• Voting By Internet. If you choose to vote by internet, log onto https://www.proxyvotenow.com/frbk• | In Person: If you choose to vote in person, come to the annual meeting and cast your vote. If you attend the annual meeting, you may vote your shares in person even if you have previously submitted a proxy. |
• In Person. If you choose to vote in person, come to the annual meeting and cast your vote. If you attend the meeting, you may votehold your shares in
person even street name or through a bank, brokerage firm or other nominee, see “How do I vote if you have previously submittedshares are hold in street name or through a proxy.
bank, brokerage firm or other nominee?” for instruction on how to vote your shares.
How do I vote if shares are held in street name or through a bank, brokerage firm or other nominee?
If you hold your shares in street name or through a bank, brokerage firm or other nominee, you will need to vote your shares by providing voting instructions to your bank, brokerage firm or other nominee, in accordance with the voting instruction form provided to you by your bank, brokerage firm or other nominee, or by obtaining a legal proxy from your bank, brokerage firm or other nominee
authorizing you to vote those shares at the annual meeting. Only with a legal proxy from your bank, brokerage firm or other nominee can you cast your vote in person at the annual meeting.
How will my proxy be voted?
UnlessIf you indicate differently onsubmit a signed proxy card or submit your proxy we plan toby telephone or the internet but do not indicate how you want your shares voted, the persons named in the enclosed proxy will vote signed and returned proxiesyour shares of common stock FOR the election of each of the board’s director nominees named in this proxy statement.statement, FOR the ratification of the appointment of ParenteBeard LLC as independent registered public accounting firm for the fiscal year ending December 31, 2011, and FOR the proposal to adjourn the annual meeting, if necessary. With respect to any other matter that properly comes before the annual meeting, the persons named in the enclosed proxy will vote your shares of common stock in their discretion in accordance with their best judgment and in the manner they believe to be in the best interest of the Company. If you hold your shares of the Company’s common stock in “street name” (that is, through a broker or other nominee) and fail to instruct your broker or nominee as to how to vote your shares of common stock on the election of directors, your broker or nominee may, in its discretion,cannot vote your shares FORin the election of directors. If you hold your shares in “street name” and fail to instruct your broker or nominee as to how to vote your share of common stock on the nomineesratification of the appointment of ParenteBeard LLC as independent registered public accounting firm for director named in this proxy statement, but may notthe fiscal year ending December 31, 2011, your broker or other nominee has discretionary voting authority to vote your shares on any other matter to properly come before the annual meeting. At or after the annual meeting, a judge or judges of election will tabulate ballots cast by shareholders present and voting in person and votes cast by proxy.such proposal.
What is a broker non-vote?
A broker non-vote occurs when a bank or brokerage firm holding shares on behalf of a shareholder does not receive voting instructions from the shareholder by a specified date before the annual meeting and the bank or brokerage firm is not permitted to vote those undirected shares on specified matters under applicable stock exchange rules. Thus, if you do not give your broker specific instructions, your shares may not be voted on those matters (so-called “broker non-votes”) and will not be counted in determining the number of shares necessary for approval.. Broker non-votes are not considered to be votes cast and, therefore, generally have no effect on the outcome of elections of directors or other matters submitted to the shareholders.shareholders and subject to approval based on votes cast. Shares represented by “broker non-votes” will be counted, however, in determining the number of shares of common stock represented in person or by proxy and entitled to vote.
Can I revoke my proxy or change my vote after submitting my proxy?
Yes. Any shareholder giving a proxy has the right to attend the annual meeting and vote in person. A proxyProxies may be revoked at any time prior to being voted at the annual meeting ifmeeting. You may revoke a later-dated proxy before its exercise by filing written notice of revocation with our Secretary before the annual meeting. After voting, you may change your vote one or more times by completing and returning a written revocationnew proxy to our Secretary, by voting again by Internet or telephone as described in this Proxy Statement, or by voting in person at the annual meeting. You may request a new proxy card from our Secretary. The last vote received chronologically will supersede any prior votes. The deadline for registered shareholders to change their vote by Internet or telephone is sent3:00 a.m., EDT, on April 26, 2011. All requests and correspondence with our Secretary should be mailed to the Company atRepublic First Bancorp, Inc., Two Liberty Place, 50 S. 16th16th Street, Suite 2400, Philadelphia, PAPennsylvania 19102, Attention: Kemma Black, Corporate Secretary, and received prior to the annual meeting. In addition, a proxy may be revoked at the annual meeting by filing a later-dated proxy or by filing a written notice of such revocation with the Secretary of the Company at the annual meeting prior to the voting of such proxy.Brown, Secretary.
What constitutes a quorum at the annual meeting and how are votes counted?meeting?
We need a quorum of shareholders to hold a valid annual meeting. A quorum will be present if at least a majority of the outstanding shares of common stock are represented in person or by proxy at the annual meeting. Abstentions and broker non-votes are counted as present for the purpose of establishing a quorum. If the annual meeting is adjourned because of the absence of a quorum, those shareholders entitled to vote who attend the adjourned annual meeting, although constituting less than a quorum as provided herein, shall nevertheless constitute a quorum for the purpose of electing directors. If the annual meeting is adjourned for one or more periods aggregating at least 15 days due to the absence of a quorum, shareholders who are entitled to vote and who attend the adjourned annual meeting, even though they do not constitute a quorum as described above at the adjourned meeting, will constitute a quorum for the purpose of acting on any matter described in the Notice of annual meeting.
How can I obtain directions to attend the annual meeting and vote in person?
The annual meeting will be held at The Union League of Philadelphia which is located at 140 South Broad Street, Philadelphia, PA, 19102. You may obtain directions to The Union League by contacting their office during regular business hours at (215) 563-6500 or by accessing the Union League’s website at http://www.unionleague.org and clicking on the “Directions and Parking” link at the bottom of the webpage. The information on this website is not incorporated into this proxy statement and is an inactive textual reference only.
How many votes are required for the election of directors?
Directors are elected by a plurality vote of shares of common stock cast in person or by proxy at the annual meeting.meeting, provided a quorum is present. A “plurality” means that the individuals who receive the largest number of affirmative votes cast are elected as directors up to the maximum number of directors to be chosen at the annual meeting. Because the election of directors is based on a plurality of the votes cast, abstentions and broker non-votes have no effect on the outcome of the vote. Votes that are withheld from a director
nominee will be excluded entirely from the vote for such nominee and will have no effect on the result. Shareholders are not entitled to cumulative voting in the election of directors.
How many votes are required for the ratification of the appointment of ParenteBeard LLC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011?
The proposal to ratify the appointment of ParenteBeard LLC as the Company’s independent registered public accounting for the fiscal year ending December 31, 2011 will be approved if a majority of the votes represented in person or proxy at the annual meeting and entitled to vote are voted FOR the proposal. Abstentions, but not broker non-votes, will have the same legal effect as votes against the proposal.
How many votes are required for approval of the proposal to adjourn the annual meeting, if necessary?
The proposal to adjourn the annual meeting, if necessary, will be approved if a majority of the votes represented in person or proxy at the annual meeting and entitled to vote are voted FOR the proposal. Abstentions, but not broker non-votes, will have the same legal effect as a vote against the proposal to adjourn the annual meeting. Broker non-votes will not count as a vote against the proposal to adjourn the annual meeting.
How many votes are required for any other proposals that may properly come before the annual meeting?
AnyGenerally, any other proposals that may properly come before the annual meeting will be approved if a majority of the votes castat the annual meeting and entitled to vote thereon are voted in favor of the action, unless the question is one upon which a larger or different vote is requiredotherwise provided by express provision of law or by our articles of incorporation or our bylaws. Abstentions, andbut not broker non-votes, on suchwill have the same legal effect as votes against any other proposals areproposal. Broker non-votes will not consideredcount as votes cast on the proposals and, as such, have no effect on the approval of the proposals. We are not aware ofagainst any such other proposals that may properly come beforeproposal at the annual meeting at the present time.meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company’s by-laws provide that the board may consist of not less than five directors and not more than 25 directors, classified into three classes, as nearly equal in number as possible, with the specific number of directors fixed from time to time by resolution of the board. The members of one class of directors isare elected at each annual meeting and each class of directors serves for approximately three years. The classes of directors have been designated as “Class I,” “Class II” and “Class III.”
The board has fixed the number of directors at eight, after increasing the number from eight to nine in June 2008, at which time Theodore J. Flocco, Jr. was appointed, and then reducing the number in July 2008 following the resignation of Louis J. DeCesare.seven. Currently, the Class I Directors areDirector is Harry D. Madonna and William W. Batoff;Madonna; the Class II Directors are Robert J. Coleman Lyle W. Hall, Jr. and Harris Wildstein, Esq.; and the Class III Directors are Neal I. Rodin, Barry L. Spevak and Theodore J. Flocco, Jr. During 2010, and until January 15, 2011, the board was comprised of seven directors. On January 15, 2011, however, William W. Batoff, a member of the board of directors of the Company and an independent director, passed away unexpectedly. Mr. DeCesareBatoff had been a Class I Director. As discussed below, the board has nominated Brian P. Tierney to fill the Class I vacancy.
The incumbent Class III Directors will continue in office until the Company’s 20112012 Annual Meeting of Shareholders and the incumbent Class III Directors will continue in office until the Company’s 20102013 Annual Meeting of Shareholders. All directors will hold office until the annual meeting of shareholders at which their terms expire and until the elections and qualifications of their successors.
Upon the recommendation of the nominating and governance committee of our board of directors, our board has nominated Robert J. Coleman, Lyle W. Hall, Jr. and Harris Wildstein, Esq.Harry D. Madonna for reelection as a Class II Directors,I Director to serve until the Company’s 20122014 annual meeting of shareholders and thereafter until their successors arehis successor is elected and qualify. All of the director nominees havequalified. Mr. Madonna has agreed to stand for election. In the event, however, that, one or more director nominees, for any reason, becomeMr. Madonna becomes unavailable for election or service as directors,director, the board may designate a substitute nominee or nominees to replace him or them and the persons designated in the enclosed proxy will vote for the election of such other person or persons as the board may recommend.
Upon the recommendation of the nominating and governance committee of our board of directors, our board has nominated Brian P. Tierney for election as a Class I Director to serve until the Company’s 2014 annual meeting of shareholders and thereafter until his successor is elected and qualified. Mr. Tierney has agreed to stand for election. In the event, however, that, for any reason, Mr. Tierney becomes unavailable for election or service as director, the board may designate a substitute nominee to replace him and the persons designated in the enclosed proxy will vote for the election of such other person as the board may recommend.
The specific backgrounds and qualifications of our current directors and director nominees are reflected in each person’s biography below.
Director Nominees
The following individuals have been nominated for election to the board as Class III Directors, each of them to serve until the 20122014 Annual Meeting of Shareholders and until his successor is elected and qualifies.
Robert J. Coleman, age 72, has been a director of the Company and the Bank since April 2003. He has also been the Chairman and Chief Executive Officer of Marshall, Dennehey, Warner, Coleman & Goggin, a defense litigation law firm, since 1974.
Lyle W. Hall, Jr., age 65, has been a director of the Company and the Bank since April 2004. He has been a director of First Bank of Delaware since November 2007. Mr. Hall has been the President of Deilwydd Partners, a real estate and financial consulting company, since 1987 and also serves as President of Montalcino, LLC, a company engaged in the management of nursing homes and assisted living facilities since September 2009. Prior to that, Mr. Hall was the Executive Vice President and Director of Butcher & Company, a New York Stock Exchange Investment Banking Company. Mr. Hall is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.
Harris Wildstein, Esq., age 63, has been a director of the Company and the Bank since 1988. Since 1999, Mr. Wildstein has been a director of the First Bank of Delaware. Since September 2004, Mr. Wildstein has been an owner and officer of Lifeline Funding, LLC. He has been the Vice President of R&S Imports, Ltd., an automobile dealership, since 1977, and President of HVW, Inc., an automobile dealership, since 1982.
Continuing Directors
Each of the following individuals is an incumbent director who will continue to serve as a director of the Company until the end of his respective term or until his successor is elected and qualifies.
Class I Directorsqualified.
Harry D. Madonna, age 67,68, has been Chairman and Chief Executive Officer of the Company and Chairman of the BankRepublic since 1988. Mr. Madonna was Chiefalso has served as Executive Officer of the Bank from 1988 until December 2006 and resumed the title of Chief Executive Officer of the Bank in June 2009. Mr. Madonna has been Chairman of the Board of Directors of First Bank of Delaware since 1999 and wasserved as its Chief Executive Officer from 1999January 2002 until July 2008. Mr. Madonna was counsel to Spector Gadon & Rosen, PC, a general practice law firm located in Philadelphia, Pennsylvania from January 1, 2002 until June 30, 2005 and prior to that, was a partner of Blank Rome Comisky & McCauley LLP, a general practice law firm located in Philadelphia, Pennsylvania from 1980 until December 2001. Mr. Madonna’s background as an attorney and years of experience with the Bank provides him with the skills to lead the Board and the Company. Mr. Madonna’s position within the Company and Republic also provides him with intimate knowledge of our business, results of operations and financial condition. Further, as the Chief Executive Officer and Chairman, Mr. Madonna acts as the liaison between the directors and management, and assists the Board in its oversight of the Company.
William W. BatoffBrian P. Tierney, 54, has served as President and Chief Executive Officer of Real Time Media, an interactive marketing services agency, since November 2010. He was Publisher of the Philadelphia Inquirer and Daily News and Chief Executive Officer of its parent company, Philadelphia Media Holdings LLC, from June 2006 and August 2006, respectively, until October 2010. In February 2009, Philadelphia Newspapers LLC, a subsidiary of Philadelphia Media Holdings LLC, filed voluntary petitions for reorganization relief pursuant to Chapter 11 of the United States Bankruptcy code and emerged from bankruptcy in October 2010. He previously served as Chairman and Chief Executive Officer of Tierney Holdings LLC, a private investment firm. From June 2004 to March 2005, he was Vice Chairman of Advanta Corp. Prior to that, he was the founding partner of T2 Group, a public relations firm, from November 2003 until it was sold to Advanta Corp. Mr. Tierney serves on a variety of civic, educational and charitable boards of directors, including the board of directors of Nutrisystem, Inc. Mr. Tierney has a strong corporate leadership background, having served as Chief Executive Officer and having held additional management positions at several companies. His service as a member of another public company board and other boards of directors also provides insight on corporate governance issues.
Continuing Directors
Each of the following individuals is an incumbent director who will continue to serve as a director of the Company until the end of his respective term or until a successor is elected and qualified.
Class II Directors
Robert J. Coleman, age 74, has been a director of the Company and the Bank since 1988April 2003. He has also been the Chairman and Chief Executive Officer of Marshall, Dennehey, Warner, Coleman & Goggin, a defense litigation law firm, since 1974. Mr. Coleman’s background as an attorney offers the Board valuable experience in legal matters (although he does not render the Company legal advice) and general business knowledge.
Harris Wildstein, Esq., age 65, has been a director of the Company and the Bank since 1988. Mr. Wildstein has also been a director of the First Bank of Delaware since 1999. Since 1996, heSeptember 2004, Mr. Wildstein has been an owner and officer of Lifeline Funding, LLC, a pre-settlement funding organization. He has been the Managing DirectorVice President of William W. Batoff Associates, a government relations consulting firm. Prior toR&S Imports, Ltd., an automobile dealership, since 1977, and President of HVW, Inc., an automobile dealership, since 1982. Mr. Wildstein’s background in owning and managing multiple businesses has made him sophisticated in the analysis financial matters and offers the Board insight into understanding the many customers that the Bank serves today. Mr. Batoff was a senior consultant of Cassidy & Associates, a government relations consulting firm, since 1992,Wildstein also provides the Board with valuable leadership and has been a Presidential Appointee to the Advisory Board of the Pension Benefit Guarantee Corporation (PBGC) a United States Government Agency.management perspectives and business acumen.
Class III Directors
Theodore J. Flocco, Jr., C.P.A., age 65,66, has been a director of the Company and the Bank since June 2008. Before his retirement from Ernst & Young LLP, Mr. Flocco was Senior Audit Partner and advised many of the largest SEC regulated clients of the Philadelphia office for more than 35 years, including several regional and local banks. In June 2008, Mr. Flocco’s appointment to the board of directors resulted from investments byFlocco, Vernon W. Hill, II, founder and chairman (retired) of Commerce Bancorp, and a group of three other investors, including Mr. Flocco,Madonna’s family trust, invested in a private placement of $10.8 million of convertible trust preferred securities sponsored by the Company. In connectionSimultaneously with thethose investments, Mr. Hillwe entered into a consulting agreement with the CompanyMr. Hill which, among other things, provides Mr.Mr Hill the right to designate one individual to the board of directors of the Company and the Bank, and for the nomination and recommendation of his designee in elections of directors by our shareholders, in each case subject to our articles of incorporation and bylaws, and any applicable director qualification standards. One June 17, 2008, Mr. Flocco, isas Mr. Hill’s designee, for that position.was appointed to the board as a Class III Director. He has subsequently been elected by the Company’s shareholders at the 2010 annual meeting of shareholders. Mr. Flocco has experience in the banking, mutual fund, real estate and manufacturing and distribution industries. His responsibilities at Ernst & Young LLP included consulting with senior executives and directors of companies on accounting and strategic business issues, mergers and
acquisitions, public offerings and SEC registrations. He has extensive experience in the public offering market, having spearheadedlead more than 100 public equity and debt offerings. Mr. Flocco’s experience in public accounting and SEC matters provides the Board with depth in matters related to accounting, SEC financial reporting and shareholder communication and also qualifies him as a financial expert to serve on the Board’s audit committee.
Neal I. Rodin, age 64,65, has been a director of the Company and the Bank since 1988. Mr. Rodin has been the Managing Director of the Rodin Group, an international real estate investment company, since 1988, and has been the President of IFC, an international financing and investing company, since 1975. Mr. Rodin’s background in real estate and financing makes him a valuable resource to the Board on matters relating to the loan portfolio, specifically on issues concerning commercial real estate loans and related matters.
Barry L. Spevak, age 49,50, has been a director of the Company and the Bank since April 2004. He has also been a partner with Miller Downey Spevak Kaffenberger, Limited, a certified public accounting firm, since 1991 and serves onhas previously served as the board of directorstreasurer of the Recording for the Blind and Dyslectic.Dyslexic. Mr. Spevak’s experience as a certified public accountant qualifies him as a financial expert and his financial accounting background provides the board with an understanding of financial statements, accounting and operational and financial controls. He also provides the Company with general business knowledge.
As noted above, Messrs. Madonna, Batoff, Hall and Wildstein are members of First Bank of Delaware’s board of directors and Mr. Tierney is a member of Nutrisystem, Inc.’s board of directors. First Bank of Delaware and Nutrisystem, Inc. are public companies. First Bank of Delaware’s class of common stock is registered with the Federal Deposit Insurance Corporation, or “FDIC,” pursuant to section 12 of the Securities Exchange Act of 1934, as amended. Mr. Rodin and Mr. Batoff are brothers-in-law.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF ITSOUR NOMINEES TO THE BOARD OF DIRECTORS OF THE COMPANY TO SERVE UNTIL THE 20122014 ANNUAL MEETING OF SHAREHOLDERS AND UNTIL HIS SUCCESSOR IS ELECTED AND QUALIFIES.QUALIFIED.
BOARD OF DIRECTORS AND COMMITTEES
Director Independence
The Company’s common stock is listed on the NasdaqNASDAQ Global Market and the Company’s board of directors has determined the independence of the members of its board and committees under the NasdaqNASDAQ listing standards. The Company’s board of directors determined that under NasdaqNASDAQ independence standards Messrs. Batoff, Coleman, Flocco, Hall, Rodin, Spevak and Spevak,Wildstein, constituting a majority of the members of the the Company’s board of directors, are independent, and that all of the members of the audit, nominating and governance and compensation committees are independent. Mr. Batoff, who was a member of the board of directors until his unexpected passing earlier this year, was also independent. The Company’s board of directors has determined, that, if elected, Mr. Tierney would be an independent director. The Company’s only director who werewas determined to not be independent were Messrs. Madonna and Wildstein.was Mr. Madonna. In determining the independence of Mr. Flocco, the board considered athe consulting arrangement Mr. Flocco had with the Company prior to 2010 pursuant to which Mr. Flocco earned $32,500 during 2008.2008 and $14,200 during 2009.
The Board does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board as the Board believes it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board. Accordingly, the Board periodically reviews its leadership structure. Currently, the Board believes that the Company’s President and Chief Executive Officer is best situated to serve as Chairman of the Board. We believe this Board leadership structure is appropriate for our Company, in that the combined role of President and Chairman of the Board and Chief Executive Officer promotes unified leadership and direction for our Company, allowing for a single, clear focus for management to execute the Company’s strategy and business plan. The Board believes that the Company’s Chief Executive Officer is best situated to serve as chairman of the board because he is the director most familiar with the Company’s business and industry, and most capable of effectively identifying strategic priorities and leading the discussion and execution of our corporate strategy. Independent directors and management have different views and roles in the development of a strategic plan. The Company’s independent directors bring experience, oversight and expertise from outside the Company and often the industry, while the Chief Executive Officer brings Company-specific and industry-specific experience and expertise. The Board believes that the combined role of chairman and President and Chief Executive Officer promotes efficiency, strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.
We have a relatively small board, a majority of which is independent under the listing standards of the Nasdaq Global Market. Each independent director has direct access to our Chairman of the Board, President and Chief Executive Officer, as well as other members of the senior management team. We believe that having such direct access makes the separation of the principal executive officer and board chairman positions unnecessary. The independent directors also regularly meet in executive session without management present.
Our Board of Directors oversees the Company’s risk management, satisfying itself that our risk management practices are consistent with our corporate strategy and are functioning appropriately. While a degree of risk is inherent in any business activity, the Board strives to ensure that risk management is incorporated into the Company’s culture, and to foster risk-aware and risk-adjusted decision-making throughout the organization. We believe our risk management processes are set up to bring to the Board’s attention our material risks, and permit the Board to understand and evaluate how those risks interrelate and how management addresses them.
Our Board performs its risk oversight function in several ways. The Board establishes standards for risk management by approving policies that address and mitigate the Company’s most material risks. These include policies addressing credit risk, interest rate risk, capital risk, and liquidity risk, as well as Bank Secrecy Act/Anti-Money Laundering compliance. The Board also monitors, reviews, and reacts to our risks through various reports presented by management, internal and external auditors, and regulatory examiners. The Board conducts certain risk oversight activities through its various committees which have direct oversight over specific functional areas. Our asset/liability committee, or ALCO, is also comprised of directors and members of senior management, and has primary responsibility for risks associated with our exposure to fluctuations in interest rates and our liquidity needs. Our audit committee is responsible for risks associated with our financial reporting and internal controls, and our compensation committee is responsible for risks associated with our compensation practices.
Meetings of the Board and Attendance
During 2008,2010, the directors held eleven8 board meetings. All of the directors attended at least 75% of all of the meetings of the board and the meetings of all committees of the board on which such director served.
We encourage all incumbent directors and nominees for election as directors to attend our annual meetings. All then-servingmeetings, and all of our directors attended the Company’s 2008 Annual Meeting2010 annual meeting of Shareholders.shareholders.
Board Committees
The Company’s board of directors conducts much of its business through committees, including a standing audit committee, nominating and governance committee and compensation committee.
Audit Committee
The boardBoard of directorsDirectors of the Company has designated a standing audit committee. Messrs. HallFlocco (chair), BatoffSpevak and SpevakWildstein serve as members of the audit committee. The board of directors has determinedPrior to his death, Mr. Batoff served on the Audit Committee. In January 2011, Mr. Wildstein was appointed to serve on the Audit Committee to fill that Mr. Hall is an “audit committee financial expert” as that term is defined in Item 407(d)(5) of Regulation S-K, and is “financially sophisticated,” as that term is defined under Nasdaq rules. vacancy.
All members of the audit committee are independent under NasdaqNASDAQ listing standards, including the independence criteria applicable to audit committee members. Although Mr. Flocco received certain consulting fees during 2008 and 2009, as discussed, he has been determined to be independent under NASDAQ independence standards, and his consulting arrangement was terminated prior to Mr. Flocco’s appointment to the audit committee. The board of directors has determined that both Mr. Flocco and Mr. Spevak qualify as audit committee financial experts, as defined in SEC rules and regulations, and as financially sophisticated audit committee members, under NASDAQ rules. Mr. Wildstein’s background and experience have made him capable of comprehending and understanding all financial matters reviewed by the audit committee as well.
The audit committee held five11 meetings during 2008,2010, and it operates under a written charter approved by the board. A copy of the audit committee’s charter is available on the Company’s website at www.rfbkonline.com.www.myrepublicbank.com. The purposesresponsibilities of the audit committee are to:to, among others:
• | assist the board in itsBoard of Directors with the oversight of the integrity of the Company’s financial statements and internal controls, the Company’s compliance with legal and regulatory requirements, the independent auditors’registered public accounting firm’s qualifications and independence and the performance of the Company’s internal audit function and the independent auditors,registered public accounting firm; |
• | establish procedures for receipt, retention, and the Company’s managementhandling complaints regarding accounting, internal accounting controls, and auditing matters, including procedures for confidential, anonymous submission of market, credit, liquidityconcerns by employees regarding accounting and other financial and operational risks;auditing matters; |
• | decide whetherretain (subject to appoint, retain or terminateratification by the Company’s shareholders), evaluate, and, where appropriate, replace the independent auditors, set the independent auditor’s compensation, oversee the work of the independent auditor and to pre-approve all audit audit-related and other services if any, to be provided by the independent auditors; andauditor; |
• | review with the independent auditor and members of management conducting the internal audit the adequacy and effectiveness of the systems of internal controls, accounting practices, and disclosure controls and procedures of the Company and current accounting trends and developments, and take such action with respect thereto as may be deemed appropriate; |
• | make a recommendation to the Board as to whether the audited financial statements should be included in the Company’s Annual Report on Form 10-K ; |
• | prepare the report required to be prepared by the audit committee pursuant to the rules of the Securities and Exchange Commission, or “SEC,” for inclusion in the Company’s annual proxy statement.statement; and |
• | approve in advance the public release of all financial information. |
Audit Committee Report
The audit committee of the Company’s board of directors is responsible for providing independent, objective oversight of the Company’s accounting functions and internal controls.
Management is responsible for the Company’s internal controls and financial reporting process. The independent accountants are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards and to issue a report thereon. The audit committee’s responsibility is to monitor and oversee these processes.
In connection with these responsibilities, the audit committee has reviewed and discussed the audited consolidated financial statements of the Company at and for the year ended December 31, 2008,2010, with management. The audit committee discussed with Beard Miller Company LLP, or “BMC,”ParenteBeard, LLC, the Company’s independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended. The audit committee has received the written disclosures and the letter from BMCParenteBeard, LLC required by Independence Standardsapplicable requirements of the Public Company Accounting Oversight Board Standard No. 1, “Independence Discussionsregarding its communications with Audit Committees,” as in effect,the audit committee concerning independence, and has discussed with BMCParenteBeard, LLC its independence. Since then, BMC merged with Parente Randolph, LLC and became ParenteBeard, LLC.
Based upon the audit committee’s review and discussions with management and the independent accountantsregistered public accounting firm referred to above, the audit committee recommended to the board that the Company’s audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008,2010, for filing with the Securities and Exchange Commission.
| Respectfully submitted, |
| |
| Lyle W. Hall,Theodore J. Flocco, Jr. Chair |
| William W. Batoff(Chair) |
| Barry L. Spevak |
|
| March 12, 2009Harris Wildstein |
Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the preceding Audit Committee Report shall not be incorporated by reference into any such filings nor shall they be deemed to be soliciting material or deemed to be filed with the SEC under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended.
Compensation Committee
Messrs. BatoffSpevak (chair), Hall,Rodin and RodinFlocco serve as members of our compensation committee. Mr. Batoff was a member and the chair of the compensation committee. committee at the time of his unexpected passing on January 15, 2011. The compensation committee operates under a written charter approved by the board. A copy of the compensation committee’s charter is available on the Company’s website at www.myrepublicbank.com. The charter provides, among other things, that the compensation committee be comprised of at least three members.
All members of the compensation committee have been determined by the board to be independent under NasdaqNASDAQ listing standards, “non-employee directors,” as defined in SEC Rule 16b-3, and “outside directors,” as defined for purposes of Internal Revenue Code Section 162(m). The compensation committee held five8 meetings in 2008. The compensation committee operates under a written charter
approved by the board. A copy of the compensation committee’s charter is available on the Company’s website at www.rfbkonline.com.2010. The compensation committee’s responsibilities include, among others, the following.following:
• | Reviewreview and approve on an annual basis the corporate goalsCompany’s overall compensation philosophy and objectives with respect tooverseeing the administration of related compensation for the chief executive officer.and benefit programs, policies and practices; |
• | Evaluate at least annuallyset the chiefcompensation of the Chief Executive Officer and other executive officer’s performance in lightofficers of established goalsthe Company. Regarding compensation for officers other than the Chief Executive Officer, the Committee shall consult with the Chief Executive Officer and objectives and, based on such evaluation, have sole authority to determine the chief executive officer’s annual compensation.other officers of the Company as appropriate; |
• | Reviewevaluate the performance of the Chief Executive Officer and make recommendations toreview and approve the boardChief Executive Officer’s evaluation of directors with respect to compensation forperformance of the other executive officers incentive-compensation plansin light of approved performance goals and equity-based compensation plans.objectives; |
• | Reviewreview and make recommendationsrecommend for approval to the board of directors with respectBoard cash-based incentive compensation plans, equity-based compensation plans defined benefit and contribution plans and other welfare benefit plans or amendments or modifications to the compensation of directors.such plans; |
• | Administer, interpretgrant options and other awards under equity-based plans; |
• | review and discuss with management the Compensation Discussion and Analysis (CD&A) to be included in the Company’s annual proxy statement and determine awards pursuantwhether to recommend to the Company’s stock-based incentive compensation plans.Board that the CD&A be included in the proxy statement; |
• | Haveprovide the Compensation Committee Report for inclusion in the proxy statement that complies with the rules and regulations of the Securities and Exchange Commission; and |
• | have the sole authority, in its discretion, to retain and terminate any consulting firm to assist in the evaluation of director, chief executive officer or senior executive compensation, including sole authority to approve the firm’s fees and other retention terms. |
Compensation Processes and Procedures
The compensation committee meets at such times as it determines to be necessary or appropriate, but not less than once a year. The compensation committee has the sole authority to establish the compensation of the chief executive officer and other executive officers of the Company and the Bank and may not delegate such authority, except to a subcommittee. The chief executive officer has the primary responsibility for determiningproposing the amount and form of compensation of the other executive officers of the Company and the Bank and the compensation committee consults with the compensation committeeChief Executive Officer on such matters. The compensation committee is empowered to engage independent compensation consultants, but didhas not dodone so during 2008. In 2006, however, the compensation committee did engage Strategic Compensation Planning, Inc., of Malvern, Pennsylvania, to assist the compensation committee in structuring the employment agreements for the chief executive officer of the Company and the Bank. See “Executive Compensation” on page 17 for more information regarding this employment agreement.since 2006.
The compensation committee is also responsible for periodically reviewing the amount and form of director compensation paid to non-employee directors. The compensation committee recommends proposed changes in director compensation to the board as appropriate, from time to time, and any changes in director compensation are approved by the board.
Compensation Committee Interlocks and Insider Participation
During 2008, Messrs. Batoff, Hall, and Rodin served as members of the compensation committee of the Company’s board of directors. No member of the compensation committee during 2008 ever served as an officer or employee of the Company or the Bank. There are no compensation committee interlocks between the Company or the Bank and any other entity, involving the Company’s or the Bank’s, or such entity’s, executive officers or board members.
Nominations and Shareholder Communications
Nominating and Governance Committee
Messrs. Rodin (chair), Hall,Coleman and BatoffSpevak serve as members of our nominating and governance committee. Mr. Batoff was a member of the nominating and governance committee at the time of his unexpected passing on January 15, 2011.
All members of the nominating governance committee have been determined by the board to be independent under NasdaqNASDAQ listing standards. The nominating and governance committee held one1 meeting in 2008.2010. The nominating and governance committee operates under a written charter approved by the board. A copy of the nominating and governance committee’s charter is available on the Company’s website at www.rfbkonline.com.www.myrepublicbank.com.
In addition to the responsibilities described below regarding overseeing the selection and recommendation of board nominees, the nominating and governance committee’s responsibilities include, among other things, the following:
· | review and approve transactions with any related persons in accordance with the related party transaction approval policy; |
· | monitor compliance with legal prohibitions on loans to directors and officers of the Company; |
· | develop and review periodically, and at least annually, the corporate governance policies of the Company to ensure that they are appropriate for the Company and that policies of the Company comply with applicable laws, regulations and listing standards, and recommend any desirable changes to the Board; |
· | conduct annually an evaluation of the performance of the Board as a whole and the directors in such manner as the Committee deems appropriate and, through its chairperson, communicate this evaluation to the full Board; and |
· | maintain an orientation program for new directors and an education program for continuing directors. |
The nominating and governance committee also oversees the composition and operation of the Company’s board, including identifying individuals qualified to become board members, recommending to the board director nominees for the annual meetings of shareholders, and filling vacancies occurring between annual shareholder meetings. It identifies director candidates by considering the recommendations of the Company’s directors, executive officers and shareholders, as well as those of experts and consultants of the Company. The nominating and governance committee evaluates candidates it has identified or who have been recommended to it based on the selection criteria provided in the nominating and governance committee charter and other criteria deemed relevant by the nominating and governance committee, including each candidate’s background and experience, the candidate’s ability to understand the business, financial affairs and complexities of the Company and the Company’s business, the candidate’s willingness and ability to spend the necessary time required to function effectively as a director, the candidate’s open-minded approach to matters and the resolve to independently analyze matters presented for consideration, as well as the candidate’s ability to act in the best interest of the Company’s shareholders, honesty and integrity.
The nominating and governance committee evaluates director candidates recommended by shareholders in the same manner that it evaluates other director candidates. The procedures for shareholders to recommend director candidates are described under the heading “Shareholder Proposals and Nominations for the 20102012 Annual Meeting”.
Directors are selected for their integrity and character, sound, independent judgment, breadth of experience, insight and knowledge, and business acumen. Leadership skills, business experience, and diversity are among the relevant criteria, which may vary over time depending on page 26.the Board’s needs. The Nominating and Governance Committee considers candidates with these qualifications for recommendation to the full Board for approval. While the Nominating and Corporate Governance Committee does not have a formal policy regarding director diversity, it believes that the directors should encompass a range of experience, viewpoints, qualifications, attributes and skills in order to provide sound and prudent guidance to the Company’s management. The Nominating and Corporate Governance Committee considers diversity in connection with its review of each potential director candidate and is satisfied that the current composition of the Board of Directors reflects its commitment to diversity. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees.
Shareholder Communications
Any shareholder may communicate with our board of directors, or any individual member or members of the board, by directing his, her or its communication to Kemma Black,Brown, Corporate Secretary, Republic First Bancorp, Inc., Two Liberty Place, 50 S. 16th Street, Suite 2400, Philadelphia, PA 19102, together with a request to forward the communication to the intended recipient or recipients. In general, all shareholder communications delivered to the corporate secretary for forwarding to the board or specified board members will be forwarded in accordance with the shareholder’s instructions. The corporate secretary, however, may not forward any abusive, threatening or otherwise inappropriate materials.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 13, 2009,March 15, 2011, information with respect to the holdings of Company voting securities of all persons which the Company, pursuant to filings with the SEC and the Company’s stock transfer records, has reason to believe may be beneficial owners of more than five percent (5%) of the Company’s outstanding common stock, each current director or director nominee, each named executive officer named in the 2010 Summary Compensation Table, and all of the Company’s director nominees, directors and executive officers as a group.
Name (1) | Number of Shares Beneficially Owned (2) | Percentage of Ownership (2) |
Harry D. Madonna (4) | 1,095,856 | 9.9% |
William W. Batoff (5) | 173,658 | 1.6% |
Robert J. Coleman (6) | 161,368 | 1.5% |
Theodore J. Flocco, Jr. (7) | 36,923 | * |
Lyle W. Hall, Jr. (8) | 54,106 | * |
Neal I. Rodin (9) | 207,182 | 1.9% |
Barry L. Spevak (10) | 28,164 | * |
Harris Wildstein (11) | 838,893 | 7.8% |
Vernon W. Hill, II (3) | 960,000 | 8.3% |
Carol L. Hunter | - | * |
Edward J. Ryan | - | * |
Louis J. DeCesare (12) | 58,040 | * |
Paul Frenkiel (13) | 15,127 | * |
Frank A. Cavallaro | - | * |
| | |
All directors and executive officers as a group (11 persons). | 2,596,150 | 23.2% |
Name of Beneficial Owner or Identity of Group (1) | Number of Shares Beneficially Owned (2) | Percentage of Ownership (2) |
| | |
Director Nominees, Directors and Executive Officers: | | |
Harris Wildstein | 997,117 (3) | 3.8% |
Harry D. Madonna | 750,530 (4) | 2.9% |
Robert J. Coleman | 616,668 (5) | 2.4% |
Neal I. Rodin | 265,482 (6) | 1.0% |
Theodore J. Flocco, Jr. | 49,923 (7) | * |
Barry L. Spevak | 35,995 (8) | * |
Brian P. Tierney | - | * |
Jay Neilon | 50,000 | * |
Rhonda Costello | 27,500 | * |
Andrew J. Logue | 25,000 | * |
Frank A. Cavallaro | 13,750 | * |
| | |
All, director nominees, directors and executive officers as a group (11 persons) | 2,831,965 | 10.8% |
| | |
Other Five Percent Beneficial Shareholders: | | |
Vernon W. Hill II | 2,576,077 (9) | 9.9% |
Wellington Management Company, LLP | 2,529,540 (10) | 9.7% |
Schaller Investment Group | 2,077,453 (11) | 8.0% |
The Evergreen Trust B | 2,019,438 (12) | 7.6% |
* Represents beneficial ownership of less than 1%.
(1) | Unless otherwise indicated, the address of each beneficial owner is c/o Republic First Bancorp, Inc., Two Liberty Place, 50 S. 16th Street, Suite 2400, Philadelphia, PA 19102. The group of director nominees, directors and executive officers was determined as of November 13, 2009 and does not reflect any changes in management since that date.March 15, 2011. |
(2) | The securities “beneficially owned” by an individual are determined in accordance with the definition of “beneficial ownership” set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: voting power, which includes the power to vote, or to direct the voting of, common stock; and/or, investment power, which includes the power to dispose, or to direct the disposition of, common stock, is determined to be a beneficial owner of the common stock. All shares are subject to the named person’s sole voting and investment power unless otherwise indicated. Shares beneficially owned include shares issuable upon exercise of options which are currently exercisable or which will be exercisable within 60 days of November 13, 2009,March 15, 2011 and upon conversion of convertible securities which are currently convertible or which will be convertible within 60 days of November 13, 2009.March 15, 2011. Percentage calculations presume that the identified individual or group exercise and convert all of his or their respective options and convertible securities, and that |
| no other holders of options or convertible securities exercise their options or convert their convertible securities. As of November 13, 2009March 15, 2011, there were 10,665,63525,972,897 shares of the Company’s common stock outstanding. |
(3) | InformationIncludes 72,914 shares of common stock subject to options which are currently exercisable. Also includes 27,828 shares in trust for his daughter, 32,235 shares with respectpower of attorney for his mother, 21,092 shares owned by his son, and 14,032 shares held by his wife. |
(4) | Includes 73,646 shares of common stock issuable subject to beneficial ownership is based on a Schedule 13D filed with the SEC on June 20, 2008 by Vernon W. Hill, IIoptions which are currently exercisable. Does not include 1,557,900 shares of common stock and Theodore J. Flocco, Jr. Includes 6,000 capital3,000 trust preferred securities of Republic First Bancorp Capital Trust IV held by Mr. Hill, which are currently convertible into 923,077461,538 shares of common stock and 240 capital securities of Republic First Bancorp Capital Trust IV held by The Evergreen Trust B. Mr. Flocco,Madonna does not have the power to vote on, invest in, or dispose of securities held by The Evergreen Trust B and accordingly does not beneficially own those shares. See note (12) below. |
(5) | Includes 15,996 shares of common stock issuable subject to options which are currently convertible into 36,923exercisable. |
(6) | Includes 15,996 shares of common stock. The address of Mr. Hill is 17000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054.stock issuable subject to options which are currently exercisable. |
(4)(7) | Includes 52,4462,000 shares of common stock issuable subject to options which are currently exercisable and 2,288 capital securities of Republic First Bancorp Capital Trust IV held by a family240 trust which are currently convertible into 352,000 shares of common stock. |
(5) | Includes 7,696 shares of common stock issuable subject to options which are currently exercisable. |
(6) | Includes 7,696 shares of common stock issuable subject to options which are currently exercisable. |
(7) | Includes 240 capitalpreferred securities of Republic First Bancorp Capital Trust IV which are currently convertible into 36,923 shares of common stock. |
(8) | Includes 7,69615,996 shares of common stock issuable subject to options which are currently exercisable. |
(9) | Includes 7,696Information with respect to beneficial ownership is based partly on a Schedule 13D/A filed with the SEC on August 6, 2010 by Vernon W. Hill, II. Mr. Hill owns a total of 6,000 trust preferred securities of Republic First Bancorp Capital Trust IV which are convertible into 923,077 shares of common stock. A restriction on conversion of these trust preferred securities prohibits conversion if the holder would beneficially own more than 9.9% of the common stock outstanding at the time of conversion. Accordingly, the calculation of the number of shares beneficially owned in the table above only includes 306 trust preferred securities of Republic First Bancorp Capital Trust IV held by Mr. Hill, which are currently convertible into 47,077 shares of common stock. The address of Mr. Hill is 14000 Horizon Way, Suite 100, Mt. Laurel, NJ 08054. |
(10) | Information with respect to beneficial ownership is based on a Schedule 13G filed with the SEC on February 14, 2011 by Wellington Management Company, LLP. The principal business office address for Wellington Management Company is 280 Congress Street, Boston, MA 02210. |
(11) | Information with respect to beneficial ownership is based on a Schedule 13G/A filed with the SEC on February 7, 2011 by Schaller Investment Group Incorporated, Schaller Equity Partners, Schaller Equity Management, Inc. and Douglas E. Schaller (the “Schaller Group”). Schaller Equity Partners owns directly 1,373,803 shares of common stock. Schaller Equity Management, Inc. is the general partner of Schaller Equity Partners and may be deemed to indirectly beneficially own the shares of common stock issuable subject to options which are currently exercisable. |
(10) | Includes 7,696owned by Schaller Equity Partners. In addition, 703,650 shares of common stock issuable subjectare held in separate accounts managed by Schaller Investment Group Incorporated and could be deemed to options which are currently exercisable. |
(11) | Includes 64,614indirectly beneficially own such shares. Douglas E. Schaller is the President of Schaller Equity Management, Inc. and Schaller Investment Group Incorporated and could be deemed to indirectly beneficially own shares of common stock subjectowned by Schaller Equity Partners and indirectly beneficially owned by Schaller Investment Group Incorporated. The principal business office address for the Schaller Group is 324 Indera Mills Court, Winston-Salem, NC 27101. |
(12) | The co-trustees of The Evergreen Trust B are Brooke C. Madonna, Harry Dillon Madonna, Brandy C. Madonna and Lucas Prewett. Information with respect to optionsbeneficial ownership is provided by Mr. Madonna. Includes 1,557,900 shares of common stock and 3,000 trust preferred securities of Republic First Bancorp Capital Trust IV which are currently exercisable. Also includes 15,828convertible into 461,538 shares of common stock. Mr. Madonna does not have the power to vote on, invest in, trust for his daughter, 12,235 shares with poweror dispose of attorney for his mother, 21,092 shares owned by his son, and 2,032 sharessecurities held by his wife. |
(12) | Mr. DeCesare terminated his employment as an executive officerThe Evergreen Trust B and resigned his position as a director on June 21, 2008.accordingly does not beneficially own those shares. The reported beneficial ownership includes 15,479 shares held by Mr. DeCesare asaddress of February 20, 2008 and 42,561 shares insued to Mr. DeCesare on August 29, 2008 upon his exercise of options. |
(13) | Mr. Frenkiel terminated his employment as an executive officer on November 7, 2008. The reported beneficial ownership includes shares held by Mr. Frenkiel as of March 6, 2009.Evergreen Trust is 1320 North Avignon Drive, Gladwyne, PA 19035. |
EXECUTIVE OFFICERS AND COMPENSATION
Executive Officers
The following sets forth certain information regarding executive officers of the Company. Information pertaining to Harry D. Madonna, who is both a director and the chief executive officerChief Executive Officer of the Company and the Bank, may be found in the section entitled “Continuing Directors—Class I Directors” on page 4.“Proposal 1 – Election of Directors – Director Nominees”.
Edward J. RyanAndrew J Logue, , 53, has been the ControllerPresident and Chief Operating Officer of the Company and the Bank since October 2005May 2010. Mr. Logue had been Executive Vice President and served as the acting Chief FinancialOperating Officer of the Company andsince August 20, 2008. Prior to joining the Bank from November 2008 until August 2009. From 1999 to October 2005,Company, Mr. RyanLogue, served as the Accounting ManagerSenior Vice President/Enterprise Risk Management for American Business Financial Services Inc.Commerce Bank, N.A. and its successor TD Bank, N.A. from March 1991 to August 2008. Mr. Logue served in various functions during his tenure at Commerce Bank, N.A.
Carol L. HunterRhonda Costello, , 60,53, has been an Executive Vice President and Chief Retail Officer of the Bank since August 5, 2008. Prior to joining the Bank, Ms. Costello, served as Senior Retail Officer for Commerce Bank’s Pennsylvania, Central New Jersey and New Jersey Shore Markets. She also held a wide range of management positions including Regional Vice President for Burlington County, N.J., Director of the Company’s Human Resources Department and the Dean of Commerce University during her 23 year tenure with the Bank, which began March 4, 1985.
Jay M. Neilon, 57, has been Senior Vice President and Chief Credit Officer of the Bank since March 2007 andDecember 31, 2008. Prior to joining the Bank, Mr. Neilon, served as the ChiefSenior Credit Officer for Commerce Bank, N.A. and its successor TD Bank, N.A. from January 2008 untilJuly 1992 to December 2008. From 1984Prior to February 2007, Ms. Hunter served inCommerce Bank, N.A., Mr. Neilon held various functions at PNCcredit and lending positions with Fidelity Bank, most recently as a Senior Business Advisor for Commercial Banking.Philadelphia, PA from September 1976 to July 1992.
Frank A. Cavallaro, 40,42, has been Senior Vice President and Chief Financial Officer of the Company since August 31, 2009. Prior to joining the Company, Mr. Cavallaro, served as a Vice President/President in the Finance Department for Commerce Bank, N.A. and its successor TD Bank, N.A. from May 2003September 1997 to August 2009. Mr. Cavallaro, a certified public accountant, has twelvethirteen years of experience in the financial services industry and, prior to that, three years experience in public accounting with Ernst & Young LLP.
Executive Compensation
Compensation Discussion and Analysis
Overview of the Executive Compensation Program. The Company’s executive compensation program includes a number of fixed and variable compensation and benefit components, typical of programs among comparable community banking and financial services companies in our local and regional marketplace.
The program seeks to provide participating executives with an industry-competitive level of total compensation when their collective and individual performances meet or exceed the goals approved by the board of directors, the compensation committee or the chief executive officer.
Compensation Philosophy and Program Objectives. We believe that the compensation program for executives should directly support the achievement of annual, longer-term and strategic goals of the business, and, thereby, align the interests of executives with the interests of the Company’s shareholders.
We believe the current program provides sufficient levels of fixed income, in the forms of base salary and health and welfare benefits, to attract high caliber executive talent to the organization. It also provides competitive annual bonus and longer-term incentive opportunities to encourage specific performance and to reward the successful efforts of executives.
The incentive opportunities are based on competitive industry practice, an executive’s role in the organization, and performance.
Our current program contains certain deferred post-employment compensation features, provided on a selective basis, to encourage retention through long-term wealth accumulation opportunities and to assure transition support in the event of substantial organization or ownership change. These provisions are designed to support retention of good performers by the organization.
We believe that the features and composition of the current program are consistent with practices of other comparable community banking and financial services organizations in our marketplace and that the program balances the need for competitive pay opportunities at the executive level with shareholders’ expectations for reasonable return on their investment.
Program Management. The compensation committee of the board of directors has primary responsibility for the design and administration of the compensation of the chief executive officer of the Company and the Bank, and makes recommendations with respect to the compensation program for other executive officers. The compensation committee will consider the make-up and administration of the executive compensation program in light of changing organization needs and operating conditions and changing trends in industry practice. The compensation committee has the power and authority to retain consultants and, in 2006, retained Strategic Compensation Planning, Inc., of Malvern, PA, to assist the compensation committee in structuring the employment agreements for the chief executive officer of the Company and the Bank. See “Executive Compensation” on page 17 for more information regarding this employment agreement.
Role of Executive Management in the Pay Decision Process. The compensation committee is responsible for approving compensation of the chief executive officer of the Company and the Bank. It will also make recommendations with respect to the compensation of other executive officers. In formulating its decisions, the compensation committee may seek information about the performance of the business, organization staffing requirements and the performance levels of incumbent executives from
the chief executive officer. It will also utilize the services of the Company’s chief financial officer and other officers of the Company to the extent the compensation committee deems appropriate.
Program Review and Pay Decision Process. Annually, the compensation committee reviews information on executive compensation levels in the industry and industry program practices, reviews the Company’s compensation program, and considers adjustments to the program, salary adjustments and incentive awards. The compensation committee will examine the current compensation and benefit levels of incumbent executives in light of their continuing or changing roles in the business and the assessments of their individual performances by the compensation committee or the chief executive officer. It will also determine annual bonus compensation, after consideration of Company and individual performance, but which is ultimately discretionary.
The compensation committee may also be called upon to consider pay related decisions throughout the calendar year as executives are reassigned or promoted and new executives join the organization. In these instances, the compensation committee will review all aspects of the executive’s compensation including base salary level, annual incentive opportunities, longer-term incentive awards, participation in special benefit plans, and employment contract provisions, if applicable.
Pay Decision Factors and Considerations. The following factors typically influence compensation committee decisions on pay and benefits for Company executives:
• | Salary: executive’s overall performance during the year ending, changes in organization role and scope of responsibility, current salary in relation to the position’s market value, any significant changes in the industry’s pay practices for comparable positions.
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• | Annual Bonus Compensation: competitive industry practice with respect to size of awards, actual performance (achievement) against goals and objectives.
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• | Longer-term Incentive Awards: competitive industry practice with respect to size of awards, recent performance of the Company and the individual executive, applicable accounting rules for expensing equity awards, and shareholder concerns about dilution and overhang.
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• | Nonqualified Compensation and Benefits: tax rules on qualified benefit plans, likely replacement income benefits for executives compared to other categories of employees within the organization, competitive industry practice for comparable type and level of executive positions.
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• | Perquisites: the needs of the executive’s position, frequency of travel to other Company locations, or to meet with Company clients and prospective clients, and competitive industry practices for comparable executive roles.
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• | Employment Agreements: where they serve Company needs for confidentiality about business practices and plans and preservation of the customer base (noncompetition and nonsolicitation provisions) and competitive industry practices.
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Basis for Defining Competitive Compensation Levels and Practices. The types and levels of compensation included in the Company’s executive compensation program are generally consistent with current features and programming trends among similar size and type organizations in the Company’s local and regional marketplace.
The compensation committee reviews survey reports on national and regional compensation practice within Company’s industry group, focusing on pay levels and practices among community banking and diversified financial services institutions based in the Mid-Atlantic Region and specifically the Greater Philadelphia metropolitan marketplace having assets of $800 million to $1.5 billion. This range of institutions represents banking companies that are somewhat smaller and somewhat larger than Company. The asset range will be modified from time to time as Company’s operating circumstances change.
For the 2008 program planning cycle, the compensation committee reviewed executive compensation information from the following institutions in Pennsylvania, Delaware, and New Jersey:
| Abington Community Bancorp, Inc. | Greater Community Bancorp |
| Bancorp, Inc. | Leesport Financial Corp. |
| Bryn Mawr Bank Corp. | Royal Bancshares of Pennsylvania |
| First Chester County Corp. | |
Program Components. There are six (6) elements in the current executive compensation program:
Base Salary. Base salary opportunities are targeted at the median level of industry practice for comparable jobs in like size and type community banking and financial service organizations. Within the defined competitive range, an executive’s salary level is based initially on his qualifications for the assignment and experience in similar level and type roles. Ongoing, salary adjustments reflect the individual’s overall performance of the job against organization expectations and may also reflect changes in industry practices.
Health & Welfare Benefits. Executives participate in Company’s qualified health and welfare benefits program on the same terms and conditions as all other employees of the Company.
Annual Performance Incentives. The Company pays bonus compensation which provides executives with opportunities to earn additional cash compensation in a given year. Bonus compensation is discretionary, but Company and business unit operating results and individual performance contributions are considered. Typical annual performance metrics for Company executives include net income, loan and deposit growth and net interest margin. The determination of actual bonus amounts is not formulaic, but, rather, the result of a review of achievements by the chief executive officer and the compensation committee and the application of prevailing industry practices on annual incentive awards.
Longer-term Performance Incentives. Executives are eligible to participate in longer-term incentive award plans established to focus executive efforts on the strategic directions and goals of the business and to reward them for their successes in increasing enterprise value. Awards can result in additional cash compensation or equity grants in the form of stock options or restricted stock. While the size of such awards may increase or decrease based on current business performance, it is the intention of the compensation committee to recommend some combination of the available awards at least annually as an incentive to focus executives future efforts on longer-term needs and objectives of the business.
• | Equity Grant Plans. Our Amended and Restated Stock Option and Restricted Stock Plan authorizes us to grant options to purchase shares of common stock to our employees, directors and consultants. We can also grant restricted stock to these same audiences. Our compensation committee is the administrator of all stock grant plans. Stock option or restricted stock grants may be made at the commencement of employment and from time to time to meet other specific retention or performance objectives, or for other reasons.
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Periodic grants of stock options or restricted stock are made at the discretion of the compensation committee to eligible employees and, in appropriate circumstances, the compensation committee considers the recommendations of the chief executive officer.
• | Deferred Compensation. At the end of the calendar year, named executive officers may receive, at the compensation committee’s discretion, a contribution equal to some percentage of their base salary or base salary and bonus, usually 10%-25%, into our deferred compensation plan. Contributions vest over three (3) years. The value and any earnings on participant accounts are determined by the changes in value of the Company’s common stock. Receipt of the deferred compensation and earnings is deferred to normal retirement.
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Nonqualified Benefits and Perquisites. We currently do not offer a nonqualified supplemental retirement income plan (SERP) to any of our executives, but our chief executive officer, as a former non-employee director, has an account balance in a now frozen retirement income plan for directors.
Perquisites for Company executives are generally limited automobile allowance or use of a Company-provided automobile, and, in a very few instances, a club membership. Typically, these perquisites are provided in instances where such benefits can facilitate the conduct of business with corporate and high net worth clients.
Employment Agreements and Change in Control. Our chief executive officer has an employment agreement with the Company and the Bank. The agreement includes a change in control severance provision. See “Executive Compensation” on page 17 for additional information regarding this agreement.
• | Post Retirement Income Benefits. When retired, former Company executives are only eligible to receive replacement income benefits from our qualified retirement income plans, the same plans covering other employees of the Company. We do not currently sponsor any type of supplemental retirement income plan for highly compensated employees, although we may consider instituting such a plan in the future.
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• | Severance in the Event of Termination Not for Cause or Change in Control. Our chief executive officer has specific severance arrangements in place with the Company in the event of a termination of their employment not related to a change in control of the Company and in the event of such a change in control. Under this arrangement, our chief executive officer would receive three times the sum of his then-current base salary plus the average of his bonuses for the prior three years. All outstanding equity grants and other benefit provisions would fully vest. We also maintain a change in control policy which would provide a severance benefit to executive officers upon certain changes of control of the Company. See “Severance and Change in Control Benefits” at page 21.
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• | Tax Gross-up Provision. The employment agreement for our chief executive officer provides for an excise tax liability gross-up payment following a change in control (as defined in the agreement) if his severance benefits exceed the then-current standards under Internal Revenue Code Section 4999.
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Status of the Program and Likely Practices Going Forward. The general structure of the Company executive compensation program was established several years ago and it has been continuously refined to meet the changing needs of the business and to maintain a competitive posture in the marketplace for executive talent.
Due to the Company’s recent financial and operating results, the compensation committee determined not to award any bonus compensation to our chief executive officer for 2007 or 2008, and only modest bonus compensation to certain other executive officers. The compensation committee will evaluate award opportunities for executives, consistent with performance results.
Both stock option grants and deferred compensation contributions are likely to continue with the size of awards tracking with the performance results of the business.
It is possible that some of these future grants may include performance vesting in lieu of the traditional time vesting requirements attached to past grants.
Nonqualified Benefits. The compensation committee may evaluate the need and effectiveness of a supplemental retirement income plan for certain highly compensated employees in the future.
Perquisites. We believe the Company’s perquisites have always been modest, offering use of a Company vehicle primarily to those executives who travel among Company’s branch offices and operations centers and those who frequently meet with clients and prospects offsite. Similarly, club memberships are only provided for those executives who can utilize them in conducting the Company’s business.
Employment Agreements. The compensation committee has responsibility for review of current and proposed employment agreements and will specifically authorize contract renewals.
Compliance with Sections 162(m) and 409A of the Internal Revenue Code. Section 162(m) of the Internal Revenue Code provides that publicly held corporations may not deduct compensation paid to certain executive officers in excess of $1,000,000 annually, with certain exemptions for qualified “performance-based” compensation. The Company has obtained shareholder approval of its stock option plan, and compensation earned pursuant to such plans is exempt from the Section 162(m) limit. Since we retain discretion over bonuses and certain amounts contributed to the deferred compensation plan, such amounts will not qualify for the exemption for performance-based compensation. Such amounts have not been at levels that, together with other compensation, approached the $1,000,000 limit. Due to the relatively conservative amount of annual compensation, the Company believes its compensation policies reflect due consideration of Section 162(m). We reserve the right, however, to use our judgment to authorize compensation payments that do not comply with the exemptions in Section 162(m) when we believe that such payments are appropriate and in the best interests of our shareholders, after taking into consideration changing business conditions or the executive officer’s performance.
It is also our intention to maintain our executive compensation arrangements in conformity with the requirements of Section 409A of the Internal Revenue Code, which imposes certain restrictions on deferred compensation arrangements. We have been engaged in a process of reviewing and modifying our deferred compensation arrangements since the enactment of Section 409A in 2004 in order to maintain compliance under Section 409A.
Executive Compensation
Compensation Discussion and Analysis
Overview of the Executive Compensation Program. Our executive compensation program includes a number of fixed and variable compensation and benefit components, typical of programs among comparable community banking and financial services companies in our local and regional marketplace.
The program seeks to provide participating executives with an industry-competitive level of total compensation.
Compensation Philosophy and Program Objectives. We believe that the compensation program for executives should directly support the achievement of annual, longer-term and strategic goals of the business, and, thereby, align the interests of executives with the interests of our shareholders.
We believe the current program provides sufficient levels of fixed income, in the forms of base salary and health and welfare benefits, to attract high caliber executive talent to the organization. We believe it also provides competitive annual bonus and longer-term incentive opportunities to encourage performance and to reward the successful efforts of executives.
The incentive opportunities are based on an executive’s role in our organization, company and individual performance, maintaining a compensation program that is competitive in our industry and markets, and other factors.
Our current program contains certain compensation features, provided on a selective basis, to encourage retention through long-term wealth accumulation opportunities and to assure transition support in the event of substantial organization or ownership change. These provisions are designed to support retention of good performers by the organization.
We believe that the features and composition of the current program are consistent with practices of other comparable community banking and financial services organizations in our marketplace and that the program balances the need for competitive pay opportunities at the executive level with shareholders’ expectations for reasonable return on their investment.
Program Management. The compensation committee of the board of directors has primary responsibility for the design and administration of the compensation of the chief executive officer of the Company and the Bank, and makes decisions with respect to the compensation program for other executive officers. The compensation committee will consider the make-up and administration of the executive compensation program in light of changing organization needs and operating conditions and changing trends in industry practice.
Role of Executive Management in the Pay Decision Process. The compensation committee is responsible for approving compensation of our chief executive officer and other executive officers. The Chief Executive Officer will make recommendations to the Compensation Committee with respect to the compensation of other executive officers. In formulating its decisions, the compensation committee may seek information about the performance of the business, organization staffing requirements and the performance levels of incumbent executives from our chief executive officer. It will also utilize the services of our chief financial officer and other officers to the extent the compensation committee deems appropriate.
Program Review and Pay Decision Process. Annually, the compensation committee reviews information on executive compensation levels in the industry and industry program practices, reviews our compensation program, and considers adjustments to the program, salary adjustments and incentive awards. The compensation committee will examine the current compensation and benefit levels of executive officers in light of their continuing or changing roles in the business and the assessments of their individual performances by the compensation committee or the chief executive officer. It will also approve annual bonus compensation, after consideration of Company and individual performance, but which is ultimately discretionary.
The compensation committee may also be called upon to consider pay related decisions throughout the calendar year as executives are reassigned or promoted and new executive officers join the organization. In these instances, the compensation committee will review all aspects of the executive officer’s compensation including base salary level, annual incentive opportunities, longer-term incentive awards, participation in special benefit plans, and employment contract provisions, if applicable.
Pay Decision Factors and Considerations. The following factors typically influence compensation committee decisions on pay and benefits for our executive officers:
•Salary: executive’s overall performance during the year ending, changes in organization role and scope of responsibility, current salary in relation to the position’s market value, any significant changes in the industry’s pay practices for comparable positions.
•Discretionary Annual Bonus Compensation: competitive industry practice with respect to size of awards, actual performance of the Company against budget and executive officer.
•Longer-term Incentive Awards: competitive industry practice with respect to size of awards, recent performance of the Company and the individual executive, applicable accounting rules for expensing equity awards, and shareholder concerns about dilution and overhang.
•Nonqualified Compensation and Benefits: tax rules on qualified benefit plans, likely replacement income benefits for executives compared to other categories of employees within the organization, competitive industry practice for comparable type and level of executive positions.
•Perquisites: the needs of the executive’s position, frequency of travel to other Company locations, or to meet with Company clients and prospective clients, and competitive industry practices for comparable executive roles.
•Employment Agreements: where they serve Company needs for confidentiality about business practices and plans and preservation of the customer base (noncompetitions and nonsoliciation provisions) and competitive industry practices.
Basis for Defining Competitive Compensation Levels and Practices. The types and levels of compensation included in the Company’s executive compensation program are generally consistent with current features and programming trends among similar size and type organizations in our local and regional marketplace.
The compensation committee reviews survey reports on national and regional compensation practice within Company’s industry group, focusing on pay levels and practices among community banking and diversified financial services institutions based in the Mid-Atlantic Region and specifically the Greater Philadelphia metropolitan marketplace, having a level of total assets comparable to our own. This range of institutions represents banking companies that are somewhat smaller and somewhat larger than Company. The asset range will be modified from time to time as Company’s operating circumstances change.
For the 2010 program planning cycle, the compensation committee reviewed executive compensation information from the following institutions in Pennsylvania, and New Jersey. We expect a similar review to be completed in 2011.
Abington Bancorp, Inc. | First Chester County Corporation |
The Bancorp, Inc. | VIST Financial Corp. |
Bryn Mawr Bank Corporation | Royal Bancshares of Pennsylvania, Inc. |
Program Components. There are six (6) elements in the current executive compensation program:
Base Salary. Base salary opportunities are based on industry practice for comparable jobs in like size and type community banking and financial service organizations. Within the defined competitive range, an executive’s salary level is based initially on his qualifications for the assignment and experience in similar level and type roles. Ongoing, salary adjustments reflect the individual’s overall performance of the job against organization expectations and may also reflect changes in industry practices.
Health & Welfare Benefits. Executives participate in Company’s qualified health and welfare benefits program on the same terms and conditions as all other employees of the Company.
Annual Performance Incentives. The Company pays bonus compensation which provides executives with opportunities to earn additional cash compensation in a given year. Bonus compensation is discretionary, but Company and business unit operating results and individual performance contributions are considered. Typical annual performance metrics for Company executives include net income, loan and deposit growth and net interest margin. The determination of actual bonus amounts is not formulaic, but, rather, the result of a review of achievements by the chief executive officer and the compensation committee and the application of prevailing industry practices on annual incentive awards.
Longer-term Performance Incentives. Executives are eligible to participate in longer-term incentive award plans established to focus executive efforts on the strategic directions and goals of the business and to reward them for their successes in increasing enterprise value. Awards can result in additional cash compensation or equity grants in the form of stock options or restricted stock. While the size of such awards may increase or decrease based on current business performance, it is the intention of the compensation committee to recommend some combination of the available awards at least annually as an incentive to focus executives’ future efforts on longer-term needs and objectives of the business.
• | Equity Grant Plans. Our Amended and Restated Stock Option and Restricted Stock Plan (the “Plan”) authorizes us to grant options to purchase shares of common stock to our employees, directors and consultants. We can also grant restricted stock to this same group. Our compensation committee is the administrator of the Plan. Stock option or restricted stock grants may be made at the commencement of employment and from time to time to meet other specific retention or performance objectives, or for other reasons. Periodic grants of stock options or restricted stock are made at the discretion of the compensation committee to eligible employees and, in appropriate circumstances, the compensation committee considers the recommendations of the chief executive officer. |
• | Deferred Compensation. During 2009, our deferred compensation plan was frozen to new participants and Mr. Madonna is the only named executive officer who remains eligible for participation. As such, he may receive, at the compensation committee’s discretion, a company contribution in an amount determined by the compensation committee. Contributions vest three years after the plan year to which the contribution applies, or sooner upon a change of control. The value and any earnings on participant accounts are determined by the changes in value of the investments selected by the participant, including the Company’s common stock. |
Nonqualified Benefits and Perquisites. We currently do not offer a nonqualified supplemental retirement income plan (SERP) to any of our executives, but our chief executive officer, as a former non-employee director, has an account balance in a now frozen retirement income plan for directors.
Perquisites for Company executives are generally limited automobile allowance or use of a Company-provided automobile, and, in a very few instances, a club membership. Typically, these perquisites are provided in instances where such benefits can facilitate the conduct of business with corporate and high net worth clients.
Employment Agreements and Change in Control. We have entered into employment agreements with Mr. Madonna, Mr. Logue and Ms. Costello, in each case because the agreements served certain company objectives and were consistent with competitive industry practices. The agreements with Mr. Logue and Ms. Costello were instrumental in attracting them to join us. All of the agreements include severance benefits, whether or not in connection with a change in control of the company, and obligations of the named executive officers to maintain confidentiality about business practices and plans, and for the preservation of our operations and customer base through restrictive covenants, including noncompetition and non-solicitation provisions.
2010 Compensation and Status of the Program and Likely Practices Going Forward. During 2009, we hired two of our named executive officers, our Chief Credit Officer, Jay Neilon, and our Chief Financial Officer, Frank Cavallaro, and their compensation was determined primarily in order to recruit them. The salaries of Mr. Madonna, Mr. Logue and Ms. Costello were determined in accordance with their existing employment agreements. Due primarily to the state of the economy in general and the financial services industry in particular, and our own financial performance, Mr. Madonna, Mr. Logue, Ms. Costello and Mr. Cavallaro did not receive a discretionary cash bonus during 2009. Mr. Madonna received an option grant consistent with his employment agreement, and Mr. Logue, Ms. Costello, and Mr. Cavallaro each received an option grant, in part due to their recent hirings and limited prior grants.
Due to the Company’s recent financial and operating results, the compensation committee determined not to award any bonus compensation to our chief executive officer for 2007, 2008, or 2009 and only modest bonus compensation to certain other executive officers. The compensation committee will evaluate award opportunities for executives, consistent with performance results.
Both stock option grants and deferred compensation contributions are likely to continue with the size of awards tracking with the performance results of the business.
It is possible that some of these future grants may include performance vesting in lieu of the traditional time vesting requirements attached to past grants.
Employment Agreements. The compensation committee has responsibility for review of current and proposed employment agreements and will specifically authorize contract renewals.
Compliance with Sections 162(m) and 409A of the Internal Revenue Code. Section 162(m) of the Internal Revenue Code provides that publicly held corporations may not deduct compensation paid to certain executive officers in excess of $1,000,000 annually, with certain exemptions for qualified “performance-based” compensation. The Company has obtained shareholder approval of its stock option plan, and compensation earned pursuant to such plan is exempt from the Section 162(m) limit. Since we retain discretion over bonuses and certain amounts contributed to the deferred compensation plan, such amounts will not qualify for the exemption for performance-based compensation. Such amounts have not been at levels that, together with other compensation, approached the $1,000,000 limit. The Company believes its compensation policies reflect due consideration of Section 162(m). We reserve the right, however, to use our judgment to authorize compensation payments that do not comply with the exemptions in Section 162(m) when we believe that such payments are appropriate and in the best interests of our shareholders, after taking into consideration changing business conditions or the executive officer’s performance.
It is also our intention to maintain our executive compensation arrangements in conformity with the requirements of Section 409A of the Internal Revenue Code, which imposes certain restrictions on deferred compensation arrangements. We have been engaged in a process of reviewing and modifying our deferred compensation arrangements in order to maintain compliance under Section 409A.
Compensation Committee Report
The compensation committee has reviewed and discussed the “Compensation Discussion and Analysis,” which begins at page 14 of this proxy statement, with management and, based on such review and discussions, the compensation committee recommended to the board of directors that the “Compensation Discussion and Analysis” be included in this proxy statement.
| Respectfully submitted, |
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| Barry L. Spevak (Chair) |
| Neal I. Rodin |
| Theodore J. Flocco, Jr. |