and Cash Equivalents	50,991			23,396
Cash and Cash Equivalents at Beginning of Period	51,068			46,295
Cash and Cash Equivalents at End of Period	$	102,059		$	69,691

Supplemental Disclosures to Statements of Cash Flow Information:
Interest on Deposits and Borrowings	$	3,932		$	3,548
Income Taxes	9,761			8,257
Non-cash Investing and Financing Activity:
Transfer of Loans to Other Real Estate Owned and Repossessed Assets	856			2,213

In the opinion of the management of Arrow Financial Corporation (Arrow), the accompanying unaudited consolidated interim financial statements contain all of the adjustments necessary to present fairly the financial position as of September 30, 2016, December 31, 2015 and September 30, 2015; the results of operations for the three-month period ended September 30, 2016; the consolidated statements of comprehensive income for the three- and nine-month periods ended September 30, 2016; the changes in stockholders' equity for the nine-month periods ended September 30, 2016 and 2015; and the cash flows for the nine-month periods ended September 30, 2016 and 2015. All such adjustments are of a normal recurring nature. Certain prior period amounts have been reclassified to conform to the current presentation. The preparation of financial statements requires the use of management estimates. The unaudited consolidated interim financial statements should be read in conjunction with the audited annual consolidated financial statements of Arrow for the year ended December 31, 2015, included in Arrow's 2015 Form 10-K.

ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" will significantly change the income statement impact of equity investments. For Arrow, the standard is effective for the first quarter of 2018, and will require that equity investments be measured at fair value, with changes in fair value measured in net income. As of September 30, 2016 , we hold a $1.1 million cost basis in a small portfolio of equity investments and we do not expect that the adoption of this change in accounting for equity investments will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.

ASU 2016-13 "Financial Instruments - Credit Losses" will change the way we and other financial entities recognize losses on assets measured at amortized costs and change the method for recognizing credit losses on securities available-for-sale. Currently, loan losses are recognized using an "incurred loss" methodology. Under ASU 2016-13, the methodology will change to a current expected loss over the life of the loan. Currently, credit losses on available-for-sale securities reduce the carrying value of the instrument and cannot be reversed. Under ASU 2016-13, the amount of the credit loss is carried as a valuation allowance and can be reversed. For Arrow, the standard is effective for the first quarter of 2020 and early adoption is allowed in 2019. The Company is currently evaluating the impact of the pending adoption of the ASU on its consolidated financial statements. The initial adjustment will not be reported in earnings, but as the cumulative effect of a change in accounting principle.

ASU 2016-15 "Statement of Cash Flows" provides guidance on the classification of eight specific cash flow issues in order to increase consistency in reporting. Currently, GAAP is either unclear or does not include specific guidance on the cash flow issues addressed in this Update. Arrow currently reports the specifically identified cash flow transactions using the appropriate classification as outlined in the Update. For Arrow, the standard becomes effective in the first quarter of 2017. We do not expect that the adoption of this change in classification for financial reporting will have a material impact on our financial position or the results of operations in periods subsequent to its adoption.



Available-For-Sale Securities
	U.S. Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Mutual Funds and Equity Securities		Total Available- For-Sale Securities
September 30, 2016
Available-For-Sale Securities, at Amortized Cost	$	152,511	$	31,562	$	144,598	$	4,500	$	1,120	$	334,291
Available-For-Sale Securities, at Fair Value	153,926		31,628		148,087		4,299		1,250		339,190
Gross Unrealized Gains	1,415		69		3,489		—		130		5,103
Gross Unrealized Losses	—		3		—		201		—		204
Available-For-Sale Securities, Pledged as Collateral											277,832

Maturities of Debt Securities, at Amortized Cost:
Within One Year	$	—	$	19,303	$	10,214	$	2,000	$	—	$	31,517
From 1 - 5 Years	152,511		11,191		129,956		1,500		—		295,158
From 5 - 10 Years	—		508		4,370		—		—		4,878
Over 10 Years	—		560		58		1,000		—		1,618

Maturities of Debt Securities, at Fair Value:
Within One Year	$	—	$	19,304	$	10,294	$	1,999	$	—	$	31,597
From 1 - 5 Years	153,926		11,256		132,916		1,500		—		299,598
From 5 - 10 Years	—		508		4,814		—		—		5,322
Over 10 Years	—		560		63		800		—		1,423

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	—	$	9,237	$	—	$	1,022	$	—	$	10,259
12 Months or Longer	—		—		—		1,800		—		1,800
Total	$	—	$	9,237	$	—	$	2,822	$	—	$	12,059
Number of Securities in a Continuous Loss Position	—		1		2		3		—		6

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	—	$	3	$	—	$	1	$	—	$	4
12 Months or Longer	—		—		—		200		—		200
Total	$	—	$	3	$	—	$	201	$	—	$	204

December 31, 2015
Available-For-Sale Securities, at Amortized Cost	$	155,932	$	52,306	$	177,376	$	14,544	$	1,120	$	401,278
Available-For-Sale Securities, at Fair Value	155,782		52,408		178,588		14,299		1,232		402,309
Gross Unrealized Gains	264		105		2,236		—		112		2,717
Gross Unrealized Losses	414		3		1,024		245		—		1,686
Available-For-Sale Securities, Pledged as Collateral											310,857



Available-For-Sale Securities
	U.S. Agency Obligations		State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Mutual Funds and Equity Securities		Total Available- For-Sale Securities
Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	76,802	$	4,289	$	99,569	$	3,616	$	—	$	184,276
12 Months or Longer	—		1,443		903		10,671		—		13,017
Total	$	76,802	$	5,732	$	100,472	$	14,287	$	—	$	197,293
Number of Securities in a Continuous Loss Position	21		19		30		19		—		89

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	413	$	2	$	1,023	$	2	$	—	$	1,440
12 Months or Longer	1		1		1		243		—		246
Total	$	414	$	3	$	1,024	$	245	$	—	$	1,686

September 30, 2015
Available-For-Sale Securities, at Amortized Cost	$	161,253	$	55,263	$	158,351	$	16,871	$	1,120	$	392,858
Available-For-Sale Securities, at Fair Value	162,518		55,486		161,637		16,672		1,246		397,559
Gross Unrealized Gains	1,269		223		3,292		12		125		4,921
Gross Unrealized Losses	4		—		6		211		—		221
Available-For-Sale Securities, Pledged as Collateral											348,115

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	—	$	—	$	—	$	—
12 Months or Longer	12,996		406		4,775		7,162		—		25,339
Total	$	12,996	$	406	$	4,775	$	7,162	$	—	$	25,339
Number of Securities in a Continuous Loss Position	3		1		1		11		—		16

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	—	$	—	$	—	$	—	$	—	$	—
12 Months or Longer	4		—		6		211		—		221
Total	$	4	$	—	$	6	$	211	$	—	$	221



Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Total Held-To Maturity Securities
Maturities of Debt Securities, at Amortized Cost:
Within One Year	$	35,911	$	—	$	—	$	35,911
From 1 - 5 Years	87,464		72,422		—		159,886
From 5 - 10 Years	129,891		7,561		—		137,452
Over 10 Years	3,989		—		1,000		4,989

Maturities of Debt Securities, at Fair Value:
Within One Year	$	35,966	$	—	$	—	$	35,966
From 1 - 5 Years	89,979		74,680		—		164,659
From 5 - 10 Years	133,817		7,864		—		141,681
Over 10 Years	4,135		—		1,000		5,135

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	11,891	$	—	$	—	$	11,891
12 Months or Longer	1,172		—		—		1,172
Total	$	13,063	$	—	$	—	$	13,063

Number of Securities in a Continuous Loss Position	3		—		—		3

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	68	$	—	$	—	$	68
12 Months or Longer	2		—		—		2
Total	$	70	$	—	$	—	$	70

December 31, 2015
Held-To-Maturity Securities, at Amortized Cost	$	226,053	$	93,558	$	1,000	$	320,611
Held-To-Maturity Securities, at Fair Value	230,621		94,309		1,000		325,930
Gross Unrealized Gains	4,619		868		—		5,487
Gross Unrealized Losses	51		117		—		168
Held-To-Maturity Securities, Pledged as Collateral							299,767

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	2,302	$	6,000	$	—	$	8,302
12 Months or Longer	11,764		4,154		—		15,918
Total	$	14,066	$	10,154	$	—	$	24,220
Number of Securities in a Continuous Loss Position	54		8		—		62

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	11	$	93	$	—	$	104
12 Months or Longer	40		24		—		64
Total	$	51	$	117	$	—	$	168



Held-To-Maturity Securities
	State and Municipal Obligations		Mortgage- Backed Securities - Residential		Corporate and Other Debt Securities		Total Held-To Maturity Securities
September 30, 2015
Held-To-Maturity Securities, at Amortized Cost	$	218,502	$	97,978	$	1,000	$	317,480
Held-To-Maturity Securities, at Fair Value	223,050		99,959		1,000		324,009
Gross Unrealized Gains	4,633		1,981		—		6,614
Gross Unrealized Losses	85		—		—		85
Held-To-Maturity Securities, Pledged as Collateral							296,921

Securities in a Continuous Loss Position, at Fair Value:
Less than 12 Months	$	—	$	—	$	—	$	—
12 Months or Longer	14,896		—		—		14,896
Total	$	14,896	$	—	$	—	$	14,896
Number of Securities in a Continuous Loss Position	51		—		—		51

Unrealized Losses on Securities in a Continuous Loss Position:
Less than 12 Months	$	—	$	—	$	—	$	—
12 Months or Longer	85		—		—		85
Total	$	85	$	—	$	—	$	85

In the available-for-sale category at September 30, 2016, U.S. agency obligations consisted solely of U.S. Government Agency securities with an amortized cost of $152.5 million and a fair value of $153.9 million. Mortgage-backed securities - residential consisted of U.S. Government Agency securities with an amortized cost of $10.8 million and a fair value of $11.0 million and government sponsored entity (GSE) securities with an amortized cost of $133.7 million and a fair value of $137.1 million. In the held-to-maturity category at September 30, 2016, mortgage-backed securities-residential consisted of U.S Government Agency securities with an amortized cost of $3.5 million and a fair value of $3.6 million and GSE securities with an amortized cost of $76.5 million and a fair value of $78.9 million.

In the available-for-sale category at December 31, 2015, U.S. agency obligations consisted solely of U.S. Government Agency securities with an amortized cost of $155.9 million and a fair value of $155.8 million. Mortgage-backed securities - residential consisted of U.S. Government Agency securities with an amortized cost of $15.7 million and a fair value of $15.8 million and GSE securities with an amortized cost of $161.7 million and a fair value of $162.7 million. In the held-to-maturity category at December 31, 2015, mortgage-backed securities-residential consisted of U.S. Government Agency securities with an amortized cost of $3.8 million and a fair value of $3.9 million and GSE securities with an amortized cost of $89.8 million and a fair value of $90.5 million.

In the available-for-sale category at September 30, 2015, U.S. agency obligations consisted solely of U.S. Government Agency securities with an amortized cost of $161.3 million and a fair value of $162.5 million. Mortgage-backed securities - residential consisted of US Government Agency securities with an amortized cost of $27.5 million and a fair value of $28.1 million and GSE securities with an amortized cost of $130.8 million and a fair value of $133.5 million. In the held-to-maturity category at September 30, 2015, mortgage-backed securities-residential consisted of U.S. Government Agency securities with an amortized cost of $27.8 million and a fair value of $28.4 million and GSE securities with an amortized cost of $70.2 million and a fair value of $71.5 million.

Securities in a continuous loss position, in the tables above for September 30, 2016, December 31, 2015 and September 30, 2015, do not reflect any deterioration of the credit worthiness of the issuing entities. U.S. Agency issues, including agency-backed collateralized mortgage obligations and mortgage-backed securities, are all rated at least Aaa by Moody's or AA+ by Standard and Poor's. The state and municipal obligations are general obligations supported by the general taxing authority of the issuer, and in some cases are insured. Obligations issued by school districts are supported by state aid. For any non-rated municipal securities, credit analysis is performed in-house based upon data that has been submitted by the issuers to the NY State Comptroller. That analysis reflects satisfactory credit worthiness of the municipalities. Corporate and other debt securities continue to be rated above investment grade according to Moody's and Standard and Poor's. Subsequent to September 30, 2016, and through the date of filing this report, there were no securities downgraded below investment grade.

The unrealized losses on these temporarily impaired securities are primarily the result of changes in interest rates for fixed rate securities where the interest rate received is less than the current rate available for new offerings of similar securities, changes in market spreads as a result of shifts in supply and demand, and/or changes in the level of prepayments for mortgage related securities. Because we do not currently intend to sell any of our temporarily impaired securities, and because it is not more likely-than-not that we would be required to sell the securities prior to recovery, the impairment is considered temporary.




			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2016
Loans Past Due 30-59 Days	$	38	$	—	$	3,793	$	271	$	4,102
Loans Past Due 60-89 Days	67		—		1,412		1,450		2,929
Loans Past Due 90 or more Days	160		1,106		343		1,467		3,076
Total Loans Past Due	265		1,106		5,548		3,188		10,107
Current Loans	102,789		427,905		518,155		648,260		1,697,109
Total Loans	$	103,054	$	429,011	$	523,703	$	651,448	$	1,707,216

Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	—	$	548	$	548
Nonaccrual Loans	160		3,689		532		1,726		6,107

December 31, 2015
Loans Past Due 30-59 Days	$	98	$	—	$	4,598	$	955	$	5,651
Loans Past Due 60-89 Days	186		—		1,647		1,370		3,203
Loans Past Due 90 or more Days	203		1,469		295		2,184		4,151
Total Loans Past Due	487		1,469		6,540		4,509		13,005
Current Loans	102,100		383,470		457,983		617,394		1,560,947
Total Loans	$	102,587	$	384,939	$	464,523	$	621,903	$	1,573,952

Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	—	$	187	$	187
Nonaccrual Loans	387		2,401		450		3,195		6,433

September 30, 2015
Loans Past Due 30-59 Days	$	47	$	—	$	4,258	$	427	$	4,732
Loans Past Due 60-89 Days	68		—		1,234		658		1,960
Loans Past Due 90 or more Days	371		1,817		350		2,909		5,447
Total Loans Past Due	486		1,817		5,842		3,994		12,139
Current Loans	102,403		371,855		453,078		597,450		1,524,786
Total Loans	$	102,889	$	373,672	$	458,920	$	601,444	$	1,536,925

Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	1	$	962	$	963
Nonaccrual Loans	466		2,752		439		4,134		7,791

Commercial - The Company offers a variety of loan options to meet the specific needs of our commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment or other assets owned by the borrower. These loans carry a higher risk than commercial real estate loans due to the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable and generally have a lower liquidation value than real estate. In the event of default by the borrower, the Company may be required to liquidate collateral at deeply discounted values. To reduce the risk, management usually obtains personal guarantees of the borrowers.

Commercial Real Estate - The Company offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. Commercial real estate loans are made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, healthcare facilities, and both owner- and non owner-occupied facilities. These loans are typically less risky than commercial loans,



New York			22-2448962
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
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



Class		Outstanding as of October 31, 2016
Common Stock, par value $1.00 per share		13,467,310



	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3. Quantitative and Qualitative Disclosures About Market Risk	63
Item 4. Controls and Procedures	63


PART II - OTHER INFORMATION
Item 1. Legal Proceedings	64
Item 1.A. Risk Factors	64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3. Defaults Upon Senior Securities	64
Item 4. Mine Safety Disclosures	64
Item 5. Other Information	64
Item 6. Exhibits	66

SIGNATURES	67