ARROW FINANCIAL CORPORATION
250 Glen Street, Glens Falls, New York 12801
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Shareholders of Arrow Financial Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of
Arrow Financial Corporation, a New York corporation (the "Company"), will
be held at the Queensbury Hotel, Maple Street and Ridge Street, Glens
Falls, New York, on Wednesday, April 24, 1996, at 2:00 p.m. for the purpose
of considering and voting upon the following matters:
1. The election of four directors to Class A, each to hold office
for a term of three years, or in each case until his or her successor
shall have been elected and qualified.
2. Any other business which may be properly brought before the
meeting or any adjournment thereof.
By Order of the Board of Directors
GERARD R. BILODEAU
Secretary
March 22, 1996
YOU ARE REQUESTED TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. YOU MAY
REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE MEETING, OR IF YOU ATTEND THE
MEETING, YOU MAY REVOKE YOUR PROXY AT THAT TIME, IF YOU WISH.
<PAGE>
ARROW FINANCIAL CORPORATION
250 Glen Street
Glens Falls, New York 12801
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
April 24, 1996
This proxy statement is furnished in connection with the solicitation
by the Board of Directors of Arrow Financial Corporation, a New York
corporation (the "Company"), of proxies to be voted at the Annual Meeting
of Shareholders (the "Meeting") to be held on Wednesday, April 24, 1996 at
2:00 p.m., at the Queensbury Hotel, Maple Street and Ridge Street, Glens
Falls, New York 12801, and at any adjournment thereof. This proxy
statement and the accompanying form of proxy are first being sent to
shareholders on March 22, 1996.
At the Meeting, four directors will be elected to Class A of the
Company's Board of Directors.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of the Company fixed March 8, 1996, as the
record date for determination of the shareholders entitled to notice of,
and to vote at, the Meeting. At the close of business on such date, there
were outstanding and entitled to vote 5,628,865 shares of common stock,
$1.00 par value, of the Company, which is the Company's only class of stock
outstanding. Holders of record of common stock at the close of business on
the record date are entitled to one vote for each share held on each matter
submitted to a vote at the Meeting.
A majority of the outstanding shares present or represented by proxy
will constitute a quorum at the Meeting. Consistent with applicable state
law and the Company's Certificate of Incorporation and Bylaws, the Company
will treat all shares represented by proxy or in person at the Meeting as
shares present or represented at the Meeting for purposes of determining a
quorum. Shares represented by proxies or voted in person on ballots marked
"WITHHOLD" or "ABSTAIN" on any proposal will be treated as shares present
or represented at the Meeting for purposes of determining a quorum but will
not be treated as shares voting on such proposal. Shares held in "street
name" by brokers which are present or represented at the Meeting but are
not voted by such brokers, for any reason, on a matter presented at the
Meeting (so-called "broker nonvotes") will be treated as shares present in
person or represented by proxy at the Meeting for purposes of determining a
quorum but will not be treated as shares voting on such matter. In the
election of directors, which requires the affirmative vote of a plurality
of the shares voting on such matter at the Meeting, neither shares voted
"WITHHOLD" on the election of one or more directors nor broker nonvotes on
such election, will have the effect of a vote "against" the election of one
or more directors.
PROXIES
Any shareholder executing a form of proxy which is solicited hereby
has the power to revoke it prior to exercise of the authority conferred
thereby. Revocation may be made effective by attending the Meeting and
voting the shares of stock in person, or by delivering to the Secretary of
the Company at the principal offices of the Company prior to the Meeting a
written notice of revocation or a later-dated, properly executed proxy.
Proxies will be solicited by mail. They may also be solicited by
directors, officers and regular employees of the Company and its
subsidiaries personally or by telephone or telegraph, but such persons will
receive no additional compensation for such services. The Company will
bear all costs of soliciting proxies. Should the Company, in order to
solicit proxies, utilize the services of other financial institutions,
brokerage houses or other custodians, nominees or fiduciaries, the Company
will reimburse such persons for their out-of-pocket expenses.
1 <PAGE>
PRINCIPAL SHAREHOLDERS OF THE COMPANY
To the knowledge of the Board of Directors, there were no persons who
beneficially owned more than five percent of the outstanding shares of the
Company's common stock as of December 31, 1995.
SHAREHOLDER PROPOSALS
If a shareholder proposal is to be considered for inclusion in the
proxy statement for a forthcoming meeting of the Company's shareholders,
such proposal must be submitted on a timely basis and the proposal and
proponent thereof otherwise must meet the requirements established by the
Securities and Exchange Commission for shareholder proposals. Proposals
for the Annual Shareholders' Meeting to be held in 1997 will not be deemed
to be timely submitted unless they are received by the Company at its
principal executive offices no later than November 23, 1996. Such
proposals, together with any supporting statements, should be directed to
the Secretary of the Company.
ITEM 1. ELECTION OF DIRECTORS AND
INFORMATION WITH RESPECT TO DIRECTORS AND OFFICERS
The first item to be acted upon at the Meeting is the election of four
directors to Class A of the Board of Directors each to hold office for
three years, or in each case until his or her successor shall have been
elected and qualified. Directors will be elected by a plurality of the
shares voting at the Meeting.
The Certificate of Incorporation and the Bylaws of the Company provide
that the Board of Directors shall be divided into three classes, as nearly
equal in number as may be, one class to be elected each year for a term of
three years or until their successors are elected and qualified. Under the
Bylaws, the total number of directors may be fixed by action of the Board
of Directors. As of the Meeting, there will be thirteen directors.
All proxies which are timely received by the Secretary in proper form
prior to the election of directors at the Meeting, and which have not been
revoked, will be voted "FOR" the Board's four nominees for Class A listed
below (unless any nominee is unable to serve or for good cause will not
serve), subject to any specific voting instructions received with any
proxy, including the withholding of authority to vote for any or all
nominees.
Each of the Board's nominees has consented to being named in this
proxy statement and to serve if elected, and the Board knows of no reason
to believe that any nominee will decline or be unable to serve if elected.
Each of the four nominees is presently serving on the Board of Directors.
Also listed below are the nine current members constituting Class B and
Class C of the Board of Directors whose terms do not expire at the Meeting
and who are expected to continue to serve on the Board after the Meeting
and until their respective terms expire.
The following information is provided with respect to each nominee for
director to be elected at the Meeting and each continuing director of the
Company whose term of office extends beyond the date of the Meeting:
2 <PAGE>
<TABLE>
NOMINEES FOR DIRECTOR AND DIRECTORS CONTINUING IN OFFICE
<CAPTION>
Shares of Common
Stock of the Company
Beneficially Owned
Name and Principal Director of the as of December 31, 1995(e)
Occupation(a)(b)(c)(d) Age Company Since Number Percent
Nominees for Director:
<S> <C> <C> <C> <C>
Class A (To be Elected to
Terms Expiring in 1999):
Michael B. Clarke 49 1988 7,371 .13
President and CEO, Glens Falls
Cement Co., Inc. (cement
production)
Kenneth C. Hopper, M.D. 57 1983 35,595 (1) .63
Chairman and CEO, Northeastern
Clinical and Toxicology
Laboratory, Inc.
(medical laboratory)
Michael F. Massiano 61 1983 82,637 (2) 1.45
Chairman, President, and CEO
of the Company; Chairman and
CEO, Glens Falls National Bank
& Trust Company
Doris E. Ornstein 65 1987 6,232 .11
President, Wharton Business
Brokers (real estate
specialists)
Directors Continuing in Office:
Class C (Terms Expiring
in 1998):
George C. Frost 68 1983 5,836 .10
Chairman Emeritus, Rist-Frost
Associates, P.C. (consulting
engineers)
Herbert A. Heineman, Jr. 64 1987 29,627 .52
Retired President and CEO,
Glens Falls National Bank
& Trust Company
Dr. Edward F. Huntington 65 1983 9,160 (3) .16
Adjunct Professor, SUNY
Albany and Plattsburgh
Preston Leete Smith 66 1990 5,229 .09
CEO, S-K-I Ltd.
(ski resort holding company)
3 <PAGE>
Class B (Terms Expiring
in 1997):
David G. Kruczlnicki 43 1989 9,097 (4) .16
President and CEO, Glens Falls
Hospital (health care facility)
David L. Moynehan 50 1987 9,476 (5) .17
President, Riverside Gas
& Oil Co.
(petroleum products distributor)
Edward C. Pike 52 1990 14,665 (6) .26
President, Kinney, Pike, Bell &
Conner, Inc. (insurance agency)
Daniel L. Robertson 67 1983 6,482 (7) .11
President, Loomis & LaPann, Inc.
(insurance agency)
Thomas C. Webb 61 1990 9,816 (8) .17
Retired President and CEO,
Central Vermont Public Service
Corporation (electric utility)
Shares Beneficially Owned By
Other Executive Officers:
John J. Murphy 44 N/A 37,133 (9) .65
Executive Vice President,
Treasurer and CFO of the
Company
Thomas L. Hoy 47 N/A 33,767 (10) .59
President and COO,
Glens Falls National Bank
& Trust Company
Shares Beneficially Owned By
All 16 Director Nominees,
Continuing Directors and
Executive Officers as a Group 310,216 (11) 5.38
NOTES:
(a) Certain of the nominees and directors continuing in office also serve as directors of
one or more of the Company's subsidiary banks, specifically, Glens Falls National Bank and Trust
Company or Green Mountain Bank. Directors of the Company who also serve as directors of Glens Falls
National are Mr. Frost, Mr. Heineman, Dr. Huntington, Mr. Kruczlnicki, Mr. Moynehan, Mr. Robertson,
Mr. Clarke, Dr. Hopper, Mr. Massiano and Mrs. Ornstein. Mr. Massiano also serves as a director of
Green Mountain Bank. Of the nominees and directors continuing in office, only Mr. Massiano is now, or
has been within the Company's last fiscal year, an executive officer of the Company.
4 <PAGE>
(b) The business experience of each director during the past five years was that typical to
a person engaged in the principal occupation or business listed for each. Except as noted, each of
the nominees and directors continuing in office has held the same or another executive position with
the same employer during the past five years.
(c) In addition to serving as directors of the Company, Messrs. Smith and Webb also serve on
the Board of Directors of S-K-I Ltd. and Mr. Smith also serves on the Board of Directors of Central
Vermont Public Service Corporation, which are registered companies under the Securities Exchange Act
of 1934.
(d) No family relationship exists between any two or more of the nominees, directors or
executive officers of the Company or its subsidiaries, except that David L. Moynehan, a director of
the Company, is the brother-in-law of John J. Murphy, the Executive Vice President, Treasurer and
Chief Financial Officer of the Company.
(e) Beneficial ownership of shares, determined in accordance with applicable Securities and
Exchange Commission rules, includes shares as to which a person, directly or indirectly, has or shares
voting power and/or investment power, and all shares which the person has a right to acquire within 60
days of the reporting date. Unless otherwise noted below, each individual has sole beneficial
ownership of all shares listed as beneficially owned by such individual.
(1) Includes 1,087 shares held by Dr. Hopper's son directly, 736 shares held by his daughter
directly, and 20 shares held by a company that Dr. Hopper controls.
(2) Includes 15,119 shares held in Mr. Massiano's account under the Company's ESOP, 3,001
shares held by his wife directly and 47,742 shares subject to exercisable options received by Mr.
Massiano under the Company's compensatory stock option plans.
(3) Includes 7,689 shares held jointly with Dr. Huntington's wife and 475 shares held in a
Simplified Employee Pension Plan.
(4) Includes 461 shares held jointly with Mr. Kruczlnicki's wife.
(5) Includes 1,809 shares held jointly with Mr. Moynehan's wife.
(6) Includes 523 shares held by Mr. Pike as custodian for his children, 264 shares held
jointly with his wife as custodian for their children, 1,100 shares held by his wife as custodian for
their children, 914 shares held by his wife directly, 523 shares held by his daughter directly and
4,636 shares held by companies that Mr. Pike controls.
(7) Includes 790 shares held by Mr. Robertson's wife directly.
(8) Includes 8,692 shares held jointly with Mr. Webb's wife.
(9) Includes 6,001 shares held in Mr. Murphy's account under the Company's ESOP, 4,809
shares held jointly with his wife and 26,323 shares subject to exercisable options received by Mr.
Murphy under the Company's compensatory stock option plans.
(10) Includes 6,412 shares held in Mr. Hoy's account under the Company's ESOP, 726 shares
held by his wife directly, 536 shares held by his sons directly, 238 shares held by him as custodian
for his daughter and 16,824 shares subject to exercisable options received by Mr. Hoy under the
Company's compensatory stock option plans.
(11) Includes 91,669 shares subject to exercisable options received by such persons under the
Company's compensatory stock option plans.
</TABLE>
During 1995, the directors and executive officers of the Company
made timely filings of all securities transaction reports required to be
filed by them with the Securities and Exchange Commission under Section
16(a) of the Securities Exchange Act of 1934, except for two late filings
of reports by Richard J. Bartlett, retiring Director, relating to two
transactions, one late filing of a report by Dr. Huntington and one late
filing of a report by Mr. Moynehan.
In 1995, the Board of Directors of the Company met 11 times.
During the year, each of the directors attended at least 75 percent of the
total number of the meetings of both the Board and all the committees of
which the director was a member, except for Director Pike.
5 <PAGE>
The Company has an Audit Committee which met two times during
1995. Members of the Committee are Directors Heineman, Kruczlnicki,
Moynehan, Ornstein, Pike and Smith. Mr. Massiano is an ex-officio member
and as such is expected to attend meetings and to provide information
requested by, and to respond to questions from, Committee members. The
Audit Committee examines the soundness and solvency of the Company and its
subsidiaries, causes suitable audits and examinations to be made, ensures
that adequate fiscal controls and procedures are maintained, and makes
recommendations and reports to the full Board of Directors.
The Company has a Personnel Committee which met two times during
the last fiscal year. Members of the Committee are Directors Clarke, Frost,
Heineman, Hopper, Huntington, Robertson and Webb. Mr. Massiano is an
ex-officio member and as such is expected to attend meetings and to provide
information requested by, and to respond to questions from, Committee
members. The Committee performs the functions of both a nominating and a
compensation committee. In addition to making recommendations to the full
Board on nominations of candidates for director of the Company, the
Committee reviews, not less often than annually, all compensation
arrangements and benefit plans covering officers and employees of the
Company and its subsidiaries and makes various recommendations and
determinations on such matters. The Committee also makes final
determinations on all awards under the Company's compensatory stock plans,
including grants of stock options to executives and other key employees.
See "Report of Personnel Committee on Executive Compensation", beginning on
page 10 of this proxy statement. The Committee normally recommends
candidates for director at its December meeting. Any shareholder who
wishes to submit a candidate for consideration by the Committee as a Board
nominee at the Annual Shareholders' Meeting in 1997 must submit such
candidate's name to the Committee no later than December 26, 1996, along
with a brief resume of such candidate's qualifications as outlined in the
Bylaws.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1995, no member of the Personnel Committee was an officer or
employee of the Company or any of its subsidiaries, or was formerly an
officer of the Company or any of its subsidiaries, except Mr. Heineman, who
was President and CEO of Glens Falls National Bank until his retirement on
December 31, 1994, and then commenced service on the Committee, effective
April 26, 1995. However, Mr. Massiano, who is President, Chairman, and CEO
of the Company, is an ex-officio member of the Committee. Ex-officio
members have certain duties relating to the Committee, as described in the
preceding paragraph, but do not participate in Committee decisions.
EXECUTIVE COMPENSATION
The following table sets forth information concerning total
compensation and compensatory awards received in the last three years by the
Chief Executive Officer of the Company and each other executive officer whose
salary and bonus exceeded $100,000 in 1995:
6 <PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
(f) (g)
(e) Restricted No. of (h) (I)
(a) (b) ( c) (d) Other Annual Stock Options/ LTIP All Other
Name/Principal Position Year Salary Bonus Compensation Awards SARs Payouts Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael F. Massiano 1995 $319,800 $ 82,500 --- --- 15,000 --- $ 39,508
Chairman, President 1994 319,300 89,100 --- --- 15,600 --- 33,073
and CEO of the Company 1993 279,119 77,000 --- --- 16,873 --- 20,716
Thomas L. Hoy 1995 $134,050 $ 28,100 --- --- 7,000 --- $ 11,422
President and COO, 1994 105,000 14,200 --- --- 10,400 --- 10,085
Glens Falls 1993 99,300 13,200 --- --- 4,499 --- 6,729
National Bank
John J. Murphy 1995 $118,000 $ 26,500 --- --- 7,000 --- $ 10,620
Executive Vice
President, 1994 110,000 14,900 --- --- 5,200 --- 10,339
Treasurer and CFO of 1993 101,800 13,200 --- --- 5,624 --- 6,682
the Company
Notes to Summary Compensation Table (note references are to columns):
(c) Salary: Includes base salary and all fees received as a director of the Company or any subsidiary
bank, whether such amounts are deferred or paid immediately.
(d) Bonus: Includes elective cash distributions under the Company's Short-Term Incentive Award Plan and
any other cash bonuses. Under the Plan, annual bonuses are paid to key employees, including executive officers
of the Company, provided certain pre-established threshold and/or target earnings levels have been attained.
(e) Other Annual Compensation: Excludes perquisites and other benefits, unless the aggregate amount of such
compensation exceeds the lesser of either $50,000 or 10% of the total of annual salary and bonus reported
for the named executive officer. No executive officers received perquisites having a value greater than such
amount in any of the last 3 years.
(g) Options: Represents the number of shares subject to options granted to the named executive officer
(as adjusted for stock dividends). For more information on options, see the tables and notes under "Stock
Option Plans" below.
(i) All Other Compensation: Includes the value of the Company's contributions to the ESOP for the named
executive officers and amounts paid for premiums for term life insurance benefitting the named executive
officer. In 1995, the amounts indicated for each of the named executive officers consisted of the following:
Mr. Massiano, $29,539 for ESOP and $9,970 for term life insurance; Mr. Hoy, $10,726 for ESOP and $696 for term
life insurance; and Mr. Murphy, $10,241 for ESOP and $379 for term life insurance.
</TABLE>
STOCK OPTION PLANS
In past years, the Company has maintained compensatory stock plans under
which key employees have been granted stock options, including both tax
qualified (incentive) stock options and non-qualified stock options.
Information relative to stock option activity for the named executive
officers in the Summary Compensation Table above for the year ending
December 31, 1995, is set forth in the following tables:
7 <PAGE>
<TABLE>
OPTION/SAR GRANTS TABLE
<CAPTION>
Potential Realizable
Value at Assumed
Options/SAR Grants in Last Fiscal Year Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
( c)
(b) % of Total (d)
No. of Options/SARs Per Share
Securities Granted to Exercise (e)
(a) Underlying Options/ Employees in or Base Expiration (f) (g)
Name SARs Granted Fiscal Year Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Michael F. Massiano 15,000 24.63% $17.63 12/01/1999 $55,715 $119,798
Thomas L. Hoy 7,000 11.49% $17.63 11/29/2005 $77,612 $196,684
John J. Murphy 7,000 11.49% $17.63 11/29/2005 $77,612 $196,684
Notes to Stock Option Table (note references are to columns):
(b) All options listed were granted on 11/29/95 without tandem stock appreciation rights (SARs).
Options awarded under the Company's compensatory stock plans normally become exercisable in stages (e.g.,
options awarded in 1995 become exercisable in 25 percent increments on each of the first four anniversaries of
the date of the grant). Options awarded to executives expected to retire as of a date that would precede 100
percent vesting under normal incremental vesting are specified as becoming 100 percent exercisable on an
earlier anniversary date or not later than the date of retirement.
(d) Represents 100 percent of the market value of the common stock on the date of grant, based on the
average of the closing bid and asked prices reported on NASDAQ for such date.
(e) Options awarded under the Company's compensatory stock plans normally have 10 year terms, except for
options granted to executives whose anticipated retirement dates are to occur less than 10 years after the date
of the grant.
(f,g) The 5% and 10% assumed rates of appreciation are presented in accordance with the rules of the
Securities and Exchange Commission and do not represent the Company's estimate or projection of future stock
prices.
</TABLE>
<TABLE>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
<CAPTION>
(d) (e)
Number of Value of Unexercised
Unexercised Options/ In-the
SARs at FY-End Money Options/SARs at
(a) (b) (c) (Exercisable) FY-End (Exercisable/
Name Shares Acquired Value Realized (Unexercisable) (Unexercisable)
<S> <C> <C> <C> <C>
Michael F. Massiano 12,629 $84,368 E - 47,742 E - $292,540
U - 26,700 U - $ 63,563
Thomas L. Hoy --- --- E - 16,824 E - $ 85,355
U - 17,050 U - $ 56,885
John J. Murphy 1,578 $10,540 E - 26,323 E - $212,143
U - 15,174 U - $ 61,380
Notes to Option/SAR and Year-End Table (note references are to columns):
(d) E = Exercisable, U = Unexercisable
(e) The dollar value of unexercised in-the-money options at December 31, 1995,
was calculated by determining the difference between the market value of
the securities underlying the options at year-end, based upon the average
of the closing bid and asked prices as reported on NASDAQ as of
December 31, 1995, and the exercise price of the options.
</TABLE>
8 <PAGE>
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, including language that
might be interpreted to incorporate by reference future filings, including
this proxy statement, in whole or in part, in such previous filings, the
following Performance Graph and Personnel Committee Report shall not be
incorporated by reference into any such filings:
<TABLE>
COMPARISON OF FIVE-YEAR TOTAL RETURNS AMONG ARROW FINANCIAL CORPORATION,
THE NASDAQ STOCK MARKET (U.S. Companies, AND NASDAQ BANK STOCKS
<CAPTION>
12/29/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95
<S> <C> <C> <C> <C> <C> <C>
Arrow Financial Corporation 100 57.9 94.6 153.4 202.3 254.2
Nasdaq Stock Market (US Companies) 100 160.6 186.9 214.5 209.7 296.3
Nasdaq Bank Stocks 100 164.1 238.9 272.4 271.4 404.4
Notes:
A. Data prepared by the Center for Research in Security Prices,
University of Chicago.
B. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
C. The indexes are reweighted daily, using the market capitalization
on the previous trading day.
D. The index for all series was set to $100.0 on 12/31/90.
</TABLE>
9 <PAGE>
REPORT OF PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
Introduction
Among its other functions, the Personnel Committee (the "Committee") acts
on compensation matters related to the Chief Executive Officer (the "CEO")
and other executive officers. On an annual basis, the Committee reviews
compensation data and recommendations received from management, and such
additional input as may be sought and received from compensation
consultants. The Committee then develops its own compensation
recommendations, which it submits to the full Board for consideration and
approval. The Committee also has the discretion to make final decisions on
grants of awards to key employees, including executive officers, under the
Company's stock-based compensation plans.
The Committee is submitting this report summarizing its involvement in
1995 in setting compensation policy and making compensation recommendations
and decisions for executive officers generally and for Chairman, President
and CEO, Michael F. Massiano, specifically.
Compensation Philosophy
Since 1990, the Company, with the Committee's concurrence, has utilized
three types of renumeration in its executive compensation program --
specifically, base salary, annual incentives (bonus) and long-term
incentives. Base salary is set annually within competitive ranges with
some relationship between salary and prior period performance. The annual
incentive or bonus component has been addressed through the Company's
Short-Term Incentive Award Plan. Awards under this plan are tied both to
the annual performance of the relevant business unit and also to the
executive's individual performance during the year. The long-term
incentive component has been addressed through a succession of stock-based
compensation plans, including the current Long-Term Incentive Plan, which
provides for grants of stock options, restricted stock, or similar
stock-based compensatory awards.
The Committee reviews this three-tiered program of executive compensation
on an annual basis and makes recommendations to the full Board on any
adjustments among the component elements that it believes are appropriate.
All three components of the Company's program are intended to attract,
retain and motivate executives. Types and amounts of executive
compensation are established based upon the varying levels of
responsibility of the individual executives, subjective and objective
evaluations of their performance and the performance of their relevant
business unit (holding company or bank). Attention is also given to the
compensation being paid to executives by the Company's peers, particularly
in the geographic areas where the Company competes for talent.
The overall remuneration payable to the CEO, as a general policy, is
based upon certain corporate performance factors (specifically, earnings
per share, capital accumulation, strategic initiatives and new products and
markets) and upon individual performance factors (such as leadership,
commitment to the community and professional standing). In making its
recommendations on CEO compensation, the Committee also takes into account
current practices of other banks.
10 <PAGE>
Compensation Administration
Base salaries for executive officers, including the CEO, are reviewed on
at least an annual basis, and if appropriate, reviews of and adjustments in
base salaries may be made during the course of the year. Base salary
increases depend on an executive's contributions to the Company's
performance, as well as consideration of the executive's position within an
appropriate salary range. Normally, any base salary increases will reflect
median increases in both the banking industry and industry in general,
after consideration of the Company's performance. Committee
recommendations are considered in the salary review process although final
determinations on executive base salaries are made or approved by the full
Board.
The annual incentive program, in the form of the Company's Short-Term
Incentive Award Plan, contains both objective and subjective elements.
Under the Plan, individual bonuses are payable to key employees for a
particular fiscal year only if certain pre-established financial
performance levels for the year are satisfied, and the size of individual
bonuses may then vary depending on the extent to which those levels are met
or exceeded and on certain subjective measures of performance. The
Committee works with management at the beginning of the fiscal year in
establishing targeted performance levels under the Plan for that year. In
establishing targets under the Plan, the Committee traditionally focuses
upon operating earnings. If Plan targets are met in any year, final
decisions on those key employees entitled to Plan bonuses and the amounts
of those bonuses are made by the Committee at the beginning of the
following fiscal year. The Committee considers senior management's
recommendations in making its final determinations on annual bonuses for
executive officers. The full Board typically ratifies the Committee's
decisions.
Grants of long-term incentive awards under the Company's stock-based
compensation plans are normally made by the Committee at the end of each
fiscal year, if and as appropriate. Occasionally, such awards are
granted by the Committee during the course of the year.
In 1993, Congress adopted a new provision of the Internal Revenue Code,
Section 162(m), which disallows a tax deduction to public companies for any
compensation exceeding $1 million paid to certain top executives. The
Committee does not believe the statutory ceiling on deductible compensation
will be relevant to the Company in the foreseeable future.
Components of Compensation in 1995
Base Salary: General increases in executive base salaries occur in
January. At the beginning of 1996, no adjustment was made in CEO
Massiano's base salary, with the other named executive officers in the
Summary Compensation Table receiving a modest increase in base salary
averaging less than 5 percent.
Bonus: In the first half of 1995, the Committee in consultation with
management, set target earnings levels under the Short-Term Incentive Award
Plan for the Company and its subsidiary banks at levels somewhat in excess
of the prior year's actual operating earnings. Simultaneously, the
Committee established threshold earnings levels at amounts approximately 90
percent of the target levels, with the understanding that if earnings fell
below the threshold levels, no Plan awards would be made. The 1995
corporate results exceeded both the threshold and target levels for the
holding company and the banks. As a result, the Committee approved bonuses
for key employees, including the executive officers, at the beginning of
1996. These bonuses under the Plan were ratified by the Board. The
individual bonuses received by the executive officers, which are listed in
the Summary Compensation Table on page 7, averaged approximately one-fourth
of 1995 salaries for this group.
Long-term Incentives: The Company's current vehicle for grants to
executives of stock-based compensatory awards is the Long-Term Incentive
Plan, which was approved by shareholders at the 1993 Annual Meeting. The
Long-Term Incentive Plan initially provided for grants of compensatory
awards of up to 337,459 shares (as adjusted for stock dividends) of the
Company's common stock to key employees of the Company or its subsidiaries.
Awards may take the form of stock options, shares of restricted stock or
performance unit shares. Stock options granted under the Plan must have an
exercise price at least equal to the fair market value of the underlying
stock on the date of grant. Under the Plan, the Committee has the
discretion to determine which key employees, if any, are to receive awards
from time to time and the types and amounts of awards granted to them.
11 <PAGE>
Committee awards to senior executives under the Company's stock-based
plans typically have taken the form of stock options. With stock options,
executives are compensated only if the Company's stock price improves over
the life of the option and only if the executive continues in the
employment of the Company until the option has become exercisable. At
year-end 1995, because of significant improvement in all continuing key
performance areas, the Committee determined that grants of stock options
would be awarded to all continuing executive officers. Stock-based awards
constituted approximately one-fourth to one-third of overall executive
compensation for 1995. Such awards are included in the Summary
Compensation Table on page 7 and in the Option/SAR Grants Table on page 8.
In reaching its recommendations and decisions during 1995 regarding the
compensation of CEO Massiano, the Committee was particularly influenced by
the significant decrease in non-performing assets during the year and by
the Company's attainment of a solid return on average assets for 1995 of
1.60 percent, which places the Company well above average in the industry
on this measurement. As in prior years, the Committee was also cognizant
of CEO compensation practices at peer group banks. In 1995, as in prior
years, the Committee used as a basis of comparison the reported CEO
compensation of a peer group of publicly held bank holding companies
located in upstate New York and Vermont. This year there were seven
companies in that peer group. This peer group is different from, but
contains some of the same banks as, the group of companies whose stocks are
included in the NASDAQ Bank Stock Index represented on the Performance
Graph on page 9 of the proxy statement.
Personnel Committee
Michael B. Clarke, Chairman
George C. Frost
Herbert A. Heineman, Jr.
Kenneth C. Hopper, M.D.
Dr. Edward F. Huntington
Daniel L. Robertson
Thomas C. Webb
EMPLOYMENT CONTRACTS
Michael F. Massiano, Chairman of the Board, President and Chief Executive
Officer of the Company, has an employment contract with the Company dated
December 31, 1990. Under the contract, Mr. Massiano is guaranteed his
current base annual salary as adjusted upward from time to time, plus any
bonuses as determined by the Board of Directors of the Company, and certain
other benefits. The contract will continue until December 31 of the second
year after that year, if any, when the Board of Directors of the Company
elects not to grant a one year extension of the contract. In November
1995, the Board granted a one year extension of Mr. Massiano's contract.
The contract provides that, in the event of a change of control of the
Company or if Mr. Massiano is assigned less important duties, he may elect
early retirement and receive payment in installments (or in a lump sum in
the event of financial hardship) of an amount equal to approximately three
times his salary under the contract.
Thomas L. Hoy, President and Chief Operating Officer of Glens Falls
National Bank, and John J. Murphy, Executive Vice President, Treasurer, and
Chief Financial Officer of the Company, are also serving under employment
contracts with the Company. Under these contracts, each is guaranteed his
current base annual salary, plus bonuses as determined by the Board of
Directors of the Company, and
certain other benefits for the duration of his contract. Mr. Hoy and Mr.
Murphy first entered into their contracts on December 31, 1990. In each
case, the contract will continue until December 31 of the first year after
that year, if any, when the Board of Directors of the Company elects not to
grant a one year extension of the contract. In November 1995, the Board
granted one year extensions of both contracts. The contracts provide that,
in the event of a change in control of the Company, or if the officer in
question is assigned less important duties, the officer may elect early
retirement and receive payment in installments (or in a lump sum, in the
event of financial hardship) of an amount equal to approximately two times
his salary under the contract plus the present value of certain benefits
lost as a result of early retirement.
12 <PAGE>
Each of the employment contracts described above provides that the total
amount of salary and retirement benefits paid thereunder in the event of a
change in control may not exceed the threshold amount triggering "excess
parachute payments" under Section 280G(b) of the Internal Revenue Code.
COMPENSATION OF DIRECTORS
Each director of the Company currently receives for his or her services
as a director a fee of $500 per monthly Board of Directors meeting
attended, $400 per meeting attended of committees of which he or she is a
member, and an annual retainer fee of $4,000. The Chairmen of the
Company's Audit and Personnel Committees receive an additional annual
retainer of $1,500. Directors of the subsidiary banks receive a fee of
$400 per Board meeting attended. Subsidiary bank directors also receive a
fee of $350 for each committee meeting attended and an annual retainer of
$2,500.
The Company maintains an unfunded Director Deferred Compensation Plan.
Under this plan, each director of the Company is able to make an
irrevocable election to defer, during his or her term of office, all or a
portion of the directors' fees due. The account of a participating
director is credited with the dollar amount of deferral and with quarterly
interest payments on the balance at a rate equal to the best rate being
paid from time to time by Glens Falls National Bank and Trust Company on
its Individual Retirement Account certificates of deposit. Directors who
participate in the Directors Deferred Compensation Plan receive payments
from their accounts in cash, either in lump sum or in annual installments,
commencing at a preselected deferral date. In 1995, three directors
participated in the plan.
PENSION PLAN
The Company maintains a tax-qualified Defined Benefit Retirement Plan
(the "Plan") for eligible employees. The Plan covers employees of the
Company and all subsidiaries who work 1,000 hours or more per year, have
attained the age of 21, and have completed one year of service.
Annual retirement benefits under the Plan are computed according to a
formula based on the employee's annual average earnings for the highest
consecutive five of the last ten years of service and his or her number of
years of service and are subject to certain limits under federal law,
specifically, the Employee Retirement Income Security Act ("ERISA").
Covered compensation under the Plan includes salary, overtime, sick pay,
bonuses, and certain other cash and noncash benefits. Covered compensation
under the Plan during 1995 for the named executive officers in the Summary
Compensation Table on page 7 includes all of the compensation listed in
columns (c) and (d) of the Summary Compensation Table minus any directors'
fees included therein, and certain term insurance premiums paid on behalf
of the executive officers (included in column (i) of the Table) plus
certain amounts not included in the Table such as the Company's matching
contributions to the officers' Employee Stock Purchase Plan accounts, and
the dollar value of the limited perquisites provided to the named executive
officer.
The Company also maintains an unfunded Select Executive Retirement Plan
("SERP") structured so as to compensate certain senior officers of the
Company and its subsidiaries for any pension benefits which would have been
received by them under the above-described tax-qualified retirement plan
were it not for the maximum payment limitations for such plans established
under ERISA. During 1995, Mr. Massiano was covered under the SERP.
The following table presents estimated annual retirement benefits payable
under the Company's Retirement Plan to persons having specified final
average earnings and years of service, assuming SERP coverage for amounts
exceeding the ERISA limits under the plan:
13 <PAGE>
<TABLE>
Estimated Annual Pension Based
on Years of Service Indicated
For Those Retiring at Age 65 in 1995
<CAPTION>
Average Annual Earnings
For Last 5 Years of Service 15 20 25 30 35 40
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 24,182 $ 32,242 $ 40,304 $ 48,364 $ 56,425 $ 63,675
150,000 37,307 49,742 62,179 74,614 87,050 97,925
200,000 50,432 67,242 84,054 100,864 117,675 132,175
250,000 63,557 84,742 105,929 127,114 148,300 166,425
300,000 76,682 102,242 127,804 153,364 178,925 200,675
350,000 89,807 119,742 149,679 179,614 209,550 234,925
400,000 102,932 137,242 171,554 205,864 240,175 269,175
450,000 116,057 154,742 193,429 232,114 270,800 303,425
</TABLE>
The number of credited years of service under the Plan as of December 31,
1995, for the named executive officers in the Summary Compensation Table is
as follows: 39 years for Mr. Massiano, 21 years for Mr. Hoy and 22 years
for Mr. Murphy.
Benefits under the Plan are computed as straight-life annuity amounts
although participants may make certain alternative elections upon or before
retirement. Amounts payable to executives under the Plan and the SERP are
not subject to offset for Social Security benefits.
TRANSACTIONS WITH DIRECTORS, OFFICERS AND ASSOCIATES
Some of the nominees for director, continuing directors, and executive
officers of the Company (and members of their immediate families and
corporations, organizations, trusts and estates with which these
individuals are associated) have, at some time since January 1, 1995, been
indebted to one or more of the Company's subsidiary banks in amounts of
$60,000 or more. All such loans were made in the ordinary course of
business, did not involve more than normal risk of collectability or
present other unfavorable features, and were made on substantially the same
terms, including interest rates and collateral requirements, as those
prevailing at the same time for comparable loan transactions by the lending
bank with unaffiliated persons. No such loan is classified by the lending
bank at present as a non-accrual, past due, restructured or potential
problem loan.
Outside of these and other normal customer relationships, none of these
persons (or members of their immediate families) presently maintains or has
maintained since January 1, 1995, directly or indirectly, any significant
business or personal relationship with the Company other than such as might
arise by virtue of his/her position with, or ownership interest in, the
Company.
14 <PAGE>
INDEPENDENT AUDITORS
KPMG Peat Marwick, Certified Public Accountants, were the auditors for
the Company for the year ended December 31, 1995. The Audit Committee and
Board are in the process of selecting the auditors for 1996.
Representatives of KPMG Peat Marwick are expected to be present at the
Meeting and will have an opportunity to make a statement if they so desire,
and it is expected that they will be available to respond to appropriate
questions from shareholders.
OTHER MATTERS
The Board of Directors of the Company is not aware of any other matters
that may come before the Meeting. However, the proxies may be voted with
discretionary authority with respect to any other matters that may properly
come before the Meeting.
By Order of the Board of Directors
Gerard R. Bilodeau
Secretary
March 22, 1996
15 <PAGE>
PROXY
ARROW FINANCIAL CORPORATION
250 GLEN STREET
GLENS FALLS, NY 12801
ANNUAL MEETING OF SHAREHOLDERS - APRIL 24, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF ARROW
FINANCIAL CORPORATION
The undersigned hereby appoint(s) Robert G. Landry and Bernard F.
McPhillips, or either of them, with full power to act alone, the
proxies of the undersigned, with full power of substitution and
revocation, to vote all the shares of common stock of Arrow
Financial Corporation ("Arrow"), which the undersigned is entitled
to vote, at the Annual Meeting of Shareholders of Arrow to be held
at the Queensbury Hotel, Maple and Ridge Streets, Glens Falls,
New York 12801, at 2:00 p.m. on Wednesday, April 24, 1996, and at
any adjournment thereof, with all powers the undersigned would
possess if personally present as follows:
[ X ] Please mark your votes as in this example.
1. Election of Directors
[ ] FOR all nominees listed at right (except as limited below)
[ ] WITHHOLD authority to vote for all nominees listed at right:
Nominees: Class A:
Michael B. Clarke
Kenneth C. Hopper, M.D.
Michael F. Massiano
Doris E. Ornstein
Instruction: To withhold authority to vote for any individual
nominee(s), write the name(s) in the space provided.
- ---------------------------------------------
You are requested to complete, date and sign this card and return this
Proxy promptly.
This Proxy will be voted as directed herein. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1. If
any other business is properly presented at the Annual Meeting, or
any adjournments thereof, this Proxy will be voted at the
discretion of the proxies or in accordance with the recommendation of
Arrow's Board of Directors. The undersigned hereby
revoke(s) any proxies heretofore given by the undersigned to vote
at the Annual Meeting, or any adjournments thereof.
- -------------------
DATE
- ------------------------------
SIGNATURE
- ------------------------------
SIGNATURE
IF HELD JOINTLY
Note: If the shares are registered in more than one name, each joint owner
or fiduciary should sign personally. Persons signing as executors,
administrators, trustees, corporate officers, or in other representative
capacities should so indicate.
