UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
| Filed by the Registrant | |||||
| Filed by a Party other than the Registrant | [ ] | ||||
| Check the appropriate box: | |||||
| [ ] | Preliminary Proxy Statement | [ ] | Confidential, for Use of the Commission | ||
| [X] | Definitive Proxy Statement | Only (as permitted by Rule 14a-6(e)(2)) | |||
| [ ] | Definitive Additional Materials | ||||
| [ ] | Soliciting Material Pursuant to |
| | §240.14a-12 |
Peoples Bancorp of North Carolina, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
| Payment of Filing Fee (Check the appropriate box): | |||
| [X] | No fee required. | ||
| [ ] | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | ||
| (1) | Title of each class of securities to which transaction applies: | ||
| (2) | Aggregate number of securities to which transaction applies: | ||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||
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| [ ] | Fee paid previously with preliminary materials: | ||
| [ ] | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||
| (1) | Amount Previously Paid: | ||
| (2) | Form, Schedule or Registration Statement No.: | ||
| (3) | Filing Party: | ||
| (4) | Date Filed: | ||
___________________________________________________________
PEOPLES BANCORP
OF NORTH CAROLINA, INC.
Notice of 2016 Annual Meeting,
Proxy Statement and
Annual Report
| PEOPLES BANCORP OF NORTH CAROLINA, INC. | ||||||
| PROXY STATEMENT | ||||||
| Table of Contents | ||||||
| Pa | ge | |||||
| Notice of 2016 Annual Meeting of Shareholders | iii | |||||
| 1 | ||||||
| 1 | ||||||
| Security Ownership of Certain Beneficial Owners and Management | 5 | |||||
| Section 16(a) Beneficial Ownership Reporting Compliance | 7 | |||||
| Proposal 1 - Election of Directors | ||||||
| 7 | ||||||
| Director Nominees | 8 | |||||
| Executive Officers of the Company | 10 | |||||
| How often did our Board of Directors meet during 2015? | 10 | |||||
| 10 | ||||||
| 10 | ||||||
| Board Leadership Structure and Risk Oversight | 11 | |||||
| Code of Business Conduct and Ethics | 11 | |||||
| Diversity of the Board of Directors | 11 | |||||
| How can a shareholder nominate someone for election to the Board of Directors? | 12 | |||||
| Who serves on the Board of Directors of the Bank? | 12 | |||||
| Board Committees | 12 | |||||
| Executive Committee | 12 | |||||
| Governance Committee | 12 | |||||
| Audit and Enterprise Risk Committee | 13 | |||||
| Compensation Discussion and Analysis | 14 | |||||
| Summary Compensation Table | 17 | |||||
| Grants of Plan-Based Awards | 19 | |||||
| Outstanding Equity Awards at Fiscal Year End | 19 | |||||
| Option Exercises and Stock Vested | 20 | |||||
| Pension Benefits | 20 | |||||
| Nonqualified Deferred Compensation | 21 | |||||
| Employment Agreements | 21 | |||||
| Potential Payments upon Termination or Change in Control | 22 | |||||
| Omnibus Stock Option and Long Term Incentive Plan | ||||||
| 23 | ||||||
| Director Compensation | 25 | |||||
| Indebtedness of and Transactions with Management and Directors | 27 | |||||
| Equity Compensation Plan Information | 28 | |||||
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| Stock Performance Graph | 29 | ||||
| Proposal 2 - Ratification of Selection of Independent Registered | |||||
| 30 | |||||
| Audit Fees Paid to Independent Auditors | 30 | ||||
| Proposal 3 - Advisory (Non-Binding) Proposal to Approve the Compensation of the Company's Named | |||||
| Executive Officers | 31 | ||||
| Date for Receipt of Shareholder Proposals | 31 | ||||
| 32 | |||
| Miscellaneous | 32 | ||
| Appendix A - Annual Report | 33 | ||
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PEOPLES BANCORP OF NORTH CAROLINA, INC.
Post Office Box 467
518 West C Street
Newton, North Carolina 28658-0467
(828) 464-5620
| NOTICE OF | ||
| To Be Held On May |
NOTICE IS HEREBY GIVEN that the 20152016 Annual Meeting of Shareholders of Peoples Bancorp of North Carolina, Inc. (the “"Company”") will be held as follows:
| Place: | Catawba Country Club | ||
| 1154 Country Club Road | |||
| Newton, North Carolina | |||
| Date: | May | ||
| Time: | 11:00 a.m., Eastern Time |
The purposes of the Annual Meeting are to consider and vote upon the following matters:
| · | To elect ten persons who will serve as members of the Board of Directors until the |
| · | To ratify the appointment of |
| · | To participate in an advisory (non-binding) vote to approve the compensation of the Company's named executive officers, as disclosed in the Proxy Statement; and |
| · | To consider and act on any other matters that may properly come before the Annual Meeting or any adjournment. |
The Board of Directors has established March 13, 2015,10, 2016, as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. If an insufficient number of shares is present in person or by proxy to constitute a quorum at the time of the Annual Meeting, the Annual Meeting may be adjourned in order to permit further solicitation of proxies by the Company.
Your vote is important. We urge you to vote as soon as possible so that your shares may be voted in accordance with your wishes. You may vote by executing and returning your proxy card in the accompanying envelope, or by voting electronically over the Internet or by telephone. Please refer to the proxy card enclosed for information on voting electronically. If you attend the Annual Meeting, you may vote in person and the proxy will not be used.
By Order of the Board of Directors,
/s/ Lance A. Sellers
Lance A. Sellers
President and Chief Executive Officer
Newton, North Carolina
March 25, 2016
PEOPLES BANCORP OF NORTH CAROLINA, INC.
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held On May 7, 20155, 2016
This Proxy Statement is being mailed to our shareholders on or about March 27, 2015,25, 2016, for solicitation of proxies by the Board of Directors of Peoples Bancorp of North Carolina, Inc. Our principal executive offices are located at 518 West C Street, Newton, North Carolina 28658. Our telephone number is (828) 464-5620.
In this Proxy Statement, the terms “"we,” “" "us,” “" "our”" and the “"Company”" refer to Peoples Bancorp of North Carolina, Inc. The term “"Bank”" means Peoples Bank, our wholly-owned, North Carolina-chartered bank subsidiary. The terms “"you”" and “"your”" refer to the shareholders of the Company.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on
May 7, 2015.5, 2016. The Notice, Proxy Statement and the Annual Report to Shareholders for the year ended
December 31, 20142015 are also available at
https://www.snl.com/IRWebLinkX/GenPage.aspx?IID=4050385&GKP=202713
You may also access the above off-site website by going to www.peoplesbanknc.com and click on the link.
INFORMATION ABOUT THE ANNUAL MEETING
Your vote is very important. For this reason, our Board of Directors is requesting that you allow your common stock to be represented at the 20152016 Annual Meeting of Shareholders by the proxies named on the enclosed proxy card.
| When is the Annual Meeting? | May | ||
| Where will the Annual Meeting be held? | At the Catawba Country Club, 1154 Country Club Road, | ||
| Newton, North Carolina. | |||
| What items will be voted on at the | |||
| Annual Meeting? | 1. | ELECTION OF DIRECTORS. To elect ten directors to serve until the | |
| 2. | RATIFICATION OF SELECTION OF INDEPENDENT | ||
| 3. | PARTICIPATION IN ADVISORY VOTE ("SAY ON PAY"). To participate in an advisory (non-binding) vote to approve the compensation of the Company's named executive officers, as disclosed in this Proxy Statement. | ||
| 4. | OTHER BUSINESS. To consider any other business as may properly come before the Annual Meeting or any adjournment. | ||
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| Who can vote? | Only holders of record of our common stock at the close of business on March |
| How do I vote by proxy? | You may vote your shares by marking, signing and dating the enclosed proxy card and returning it in the enclosed postage-paid envelope or by voting electronically over the Internet or by telephone using the information on the proxy card. If you return your signed proxy card before the Annual Meeting, the proxies will vote your shares as you direct. The Board of Directors has appointed proxies to represent shareholders who cannot attend the Annual Meeting in person. | |
| For the election of directors, you may vote for (1) all of the nominees, (2) none of the nominees, or (3) all of the nominees except those you designate. If a nominee for election as a director becomes unavailable for election at any time at or before the Annual Meeting, the proxies will vote your shares for a substitute nominee. For each other item of business, you may vote "FOR" or "AGAINST" or you may "ABSTAIN" from voting. | ||
| If you return your signed proxy card but do not specify how you want to vote your shares, the proxies will vote them "FOR" the election of all of our nominees for directors and "FOR" all other proposals presented in this Proxy Statement in accordance with recommendations from the Board of Directors. | ||
If your shares are held in the name of a broker or other nominee (i.e., held in "street name"), you will need to obtain a proxy instruction card from the broker holding your shares and return the card as directed by your broker. Your broker is not permitted to vote on your behalf on the election of directors unless you provide specific instructions by following the instructions from your broker about voting your shares by telephone or Internet or completing and returning the voting instruction card provided by your broker. For your vote to be counted in the election of directors and the advisory vote on executive compensation you now will need to communicate your voting decision to your bank, broker or | ||
| We are not aware of any other matters to be brought before the Annual Meeting. If matters other than those discussed above are properly brought before the Annual Meeting, the proxies may vote your shares in accordance with their best judgment. |
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| How do I change or revoke my proxy? | You can change or revoke your proxy at any time before it is voted at the Annual Meeting in any of three ways: (1) by delivering a written notice of revocation to the Secretary of the Company; (2) by delivering another properly signed proxy card to the Secretary of the Company with a more recent date than your first proxy card or by changing your vote by telephone or the Internet; or (3) by attending the Annual Meeting and voting in person. You should deliver your written notice or superseding proxy to the Secretary of the Company at our principal executive offices listed above. |
| How many votes can I cast? | You are entitled to one vote for each share held as of the Record Date on each nominee for election and each other matter presented for a vote at the Annual Meeting. You may not vote your shares cumulatively in the election of directors. | |
| How many votes are required to approve the proposals? | If a quorum is present at the Annual Meeting, each director nominee will be elected by a plurality of the votes cast in person or by proxy. If you withhold your vote on a nominee, your shares will not be counted as having voted for that nominee. The proposal to ratify the appointment of the Company's independent registered public accounting firm for | |
| The proposal to approve the compensation of the Company's named executive officers is advisory only; however, the Company's Compensation Committee will consider the outcome of the vote when evaluating compensation arrangements for executive compensation. | ||
| Any other matters properly coming before the Annual Meeting for a vote will require the affirmative vote of the holders of a majority of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on that matter. | ||
| Abstentions and broker non-votes are not treated as votes cast on any proposal. As a result, neither will have an effect on the vote for the election of any director, | ||
| In the event there are insufficient votes present at the Annual Meeting for a quorum or to approve or ratify any proposal, the Annual Meeting may be adjourned in order to permit the further solicitation of proxies. | ||
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| What constitutes a "quorum" for the Annual Meeting? | A majority of the outstanding shares of our common stock entitled to vote at the Annual Meeting, present in person or represented by proxy, constitutes a quorum (a quorum is necessary to conduct business at the Annual Meeting). Your shares will be considered part of the quorum if you have voted your shares by proxy or by telephone or Internet. Abstentions, broker non-votes and votes withheld from any director nominee count as shares present at the Annual Meeting for purposes of determining a quorum. | |
| Who pays for the solicitation of proxies? | We will pay the cost of preparing, printing and mailing materials in connection with this solicitation of proxies. In addition to solicitation by mail, our officers, directors and regular employees, as well as those of the Bank, may make solicitations personally, by telephone or otherwise without additional compensation for doing so. We reserve the right to engage a proxy solicitation firm to assist in the solicitation of proxies for the Annual Meeting. We will, upon request, reimburse brokerage firms, banks and others for their reasonable out-of-pocket expenses in forwarding proxy materials to beneficial owners of stock or otherwise in connection with this solicitation of proxies. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The Exchange Act requires that any person who acquires the beneficial ownership of more than five percent (5%) of the Company’sCompany's common stock notify the Securities and Exchange Commission (the “"SEC”") and the Company. Following is certain information, as of the Record Date, regarding those persons or groups who held of record, or who are known to the Company to own beneficially, more than five percent (5%) of the Company’sCompany's outstanding common stock.
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership1 | Percent of Class2 | |
Christine S. Abernethy P.O. Box 386 Newton, NC 28658 | 660,4953 | ||
Tontine Financial Partners, LP 55 Railroad Avenue, 3rd Floor Greenwich, CT 06830-6378 | 373,3044 | 6.77% | |
Tontine Management, LLC 55 Railroad Avenue Greenwich, CT 06830 | |||
Tontine Asset Associates, LLC 55 Railroad Avenue Greenwich, CT 06830 | 141,3614 | ||
Jeffrey L. Gendell 55 Railroad Avenue Greenwich, CT 06830 |
________________________________
| 1 | Unless otherwise noted, all shares are owned directly of record by the named individuals, by their spouses and minor children, or by other entities controlled by the named individuals. Voting and investment power is not shared unless otherwise indicated. |
| 2 | Based upon a total of |
| 3 | Carolina Glove Company, Inc. owns 107,604 shares of common stock. These shares are included in the calculation of Ms. |
| 4 | Based on a Schedule 13G/A (Amendment No. |
Set forth below is certain information, as of the Record Date (unless otherwise indicated), regarding those shares of common stock owned beneficially by each of the persons who currently serves as a member of the Board of Directors, is a nominee for election to the Board of Directors at the Annual Meeting, or is a named executive officer (“NEO”) of the Company. Also shown is the number of shares of common stock owned by the directors and executive officers of the Company as a group.
| Amount and Nature | Percentage | |||
| of Beneficial | of | |||
Name and Address | Ownership1 | Class2 | ||
| James S. Abernethy | 171,6043 | 3.11% | ||
| Post Office Box 327 | ||||
| Newton, NC 28658 | ||||
| Robert C. Abernethy | 2.83% | |||
| Post Office Box 366 | ||||
| Newton, NC 28658 | ||||
| Joseph F. Beaman, Jr. | 8,5235 | * | ||
| Post Office Box 467 | ||||
| Newton, NC 28658 | ||||
| William D. Cable, Sr. | * | |||
| Post Office Box 467 | ||||
| Newton, NC 28658 | ||||
| Douglas S. Howard | * | |||
| Post Office Box 587 | ||||
| Denver, NC 28037 | ||||
| A. Joseph Lampron, Jr. | * | |||
| Post Office Box 467 | ||||
| Newton, NC 28658 | ||||
| John W. Lineberger, Jr. | 2,326 | * | ||
| Post Office Box 481 | ||||
| Lincolnton, NC 28092 | ||||
| Gary E. Matthews | * | |||
| 210 First Avenue South | ||||
| Conover, NC 28613 | ||||
| Billy L. Price, Jr., M.D. | * | |||
| 540 11th Ave. Place NW | ||||
| Hickory, NC 28601 | ||||
| Larry E. Robinson | * | |||
| Post Office Box 723 | ||||
| Newton, NC 28658 | ||||
| Lance A. Sellers | * | |||
| Post Office Box 467 | ||||
| Newton, NC 28658 | ||||
| William Gregory Terry | * | |||
| Post Office Box 395 | ||||
| Conover, NC 28613 | ||||
| Dan Ray Timmerman, Sr. | 1.60% | |||
| Post Office Box 1148 | ||||
| Conover, NC 28613 | ||||
| Benjamin I. Zachary | 1.68% | |||
| Post Office Box 277 | ||||
| Taylorsville, NC 28681 |
| All current directors and nominees and | 10.95% | ||
| executive officers as a group (14 people) |
*Does not exceed one percent of the common stock outstanding.
| 1 | Unless otherwise noted, all shares are owned directly of record by the named individuals, by their spouses and minor children, or by other entities controlled by the named individuals. Voting and investment power is not shared unless otherwise indicated. |
| 2 | Based upon a total of |
| 3 | Includes 64,038 shares of common stock owned by Alexander Railroad Company. Mr. J. Abernethy is Vice President, Secretary and Chairman of the Board of Directors of Alexander Railroad Company. |
| 4 | Includes |
| 5 | Mr. Beaman retired on June 30, 2015. As such, the amount shown above represents Mr. Beaman's beneficial ownership as of June 30, 2015. |
| 6 | Includes 450 shares of common stock owned by Mr. |
| Includes 8,835 shares of common stock owned by Mr. |
| Includes 2,722 shares of common stock owned by Timmerman Manufacturing, Inc. Mr. Timmerman is a shareholder, director, Chairman of the Board and the Chief Executive Officer of Timmerman Manufacturing, Inc. |
| Includes 64,038 shares of common stock owned by Alexander Railroad Company. Mr. Zachary is President, Treasurer, General Manager and a Director of Alexander Railroad Company. |
| The 64,038 shares owned by Alexander Railroad Company and attributed to Mr. J. Abernethy and Mr. Zachary are only included once in calculating this total. |
Directors James S. Abernethy and Robert C. Abernethy are brothers and are sons of Christine S. Abernethy, who owns in excess of ten percent (10%) of the common stock.stock of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’sCompany's executive officers and directors, and persons who own more than ten percent (10%) of the common stock, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than ten percent (10%) beneficial owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company and written representations from the Company’sCompany's executive officers and directors, the Company believes that during the fiscal year ended December 31, 2014,2015, its executive officers and directors and greater than ten percent (10%) beneficial owners complied with all applicable Section 16(a) filing requirements.
PROPOSAL 1
ELECTION OF DIRECTORS
Our Board of Directors has set its number at ten members. Our current Bylaws provide that in order to be eligible for consideration at the Annual Meeting of Shareholders, all nominations of directors, other than those made by the Governance Committee or the Board of Directors, must be in writing and must be delivered to the Secretary of the Company not less than 50 days nor more than 90 days prior to the meeting at which such nominations will be made; provided, however, that if less than 60 days’days' notice of the meeting is given to the shareholders, such nominations must be
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delivered to the Secretary of the Company not later than the close of business on the tenth day following the day on which the notice of meeting was mailed.
Information about the nominees for election to the Board of Directors for a one-year term until the 20162017 Annual Meeting of Shareholders appears below. All of the nominees are currently serving on the Board of Directors.
Director Nominees
James S. Abernethy, age 6061 (as of March 1, 2015)2016), is employed by Carolina Glove Company, Inc., a glove manufacturing company as its Vice President. Mr. Abernethy continues to serve as President and Assistant Secretary of Midstate Contractors, Inc., a paving company and also as Vice President, Secretary and Chairman of the Board of Directors of Alexander Railroad Company. Mr. Abernethy is also a director of Burke Mills, a public company. He has served as a director of the Company since 1992. Mr. Abernethy has a total of 2223 years of banking experience and is a graduate of the North Carolina Bank Directors’Directors' College and attended the initial Advanced Directors’Directors' Training session offered by the North Carolina Bank Directors’Directors' College in association with the College of Management at North Carolina State University. Mr. Abernethy earned a business administration degree from Gardner Webb University in North Carolina. Over his 2223 years of service on the Board of Directors, Mr. Abernethy has served on all the Bank’sBank's and the Company’sCompany's committees.
Robert C. Abernethy, age 6465 (as of March 1, 2015)2016), is employed by Carolina Glove Company, Inc., a glove manufacturing company, as its President, Secretary and Treasurer. Mr. Abernethy continues to serve as Secretary and Assistant Treasurer of Midstate Contractors, Inc., a paving company. He has served as a director of the Company since 1976 and as Chairman since 1991. Mr. Abernethy has a total of 3839 years of banking experience and is a graduate of the North Carolina Bank Directors’Directors' College and attended the initial Advanced Directors’Directors' Training session offered by the North Carolina Bank Directors’Directors' College in association with the College of Management at North Carolina State University. Mr. Abernethy earned a B.S. degree from Gardner Webb University in North Carolina. He serves on the Finance Committee and Investment Committee of Grace United Church of Christ. Mr. Abernethy also serves on the board of directors of Carolina Glove Company, Inc. and Midstate Contractors, Inc. both privately held companies.
Douglas S. Howard, age 5657 (as of March 1, 2015)2016), is employed by Denver Equipment of Charlotte, Inc. as Vice President, Secretary and Treasurer. Mr. Howard is currently serving as the Chairman of the Endowment Committee of Eastern Catawba Cooperative Christian Ministry.Valley Medical Group. He has served as a director of the Company since 2004. Mr. Howard has a total of 1617 years of banking experience and is a graduate of the North Carolina Bank Directors’Directors' College and attended the initial Advanced Directors’Directors' Training session offered by the NC Bank Directors’Directors' College in association with the College of Management at North Carolina State University. He also serves on the Western NC Methodist Church Board of Finance. Mr. Howard also serves on the boards of Catawba Valley Medical Center and other privately-held companies.
John W. Lineberger Jr., Jr., age 6465 (as of March 1, 2015)2016), is employed by Lincoln Bonded Warehouse Company, a commercial warehousing facility, as President. He has served as a director of the Company since 2004. Mr. Lineberger has a total of ten11 years of banking experience and is a graduate of the North Carolina Bank Directors’Directors' College and attended the initial Advanced Directors’Directors' Training session offered by the NC Bank Directors’Directors' College in association with the College of Management at North Carolina State University. Mr. Lineberger earned a B.S. degree in business administration from Western Carolina University.
Gary E. Matthews, age 5960 (as of March 1, 2015)2016), is employed by Matthews Construction Company, Inc. as its President and a Director. He has served as a director of the Company since 2001. Mr. Matthews has a total of 1314 years of banking experience, is a graduate of the North Carolina Bank Directors’Directors' College, and attended the initial Advanced Directors’Directors' Training session offered by the NC Bank Directors’Directors' College in association with the College of Management at North Carolina State University. Mr. Matthews is also a director of Conover Metal Products, a privately held company. Mr. Matthews earned a B.S. degree in civil engineering/construction from North Carolina State University.
Billy L. Price, Jr., M.D.M.D., age 5859 (as of March 1, 2015)2016), is a Practitioner of Internal Medicine at BL Price Medical Consultants, PLLC. Dr. Price also serves on the Board of Trustees of Catawba Valley Medical Center. He has served as a director of the Company since 2004. Dr. Price has a total of ten11 years of banking experience and is a graduate of the North Carolina Bank Directors’Directors' College and attended the initial Advanced Directors’Directors' Training session offered by the NC Bank Directors’Directors' College in association with the College of Management at North Carolina State University. Dr. Price was previously the owner/pharmacist of Conover Drug Company. He is also a Medical Director of Healthgrow Medical, a private company. Dr. Price earned a B.S. degree in pharmacy from the University of North Carolina at Chapel Hill and his MD from East Carolina University School of Medicine.
Larry E. Robinson, age 6970 (as of March 1, 2015)2016), is employed by The Blue Ridge Distributing Company, Inc., a beer and wine distributor, as the President and Chief Executive Officer. He is a partner and Chief Operating Officer of United Beverages of North Carolina, LLC, a beer distributor. He has served as a director of the Company since 1993. Mr. Robinson has a total of 2122 years of banking experience and is a graduate of the North Carolina Bank Directors’Directors' College. Mr. Robinson attended Western Carolina University and received an Associate Degree in Business and Accounting from Catawba Valley Community College in North Carolina.
William Gregory Terry, age 4748 (as of March 1, 2015)2016), is employed by Drum & Willis-Reynolds Funeral Homes and Crematory as General Manager. He has served as a director of the Company since 2004. Mr. Terry has a total of ten11 years of banking experience and is a graduate of the North Carolina Bank Directors’Directors' College and attended the initial Advanced Directors’Directors' Training session offered by the NC Bank Directors’Directors' College in association with the College of Management at North Carolina State University. Mr. Terry graduated with a B.S. degree in business management from Clemson University in South Carolina. Mr. Terry serves on numerous civic and community boards.
Dan Ray Timmerman, Sr.Sr., age 6768 (as of March 1, 2015)2016), is a shareholder, director, Chairman of the Board and the Chief Executive Officer of Timmerman Manufacturing, Inc., a wrought iron furniture, railings and gates manufacturer. He has served as a director of the Company since 1995. Mr. Timmerman has a total of 1920 years of banking experience and is a graduate of the North Carolina Bank Directors’Directors' College and attended the initial Advanced Directors’Directors' Training session offered by the NC Bank Directors’Directors' College in association with the College of Management at North Carolina State University. Mr. Timmerman earned a B.S. degree in business administration with a concentration in accounting from Lenoir-Rhyne University in North Carolina.
Benjamin I. Zachary, age 5960 (as of March 1, 2015)2016), is employed by Alexander Railroad Company as its President, Treasurer, General Manager and Director. He has served as a director of the Company since 1995. Mr. Zachary has a total of 1920 years of banking experience and is a graduate of the North Carolina Bank Directors’Directors' College. Mr. Zachary earned a B.S. degree in business administration with a concentration in accounting from the University of North Carolina at Chapel Hill. He worked as a CPA for a national accounting firm for eight years following graduation where his assignments included financial statement audits of several banks. He formerly served as Treasurer and a member of the Finance Committee of First United Methodist Church of Taylorsville for many years. Mr. Zachary is a member of the Taylorsville Rotary Club and also serves as Treasurer.Treasurer for the Taylorsville Rotary Club and its Foundation.
We have no reason to believe that any of the nominees for election will be unable or will decline to serve if elected. In the event of death or disqualification of any nominee or the refusal or inability of any nominee to serve as a director, however, the proxies will vote for the election of another person as they determine in their discretion or may allow the vacancy to remain open until filled by the Board of Directors. In no circumstance will any proxy be voted for more than two nominees who are not named in this proxy statement.Proxy Statement. Properly executed and returned proxies, unless revoked, will be voted as directed by you or, in the absence of direction, will be voted in favor of the election of the recommended nominees. An affirmative vote of a plurality of votes cast at the Annual Meeting is necessary to elect a nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE “"FOR”" ALL OF THE NOMINEES NAMED
ABOVE AS DIRECTORS
Lance A. Sellers, age 53 (as of March 1, 2016), serves as the President and Chief Executive Officer of the Company and the Bank. Prior to becoming the President and Chief Executive Officer of the Company and the Bank, Mr. Sellers served as Executive Vice President and Assistant Corporate Secretary of the Company and Executive Vice President and Chief Credit Officer of the Bank. He has been employed by the Company and the Bank since 1998. Mr. Sellers has a total of 31 years of banking experience. He is a graduate of the University of North Carolina at Chapel Hill and upon graduation served as a senior credit officer at a regional bank headquartered in North Carolina.
William D. Cable, Sr., age 47 (as of March 1, 2016), serves as Executive Vice President, Assistant Corporate Treasurer and Corporate Secretary of the Company and Executive Vice President and Chief Operating Officer of the Bank. He has been employed by the Company and the Bank since 1995, where he has served as Senior Vice President-Information Services. Mr. Cable has a total of 24 years of banking experience. Prior to joining the Company, Mr. Cable was a regulatory examiner with the Federal Deposit Insurance Corporation. He is a graduate of Western Carolina University and the School of Banking of the South at Louisiana State University.
A. Joseph Lampron, Jr., age 61 (as of March 1, 2016), serves as Executive Vice President, Chief Financial Officer, Corporate Treasurer and Assistant Corporate Secretary of the Company and Executive Vice President and Chief Financial Officer of the Bank. He has been employed by the Company and the Bank since 2001. Mr. Lampron is a graduate of the University of North Carolina at Chapel Hill and upon graduation worked as a certified public accountant with a national accounting firm. His work with the firm included audits of banks and thrift institutions. Mr. Lampron has also served as Chief Financial Officer of a thrift institution and as a senior change manager in the finance group of a large North Carolina bank. Mr. Lampron has a total of 36 years of banking experience.
Joseph F. Beaman, Jr., age 66 (as of March 1, 2016), served as Executive Vice President and Corporate Secretary of the Company and Executive Vice President, Chief Administrative Officer and Corporate Secretary of the Bank until his retirement on June 30, 2015. Mr. Beaman joined the Bank in 1977, and served in a variety of roles, including, but not limited to, Vice President-Operations and Senior Vice President. He is a graduate of Pfeiffer University, the North Carolina School of Banking, and the Graduate School of Financial Management at the University of Texas in Austin.
How often did our Board of Directors meet during 2014?2015?
Our Board of Directors held 14 meetings during 2014.2015. All incumbent directors attended more than 75% of the total number of meetings of the Board of Directors and its committees on which they served during the year.
What committees doesis our Board of Directors have?policy for director attendance at Annual Meetings?
We do not have formal procedures for shareholder communication with our Board of Directors. Actions takenIn general, our directors and officers are easily accessible by the Executive Committee must be approved by the fulltelephone, postal mail or e-mail. Any matter intended for your Board of Directors. The following persons currently serve on the Executive Committee: Directors, R. Abernethy, J. Abernethy, Lineberger, Matthews and Howard, as well as theor any individual director, can be directed to Lance Sellers, our President and Chief Executive Officer, of the Company. It meets on an “as needed” basis and did not meet during 2014.
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Board Leadership Structure and Risk Oversight
Our Company and the Bank have traditionally operated with separate Chief Executive Officer and Chairman of the Board of Directors positions. We believe it is our Chief Executive Officer’sOfficer's responsibility to manage the Company and the Chairman’sChairman's responsibility to lead the Board of Directors. Robert Abernethy is currently serving as Chairman of the Board of Directors. Other than Director Lineberger, all of the members of the Board of Directors are independent under applicable NASDAQ listing requirements. The Company has fourfive standing committees: Executive, Loan Sub-Committee, Governance, Audit and Compensation. The Chief Executive Officer serves on the Executive Committee. The Bank in addition to the above-named committees has a Loan Committee and a Loan Sub-Committee. The duties of the Company’sCompany's committees and the qualifications of the independent directors have been described above. Each of the Company’sCompany's and the Bank’sBank's committees considers risk within its area of responsibility. The Audit Committee and the full Board of Directors focus on the Company’sCompany's most significant risks in the areas of liquidity, credit, interest rate and general risk management strategy. The Board of Directors sets policy guidelines in the areas of loans and asset/liability management which are reviewed on an on-going basis. While the Board of Directors oversees the Company’sCompany's risk management, the Company’sCompany's and the Bank’sBank's management are responsible for day-to-day risk management following the dictates of the policy decisions set by the Board of Directors.
The Governance Committee, as part of its annual review, evaluates the Board of Directors leadership structure and performance and reports its findings to the whole Board of Directors. The Board of Directors believes that having separate persons serving as Chief Executive Officer and Chairman and all independent directors provides the optimal board leadership structure for the Company and its shareholders.
The Company and the Bank have a Code of Business Conduct and Ethics for its directors, officers and employees. The Code of Business Conduct and Ethics requires that individuals avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in the best interests of the Company and the Bank. The Code of Business Conduct and Ethics is a guide to help ensure that all employees live up to the highest ethical standards of behavior.
A copy of the Code of Business Conduct and Ethics is available on the Bank’sBank's website (www.peoplesbanknc.comwww.peoplesbanknc.com)) under Investor Relations.
As is permitted by SEC rules, the Company intends to post on its website any amendment to or waiver from any provision in the Code of Business Conduct and Ethics that applies to the Chief Executive Officer, the Chief Financial Officer, the Controller, or persons performing similar functions, and that relates to any element of the standards enumerated in the rules of the SEC.
The Governance Committee has no written diversity policy; however, the Governance Committee defines diversity broadly to include, in addition to race, gender, ethnicity and age, differences in professional experience, educational background, geographic mix within the Company's market area, skills and other individual qualities and attributes that foster board heterogeneity in order to encourage and maintain board effectiveness. While there are currently no women or minorities serving on the Board of Shareholders held on May 1, 2014.Directors, any qualified candidate receives consideration regardless of race, gender or national origin.
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How can a shareholder nominate someone for election to the Board of Directors?
Our Bylaws provide that in order to be eligible for consideration at the Annual Meeting of Shareholders, all nominations of directors, other than those made by the Governance Committee or the Board of Directors, must be in writing and must be delivered to the Secretary of the Company not less than 50 days nor more than 90 days prior to the meeting at which such nominations will be made. However, if less than 60 days’days' notice of the meeting is given to the shareholders, such nominations must be delivered to the Secretary of the Company not later than the close of business on the tenth day following the day on which the notice of meeting was mailed.
The Board of Directors may disregard any nominations that do not comply with these requirements. Upon the instruction of the Board of Directors, the inspector of voting for the Annual Meeting may disregard all votes cast for a nominee if the nomination does not comply with these requirements. Written notice of nominations should be directed to the Secretary of the Company.
Who serves on the Board of Directors of the Bank?
The Bank has ten directors currently serving on its Board of Directors, who are the same people who are currently directors of the Company.
Board Committees
During 2015, our Board of Directors had five standing committees, the Audit and Enterprise Risk Committee, the Governance Committee, the Compensation Committee, the Executive Committee and the Loan Sub-Committee. The voting members of these Committees are appointed by the Board of Directors annually from among its members. Certain of our executive officers also serve as non-voting, advisory members of these committees.
Executive Committee. The Executive Committee performs duties as assigned by the full Board of Directors. Actions taken by the Executive Committee must be approved by the full Board of Directors. The following persons currently serve on the Executive Committee: Directors R. Abernethy, J. Abernethy, Lineberger, Matthews and Howard, as well as the President and Chief Executive Officer of the Company. It meets on an "as needed" basis and did not meet during 2015.
Governance Committee. The Governance Committee is responsible for developing and maintaining the corporate governance policy, as well as acting as the nominating committee for the Board of Directors. The following persons currently serve on the Governance Committee: Directors R. Abernethy, J. Abernethy, Robinson, Terry, and Timmerman. All of the members of the Governance Committee are independent as defined in the applicable NASDAQ listing standards. The Board of Directors determines on an annual basis each director's independence.
The Governance Committee, serving as the nominating committee of the Board of Directors, interviews candidates for membership to the Board of Directors, recommends candidates to the full Board of Directors, slates candidates for shareholder votes, and fills any vacancies on the Board of Directors which occur between shareholder meetings. The Governance Committee's identification of candidates for director typically results from the business interactions of the members of the Governance Committee or from recommendations received from other directors or from the Company's management.
If a shareholder recommends a director candidate to the Governance Committee in accordance with the Company's Bylaws, the Governance Committee will consider the candidate and apply the same considerations that it would to its own candidates. The recommendation of a candidate by a shareholder should be made in writing, addressed to the attention of the Governance Committee at the Company's corporate headquarters. The recommendation should include a description of the candidate's background, his or her contact information, and any other information the shareholder considers useful and appropriate for the Governance Committee's consideration of the candidate. The criteria which have been established by the Governance Committee as bearing on the consideration of a candidate's qualification to serve as a director include the following: the candidate's ethics, integrity, involvement in the community,
The Board of Directors has determined that each member of the Audit Committee qualifies as an "audit committee financial expert" based on each of the member's educational background and business experience.
The Audit Committee meets at least quarterly and, among other responsibilities, oversees (i) the independent auditing of the Company; (ii) the system of internal controls that management has established; and (iii) the quarterly and annual financial information to be provided to shareholders and the SEC. The Audit Committee met ten times during the year ended December 31, 2015.
Audit Committee Report. The Audit Committee has reviewed and discussed the audited financial statements with management of the Company and has discussed with the independent auditors the matters required to be discussed by Auditing Standards No. 16 as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the Audit Committee has received the written disclosures and the letter from the independent accountants required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and has discussed with the independent accountant the independent accountant's independence. Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
| Robert C. Abernethy | Dan R. Timmerman, Sr. | ||
Benjamin I. Zachary Douglas S. Howard | Billy L Price, Jr. MD, Committee Chair |
Compensation Committee. The Company's Compensation Committee is responsible for developing, reviewing, implementing and maintaining the Bank's salary, bonus, and incentive award programs and for making recommendations to the Company's and the Bank's Board of Directors regarding compensation of the executive officers. Upon recommendation from the Compensation Committee, the Company's Board of Directors ultimately determines such compensation.
All of the members of the Compensation Committee are independent as defined in the applicable NASDAQ's listing standards. The Board of Directors determines on an annual basis each director's independence. The following persons currently serve on the Compensation Committee: Directors R. Abernethy, J. Abernethy, Robinson, Terry and Timmerman. The Compensation Committee met four times during the year ended December 31, 2015.
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The Compensation Committee has a written charter which is reviewed annually, and amended as needed, by the Compensation Committee. A copy of the Compensation Committee's Charter is available on the Bank's website (www.peoplesbanknc.com) under Investor Relations.
Compensation Committee Interlocks and Insider Participation. No member of the Compensation Committee is now, or formerly was, an officer or employee of the Company or the Bank. None of the NEOs serve as a member of the board of directors of another entity whose executive officers or directors serve on the Company's Board of Directors.
Compensation Committee Report. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis in this Proxy Statement with management and has recommended that it be included in this Proxy Statement and our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2015.
Compensation Committee
Robert C. Abernethy
James S. Abernethy
Larry E. Robinson
William Gregory Terry
Dan R. Timmerman, Sr., Committee Chair
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis provides information with respect to the compensation paid during the year ended December 31, 2015 to our President and Chief Executive Officer, Lance A. Sellers, our Chief Financial Officer, A. Joseph Lampron, Jr., and Joseph F. Beaman, Jr. and William D. Cable, Sr. (together, our "named executive officers").
Compensation Committee Processes and Procedures. The Compensation Committee assists the Board of Directors in determining appropriate compensation levels for their service. However, allthe members of the Board of Directors areand our named executive officers. It also directorshas strategic and administrative responsibility for a broad range of compensation issues. It seeks to ensure that we compensate key management employees effectively and in a manner consistent with the Compensation Committee's stated compensation strategy and relevant requirements of various regulatory entities. A part of these responsibilities is overseeing the administration of executive compensation and employee benefit plans, including the design, selection of participants, establishment of performance measures, and evaluation of awards pursuant to our annual and long-term incentive programs.
Compensation Philosophy. The overall objective of our executive compensation program is to align total compensation so that the individual executive believes it is fair and equitable and provides the highest perceived value to our shareholders and to that individual. In order to accomplish this overall objective, our executive compensation program is designed to: (i) attract qualified executives necessary to meet our needs as defined by the Company's strategic plans, and (ii) retain and motivate executives whose performance supports the achievement of our long-term plans and short-term goals. The executive compensation program is founded upon the idea that a strong, performance-oriented compensation program, which is generally consistent with the practices of our peers, is a key ingredient in becoming a leading performer among financial institutions of similar size, and is, therefore, in the best interests of our shareholders.
The Compensation Committee considers a number of factors specific to each executive's role when determining the amount and mix of compensation to be paid. These factors are:
| · | compensation of the comparable executives at comparable financial institutions; |
| · | financial performance of the Company (especially on a "net operating" basis, which excludes the effect of one-time gains and expenses) over the most recent fiscal year and the prior three years; |
| · | composition of earnings; |
| · | asset quality relative to the banking industry; |
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| · | responsiveness to the economic environment; |
| · | the Company's achievement compared to its corporate, financial, strategic and operational objectives and business plans; and |
| · | cumulative shareholder return. |
Elements of the BankExecutive Compensation Program. The Company's and are compensated for that service.the Bank's compensation program consists of the following elements:
Annual CashIncentive Awards. We believe that annual cash incentive awards encourage our named executive officers to achieve short-term targets that are critical to achievement of our long-term strategic plan. The Bank has a feeManagement Incentive Plan for officers of $750 for each Bankthe Bank. Participants in the Management Incentive Plan are recommended annually by the President and Chief Executive Officer to the Bank's Board of Directors meeting attended, an additional feeDirectors. Each individual's incentive pool is determined by a formula which links attainment of $500 for each committee meeting attendedcorporate budget with attainment of individual goals and objectives. Incentives under the Management Incentive Plan are paid annually. No named executive officer earned or was paid a retainer of $9,000. In addition,cash incentive under the Management Incentive Plan during 2014, the Chairman of the Bank’s Board of Directors received an additional $250 per meeting attended and the chairpersons of each committee received an additional $150 per meeting attended. Directors received $375 for special meetings held via conference call lieu of the Board of Director and committee meeting fees set forth above.fiscal year ended December 31, 2015.
On May 23, 2013, Mr. Lampron and Mr. Cable each received 3,410 restricted stock units, and Mr. Sellers received 4,875 restricted stock units, each unit being comprised of the right to receive one share of the Company’sCompany's common stock, to each director.stock. The grant date fair value for the restricted stock units awardedgranted to directorseach named executive officer on March 22, 2012May 23, 2013 was $11.90. So long as the officer remains employed by the Company at the time of vesting, the restricted stock unit awards will vest in full on March 22, 2017. On May 23, 2013,2017. All unvested restricted stock units will become vested and nonforfeitable upon a change in control as set forth in the CompanyOmnibus Plan. Mr. Beaman was not granted 810any restricted stock awards during the fiscal year ending December 31, 2013.
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On February 20, 2014, Mr. Lampron and Mr. Cable each received 2,728 restricted stock units, and Mr. Sellers received 3,900 restricted stock units, each unit being comprised of the right to receive one share of the Company’sCompany's common stock, to each director.stock. The grant date fair value for the restricted stock units awardedgranted to directorseach named executive officer on May 23, 2013February, 2014 was $15.70. So long as the officer remains employed by the Company at the time of vesting, the restricted stock unit awards will vest in full on May 23,February 20, 2017. All unvested restricted stock units will become vested and nonforfeitable upon a change in control as set forth in the Omnibus Plan. Mr. Beaman was not granted any restricted stock awards during the fiscal year ending December 31, 2014.
On February 20, 2014, the Company granted 65019, 2015, 2015, Mr. Lampron and Mr. Cable each received 1,665 restricted stock units, and Mr. Sellers received 2,200 restricted stock units, each unit being comprised of the right to receive one share of the Company’sCompany's common stock, to each director.stock. The grant date fair value for the restricted stock units awardedgranted to directorseach named executive officer on February 20, 201419, 2015 was $17.97 per restricted stock unit. So long as the officer remains employed by the Company at the time of vesting, the restricted stock unit awards will vest in full on February 20, 2017.19, 2019. All unvested restricted stock units will become vested and nonforfeitable upon a change in control as set forth in the Omnibus Plan. Mr. Beaman was not granted any restricted stock awards during the fiscal year ending December 31, 2015.
For more information on the Omnibus Plan, see page 23 of this Proxy Statement.
Supplemental Executive Retirement Agreements. The Bank provides non-qualified supplemental executive retirement benefit in the form of Executive Salary Continuation Agreements with Messrs. Sellers, Lampron, Cable and Beaman. The Committee's goal is to provide competitive retirement benefits given the restrictions on executives within tax-qualified plans. In prior years, the Compensation Committee worked with a compensation consultant in analyzing the possible benefits of using supplemental retirement benefits to address the issues of internal and external equity in terms of retirement benefits offered to all employees at the Company as a percentage of final average pay and executives in our peer group. In connection with the non-qualified supplemental executive retirement benefits, the Bank purchased life insurance contracts on the lives of the named executive officers. The increase in cash surrender value of the life insurance contracts constitutes the Bank's contribution to the plan each year. The Bank will pay benefits to participating officers for a period between 13 years and the life of the officer. The Bank is the sole owner of all of the insurance contracts.
Deferred Compensation Plan.Plan. The Bank maintains a non-qualified deferred compensation plan for alldirectors and certain officers. Eligible officers selected by the Bank's Board of its directors. The Bank’s directors are also directorsDirectors may elect to contribute a percentage of the Company. Under the deferredtheir compensation plan, each director may defer all or a portion of his fees to the plan each year. The directorplan. Participating officers may elect to invest thetheir deferred compensation in a restricted list of investment funds. The Bank may make matching or other contributions to the plan for the benefit of the director from time to timeas well, in amounts determined at the discretion of the Bank. DirectorsParticipants are fully vested in all amounts they contributecontributed to the plan and in any amounts contributed by the Bank.them or on their behalf. The Bank has established a Rabbi Trust to hold the directors’ accrued benefits of the participants under the plan. There are no “above-market”"above-market" returns provided for in the deferred compensationthis plan. The Bank made no contributions to thisthe plan in 2014.
2015. Benefits under the plan are payable in the event of the director’sparticipant's retirement, death, resignation, removal, failure to be re-elected, retirementtermination, or in casesas a result of hardship. DirectorsBenefit payments may elect to receive deferred compensation paymentsbe made in onea lump sum or in installments.installments, as selected by the participant.
| DIRECTOR COMPENSATION | |||||||
| Change in | |||||||
| Pension Value | |||||||
| and | |||||||
| Fees | Nonqualified | ||||||
| Earned or | Non-Equity | Deferred | |||||
| Paid in | Stock | Option | Incentive Plan | Compensation | All Other | ||
| Name | Cash ($) | Awards1 ($) | Awards ($) | Compensation ($) | Earnings2 ($) | Compensation ($) | Total ($) |
| James S. Abernethy | 20,300 | 11,693 | 0 | 0 | 5,799 | 0 | 37,792 |
| Robert C. Abernethy | 30,950 | 11,693 | 0 | 0 | 8,781 | 0 | 51,424 |
| Douglas S. Howard | 24,800 | 11,693 | 0 | 0 | 3,600 | 650 | 40,743 |
| John W. Lineberger, Jr. | 20,800 | 11,693 | 0 | 0 | 8,552 | 650 | 41,695 |
| Gary E. Matthews | 20,300 | 11,693 | 0 | 0 | 5,258 | 0 | 37,251 |
| Billy L. Price, Jr., M.D. | 27,025 | 11,693 | 0 | 0 | 4,755 | 650 | 44,124 |
| Larry E. Robinson | 21,300 | 11,693 | 0 | 0 | 15,890 | 0 | 48,883 |
| William Gregory Terry | 20,800 | 11,693 | 0 | 0 | 1,762 | 650 | 34,905 |
| Dan Ray Timmerman, Sr. | 26,825 | 11,693 | 0 | 0 | 12,373 | 0 | 50,891 |
| Benjamin I. Zachary | 24,300 | 11,693 | 0 | 0 | 4,776 | 0 | 40,769 |
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Additional information regarding the Bank. Prioremployment agreements, including a description of key terms may be found starting on page 21 of this Proxy Statement.
Other Benefits. Executive officers are entitled to becomingparticipate in fringe benefit plans offered to employees including health and dental insurance plans and life, accidental death and dismemberment and long-term disability plans. In addition, the Bank has paid country club dues for each named executive officer.
The above elements of each named executive officer's compensation are not inter-related. For example, if vesting standards on restricted stock awards are not achieved, the executive's base salary is not increased to make up the difference. Similarly, the value of previously granted options is not considered by the Compensation Committee in recommending the other elements of the compensation package.
The Compensation Committee did not engage a compensation consultant during the year ended December 31, 2015. The President and Chief Executive Officer of the Company and the Bank Mr. Sellers served as Executive Vice President and Assistant Corporate Secretarymakes recommendations to the Committee regarding the compensation of the Company and Executive Viceexecutive officers other than his own. The President and Chief CreditExecutive Officer participates in the deliberations, but not in the decisions, of the Bank.Compensation Committee regarding compensation of executive officers. He has been employed bydoes not participate in the Compensation Committee's discussion or decisions regarding his own compensation. The Compensation Committee reports its actions to the Board of Directors and keeps written minutes of its meetings, which minutes are maintained with the books and records of the Company.
The Compensation Committee also considers the results of the shareholders' non-binding vote on executive compensation. At the 2013 Annual Meeting of Shareholders, 52% of the shareholders who voted at the 2013 Annual Meeting of Shareholders elected to review the executive compensation of the Company's named executive officers once every three years. As a result, the Company andis submitting a vote to the Bank since 1998. Mr. Sellers has a totalshareholders on the compensation of 30 years of banking experience. He is a graduate of the University of North Carolinaits named executive officers at Chapel Hill and upon graduation served as a senior credit officer at a regional bank headquartered in North Carolina.
The executive officers of the Company are not paid any cash compensation by the Company. However, the executive officers of the Company also are executive officers of the Bank and receive compensation from the Bank.
The table on the following page shows,show, for the fiscal years ended December 31, 2015, 2014 and 2013, the cash compensation received by, as well as certain other compensation paid or accrued for those years, the NEOs whose total annual salary and bonus exceeded $100,000.to each named executive officer.
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SUMMARY COMPENSATION TABLE
Name and Principal Position | Year | Salary($) | Bonus($) | Stock Awards($)2 | Change in Pension Value and Nonqualified Deferred Compensation Earnings($) | All Other Compensation($)3 | Total($) | |
| Lance A. Sellers | 2015 | 311,400 | 30,000 | 39,893 | 52,507 | 28,175 | 461,975 | |
| President and Chief Executive | 2014 | 311,400 | 30,000 | 61,230 | 54,638 | 25,020 | 482,288 | |
| Officer | 2013 | 311,400 | 20,000 | 58,013 | 40,072 | 25,553 | 455,038 | |
| A. Joseph Lampron, Jr. | 2015 | 193,125 | 30,000 | 29,920 | 93,827 | 20,474 | 367,346 | |
| Executive Vice President, | 2014 | 187,500 | 30,000 | 42,830 | 57,767 | 17,076 | 335,173 | |
| Chief Financial Officer | 2013 | 182,963 | 20,000 | 40,579 | 47,082 | 12,875 | 303,499 | |
| Joseph F. Beaman, Jr. | 20151 | 70,350 | 75,000 | 0 | 0 | 26,149 | 171,499 | |
| Executive Vice President, | 2014 | 140,700 | 15,000 | 0 | 45,377 | 16,922 | 217,999 | |
| Chief Administrative Officer | 2013 | 140,700 | 15,000 | 0 | 64,566 | 15,594 | 235,860 | |
| and Corporate Secretary | ||||||||
| William D. Cable, Sr. | 2015 | 198,750 | 30,000 | 29,920 | 20,619 | 24,772 | 304,061 | |
| Executive Vice President, | 2014 | 187,500 | 30,000 | 42,830 | 20,599 | 18,385 | 299,314 | |
| Chief Operating Officer | 2013 | 182,963 | 20,000 | 40,579 | 13,877 | 11,444 | 268,863 | |
________________
1 Mr. Beaman retired on June 30, 2015. As a result, the amounts reflected above for the fiscal year ending December 31, 2015 represent amounts earned by Mr. Beaman from January 1, 2015 through June 30, 2015.
2 Amount represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.
3 All other compensation is comprised of the following:
| Summary Compensation Table | |||||||||||||||||
| Name and Principal Position | Year | Salary($) | Bonus($) | Stock Awards($) | Option Awards($) | Non-Equity Incentive Plan Compensation($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings($) | All Other Compensation($)1 | Total($) | ||||||||
| Lance A. Sellers | 2014 | 311,400 | 30,000 | 88,734 | 0 | 0 | 54,638 | 25,020 | 509,792 | ||||||||
| President and Chief Executive | 2013 | 311,400 | 20,000 | 44,506 | 0 | 0 | 40,072 | 24,557 | 440,535 | ||||||||
| Officer | |||||||||||||||||
| A. Joseph Lampron, Jr. | 2014 | 187,500 | 30,000 | 63,561 | 0 | 0 | 57,767 | 17,076 | 355,904 | ||||||||
| Executive Vice President, | 2013 | 182,963 | 20,000 | 31,328 | 0 | 0 | 47,082 | 12,875 | 294,248 | ||||||||
| Chief Financial Officer | |||||||||||||||||
| Joseph F. Beaman, Jr. | 2014 | 140,700 | 15,000 | 0 | 0 | 0 | 45,377 | 16,922 | 217,999 | ||||||||
| Executive Vice President, | 2013 | 140,700 | 15,000 | 0 | 0 | 0 | 64,566 | 15,594 | 235,860 | ||||||||
| Chief Administrative Officer | |||||||||||||||||
| and Corporate Secretary | |||||||||||||||||
| William D. Cable, Sr. | 2014 | 187,500 | 30,000 | 63,561 | 0 | 0 | 20,599 | 18,385 | 320,045 | ||||||||
| Executive Vice President, | 2013 | 182,963 | 20,000 | 31,328 | 0 | 0 | 13,877 | 11,444 | 259,611 | ||||||||
| Chief Operating Officer | |||||||||||||||||
Name and Principal | Year | Employer Match($) | Car Allowance($) | Country Club Dues($) | Split Dollar Death Benefit($) | Group Term Life($)(a) | Disability and LTC Premiums($)(b) | Other($) | |||||||
Lance A. Sellers President and Chief Executive Officer | 2015 2014 2013 | 10,600 10,400 10,200 | 4,113 4,113 4,113 | 3,506 3,455 3,199 | 454 418 396 | 4,104 1,242 1,219 | 5,398 5,392 5,151 | 0 1,275(c) | |||||||
A. Joseph Lampron, Jr. Executive Vice President, Chief Financial Officer | 2015 2014 2013 | 8,628 8,279 7,107 | 0 0 0 | 3,300 3,280 3,241 | 1,056 978 904 | 5,506 2,555 1,623 | 1,984 1,984 0 | 0 0 0 | |||||||
Joseph F. Beaman, Jr.(d) Executive Vice President, Chief Administrative Officer and Corporate Secretary | 2015 2014 2013 | 6,847 6,228 5,466 | 0 0 0 | 1,704 3,360 | 1,863 1,713 1,585 | 2,164 2,337 1,836 | 1,707 3,284 3,284 | 11,864(e) 0 0 | |||||||
William D. Cable, Sr. Executive Vice President, Chief Operating Officer | 2015 2014 | 9,150 8,279 7,107 | 0 0 0 | 3,452 3,360 3,423 | 377 349 322 | 3,477 581 592 | 5,816 5,816 0 | 2,500(f) 0 0 |
(a) | Represents amounts paid by the Bank for premiums on group term life insurance in excess of $50,000 for each named executive officer. |
(b) | Represents amounts paid by the Bank for premiums on disability and long-term care insurance for each NEO. |
(c ) | In 2013, Mr. Sellers received 76 shares for 15 years of service with the Bank and $279 in cash to pay the taxes associated with the award under the Bank's Service Recognition Program |
(d) | Mr. Beaman retired on June 30, 2015. As a result, the amounts reflected above for the fiscal year ending December 31, 2015 represent amounts earned by Mr. Beaman from January 1, 2015 through June 30, 2015. |
(e) | Represents amounts paid to Mr. Beaman pursuant to his Executive Salary Continuation Agreement. |
(f ) | In 2015, Mr. Cable received 106 shares for 20 years of service with the Bank and $513 in cash to pay the taxes associated with the award under the Bank's Service Recognition Program. |
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Grants of Plan-Based Awards
The following table shows certain information for those grants of plan-based awards that we made to each named executive officer.officer during the fiscal year ended December 31, 2015.
GRANTS OF PLAN-BASED AWARDS TABLE
Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||
Name | Grant Date | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Under- lying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) | |||||||||||||||
Lance A. Sellers | February 19, 2015 | -- | -- | -- | 2,200(1) | -- | -- | $ | 17.97 | ||||||||||||||
A. Joseph Lampron, Jr. | February 19, 2015 | -- | -- | -- | 1,665(1) | -- | -- | $ | 17.97 | ||||||||||||||
William D. Cable, Sr. | February 19, 2015 | -- | -- | -- | 1,665(1) | -- | -- | $ | 17.97 | ||||||||||||||
Joseph F. Beaman, Jr. | -- | -- | -- | -- | |||||||||||||||||||
(1)(1)Restricted stock units vest in full on February 19, 2019.
Outstanding Equity Awards at Fiscal Year End
The following table shows certain information for those outstanding equity awards at December 31, 2015.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| Stock Awards | ||||
Name | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(3) ($) |
| Lance A. Sellers | -- | -- | 19,669(1) | 380,398 |
| A. Joseph Lampron, Jr. | -- | -- | 14,173(2) | 274,106 |
| William D. Cable, Sr. | -- | -- | 14,173(2) | 274,106 |
| Joseph F. Beaman, Jr. | -- | -- | -- | -- |
______________________________________
| (1) | Includes 6,505 restricted stock units that were granted on March 22, 2012 and vest on March 22, 2017; 2,169 restricted stock units that were granted on July 26, 2012 and vest on July 26, 2017; 4,875 restricted stock units that were granted on May 23, 2013 and vest on May 23, 2017; 3,900 restricted stock units that were granted on February 20, 2014 and vest on February 20, 2017; and 2,200 restricted stock units that were granted on February 19, 2015 and vest on February 19, 2019. |
| (2) | Includes 4,777 restricted stock units that were granted on March 22, 2012 and vest on March 22, 2017; 1,593 restricted stock units that were granted on July 26, 2012 and vest on July 26, 2017 and 3,410 restricted stock units that were granted on May 23, 2013 and vest on May 23, 2017; 2,728 restricted stock units that were granted on February 20, 2014 and vest on February 20, 2017; and 1,665 restricted stock units that were granted on February 19, 2015 and vest on February 19, 2019. |
| (3) | Based on a stock price of $19.34 per share on December 31, 2015. |
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Option Exercises and Stock Vested
During the fiscal year ended December 31, 2015, no options were exercised by the Bank for premiums on disability and long-term care insurance for each named executive officer.officers and no restricted stock units granted to the named executive officers vested.
Pension Benefits
The following table shows, for the fiscal year ended December 31, 2015, the pension benefits paid or earned by Messrs. Sellers, Lampron, Cable and Beaman.
PENSION BENEFITS TABLE | ||||
Name | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit($) | Payments During Last Fiscal Year($) |
Lance A. Sellers | Executive Salary Continuation Agreement1 | 14 | 313,302 | -- |
A. Joseph Lampron, Jr. | Executive Salary Continuation Agreement1,2 | 14 | 422,182 | -- |
William D. Cable, Sr. | Executive Salary Continuation Agreement1 | 14 | 104,152 | -- |
Joseph F. Beaman, Jr. | Executive Salary Continuation Agreement1 | 13 | 290,498 | 14,021 |
_______________________
1 The Bank entered into an Executive Salary Continuation Agreement with Messrs. Sellers, Lampron, Beaman and Cable effective on January 1, 2002. Each Executive Salary Continuation Agreement was amended on December 31, 2003 and December 18, 2008. The Executive Salary Continuation Agreements for Messrs. Sellers, Lampron and Cable were further amended on December 10, 2014. Unless a separation from service or a change in control (as defined in the Executive Salary Continuation Agreements) occurs before the retirement age set forth in each Executive Salary Continuation Agreement, the Executive Salary Continuation Agreements provide for an annual supplemental retirement benefit to be paid to each of the named executive officers in 12 equal monthly installments payable on the first day of each month, beginning with the month immediately after the month in which the named executive officer attains the normal retirement age and for the named executive officer's lifetime, or if longer, a 13-year term. Under the terms of the Executive Salary Continuation Agreements, Mr. Sellers received 76 shares for 15 yearswill receive an annual supplemental retirement benefit of service with$130,495, Mr. Lampron will receive an annual supplemental retirement benefit of $76,554, Mr. Cable will receive an annual supplemental retirement benefit of $93,872 and Mr. Beaman receives an annual supplemental retirement benefit of $28,042.
2 As of December 31, 2015, Mr. Lampron was the Bank and $279 in cashonly named executive officer eligible to paywithdraw funds from the taxes associated withplan. Mr. Lampron, if he elected, could withdrawal 70% of the award under the Bank’s Service Recognition Program.annual benefit of $76,554 (or $53,588 per year).
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Nonqualified Deferred Compensation
The below table shows the compensation deferred by Messrs. Lampron, Cable and Beaman during the year ended December 31, 2015. Mr. Sellers elected not to defer any portion of his compensation during the year ended December 31, 2015.
NONQUALIFIED DEFERRED COMPENSATION
Name | Executive Contributions in the Last FY ($)(1) | Registrant Contributions In Last FY ($) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(3) | ||||
A. Joseph Lampron, Jr. | 5,794 | -- | 10,873 | 0 | 132,767 | ||||
| William D. Cable, Sr. | 15,900 | -- | 17,526 | 0 | 321,634 | ||||
| Joseph F. Beaman, Jr. | 700 | -- | 2,378 | 0 | 29,020 | ||||
___________________
| (1) | The above contributions were based on the named executive officer's deferral elections and the salaries shown in the Summary Compensation Table. The salaries in the Summary Compensation Table include these contributions. |
| (2) | This column reflects earnings or losses on plan balances in 2015. Earnings may increase or decrease depending on the performance of the elected hypothetical investment options. Earnings on these plans are not "above-market" and thus are not reported in the Summary Compensation Table. Plan balances may be hypothetically invested in various mutual funds and common stock as described below. Investment returns on those funds and common stock ranged from -12.15% to 9.12% for the year ended December 31, 2015. |
| (3) | This column represents the year-end balances of the named executive officer's nonqualified deferred compensation accounts. These balances include contributions that were included in the Summary Compensation Tables in previous years. Amounts in this column include earnings that were not previously reported in the Summary Compensation Table because they were not "above-market" earnings. |
Employment Agreements
Each Employment Agreement provides for an initial term of 36 months beginning on January 22, 2015 (the "Effective Date"). On the first anniversary of the Effective Date and on each anniversary thereafter (the "Renewal Date"), each Employment Agreement shall be extended automatically for one additional year unless the Board of Directors of the Company (or the executive determines, and prior to the Renewal Date sends to the other party written notice, that the term shall not be extended. If the Board of Directors of the Company decides not to extend the term, the Employment Agreement shall nevertheless remain in force until its existing term expires. Under the Employment Agreements, the Bank will pay Mr. Sellers a base salary at the rate of at least $311,400 per year, Mr. Lampron a base salary at the rate of at least $193,125 per year and Mr. Cable a base salary at the rate of at least $198,750 per year ("Base Salary"). The 2014Bank will review each executive's total compensation at least annually and in its sole discretion may adjust an executive's total compensation from year to year, but during the term of the Employment Agreement, Mr. Sellers's Base Salary may not decrease below $311,400, Mr. Lampron's Base Salary may not decrease below $193,125 and Mr. Cable's Base Salary may not decrease below $198,750. In addition, the Employment Agreements provide for discretionary bonuses and participation in other management incentive, pension, profit-sharing, medical and retirement plans maintained by the Bank, as well as fringe benefits normally associated with such executive's office.
Under the Employment Agreements, each executive's employment will terminate automatically upon death. Otherwise, the Company and the Bank may terminate each executive's employment for "cause", "without cause" or in the event of a "disability" (each as defined in the Employment Agreements). In addition, each executive may voluntarily terminate his employment upon 60 days prior written notice to the Company and the Bank or for "good reason" (as
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defined in the Employment Agreement). Under the Employment Agreements, if the Company and the Bank terminate an executive's employment "without cause", or an executive terminates his employment for "good reason", in each case, other than in connection with a change of control, then in each case, the executive would be entitled to receive certain severance payments and access to welfare benefit plans as more particularly set forth in the Employment Agreements. Under the Employment Agreements, in the event that the Company and the Bank terminate an executive's employment "without cause", or an executive terminates his employment for "good reason", in any such case at the time of or within one year after a Change of Control, then the executive will be entitled to receive certain change in control payments as more particularly set forth in the Employment Agreements.
In addition, each Employment Agreement contains certain restrictive covenants prohibiting the executive from competing against the Company and the Bank or soliciting the Company's or the Bank's customers for a period of time following termination of employment, all as more particularly set forth in the Employment Agreements.
Prior to his retirement, the Bank had an employment agreement with Joseph F. Beaman (the "Beaman Employment Agreement"). The Beaman Employment Agreement provided for an initial term of employment of three years, and commencing on the first anniversary date and continuing on each anniversary date thereafter, unless notice of a non-extension was given by either party, each of the 2014Beaman Employment AgreementsAgreement was automatically extended for an additional year so that the remaining term was always no less than two and no more than three years. The 2014Beaman Employment AgreementsAgreement also provided that the base salary of the executiveMr. Beaman would be reviewed by the Board of Directors not less often than annually. In addition, the 2014Beaman Employment AgreementsAgreement provided for a discretionary bonusesbonus and participation in other management incentive, pension, profit-sharing, medical and retirement plans maintained by the Bank, as well as fringe benefits normally associated with such executive’sMr. Beaman's office. The 2014Beaman Employment AgreementsAgreement provided that theyMr. Beaman may be terminated by the Bank for cause, as defined in the 2014Beaman Employment Agreements,Agreement, and that theyhe may otherwise be terminated by the Bank (subject to vested rights) or by the executive.him.
In the event of a change in control, the term of each 2014the Beaman Employment Agreement was automatically extended for three years from the date of the change of control. For purposes of the 2014Beaman Employment Agreements,Agreement, a change in control was defined as (i) any “person”"person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act), other than a person who beneficially owned as of January 1, 1998, more than 5% of the Bank’sBank's securities, acquiring beneficial ownership of voting stock and irrevocable proxies representing 20% or more of any class of voting securities of either the Company or the Bank, (ii) the election of directors constituting more than one-half of the Board of Directors of the Company or the Bank who, prior to their election, were not nominated for election or approved by at least three-fourths of the Board of Directors of the Company as then constituted; (iii) either the Company or the Bank consolidates or merges with or into another corporation, association or entity or is otherwise reorganized, where neither the Company nor the Bank, respectively, is the surviving corporation in the transaction; or (iv) all or substantially all of the assets of either the Company or the Bank are sold or otherwise transferred to or acquired by any other entity or group.
Potential Payments upon Termination or Change in Control
Each of the Employment Agreements provide that in the event the Company terminates the employment of a named executive officers Without Cause (as defined in the Employment Agreements), or the officer terminates his or her employment for Good Reason (as defined in the Employment Agreements), in any such case during the employment and at the time of or within one year after a "change of control" (as defined in the Employment Agreements), the officer will be entitled to receive the following payments and benefits: (1) the Company will pay the officer the aggregate of the following amounts: (a) the sum of his accrued obligations; (b) the greater of his base salary, divided by 365 and multiplied by the number of days remaining in the employment period, or an amount equal to 2.99 times his base salary; and (c) the product of his aggregate cash bonus for the last completed fiscal year, and a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination, and the denominator of which is 365; (2) all restricted stock or restricted stock unit awards previously granted to the executive and which have not already become vested and released from restrictions on transfer and repurchase an forfeiture rights, either as a result of the change of control or otherwise, shall immediately vest and be released from such restrictions as of the change of control termination date; and (3) all options previously granted to the officer that are unvested as of the change of control termination date will be deemed vested, fully exercisable and non-forfeitable as of the change of control termination date (other than transfer restrictions applicable to incentive stock options) and all previously granted options that are vested, but unexercised, on the change of control termination date will remain exercisable, in each case for the period during which
they would have been exercisable absent the termination of his or her employment, except as otherwise specifically provided by the Internal Revenue Code; and (4) his benefits under all benefit plans that are non-qualified plans will be 100% vested, regardless of his age or years of service, as of the change of control termination date.
If the named executive officers were terminated on December 31, 2015, "without cause" or for "good reason" at the time of or within one year after a "change of control", Mr. Sellers, Mr. Lampron and Mr. Cable would have been entitled to receive compensation of approximately $1,024,200, $669,375 and $686,250, respectively, pursuant to their Employment Agreements. These amounts are calculated based on each officer's 2015 base salary and bonus as shown in the Summary Compensation Table. In addition, if a "change in control" (as defined in the Omnibus Plan) had occurred on December 31, 2015, all unvested restricted stock units previously granted to each executiveof Mr. Sellers, Mr. Lampron and Mr. Cable would have vest immediately. On December 31, 2015, these unvested restricted stock units had a fair market value of $380,398, $274,106 and $274,106, respectively.
Under the Beaman Employment Agreement, Mr. Beaman could have voluntarily terminated his 2014the Beaman Employment Agreement at any time following a change in control and continue to receive his base salary for the remainder of the term of the 2014 Employment Agreement,employment period, if, after the change in control, (i) the employeehe was assigned duties and/or responsibilities that were inconsistent with his position prior to the change in control or that were inconsistent with his reporting responsibilities at that time, (ii) the employee’shis compensation or benefits were reduced, or (iii) the employeehe was transferred, without his consent, to a location which was an unreasonable distance from his current principal work location.
Omnibus Stock Option and Long Term Incentive Plan
The purpose of the Omnibus Plan is to promote the interests of the Company by attracting and retaining directors and employees of outstanding ability and to provide executive and other key employees of the Company and its subsidiaries greater incentive to make material contributions to the success of the Company by providing them with stock-based compensation which will increase in value based upon the market performance of the common stock and/or the corporate achievement of financial and other performance objectives.
Rights Which May Be Granted.Granted. Under the Omnibus Plan, the Committee may grant or award eligible participants stock options, rights to receive restricted shares of common stock, restricted stock units, performance units (each equivalent to one share of common stock), SARs, and/or book value shares. These grants and awards are referred to herein as “"Rights.”" All Rights must be granted or awarded by February 19, 2019, the tenth anniversary of the date the Board of Directors adopted the Omnibus Plan. The Board of Directors has provided for 360,000 shares of the Company’sCompany's common stock to be included in the Omnibus Plan to underlie Rights which may be granted thereunder.
Options. Options granted under the Omnibus Plan to eligible directors and employees may be either incentive stock options (“("ISOs”") or non-qualified stock options (“("NSOs”"). The exercise price of an ISO or NSO may not be less than 100% of the last-transaction price for the common stock quoted by the NASDAQ Stock Market on the date of grant.
Restricted Stock and Restricted Stock Units. The Committee may award Rights to acquire shares of common stock or restricted stock units, subject to certain transfer restrictions (“("Restricted Stock”" or “"Restricted Stock Unit”") to eligible participants under the Omnibus Plan for such purchase price per share, if any, as the Committee, in its discretion, may determine appropriate. The Committee will determine the expiration date for each Restricted Stock or Restricted Stock Unit award, up to a maximum of ten years from the date of grant. In the Committee’sCommittee's discretion, it may specify the period or periods of time within which each Restricted Stock or Restricted Stock Unit award will first become exercisable, which period or periods may be accelerated or shortened by the Committee. Under the terms of the Omnibus Plan, the Committee also has the discretion to pay out awards of Restricted Stock or Restricted Stock Units in the Company’sCompany's common stock, cash or a combination of stock and cash.
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Performance Units. Under the Omnibus Plan, the Committee may grant to eligible directors and employees awards of long term incentive performance units, each equivalent in value to one share of common stock (“("Units”"). Except as otherwise provided, Units awarded may be distributed only after the end of a performance period of two or more years, as determined by the Committee, beginning with the year in which the awards are granted.
The percentage of the Units awarded that are to be distributed will depend on the level of financial and other performance goals achieved by the Company during the performance period. The Committee may adopt one or more performance categories in addition to, or in substitution for, a performance category or may eliminate all performance categories other than financial performance.
As soon as practicable after each performance period, the percentage of Units awarded that are to be distributed, based on the levels of performance achieved, will be determined and distributed to the recipients of such awards in the form of a combination of shares of common stock and cash or cash only. Units awarded, but which the recipients are not entitled to receive, will be cancelled.
In the event of the death or disability of a Unit recipient prior to the end of any performance period, the number of Units awarded for such performance period will be reduced in proportion to the number of months remaining in the performance period after the date of death or disability. The remaining portion of the award, if any, may, in the discretion of the Committee, be adjusted based upon the levels of performance achieved prior to the date of death or disability, and distributed within a reasonable time after death or disability. In the event a recipient of Units ceases to be an eligible director or employee for any reason other than death or disability, all Units awarded, but not yet distributed, will be cancelled.
In the event of a change in control (as that term is defined in the Omnibus Plan), any outstanding Units will immediately and automatically be reduced as appropriate to reflect a shorter performance period.
An amount equal to the dividend payable on one share of common stock (a “"dividend equivalent credit”") will be determined and credited on the payment date to each Unit recipient’srecipient's account for each Unit awarded and not yet distributed or cancelled. Such amount will be converted within the account to an additional number of Units equal to the number of shares of common stock which could be purchased at the last-transaction price of the common stock on the NASDAQ Market on the dividend payment date.
No dividend equivalent credits or distribution of Units may be credited or made if, at the time of crediting or distribution, (i) the regular quarterly dividend on the common stock has been omitted and not subsequently paid or there exists any default in payment of dividends on any such outstanding shares of common stock; (ii) the rate of dividends on the common stock is lower than at the time the Units to which the dividend equivalent credit relates were awarded, adjusted for certain changes; (iii) estimated consolidated net income of the Company for the twelve-month period preceding the month the dividend equivalent credit or distribution would otherwise have been made is less than the sum of the amount of the dividend equivalent credits and Units eligible for distribution under the Omnibus Plan in that month plus all dividends applicable to such period on an accrual basis, either paid, declared or accrued at the most recently paid rate, on all outstanding shares of common stock; or (iv) the dividend equivalent credit or distribution would result in a default in any agreement by which the Company is bound.
If an extraordinary event occurs during a performance period which significantly alters the basis upon which the performance levels were established, the Committee may make adjustments which it deems appropriate in the performance levels. Such events may include changes in accounting practices, tax, financial institution laws or regulations or other laws or regulations, economic changes not in the ordinary course of business cycles, or compliance with judicial decrees or other legal requirements.
Stock Appreciation Rights. The Omnibus Plan provides that the Committee may award to eligible directors and employees Rights to receive cash based upon increases in the market price of common stock over the last transaction price of the common stock on the NASDAQ Stock Market (the “"Base Price”") on the date of the award. The Committee may adjust the Base Price of a stock appreciation right (“("SAR”") based upon the market value performance of the common stock in comparison with the aggregate market value performance of a selected index or at a stated annual percentage rate. The expiration date of a SAR may be no more than ten years from the date of award.
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Each SAR awarded by the Committee may be exercisable immediately or may become vested over such period or periods as the Committee may establish, which periods may be accelerated or shortened in the Committee’sCommittee's discretion. Each SAR awarded will terminate upon the expiration date established by the Committee, termination of the employment or directorship of the SAR recipient, or in the event of a change in control, as described above in connection with the termination of Options.
Book Value Shares.Shares. The Omnibus Plan provides that the Committee may award to eligible directors and eligible employees long term incentive units, each equivalent in value to the book value of one share of common stock on the date of award (“("Book Value Shares”"). The Committee will specify the period or periods of time within which each Book Value Share will vest, which period or periods may be accelerated or shortened by the Committee. Upon redemption, the holder of a Book Value Share will receive an amount equal to the difference between the book value of the common stock at the time the Book Value Share is awarded and the book value of the common stock at the time the Book Value Share is redeemed, adjusted for the effects of dividends, new share issuances, and mark-to-market valuations of the Company’sCompany's investment securities portfolio in accordance with generally accepted accounting principles.
The expiration date of each Book Value Share awarded will be established by the Committee, up to a maximum of ten years from the date of award. However, awards of Book Value Shares will terminate earlier in the same manner as described above in connection with the termination of Options.
AdjustmentsAdjustments.. In the event the outstanding shares of the common stock are increased, decreased, changed into or exchanged for a different number or kind of securities as a result of a stock split, reverse stock split, stock dividend, recapitalization, merger, share exchange acquisition, or reclassification, appropriate proportionate adjustments will be made in (i) the aggregate number or kind of shares which may be issued pursuant to exercise of, or which underlie, Rights; (ii) the exercise or other purchase price, or Base Price, and the number and/or kind of shares acquirable under,
or underlying, Rights; and (iii) rights and matters determined on a per share basis under the Omnibus Plan. Any such adjustment will be made by the Committee, subject to ratification by the Board of Directors. As described above, the Base Price of a SAR may also be adjusted by the Committee to reflect changes in a selected index. Except with regard to Units and Book Value Shares awarded under the Omnibus Plan, no adjustment in the Rights will be required by reason of the issuance of common stock, or securities convertible into common stock, by the Company for cash or the issuance of shares of common stock by the Company in exchange for shares of the capital stock of any corporation, financial institution or other organization acquired by the Company or a subsidiary thereof in connection therewith.
Any shares of common stock allocated to Rights granted under the Omnibus Plan which are subsequently cancelled or forfeited will be available for further allocation upon such cancellation or forfeiture.
Directors' Fees. Members of the Company's Board of Directors receive no fees or compensation for their service. However, all members of the Board of Directors are also directors of the Bank and are compensated for that service.
During the year ended December 31, 2015, each director received a fee of $850 for each Bank Board of Directors meeting attended, an additional fee of $500 for each committee meeting attended and a retainer of $12,000. In addition, the Chairman of the Bank's Board of Directors received an additional $250 per meeting attended and the chairpersons of each committee received an additional $150 per meeting attended. Directors receive $375 for special meetings held via conference call in lieu of the Board of Director and committee meeting fees set forth above.
Directors who are members of the Board of Directors of Real Estate Advisory Services, Inc., Peoples Investment Services, Inc. and PB Real Estate Holdings, LLC, subsidiaries of the Bank, and Community Bank Real Estate Solutions, LLC, a subsidiary of the Company, receive $500 per meeting.
The Bank also hasmaintains a Management Incentive Plan forService Recognition Program, under which directors, officers and an Employee Incentive Planemployees are eligible for awards. Under the Service Recognition Program, directors, officers and employees are awarded a combination of common stock of the Bank. Eligibility underCompany and cash in the Employee Incentive Plan is grantedamount necessary to all employees upon ninety (90) days of servicepay taxes on the award, with the Bank. Participants inamount of the Employee Incentive Plan are entitled to receive quarterly cash incentives based upon a graduated schedule indexed to attainment of corporate budget. Participants in the Management Incentive Plan are recommended annually by the President and Chief Executive Officer to the Bank’s Board of Directors. Each individual’s incentive pool is determined by a formula which links attainment of corporate budget with attainment of individual goals and objectives. Incentives under the Management Incentive Plan are paid annually.award
Directors' Stock Benefits Plan. Members of the Board of Directors are eligible to participate in the Company's Omnibus Plan. On March 22, 2012, the Company granted 810 restricted stock units, each unit being comprised of the right to receive one share of the Company's common stock, to each director. The restricted stock units awarded to directors on March 22, 2012 will vest in full on March 22, 2017. On May 23, 2013, the Company granted 810 restricted stock units, each unit being comprised of the right to receive one share of the Company's common stock, to each director. The restricted stock units awarded to directors on May 23, 2013 will vest in full on May 23, 2017. On February 20, 2014, the Company granted 650 restricted stock units, each unit being comprised of the right to receive one share of the Company's common stock, to each director. The restricted stock units awarded to directors on February 20, 2014 will vest in full on February 20, 2017. On February 19, 2015, the Company granted 375 restricted stock units, each unit being comprised of the right to receive one share of the Company's common stock, to each director. The restricted stock units awarded to directors on February 19, 2015 will vest in full on February 19, 2019.
Directors' Deferred Compensation Plan
.The Bank maintains a non-qualified deferred compensation plan for all of its directors. The Bank's directors and certain officers. Eligible officers selected byare also directors of the Bank’s BoardCompany. Under the deferred compensation plan, each director may defer all or a portion of Directors may elect to contribute a percentage of their compensationhis fees to the plan. Participating officersplan each year. The director may elect to invest theirthe deferred compensation in a restricted list of investment funds. The Bank may make matching or other contributions to the plan as well, in amounts determinedfor the benefit of the director from time to time at the discretion of the Bank. ParticipantsDirectors are fully vested in all amounts contributedthey contribute to the plan and in any amounts contributed by them or on their behalf.the Bank. The Bank has established a Rabbi Trust to hold the directors' accrued benefits of the participants under the plan. There are no “above-market”"above-market" returns provided for in thisthe deferred compensation plan. The Bank made no contributions to thethis plan in 2014.2015.
Benefits under the plan are payable in the event of the participant’sdirector's death, resignation, removal, failure to be re-elected, retirement death, termination, or as a resultin cases of hardship. BenefitDirectors may elect to receive deferred compensation payments may be made in aone lump sum or in installments, as selected by the participant.installments.
Directors' Supplemental Retirement Plan
. The Bank maintains a non-qualified supplemental retirement benefits plan (“SERP”) for certain officers.all its directors. The supplemental retirement benefits plan is designed to provide a retirement benefit to the officersdirectors while at the same time minimizing the financial impact on the Bank’sBank's earnings. Under the SERP,supplemental retirement benefits plan, the Company purchased life insurance contracts on the lives of certain officers.each director. The increase in cash surrender value of the contracts constitutes the Company’sCompany's contribution to the supplemental retirement benefits plan each year. The Bank will pay annual benefits to participating officerseach director for a period between 1315 years andbeginning upon retirement from the lifeBoard of the officer.Directors. The Bank is the sole owner of all of the insurance contracts. Each NEO is fully vested in the benefits provided under the SERP.
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The following table reports all forms of the Bank’s Board of Directors. The Bank anticipates that discretionary bonuses will continue to becompensation paid to its employees in the future. The Bank also gives service awards to each employee for every five years of service with the Bank. Service awards are made in the form of shares of the Company’s common stock. The number of shares awarded increases with the years of service to the Bank.
DIRECTOR COMPENSATION
Name | Fees Earned or Paid in Cash ($) | Stock Awards1 ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings2 ($) | All Other Compensation ($) | Total ($) |
| James S. Abernethy | 26,700 | 6,739 | 0 | 0 | 6,314 | 0 | 39,753 |
| Robert C. Abernethy | 41,500 | 6,739 | 0 | 0 | 9,561 | 0 | 57,800 |
| Douglas S. Howard | 34,700 | 6,739 | 0 | 0 | 3,920 | 0 | 45,359 |
| John W. Lineberger, Jr. | 25,200 | 6,739 | 0 | 0 | 9,312 | 0 | 41,251 |
| Gary E. Matthews | 24,700 | 6,739 | 0 | 0 | 5,725 | 0 | 37,164 |
| Billy L. Price, Jr., M.D. | 35,975 | 6,739 | 0 | 0 | 5,178 | 0 | 47,892 |
| Larry E. Robinson | 27,200 | 6,739 | 0 | 0 | 6,279 | 0 | 40,218 |
| William Gregory Terry | 26,700 | 6,739 | 0 | 0 | 1,919 | 0 | 35,358 |
| Dan Ray Timmerman, Sr. | 33,000 | 6,739 | 0 | 0 | 13,472 | 2,5003 | 55,711 |
| Benjamin I. Zachary | 28,700 | 6,739 | 0 | 0 | 5,201 | 2,5003 | 43,140 |
_________________________
1 | The amounts reported represent the aggregate fair value of the restricted stock units granted to the respective recipient on the date of grant under Financial Accounting Standards Board ASC Topic 718 ("Topic 718"). The fair market value of each restricted stock unit granted to each director was $17.97 on February 19, 2015. At December 31, 2015, each director had an aggregate of 2,645 restricted stock units outstanding with an aggregate fair value of $51,154 based on the fair market value of each restricted stock unit of $19.34 at December 31, 2015. |
2 | Change in Pension Value and Nonqualified Deferred Compensation Earnings represents the expense accrued by the Bank for each director under the Directors' Supplemental Retirement Plan as described above. |
3 | In 2015, Directors Timmerman and Zachary each received 106 shares of the Company's common stock and $512.50 in cash for their 20 years of service as a director under the Bank's Service Recognition Program. |
Indebtedness of and Transactions with Management and Directors
The Company is a “listed issuer”"listed issuer" under the rules and regulations of the Exchange Act whose common stock is listed on NASDAQ. The Company uses the definition of independence contained in NASDAQ’sNASDAQ's listing standards to determine the independence of its directors and that the Board of Directors and each standing committee of the Board of Directors is in compliance with NASDAQ listing standards for independence.
Certain directors and executive officers of the Bank and their immediate families and associates were customers of and had transactions with the Bank in the ordinary course of business during 2014.2015. All outstanding loans, extensions of credit or overdrafts, endorsements and guarantees outstanding at any time during 20142015 to the Bank’sBank's executive officers and directors and their family members were made in the ordinary course of its business. These loans are currently made on substantially the same terms, including interest rates and collateral, as those then prevailing for comparable transactions with persons not related to the lender, and did not involve more than the normal risk of collectability or present any other unfavorable features.
The Board of Directors routinely, and no less than annually, reviews all transactions, direct and indirect, between the Company or the Bank and any employee or director, or any of such person’sperson's immediate family members. Transactions are reviewed as to comparable market values for similar transactions. All material facts of the transactions
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and the director’sdirector's interest are discussed by all disinterested directors and a decision is made about whether the transaction is fair to the Company and the Bank. A majority vote of all disinterested directors is required to approve the transaction.
The Bank leases two of its facilities from Shortgrass Associates, L.L.C. (“("Shortgrass”"). Director John W. Lineberger, Jr., owns 25% of the membership interests in Shortgrass. Pursuant to the terms of the leases for the two facilities leased by the Bank, during 20142015 the Bank paid a total of $211,537 to Shortgrass in lease payments for these facilities. Each of the facilities is subject to a 20-year lease between the Bank and Shortgrass.
The Board of Directors also evaluates the influence family relationships may have on the independence of directors who are related by blood or marriage. Christine S. Abernethy, a greater than ten percent (10%) shareholder of the Company, has two sons, Robert C. Abernethy and James S. Abernethy, who serve on the Board of Directors. All of the non-related directors have determined that the family relationships among Christine S. Abernethy, James S. Abernethy and Robert C. Abernethy do not affect the brothers’brothers' independence as directors.
Equity Compensation Plan Information
The following table sets forth certain information regarding outstanding options and shares for future issuance under the Equity Compensation Plans as of December 31, 2015. Individual equity compensation arrangements are aggregated and included within this table. This table excludes any plan, contract or arrangement that provides for the issuance of options, warrants or other rights that are given to our shareholders on a pro rata basis and any employee benefit plan that is intended to meet the qualification requirements of Section 401(a) of the Internal Revenue Code.
| Plan Category | Number of securities to be issued upon exercise of outstanding option, warrants and rights (1), (2), (3), (4) | Weighted-average exercise price of outstanding options, warrants and rights (5) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (6) | |||
| (a) | (b) | (c) | ||||
Equity compensation plans approved by security holders | 92,440 | $ | 19.34 | 267,560 | ||
Equity compensation plans not approved by security holders | - | - | - | |||
| Total | 92,440 | $ | 19.34 | 267,560 | ||
| (1) Includes 24,159 restricted stock units granted on March 22, 2012 and 5,355 restricted stock units granted on July 26, 2012 under the February 19, 2009 Omnibus Stock Ownership and Long Term Incentive Plan (the "2009 Omnibus Plan"). These restricted stock grants vest five years after issuance. | ||||||
| (2) Includes 26,795 restricted stock units granted on May 23, 2013 under the 2009 Omnibus Plan. These restricted stock grants vest on May 23, 2017. | ||||||
| (3) Includes 21,056 restricted stock units granted on February 20, 2014 under the 2009 Omnibus Plan. These restricted stock grants vest on February 20, 2017. | ||||||
| (4) Includes 15,075 restricted stock units granted on February 19, 2015 under the 2009 Omnibus Plan. These restricted stock grants vest on February 19, 2019. | ||||||
| (5) The exercise price used for the grants of restricted stock units under the 2009 Omnibus Plan is $19.34, the closing price for the Company's stock on December 31, 2014. | ||||||
| (6) Reflects shares currently reserved for possible issuance under the 2009 Omnibus Plan. | ||||||
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STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative shareholder return on its common stock with a NASDAQ index and with a southeastern bank index. The graph was prepared by SNL Securities, L.C., Charlottesville, Virginia, using data as of December 31, 2015.
COMPARISON OF SIX-YEAR CUMULATIVE TOTAL RETURNS
Performance Report for
Peoples Bancorp of North Carolina, Inc.
29
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORREGISTERED PUBLIC ACCOUNTING FIRM
On June 19, 2015, we advised Porter Keadle Moore, LLC ("PKM"), our registered independent accounting firm for the fiscal year ended December 31, 2014, that it was dismissed as our registered independent public accounting firm. PKM's reports on our financial statements for the fiscal years ended December 31, 2013 and 2014, did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change accountants was recommended and approved by the Audit Committee. During fiscal years ended December 31, 2013 and December 31, 2014 and through the period ended June 19, 2015, there were no disagreements with PKM on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures which disagreements, if not resolved to PKM's satisfaction, would have caused PKM to make reference thereto in their reports on the financial statements for such periods.
In addition, on June 19, 2015, we appointed Elliott Davis as our independent registered public accounting firm for the fiscal year ended December 31, 2015. We did not consult with Elliott Davis during the fiscal years ended December 31, 2013 and 2014, nor during any subsequent interim period preceding such appointment, on the application of accounting principles to a specific contemplated or completed transaction, the type of audit opinion that might be rendered on our consolidated financial statements, or any matter that was the subject of a "disagreement" or a "reportable event" as such terms are described in Item 304(a)(1)(iv) and (v) of Regulation S-K.
Audit Fees Paid to Independent Auditors
The aggregatefollowing table represents the approximate fees billed by PKM for professional services rendered in connection withby Elliott Davis and PKM for the audit of the Company’sour annual financial statements for 2014 and 2013 and the review of theour financial statements included in the Company’s quarterly filings on Formour Forms 10-Q during thosefor the fiscal years were approximately $186,000ended December 31, 2015 and $186,000, respectively.
Year Ended December 31 | |||||||
2015 | 2014 | ||||||
Audit Fees1 | $ | 193,000 | $ | 186,000 | |||
Audit-Related Fees2 | $ | 19,000 | $ | 59,000 | |||
Tax Fees3 | $ | 45,000 | $ | 24,000 | |||
| All Other Fees | -- | -- | |||||
__________________________
1 Of the 2015 amount, $163,000 was for Elliott Davis and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and not included in “Audit Fees” above were approximately $59,000 and $59,000, respectively. These fees were primarily related to the audit of the Company’s Profit Sharing and 401(k) Plan and$30,000 was for PKM. The $163,000 for Elliot Davis includes amounts for the testing of management’smanagement's assertions regarding internal controls in accordance with the Federal Deposit Insurance Corporation Improvement Act. Audit Fees for Elliot Davis and PKM include amounts for the integrated audit of the consolidated financial statements and internal control over financial reporting (Sarbanes-Oxley Section 404).
2 Represents amounts for the audit of the Company's Profit Sharing and 401(k) Plan and the testing of management's assertions regarding internal controls in accordance with the Federal Deposit Insurance Corporation Improvement Act. Of the 2015 amount, all was for PKM.
3 Represents amounts for assistance in the preparation of our various federal, state and local tax returns. Of the 2015 amount, $20,000 was for Elliott Davis and $25,000 was for PKM.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR RATIFICATION OF THE APPOINTMENT OF PKMELLIOTT DAVIS AS THE COMPANY’SCOMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2015.
PROPOSAL 3
ADVISORY (NON-BINDING) PROPOSAL TO APPROVE THE COMPENSATION OF THE COMPANY'S NAMED EXECUTIVE OFFICERS
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law on July 21, 2010. The Dodd-Frank Act requires that our shareholders be provided an opportunity to cast a separate advisory vote on the compensation paid to our NEOs as disclosed in the compensation tables and related matches in this Proxy Statement.
The Company believes that the 2015 compensation policies and procedures are centered on a pay-for-performance culture and are strongly aligned with the long-term interests of our shareholders. These policies and procedures are described in detail in this Proxy Statement.
This proposal, commonly known as a "say-on-pay" proposal, gives you as a shareholder the opportunity to vote on the compensation of our NEOs through the following resolution:
"RESOLVED, that the shareholders of Peoples Bancorp of North Carolina, Inc. approve the compensation of its Named Executive Officers named in the Summary Compensation Table in this Proxy Statement, as described in the narrative and the tabular disclosure regarding the compensation of the Named Executive Officers contained in this Proxy Statement."
Under the Dodd-Frank Act, your vote on this matter is advisory and will therefore not be binding upon the Board of Directors. However, the Compensation Committee will take the outcome of the vote into account when determining further executive compensation arrangements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THIS PROPOSAL.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
It is presently anticipated that the 20162017 Annual Meeting of Shareholders of the Company will be held on May 5, 2016.4, 2017. In order for shareholder proposals to be included in the Company’sCompany's proxy materials for that meeting, such proposals must be received by the Secretary of the Company at the Company’sCompany's principal executive office no later than November 27, 201525, 2016 and meet all other applicable requirements for inclusion in the Proxy Statement.
In the alternative, a shareholder may commence his or her own proxy solicitation and present a proposal from the floor at the 20162017 Annual Meeting of Shareholders of the Company. In order to do so, the shareholder must notify the Secretary of the Company in writing, at the Company’sCompany's principal executive office no later than February 10, 2016,8, 2017, of his or her proposal. If the Secretary of the Company is not notified of the shareholder’sshareholder's proposal by February 10, 2016,8, 2017, the Board of Directors may vote on the proposal pursuant to the discretionary authority granted by the proxies solicited by the Board of Directors for the 20162017 Annual Meeting of Shareholders.
31
OTHER MATTERS
Management knows of no other matters to be presented for consideration at the Annual Meeting or any adjournments thereof. If any other matters shall properly come before the Annual Meeting, it is intended that the proxyholders named in the enclosed form of proxy will vote the shares represented thereby in accordance with their judgment, pursuant to the discretionary authority granted therein.
MISCELLANEOUS
The Annual Report of the Company for the year ended December 31, 2014,2015, which includes financial statements audited and reported upon by the Company’sCompany's registered independent public accounting firm, is being mailed as Appendix A to this Proxy Statement; however, it is not intended that the Annual Report be deemed a part of this Proxy Statement or a solicitation of proxies.
THE FORM 10-K FILED BY THE COMPANY WITH THE SEC, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE PROVIDED FREE OF CHARGE UPON WRITTEN REQUEST DIRECTED TO: PEOPLES BANCORP OF NORTH CAROLINA, INC., POST OFFICE BOX 467, 518 WEST C STREET, NEWTON, NORTH CAROLINA 28658-0467, ATTENTION: A. JOSEPH LAMPRON, JR.
Lance A. Sellers
President and Chief Executive Officer
Newton, North Carolina
March 25, 2016
32
APPENDIX A
ANNUAL REPORT
OF
PEOPLES BANCORP OF NORTH CAROLINA, INC.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
General Description of Business
Peoples Bancorp of North Carolina, Inc. (the “Company”"Company"), was formed in 1999 to serve as the holding company for Peoples Bank (the “Bank”"Bank"). The Company is a bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”"Federal Reserve") under the Bank Holding Company Act of 1956, as amended (the “BHCA”"BHCA"). The Company’sCompany's principal source of income is dividends declared and paid by the Bank on its capital stock, if any. The Company has no operations and conducts no business of its own other than owning the Bank and Community Bank Real Estate Solutions, LLC (“CBRES”("CBRES"). Accordingly, the discussion of the business which follows concerns the business conducted by the Bank, unless otherwise indicated.
The Bank, founded in 1912, is a state-chartered commercial bank serving the citizens and business interests of the Catawba Valley and surrounding communities through 2120 banking offices, as of December 31, 2014,2015 located in Lincolnton, Newton, Denver, Catawba, Conover, Maiden, Claremont, Hiddenite, Hickory, Charlotte, Monroe, Cornelius, Mooresville and Raleigh, North Carolina. The Bank also operates loan production offices in Denver, Durham and Durham,Winston-Salem, North Carolina. At December 31, 2014,2015, the Company had total assets of $1.0 billion, net loans of $640.8$679.5 million, deposits of $814.7$832.2 million, total securities of $285.1$272.2 million, and shareholders’shareholders' equity of $98.7$104.9 million.
The Bank operates four banking offices focused on the Latino population under the name Banco de la Gente (“Banco”("Banco"). These offices are operated as a division of the Bank. Banco offers normal and customary banking services as are offered in the Bank’sBank's other branches such as the taking of deposits and the making of loans and therefore is not considered a reportable segment of the Company. The Bank operates one Banco loan production office in Durham County and one Banco loan production office in Forsyth County specifically designed to serve the growing Latino market.
The Bank has a diversified loan portfolio, with no foreign loans and few agricultural loans. Real estate loans are predominately variable rate and fixed rate commercial property loans, which include residential development loans to commercial customers. Commercial loans are spread throughout a variety of industries with no one particular industry or group of related industries accounting for a significant portion of the commercial loan portfolio. The majority of the Bank’sBank's deposit and loan customers are individuals and small to medium-sized businesses located in the Bank’sBank's market area. The Bank’sBank's loan portfolio also includes Individual Taxpayer Identification Number (ITIN) mortgage loans generated thorough the Bank’sBank's Banco offices. Additional discussion of the Bank’sBank's loan portfolio and sources of funds for loans can be found in “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" on pages A-4 through A-25A-24 of thethis Annual Report, which is included in this Form 10-K as Exhibit (13).Report.
The operations of the Bank and depository institutions in general are significantly influenced by general economic conditions and by related monetary and fiscal policies of depository institution regulatory agencies, including the Federal Reserve, the Federal Deposit Insurance Corporation (the “FDIC”"FDIC") and the North Carolina Commissioner of Banks (the “Commissioner”"Commissioner").
At December 31, 2014,2015, the Company employed 280284 full-time employees and 3740 part-time employees, which equated to 305309 full-time equivalent employees.
Subsidiaries
The Bank is a subsidiary of the Company. At December 31, 2014,2015, the Bank had twothree subsidiaries, Peoples Investment Services, Inc. and, Real Estate Advisory Services, Inc. and PB Real Estate Holdings, LLC. Through a relationship with Raymond James Financial Services, Inc., Peoples Investment Services, Inc. provides the Bank’sBank's customers access to investment counseling and non-deposit investment products such as stocks, bonds, mutual funds, tax deferred annuities, and related brokerage services. Real Estate Advisory Services, Inc. provides real estate appraisal and real estate brokerage services. In March 2015, the Bank established a new wholly owned subsidiary, PB Real Estate Holdings, LLC which will acquire, manageacquires, manages and disposedisposes of real property, other collateral and other assets obtained in the ordinary course of collecting debts previously contracted.
In June 2006, the Company formed a wholly owned Delaware statutory trust, PEBK Capital Trust II (“("PEBK Trust II”II"), which issued $20.0 million of guaranteed preferred beneficial interests in the Company’sCompany's junior subordinated deferrable interest debentures. All of the common securities of PEBK Trust II are owned by the Company. The proceeds from the issuance of the common securities and the trust preferred securities were used by PEBK Trust II to purchase $20.6 million of junior subordinated debentures of the Company, which pay a floating rate equal to three-month LIBOR plus 163 basis points. The proceeds received by the Company from the sale of the junior subordinated debentures were used in December 2006 to repay the trust preferred securities issued in December 2001 by PEBK Capital Trust, a wholly owned Delaware statutory trust of the Company, and for general purposes. The debentures represent the sole asset of PEBK Trust II. PEBK Trust II is not included in the consolidated financial statements.
A-1
The trust preferred securities issued by PEBK Trust II accrue and pay quarterly at a floating rate of three-month LIBOR plus 163 basis points. The Company has guaranteed distributions and other payments due on the trust preferred securities to the extent PEBK Trust II does not have funds with which to make the distributions and other payments. The net combined effect of the trust preferred securities transaction is that the Company is obligated to make the distributions and other payments required on the trust preferred securities.
These trust preferred securities are mandatorily redeemable upon maturity of the debentures on June 28, 2036, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by PEBK Trust II, in whole or in part, which became effective on June 28, 2011. As specified in the indenture, if the debentures are redeemed prior to maturity, the redemption price will be the principal amount plus any accrued but unpaid interest.
The Company established CBRES, a wholly owned subsidiary, in 2009. CBRES serves as a “clearing-house”"clearing-house" for appraisal services for community banks. Other banks are able to contract with CBRES to find and engage appropriate appraisal companies in the area where the property is located. This type of service ensures that the appraisal process remains independent from the financing process within the bank.Bank.
This report contains certain forward-looking statements with respect to the financial condition, results of operations and business of Peoples Bancorp of North Carolina, Inc. (the “Company”"Company"). These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Company and on the information available to management at the time that these disclosures were prepared. These statements can be identified by the use of words like “expect,” “anticipate,” “estimate”"expect," "anticipate," "estimate" and “believe,”"believe," variations of these words and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, (1) competition in the markets served by Peoples Bank, (2) changes in the interest rate environment, (3) general national, regional or local economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and the possible impairment of collectibility of loans, (4) legislative or regulatory changes, including changes in accounting standards, (5) significant changes in the federal and state legal and regulatory environment and tax laws, (6) the impact of changes in monetary and fiscal policies, laws, rules and regulations and (7) other risks and factors identified in the Company’sCompany's other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements.
A-2
