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 30, 1997,
at 2:00 p.m. for the purpose of considering and
voting upon the following matters:
1. The election of five directors to
Class B, 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 28, 1997
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 30, 1997
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
30, 1997 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 28, 1997.
At the Meeting, five directors will be
elected to Class B of the Company's Board of
Directors.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of the Company
fixed March 14, 1997, 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 5,639,839
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.
<PAGE> 1
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, 1996.
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 1998 will not be deemed to be timely
submitted unless they are received by the
Company at its principal executive offices no
later than November 28, 1997. 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 five directors to
Class B 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.
Under the Company's Certificate of
Incorporation and Bylaws, the Board of Directors
is divided into three classes, one class to be
elected each year for a term of three years. The
total number of directors is fixed from time to
time by the Board of Directors. As of the
Meeting, the number of directors will be ten,
reduced from thirteen at last year's annual
meeting. Following the Meeting, the Board of
Directors may realign the class affiliation of
certain directors so as to more evenly
distribute directors among the classes, with the
result that one or perhaps two of the directors
elected to Class B may be moved to another class
up for reelection at an earlier meeting than the
Class B 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 five nominees for Class B 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 five nominees is presently serving on
the Board of Directors. Also listed below are
the current 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:
<PAGE> 2
<TABLE>
<CAPTION>
NOMINEES FOR DIRECTOR AND DIRECTORS CONTINUING IN OFFICE
Shares of Common
Stock of the Company
Beneficially Owned
Name and Principal Director of the as of December 31, 1996(d)
Occupation(a)(b)(c) Age Company Since Number Percent
Nominees for Director:
Class B (To be Elected to Terms Expiring in 2000):
<S> <C> <C> <C> <C>
John J. Carusone, Jr. 55 1996 --- (10) ---
Attorney, Carusone
& Carusone
(law firm)
Thomas L. Hoy. 48 1996 41,418 (7) .72
President and
CEO of the Company
and Glens Falls
National Bank
& Trust Company
David G. Kruczlnicki 44 1989 11,119 (1) .19
President and CEO,
Glens Falls Hospital
(health care facility)
David L. Moynehan 51 1987 11,686 (2) .20
President,
Riverside Gas & Oil Co.
(petroleum products
distributor)
Daniel L. Robertson 68 1983 7,335 (3) .13
President, Loomis &
LaPann, Inc.
(insurance agency)
Directors Continuing
in Office:
Class A (Terms Expiring
in 1999):
Michael B. Clarke 50 1988 8,371 .15
President and CEO,
Glens Falls Cement Co.,
Inc. (cement production)
Kenneth C. Hopper, M.D. 58 1983 37,674 (4) .65
Chairman and CEO,
Northeastern Clinical
and Toxicology
Laboratory, Inc.
(medical laboratory)
Michael F. Massiano 62 1983 105,078 (5) 1.81
Chairman of the Company
and Glens Falls National
Bank & Trust Company
Doris E. Ornstein 66 1987 6,939 .12
President, Wharton
Business Brokers (real
estate specialists)
<PAGE> 3
Class C (Term Expiring
in 1998):
Dr. Edward F. Huntington 66 1983 10,727 (6) .19
Adjunct Professor, SUNY
Albany and Plattsburgh
Shares Beneficially Owned By
Other Executive Officers:
John J. Murphy 45 N/A 47,268 (8) .82
Executive Vice President,
Treasurer and CFO of the
Company and Glens Falls
National Bank and
Trust Company
Shares Beneficially Owned By
All 12 Director Nominees,
Continuing Directors and
Executive Officers as a Group 299,191 (9) 5.10
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 Saratoga
National Bank and Trust Company. Directors of
the Company who also serve as directors of Glens
Falls National are Mr. Hoy, Dr. Huntington, Mr.
Kruczlnicki, Mr. Moynehan, Mr. Robertson, Mr.
Clarke, Dr. Hopper, Mr. Massiano and Mrs.
Ornstein. Mr. Carusone also serves as a director
of Saratoga National Bank. Of the nominees and
directors continuing in office, Mr. Hoy and Mr.
Massiano are now, or have been within the
Company's last fiscal year, an executive officer
of the Company.
(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 ) 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.
(d) 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 439 shares held jointly
with Mr. Kruczlnicki's wife.
(2) Includes 2,127 shares held jointly
with Mr. Moynehan's wife.
(3) Includes 869 shares held by Mr.
Robertson's wife directly.
(4) Includes 22 shares held by a company
that Dr. Hopper controls.
(5) Includes 18,439 shares held in Mr.
Massiano's account under the
Company's ESOP, 3,379 shares held by his wife
directly and 58,009 shares subject to
exercisable options received by Mr. Massiano
under the Company's compensatory stock option
plans.
(6) Includes 9,110 shares held jointly
with Dr. Huntington's wife and 522
shares held in a Simplified Employee Pension
Plan.
(7) Includes 8,358 shares held in Mr.
Hoy's account under the Company's
ESOP, 804 shares held by his wife directly, 608
shares held by his sons directly, 270 shares
held by him as custodian for his daughter and
18,740 shares subject to exercisable options
received by Mr. Hoy under the Company's
compensatory stock option plans.
(8) Includes 7,881 shares held in Mr.
Murphy's account under the Company's
ESOP, 6,816 shares held jointly with his wife
and 32,571 shares subject to exercisable options
received by Mr. Murphy under the Company's
compensatory stock option plans.
(9) Includes 111,916 shares subject to
exercisable options received by such
persons under the Company's compensatory stock
option plans.
(10) Mr. Carusone held no shares as of
December 31, 1996 but he has since
purchased 40 shares.
</TABLE>
<PAGE> 4
In 1996, the Board of Directors of
the Company met 10 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.
BOARD COMMITTEES
The Company has an Audit Committee
which met two times during 1996. Members of the
Committee are Directors Carusone, Clarke,
Huntington and Kruczlnicki. Messrs. Massiano
and Hoy are ex-officio members and as such are
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,
Huntington, and Kruczlnicki. Messrs. Massiano
and Hoy are ex-officio members and as such are
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 9 of this proxy
statement. The Committee normally recommends
candidates for director at its January meeting.
Any shareholder who wishes to submit a candidate
for consideration by the Committee as a Board
nominee at the Annual Shareholders' Meeting in
1998 must submit such candidate's name to the
Committee no later than January 2, 1998, along
with a brief resume of such candidate's
qualifications as outlined in the Bylaws.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
During 1996, 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
one late filing of a report by retired director
Herbert A. Heineman, relating to one
transaction, two late filings of reports by
former director Edward C. Pike, relating to
eight transactions and one late filing of a
report by director John J. Carusone, Jr.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
No member of the Personnel Committee
during 1996 was an officer or employee of the
Company or any of its subsidiaries during that
year or a former officer of the Company or any
of its subsidiaries, except for Herbert A.
Heineman, who served on the Committee from April
1995 to December 1996 and formerly had served as
President and CEO of Glens Falls National Bank
and Trust Company until his retirement on
December 31, 1994. Mr. Massiano, who is Chairman
of the Company and Glens Falls National Bank and
Trust Company and Mr. Hoy, who is President and
CEO of the Company and Glens Falls National Bank
and Trust Company, are ex-officio members of the
Committee. Ex-officio members have certain
duties relating to the Committee, as described
above under "Board Committees," but do not
participate in Committee decisions.
<PAGE> 5
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 1996:
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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 1996 $324,100 $ 82,500 --- --- --- --- $ 592,959
Chairman 1995 319,800 82,500 --- --- 16,500 --- 39,508
1994 319,300 89,100 --- --- 17,160 --- 33,073
Thomas L. Hoy 1996 $150,700 $ 42,308 --- --- 12,000 --- $ 15,515
President and CEO 1995 134,050 28,100 --- --- 7,700 --- 11,422
1994 105,000 14,200 --- --- 11,440 --- 10,085
John J. Murphy 1996 $126,500 $ 52,600 --- --- 7,000 --- $ 13,615
Executive Vice 1995 118,000 26,500 --- --- 7,700 --- 10,620
President, Treasurer 1994 110,000 14,900 --- --- 5,720 --- 10,339
and CFO
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
(i) dollar amounts paid, payable or accrued to
any named executive officer during the
respective year pursuant to any plan or
arrangement relating to his resignation,
retirement or termination of employment (ii)the
value of the Company's contributions to the ESOP
for the named executive officers and (iii)
amounts paid for premiums for term life
insurance benefitting the named executive
officer. In 1996, the amounts indicated for
each of the named executive officers consisted
of the following: Mr. Massiano, $551,359
accrued for all amounts payable in the future to
Mr. Massiano under his severance package
(excluding Retirement Plan and SERP pension
supplement payments), $32,481 for ESOP and
$9,119 for term life insurance; Mr. Hoy, $14,479
for ESOP and $1,037 for term life insurance; and
Mr. Murphy, $12,724 for ESOP and $891 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, 1996, is set forth in the following
tables:
<PAGE> 6
<TABLE>
<CAPTION>
OPTION/SAR GRANTS TABLE
Options/SAR Grants in Last Fiscal Year
Individual Grants
(c )
(b) % of Total (d) (f)
No. of Options/SARs Per Share Grant Date
Securities Granted to Exercise (e) Present
(a) nderlying Options/ Employees in or Base Expiration Value
Name SARs Granted Fiscal Year Price Date (dollars)
<S> <C> <C> <C> <C> <C>
Michael F. Massiano --- N/A N/A N/A N/A
Thomas L. Hoy 12,000 23.53% $23.94 11/27/2006 $69,720
John J. Murphy 7,000 13.73% $23.94 11/27/2006 $40,670
Notes to Stock Option Table (note references are
to columns):
(b) All options listed were granted on
11/27/96 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 1996 become exercisable in 25 percent
increments on each of the first four
anniversaries of the date of the grant).
(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, subject to earlier termination in the
event of death, disability, retirement or
termination of employment with the Company.
(f) The estimated grant date present
value of the options has been determined by
using the Black-Scholes option pricing model, a
commonly-used method of valuing options on the
date of grant. The assumptions utilized in
applying the Black-Scholes model were as
follows: (a) the useful life of the options was
estimated to be seven years from the date of the
grant; (b) the risk-free discount rate applied
for purposes of the valuation, consistent with
the seven-year estimated life of the options,
was the seven-year Treasury Rate as of the date
of grant; (c)the volatility factor utilized was
the three-year volatility of the Company's
Common Stock, or 21.33 percent (volatility is
calculated based on fluctuations of daily
closing stock prices); (d) the dividend yield on
the Common Stock was assumed to be 3.25 percent
for purposes of the analysis only; and (e) a
discount of 3 percent per year was utilized
reflecting estimated risk of forfeiture prior to
exercise.
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
(d) (e)
Number of Value of Unexercised
Unexercised Options/ In-the Money
SARs at FY-End 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 23,877 $279,472 E - 58,009 E - $641,258
U - 0 U - $ 0
Thomas L. Hoy 5,788 $56,439 E - 18,740 E - $207,715
U - 24,732 U - $123,836
John J. Murphy 2,894 $33,359 E - 32,571 E - $459,132
U - 17,182 U - $ 97,070
Notes to Option/SAR and Year-End Value Table
(note references are to columns):
(d)E=Exercisable, U=Unexercisable
(e)The dollar value of unexercised in-the-money
options at December 31, 1996, 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 31,1996, and the exercise
price of the options.
</TABLE>
<PAGE> 7
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>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS AMONG ARROW
FINANCIAL CORPORATION, THE NASDAQ STOCK MARKET (U.S. Companies),
AND NASDAQ BANK STOCKS
12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
<S> <C> <C> <C> <C> <C. <C>
Arrow Financial Corporation 100 163.4 265.0 349.5 439.2 638.1
Nasdaq Stock Market
(US Companies) 100 116.4 133.6 130.6 184.7 227.2
"Nasdaq Bank Stocks
(SIC 6020-6029,
6710-6719 US & Foreign)" 100 145.6 166.0 165.4 246.3 325.6
Notes: A. Data prepared by the Center for Research in Securities Prices,
University of Chicago.
B. The lines represent monthly index levels derived from compounted
daily returns that include all dividends.
C. The indexes are reweighted daily, using the market capitalization
On the previous trading day.
D. The indexlevel for all series was set to $100.00 on 12/31/91.
</TABLE)
<PAGE> 8
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 1996 in setting
compensation policy and making compensation
recommendations and decisions for executive
officers generally and for President and CEO,
Thomas L. Hoy, specifically.
Compensation Philosophy
Since 1990, the Company, with the
Committee's concurrence, has utilized three
types of remuneration 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.
Attention is also given to the compensation
being paid to executives by other banking
organizations in the Company's peer group,
particularly those organizations doing business
in the Company's geographic market.
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 CEO
compensation at peer group banks.
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
<PAGE> 9
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 determining 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
within the discretion of the Committee and
normally are made at the end of each fiscal
year, if 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.
Compensation Decisions in 1996
During 1996, Thomas L. Hoy was elevated to
the position of President and CEO of the Company
while Michael F. Massiano, who served as
President and CEO of the Company for 13 years,
elected to retire from that position and
continue as Chairman, effective January 1, 1997.
Base Salary: Mr. Hoy received significant
base salary adjustments in 1996 and 1997 to
reflect his expanded role and greater
responsibilities with the Company. In light of
the Company's continued solid earnings record
and the exceptional performance of the
management team in 1996, including the
completion of a successful sale of the Vermont
operations, the other senior executives of the
Company also received proportional upward
salary adjustments.
Bonus: In the first half of 1996, the
Committee in consultation with management, set
target earnings levels under the Short-Term
Incentive Award Plan at levels somewhat in
excess of the prior year's actual operating
earnings adjusted for the intervening
disposition of the Vermont operations.
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 1996 corporate results exceeded
both the threshold and target levels. As a
result, the Committee approved bonuses for key
employees, including the executive officers, at
the beginning of 1997. These bonuses were
ratified by the Board. The individual bonuses
received by the executive officers, which are
listed in the Summary Compensation Table on page
6, averaged approximately one-fourth of 1996
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 371,205
shares (as adjusted for stock dividends) of the
Company's common stock to key employees of the
Company or its
subsidiaries. At year end 1996, 119,006 shares
remained available for future grants under this
Plan. 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.
<PAGE> 10
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
1996, 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-sixth to one-fourth of overall executive
compensation for 1996. Such awards are included
in the Summary Compensation Table on page 6 and
in the Option/SAR Grants Table on page 7.
In reaching its recommendations and
decisions at the end of 1996 regarding the
compensation of new President and CEO Thomas L.
Hoy, the Committee was particularly influenced
by the vital role played by Mr. Hoy in the
Company's overall operations in recent years,
his leadership qualities, his ability to assume
the Company's top position in a time of intense
industry competition and rapid change, and the
high expectations now placed on Mr. Hoy by the
Board of Directors for the Company's future. As
in prior years, the Committee was also cognizant
of CEO compensation practices at peer group
banks. In 1996, 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 8 of the proxy statement.
Personnel Committee
Michael B. Clarke, Chairman
Dr. Edward F. Huntington
David G. Kruczlnicki
EMPLOYMENT CONTRACTS
Thomas L. Hoy, President and Chief
Executive Officer of the Company, and John J.
Murphy, Executive Vice President, Treasurer, and
Chief Financial Officer of the Company, are
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
1996, 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.
Each of the employment contracts described
above provide 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.
Michael F. Massiano, Chairman of the Board
and formerly the President and Chief Executive
Officer of the Company, retired from active
employment effective December 31, 1996. At that
time, Mr. Massiano surrendered the remaining
portion of his employment contract, which was
similar to contracts held by Messrs. Hoy and
Murphy described above, and received, in return,
a severance package approved by the Board of
Directors. Under the severance package, Mr.
Massiano will receive from the Company, in
addition to the benefits payable to him under
the Company's defined benefit retirement plan
(the "Retirement Plan") monthly payments under
the Company's select executive retirement plan
(the "SERP"), a portion of which was accrued as
expense in 1996. The amount of this accrued
expense has been included in the Summary
Compensation Table on page 6. The monthly
payments receivable by Mr. Massiano
<PAGE> 11
under the
SERP will consist of (i) the amount he would
have received under the Retirement Plan but was
unable to receive thereunder due to maximum
payment limitations for tax-qualified pension
plans under federal law (ERISA), plus (ii) an
amount under the early retirement provision of
the SERP of approximately $60,000 per year. For
a description of the Retirement Plan and the
SERP, see "Pension Plan," below. Under the
severance package Mr. Massiano also will receive
coverage under the Company's term life insurance
through September 1, 1999, ownership of the
Company automobile formerly used by him and
accelerated vesting of 20,955 stock options
granted to him in 1994 and 1995. For at least
the next two years, Mr. Massiano will continue
to serve as Chairman and will devote substantial
time and effort to Company matters on an
unsalaried basis.
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 1996, four
directors of the Company participated in the
plan.
PENSION PLAN
The Company maintains a tax-qualified
Defined Benefit Retirement Plan (the "Retirement
Plan") for eligible employees. The Retirement
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
Retirement 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
Retirement Plan includes salary, overtime, sick
pay, bonuses, and certain other cash and noncash
benefits, including any compensation realized
upon exercise of stock options. Covered
compensation under the Plan during 1996 for the
named executive officers in the Summary
Compensation Table on page 6 includes all of the
compensation listed in columns (c) and (d) of
the Summary Compensation Table minus any
directors' fees included therein, plus 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"), which
contains both a pension supplement feature and a
special early retirement feature. The pension
supplement feature is structured so as to
compensate those senior officers who are
selected to participate in the SERP for any
pension benefits which would have been received
by them under the Company's Retirement Plan
described above were it not for the maximum
payment limitations for such plans established
under ERISA. Under the special early retirement
feature of the SERP, certain of the senior
officers participating in the SERP who retire
early may be approved by the Board to receive an
additional retirement payment, in a lump sum or
a series of installments. During 1996, Mr.
Massiano was selected to participate under both
features of the SERP, and his severance package
from the Company includes payments receivable by
<PAGE> 12
him thereunder. See "Employment Contracts"
above. Mr. Hoy and Mr. Murphy have been selected
to participate in the pension supplement feature
of the SERP.
The following table presents estimated
annual retirement benefits payable under the
Company's Retirement Plan and SERP to persons
having specified final average earnings and
years of service, assuming such persons are
covered under the SERP's pension supplement
feature (but excluding any amounts receivable
under the SERP's special annuity feature.)
</TABLE>
<TABLE>
<CAPTION>
Estimated Annual Pension Based
on Years of Service Indicated
For Those Retiring at Age 65 in 1997
Average Annual Earnings
For Last 5 Years of Service 15 20 25 30 35 40
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 24,053 $ 32,070 $ 40,088 $ 48,104 $ 56,122 $ 63,372
150,000 37,178 49,570 61,963 74,354 86,747 97,622
200,000 50,303 67,070 83,838 100,604 117,372 131,872
250,000 63,428 84,570 105,713 126,854 147,997 166,122
300,000 76,553 102,070 127,588 153,104 178,622 200,372
350,000 89,678 119,570 149,463 179,354 209,247 234,622
400,000 102,803 137,070 171,338 205,604 239,872 268,872
450,000 115,928 154,570 193,213 231,854 270,497 307,122
</TABLE>
The number of credited years of service
under the Plan as of December 31, 1996, for the
named executive officers in the Summary
Compensation Table is as follows: 40 years for
Mr. Massiano, 22 years for Mr. Hoy and 23 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 Retirement 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,
1996, 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 andcollateral 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.
Director John J. Carusone, Jr. is an
attorney in the firm of Carusone and Carusone,
Saratoga Springs, New York. During 1996, Mr.
Carusone's firm rendered legal services to the
Company's subsidiary, Saratoga National Bank and
Trust Company on a variety of matters, billed at
regular firm rates.
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, 1996,
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.
<PAGE> 13
INDEPENDENT AUDITORS
KPMG Peat Marwick, Certified Public
Accountants, were the auditors for the Company
for the year ended December 31, 1996. The Audit
Committee and Board are in the process of
selecting the auditors for 1997.
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 28, 1997
<PAGE> 14
PROXY
ARROW FINANCIAL CORPORATION
250 GLEN STREET
GLENS FALLS, NY 12801
ANNUAL MEETING OF SHAREHOLDERS - APRIL 30, 1997
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 30, 1997, and at any
adjournment thereof, with all powers the
undersigned would possess if personally present
as follows:
(To be Signed on Reverse Side)
[ X ] Please mark your votes as in this example
using dark ink only.
1. Election of Directors
[ ] FOR all nominees listed at right (except
as limited below)
[ ] WITHHOLD authority to vote for all
nominees listed at right:
Instruction: To withhold authority to vote for
any individual nominee(s), write the name(s) in
the space provided.
- ---------------------------
Nominees: Class B: John J. Carusone, Jr
Thomas L. Hoy
David G. Kruczlnicki
David L. Moynehan
Daniel L. Robertson
You are requested to complete, date and sign
this card and return this Proxy promptly to:
American Stock Transfer & Trust Company
40 Wall Street, 46 Fl.
New York, N.Y. 10269-0436
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 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.
