| I. | SCHEDULE 14A |
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Farmers and Merchants Bancshares, Inc.
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FARMERS AND MERCHANTS BANCSHARES, INC.
4510 Lower Beckleysville Road, Suite H
Hampstead, Maryland 21074
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 22, 201919, 2021
To Stockholders of Farmers and Merchants Bancshares, Inc.:
Notice is hereby given that the Annual Meeting of the Stockholders of Farmers and Merchants Bancshares, Inc. (the “Company”) will be held at Piney Branch Golf & Country Club, 5301 Trenton Mill3:00 p.m., local time, on April 27, 2021 at the Company’s office located at 4510 Lower Beckleysville Road, Upperco,Suite H, Hampstead, Maryland 21155. The21074. You may, and the Board of Directors urges you to, participate in the meeting is scheduled for:
Tuesday, April 23, 2019, at 3:00 P.Mvia conference call.
The purposes of the meeting are:
1. | To vote on the election of the three (3) nominees named in the attached proxy statement and proxy card to serve on the Board of Directors until the |
2. | To ratify the appointment of Rowles & Company LLP as the Company’s independent registered public accounting firm for |
3. | To transact such other business as may be properly brought before the meeting or any adjournment or postponement thereof. |
The Board of Directors has fixed February 22, 201919, 2021 as the record date for purposes of determining stockholders who are entitled to notice of and to vote at the Annual Meeting of Stockholders.
All stockholders are cordially invited to attend the annual meeting. Please be advised, however, that due to possible governmental restrictions on public gatherings and the health risks associated with the ongoing COVID-19 pandemic, you might not be allowed to attend the annual meeting in person. Accordingly, the Board strongly urges all stockholders to attend the annual meeting by conference call. To participate in the meeting by conference call, you must call (866) 485-3290 and enter 3374198816# as the Conference ID.
Anyone acting as a proxy agent for a stockholder must present a written proxy that has been properly executed by the stockholder, that authorizes the agent to so act, and that is in form and substance satisfactory to the judges of election and consistent with the Company’s Amended and Restated Bylaws.
By order of the Board of Directors
/s/ Lynnette Kitzmiller
Lynnette Kitzmiller
Vice President/Corporate Secretary
[THIS PAGE INTENTIONALLY LEFT BLANK]
FARMERS AND MERCHANTS BANCSHARES, INC.
4510 Lower Beckleysville Road, Suite H
Hampstead, Maryland 21074
(410) 374-1510
PROXY STATEMENT
This proxy statement and the accompanying proxy card are being furnished in connection with the solicitation by the Board of Directors (the “Company Board”) of Farmers and Merchants Bancshares, Inc. (the “Company”) of proxies to be voted at the Annual Meeting of Stockholders to be held on April 23, 2019, at 3:00 P.M.p.m., local time, on April 27, 2021 at Piney Branch Golf & Country Club, 5301 Trenton Millthe Company’s office located at 4510 Lower Beckleysville Road, Upperco,Suite H, Maryland 21155,21074, and any adjournment or postponements thereof. The cost of soliciting proxies will be borne by the Company. In addition to solicitation by mail, proxies may be solicited by officers, directors and regular employees of the Company personally or by telephone, electronic mail and/or facsimile. No additional remuneration will be paid to officers, directors or regular employees who solicit proxies. The Company may reimburse brokers, banks, custodians, nominees and other fiduciaries for their reasonable out-of-pocket expenses in forwarding proxy materials to their principals. The approximate date on which this proxy statement and the related proxy card will be sent or given to stockholders is March 22, 2019.19, 2021.
When used in this proxy statement, the terms “the Company”, “we”, “us”, and “our” refer to Farmers and Merchants Bancshares, Inc. and, unless the context clearly requires otherwise, its consolidated subsidiaries.
OUTSTANDING SHARES; VOTING RIGHTS; QUORUM AND REQUIRED VOTERECORD DATE
Stockholders of record as of the close of business on February 22, 201919, 2021 (the “Record Date”) of issued and outstanding shares of the Company’s common stock, par value $.01 per share (“Common Stock”), are entitled to notice of and to vote at the Annual Meeting.
COVID-19 PANDEMIC
Due to the health risks associated with the ongoing COVID-19 pandemic and the possibility that governmental restrictions on public gatherings might prohibit you from attending the Annual Meeting in person, the Board is urging stockholders to attend the Annual Meeting by conference call. To participate in the Annual Meeting by conference call, you must call (866) 485-3290 and enter 3374198816# as the Conference ID.
If you were a stockholder of record as of the Record Date and desire to participate by conference call, then you may vote by voice vote after confirming your account number issued by American Stock Transfer & Trust Company (“AST”), the Bank’s transfer agent. You can obtain your AST account number by looking at your most recent communication from AST or by calling Lynnette Kitzmiller, Vice President & Corporate Secretary, at 410-374-1510 ext. 105 or Mark Krebs, Executive Vice President & Chief Executive Officer, at 410-517-3065 ext. 129.
If you hold your shares through a broker, bank or other nominee (that is, in “street name”), then your broker, bank or other nominee is the shareholder of record and such nominee might not be able to vote your shares unless you provide it with voting instructions. You should instruct your broker, bank or other nominee to vote your shares by following the instructions that your broker, bank or other nominee provided when it sent the Company’s proxy materials to you. You may not vote shares held in street name by returning a proxy card directly to the Company or by voting in person or via the conference call unless you provide the Company with a “legal proxy”, which you must obtain from your broker, bank or other nominee. If you obtain a legal proxy and plan to vote at the Annual Meeting via conference call, then the Company must receive your legal proxy by 5:00 p.m., local time, on April __, 2021. You will then receive an e-mail from the Company confirming your registration to vote at the Annual Meeting. Legal proxies may be submitted by mail to: Lynnette Kitzmiller, Secretary, Farmers and Merchants Bancshares, Inc., 4510 Lower Beckleysville Road, Suite H, Hampstead, Maryland 21074; or by e-mail to lynnette.kitzmiller@fmb1919.bank.
OUTSTANDING SHARES; VOTING RIGHTS; QUORUM AND REQUIRED VOTE
As of the Record Date 1,682,9973,011,255 shares of the Common Stock were issued and outstanding. Each share is entitled to one vote on each matter submitted to stockholders.
The presence, in person or by proxy, of stockholders entitled to cast a majority of all votes entitled to be cast at the Annual Meeting will constitute a quorum for the transaction of business. Withheld votes (in the case of the election of directors), abstentions and broker non-votes will all be counted for purposes of determining whether a quorum is present.
Directors are elected by a plurality of all votes cast. Accordingly, the withholding of votes, abstentions and broker non-votes will have no impact on the outcome of the vote on Proposal 1, as described in this proxy statement. The ratification of the appointment of the Company’s independent registered public accounting firm, as described in Proposal 2, requirerequires the affirmative vote of a majority of all shares of Common Stock voted at the Annual Meeting. Accordingly, an abstention or a broker non-vote with respect to Proposal 2 will have no impact on the outcome of that proposal. Except in cases of certain extraordinary matters for which the Company’s governing instruments or applicable law require a different proportion, the affirmative vote of a majority of all shares of Common Stock voted at the Annual Meeting is sufficient to approve any motion that comes before the meeting pursuant to Proposal 3, as described in this proxy statement. Abstentions and broker non-votes with respect to any motion that comes before the meeting pursuant to Proposal 3 (other than certain extraordinary matters as discussed above) will have no impact on the outcome of the vote on such motion.
All properly executed proxy cards received pursuant to this solicitation will be voted as directed by the stockholders in those proxy cards. If no direction is given in your proxy card, then, subject to the procedures governing broker non-votes (see the following paragraph), your shares will be voted FOR ALL NOMINEES named in Proposal 1, FOR ratification of the appointment of the Company’s independent registered public accounting firm named in Proposal 2, and in the discretion of the proxies as to any other matters that may properly come before the meeting, as described in Proposal 3.
Please note that if you hold your shares in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in “street name”), your broker, bank or other nominee will not vote your shares of common stock (a “broker non-vote”) unless you provide voting instructions to your broker, bank or other nominee. You should instruct your broker, bank or other nominee to vote your shares by following the instructions provided by the broker, bank or other nominee when it sends this proxy statement to you. You may not vote shares held in street name by returning a proxy card directly to the Company or by voting in person at the annual meeting unless you provide a “legal proxy”, which you must obtain from your bank, broker or other nominee.
A stockholder may revoke his or her proxy at any time before its use by execution of another proxy card bearing a later date, or by written notice delivered to the Corporate Secretary at the Company’s address listed above or at the meeting.
Stockholders do not have dissenters’ rights of appraisal or similar rights with respect to any of the proposals to be presented at the 20192021 Annual Meeting.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON April 23, 201927, 2021
This proxy statement, the accompanying proxy card, and the Company’s Annual Report to Stockholders (including its Annual Report on Form 10-K for the year ended December 31, 2018)2020) are available on our website, www.fmb1919.comwww.fmb1919.bank, and may be accessed by clicking “Investor Relations” and then “SEC Filings”. Information on our website, other than this proxy statement, is not a part of this proxy statement.
BENEFICIAL OWNERSHIP OF COMMON STOCK BY
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information as of the Record Date relating to the beneficial ownership of the Company’s common stock by (i) each person or group known by the Company to beneficially own more than five percent (5%) of the outstanding shares of Common Stock, (ii), each of the Company’s directors, director nominees, and named executive officers (as defined below under the heading, “EXECUTIVE COMPENSATION”), and (iii) all directors and executive officers of the Company as a group. Generally, a person “beneficially owns” shares as of a given date if he or she has or shares with others the right to vote those shares or to invest (or dispose of) those shares, or if he or she has the right to acquire such voting or investment rights, within 60 days of such date (such as by exercising stock options or similar rights). The percentages were calculated based on 1,682,9973,011,255 issued and outstanding shares of common stock as of the Record Date, plus, for each named person, any shares that such person may acquire within 60 days of such date. Except as otherwise noted, the address of each person named below is the address of the Company.
Shares of Common Stock Beneficially Owned |
Percent of Class Beneficially Owned | Shares of Common Stock Beneficially Owned | Percent of Class Beneficially Owned | |||||||||||||||
Directors, Director Nominees & Named Executive Officers | ||||||||||||||||||
James R. Bosley, Jr. | 6,292 | (1) | 0.4 | % | 11,011 | (1) | 0.4 | % | ||||||||||
Roger D. Cassell | 7,330 | (2) | 0.4 | % | 13,384 | (2) | 0.4 | % | ||||||||||
Steven W. Eline | 10,253 | 0.6 | % | 21,100 | 0.7 | % | ||||||||||||
Edward A. Halle, Jr. | 24,573 | (3) | 1.5 | % | 47,401 | (3) | 1.6 | % | ||||||||||
Ronald W. Hux | 11,877 | (4) | 0.7 | % | 23,521 | (4) | 0.8 | % | ||||||||||
Mark C. Krebs | 1,935 | (5) | 0.1 | % | 4,578 | (5) | 0.2 | % | ||||||||||
J. Lawrence Mekulski | 690 | 0.1 | % | 1,407 | 0.0 | % | ||||||||||||
Christopher T. Oswald | 416 | 0.0 | % | 780 | 0.0 | % | ||||||||||||
Louna S. Primm | 1,051 | (6) | 0.1 | % | 2,845 | (6) | 0.1 | % | ||||||||||
Bruce L. Schindler | 43,684 | (7) | 2.6 | % | 83,817 | (7) | 2.8 | % | ||||||||||
John J. Schuster, Jr. | 8,502 | (8) | 0.5 | % | 16,451 | (8) | 0.5 | % | ||||||||||
Teresa L. Smack | 52 | 0.0 | % | 98 | 0.0 | % | ||||||||||||
Paul F. Wooden, Jr. | 31,101 | 1.8 | % | 50,879 | 1.7 | % | ||||||||||||
Directors and Executive Officers as a Group (13 persons) | 147,752 | 8.8 | % | 277,272 | 9.2 | % | ||||||||||||
Persons Who Beneficially Own More than 5% of the Class | ||||||||||||||||||
Siena Capital Partners GP, LLC. | 89,293 | (9) | 5.3 | % | ||||||||||||||
Total | 237,045 | 14.1 | % | |||||||||||||||
Notes:
(1) | Includes |
(2) | Includes |
(3) | Includes |
(4) | Includes |
(5) | Includes |
(6) | Includes |
(7) | Includes |
(8) | Includes |
|
|
ELECTION OF DIRECTORS (Proposal 1)
The number of directors constituting the Company’sCompany Board of Directors is currently set at 11. The Company Board, of Directors, by resolution approved by a majority vote thereof, may alter the number of directors from time to time. The Company’s directors are divided into four classes, as nearly equal in number as possible, with respect to the time for which the directors may hold office. Each director is elected to hold office for a term of four years, and the terms of one class of directors expire each year. A director who is elected by the Company Board, rather than by stockholders, to fill a vacancy in a class of directors is elected to serve until the next annual meeting of stockholders. In all cases, directors serve until their successors are duly elected and qualify.
The terms of the current Class IIII Directors whose termswill expire at the conclusion of the 20192021 Annual Meeting, are Roger D. Cassell, John J. Schuster, Jr., and Paul F. Wooden, Jr.Meeting. The Company Board, of Directors, at the recommendation of theits Nominating Committee, has nominated each of thesethe incumbent Class IIII Directors to stand for re-election. Accordingly, stockholders will be asked to vote for the election of the above-named directors(i) Steven W. Eline, (ii) J. Lawrence Mekulski, and (iii) Bruce L. Schindler (each, a “Nominee”) to serve on the Board for a new four-year termterms and until their respective successors are duly elected and qualified. Each of these directorsNominee was previously elected by stockholders. Information about the principal occupations, business experience and qualifications of these nomineeseach Nominee is provided below under the heading “QUALIFICATIONS OF DIRECTOR NOMINEES AND CONTINUING DIRECTORS”. In the event a nomineeNominee declines or is unable to serve as a director, which is not anticipated, the proxies will vote in their discretion with respect to a substitute nominee named by the Company Board.
Because the vote on Proposal 1 relates to the re-election of incumbent directors, each Nominee has an interest in the outcome of this vote.
Stockholders may not vote their shares for a greater number of persons than the three director nominees named in this proxy statement and on the proxy card.
The Company Board of Directors recommends that stockholders vote FOR ALL NOMINEES named above.
CONTINUING DIRECTORS
The following tables identify each director of the Company whose term does not expire in 2019.2021. Information about the principal occupations, business experience and qualifications of these continuing directors is provided below under the heading “QUALIFICATIONS OF DIRECTOR NOMINEES AND CONTINUING DIRECTORS”.
Class II Directors
(Term expires in 2020)
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Class III Directors
(Term expires in 2021)
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Class IV Directors
(Term expires in 2022)
Name |
Edward A. Halle, Jr. |
Louna S. Primm |
Teresa L. Smack |
Class I Directors
(Term expires in 2023)
Name |
Roger D. Cassell |
John J. Schuster, Jr. |
Paul F. Wooden, Jr. |
Class II Directors (Term expires in 2024) |
| Name |
James R. Bosley, Jr. Ronald W. Hux. |
QUALIFICATIONS OF DIRECTOR NOMINEES AND CURRENT DIRECTORS
In addition to bringing extensive knowledge of the communities served by the Company through their involvement with their communities, as business partners and volunteers, the Nominating Committee of the Company Board believes that all director nominees and continuing directors possess a diverse balance of skills, business experience and expertise necessary to provide leadership to the Company. The following discussion sets forth the specific experience, qualifications, other attributes and skills of each director nominee and continuing director that led the Nominating Committee to determine that such person should serve on the Board of Directors.Company Board. All current directors also serve on the board of directors of Farmers and Merchants Bank (the “Bank”), the Company’s wholly-owned subsidiary.
James R. Bosley, Jr., age 59. Director of the Company since 2016 and of the Bank since 1991; President and Chief Executive Officer (the “CEO”) of the Bank since 1995; President and director of the Bank’s subsidiary, Reliable Community Financial Services, Inc.; and a past director of the Maryland Bankers Association. The skills, experience and knowledge acquired by Mr. Bosley during his approximately 37 years of service to the Bank, with the past 25 years as both a director and as President/CEO, qualify him to serve as a director.
Ronald W. Hux, age 63. Director of the Company since 2016 and of the Bank since 2006; President and co-owner of Douron Inc., a commercial furniture dealership located in Owings Mills, Maryland; developer and manager of commercial properties in Owings Mills, Maryland; and Treasurer of Owings Mills Corporate Round Table, a business association. Mr. Hux’s qualifications to serve as a director include his 14 years as a director of the Bank, his many years as a business owner and his experience in the office furniture and commercial real estate industries.
Roger D. Cassell, age 58.60. Director of the Company since August 2016 and of the Bank since 2008; President and CEO of Communications Electronics of Baltimore, Maryland, a company that sells, designs and installs wireless communications systems, since 1994; Managing Member of Communications Electronics Systems, a company that sells, designs and installs commercial security systems; Managing Member of 1924 Group, LLC and Cassell Group LLC, which are real estate holding companies; Managing Member of 1955 Automotive Group, an automotive repair services company; and employed in various positions with Communications Electronics since 1979. Mr. Cassell’s qualifications to serve as a director include his 1012 years as a director of the Bank, his many years as a business owner, his experience in real estate, and his experience with cutting-edge technology in the wireless communications field.
John J. Schuster, Jr., age 66. Director of the Company since 2016 and of the Bank since 1999; President and sole owner of Schuster Management Corp., a property management company; and general partner of 18 real estate limited partnerships. Mr. Schuster’s qualifications to serve as a director include his 19 years as a director of the Bank, his many years as a business owner and his experience in the general contracting, property management, and real estate industries.
Paul F. Wooden, Jr., age 69. Director of the Company since 2016 and of the Bank since 1987 and Chairman of the Board since April 2015; from 1980 to 2017 owned Taylor Technologies, Inc., a specialty chemical manufacturer of water testing supplies; Executive Director of the Taylor Foundation, a 501(c)(3) nonprofit organization; owner of Spring Meadow Station, LLC, a country market and community gathering place; and owner and managing partner of various real estate LLCs. Mr. Wooden is a Certified Public Accountant and holds a Master of Business Administration degree. Mr. Wooden’s qualifications to serve as a director include his 31 years as a director of the Bank, his many years as a business owner and his experience in the manufacturing industry, as well as his Certified Public Accountant designation and Masters in Business Administration.
James R. Bosley, Jr., age 57. Director of the Company since 2016 and of the Bank since 1991; President and Chief Executive Officer (the “CEO”) of the Bank since 1995; President and director of the Bank’s subsidiary, Reliable Community Financial Services, Inc.; and director of Maryland Financial Bank. The skills, experience and knowledge acquired by Mr. Bosley during his approximately 35 years of service to the Bank, with the past 23 years as both a director and as President/CEO, qualify him to serve as a director.
Steven W. Eline, age 54.56. Director of the Company since 2016 and of the Bank since 2013; licensed mortician; President and co-owner of Eline Funeral Home, J.F. Eline & Sons, Inc. and Carroll Cremation, all funeral related companies; President and owner of Eline Properties, LLC., a real estate investment entity; President and co-owner of Petals, Flowers, & Gifts, LLC, a retail florist; Director of the Hampstead Cemetery Association; and member of the Maryland State Funeral Directors Association, the National Funeral Directors Association, the Cremation Association of North America, and the Hampstead Lions Club. Mr. Eline’s qualifications to serve as a director include his 57 years as a director of the Bank, his many years as a business owner and his experience with commercial real estate.
Edward A. Halle, Jr., age 68.70. Director of the Company since 2016 and of the Bank since 2010; practicing attorney in the law firm of Fowley & Beckley, P.A.; President of Slade, Inc., a family owned investment company; and Managing Member of Panther Branch LLC and Panther South LLC, both of which invest in real estate. Mr. Halle’s qualifications to serve as a director include his 810 years as a director of the Bank, his experience as an attorney who specializes in land conservation, real estate, zoning and other related matters.
Ronald W. Hux, age 61. Director of the Company since 2016 and of the Bank since 2006; President and co-owner of Douron Inc., a commercial furniture dealership located in Owings Mills, Maryland; developer and manager of commercial properties in Owings Mills, Maryland; and Treasurer of Owings Mills Corporate Round Table, a business association. Mr. Hux’s qualifications to serve as a director include his 12 years as a director of the Bank, his many years as a business owner and his experience in the office furniture and commercial real estate industries.
J. Lawrence Mekulski, age 70.72. Director of the Company since 2016 and of the Bank since 2009; retired Principal, KLNB LLC, a commercial real estate services company; Maryland Licensed Associate Real Estate Broker; and member of the International Council of Shopping Centers. Mr. Mekulski’s qualifications to serve as a director include his 911 years as a director of the Bank, and his many years as a real estate broker in the commercial real estate field.
Louna S. Primm, age 71.73. Director of the Company and of the Bank since February 2018; Executive Vice President and Chief Lending Officer of New Windsor State Bank (retired) from 2007 to 2017; held various positions at Branch Banking & Trust Company, Carroll County Bank & Trust, and Sandy Spring Bank between 1965 and 2007; member of the Board of Trustees of Lutheran Social Ministries of Maryland; Board member of the State of Maryland Economic Development Assistance Authority; and current and former board member of numerous other chartable,charitable, economic, and business organizations. Ms. Primm’s qualifications to serve as a director include her 53 years in the banking industry, primarily in a senior management role, and her experience as a board member for various other organizations.
Bruce L. Schindler, age 63.65. Director of the Company since August 2016 and of the Bank since 1989;1989 and Chairman of the Board since April 2020; director, President and Owner of Bob Davidson Ford Lincoln, an automobile dealership; board member of the Baltimore Washington Ford Dealers Advertising Fund; Treasurer and board member of Pathfinders for Autism, a nonprofit charitable organization; board member of Camp Opportunity of Maryland, Inc. , a nonprofit charitable organization; Member of BLS Reinsurance, LLC, an automobile warranty reinsurance company; and Member of McDhaid, LLC, a real estate holding company. Mr. Schindler’s qualifications to serve as a director include his 29 years31years as a director of the Bank, his many years as a business owner, his experience in the automotive sales and service industry, and his accounting background.
John J. Schuster, Jr., age 68. Director of the Company since 2016 and of the Bank since 1999; President and sole owner of Schuster Management Corp., a property management company; and general partner of 19 real estate limited partnerships. Mr. Schuster’s qualifications to serve as a director include his 21 years as a director of the Bank, his many years as a business owner and his experience in the general contracting, property management, and real estate industries.
Teresa L. Smack, age 59.61. Director of the Company and of the Bank since February 2017; owner of Terry's Tag and Title Service, LLC and co-owner of four other limited liability companies that trade as Terry’s Tag and Title Service, all of which are licensed tag and title agents for the State of Maryland; co-owner of A&L, LLC, a tag and titling agent outside of Maryland; co-owner of 10710, LLC, a real estate investment corporation; Founder, past President and current Treasurer of the Maryland Vehicle Titling Association, a trade association; member of the Carroll County Chamber of Commerce, the Carroll Hospital Foundation Board and the Carroll County Historical Society; and Vice President of the Union Bridge Business Association.Society. Ms. Smack’s qualifications to serve as a director include her 3 years as a director of the bank, her many years as a business owner and her experience as a board member for various other organizations.
Paul F. Wooden, Jr., age 71. Director of the Company since 2016 and of the Bank since 1987 and Chairman of the Board from 2015 to 2020; from 1980 to 2017 owned Taylor Technologies, Inc., a specialty chemical manufacturer of water testing supplies; Executive Director of the Taylor Foundation, a 501(c)(3) nonprofit organization; and owner and managing partner of various real estate LLCs. Mr. Wooden is a Certified Public Accountant and holds a Master of Business Administration degree. Mr. Wooden’s qualifications to serve as a director include his 33 years as a director of the Bank, his many years as a business owner and his experience in the manufacturing industry, as well as his Certified Public Accountant designation and Masters in Business Administration.
CORPORATE GOVERNANCE MATTERS
Committees of the Board of Directors
The Company’sCompany Board of Directors and the Bank’s Boardboard of Directorsdirectors are composed of the same individuals. These boards have appointed from their members a joint Executive Committee, a joint Audit Committee, a joint Compensation Committee, and a joint Nominating Committee.
Executive Committee. The function of the Executive Committee is to direct and transact any business whichthat may properly come before the Boardboard of Directors,directors, except for such business that only the Boardboard of Directorsdirectors is authorized by law to perform. The members of the Executive Committee are Paul F. Wooden, Jr.,Bruce L. Schindler, Chairman, John J. Schuster, Jr.,Ronald W. Hux, Vice Chairman, Roger D. CassellEdward A. Halle, Jr., Louna S. Primm and J. Lawrence Mekulski.Paul F. Wooden, Jr.. James R. Bosley, Jr., who is a director and the CEO of the Bank, is invited to attend all meetings of the Executive Committee and to participate in its discussions, but he is not entitled to vote on any matter before the Executive Committee. The Executive Committee met 12 times in 2018.2020.
Audit Committee – The Audit Committee, which met sevensix times in 2018,2020, was established to perform the duties of an “audit committee” as defined in Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and consists of Paul F. Wooden, Jr., Chairman, Edward A. Halle, Jr., Steven W. Eline, and Bruce L. Schindler. The committee is responsible for hiring, setting the compensation of and overseeing the Company’s independent registered public accounting firm, and it also assists the Boardboard of directors in monitoring the integrity of the financial statements, in monitoring the performance of the Company’s internal audit function, and in monitoring the Company’s compliance with legal and regulatory requirements. In carrying out its duties, the committee meets with the internal and independent auditors, with and without management present, to discuss the overall scope and plans for their respective audits, the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The Board has determined that all audit committee members are financially literate and that Paul F. Wooden, Jr. qualifies as an “audit committee financial expert” as that term is defined by the Securities Exchange Commission (the “SEC”) in Item 407 of Regulation S-K. The Company Board of Directors has adopted a written charter for the Audit Committee, a copy of which is available on our website, www.fmb1919.comwww.fmb1919.bank, and may be accessed by clicking on “Investor Relations”, then “Corporate Overview”, then “Committee Charting” and then “Audit Committee”.
Compensation Committee – The Compensation Committee, which met two times in 2018,2020, consists of Bruce L. Schindler, Chairman, Steven W. Eline, Edward A. Halle, Jr., and Paul F. Wooden, Jr. The committee is responsible for developing policies for executive and director compensation, recommending to the Boardboard of directors the amounts and forms of compensation that should be paid to executive officers and directors, and overseeing the Company’s various compensation plans. The committee develops its recommendations for executive compensation based on the principles discussed below under the heading “EXECUTIVE COMPENSATION”. The Boardboard of directors reviews and approves or ratifies committee recommendations. The Compensation Committee has adopted a written charter, a copy of which is available on our website, www.fmb1919.comwww.fmb1919.bank, and may be accessed by clicking on “Investor Relations”, then “Corporate Overview”, then “Committee Charting” and then “Compensation Committee”.
Nominating Committee – The Nominating Committee consists of Paul F. Wooden, Jr.,Roger D. Cassell, Chairman, Ronald W. Hux, Louna S. Primm, Bruce L. Schindler, Teresa L. Smack and John J. Schuster,Paul F. Wooden, Jr. The committee is responsible for developing qualification criteria for directors, reviewing director candidates recommended by stockholders (see “Director Recommendations and Nominations” below), actively seeking, interviewing and screening individuals qualified to become directors, recommending to the Boardboard of directors those candidates who should be nominated to serve as directors, and developing and recommending to the Company Board the Corporate Governance Guidelines applicable to the Company and its subsidiaries. This committee met one timetwo times in 2018.2020. The Nominating Committee has a written charter, a copy of which is available on our website, www.fmb1919.comwww.fmb1919.bank, and may be accessed by clicking on “Investor Relations”, then “Corporate Overview”, then “Committee Charting” and then “Nominating Committee”.
In addition to the foregoing committees, the Bank’s board of directors has appointed a Loan Committee, a Facilities Committee, an Asset Liability Committee; and a Marketing Steering Committee. The Loan Committee, which met 2326 times in 2018,2020, reviews and approves certain loan transactions, and its members are James R. Bosley, Jr., Roger D. Cassell, Edward A. Halle, Jr., J. Lawrence Mekulski, Louna S. Primm, and John J. Schuster, Jr. The Facilities Committee, which met threefour times in 2018,2020, oversees the maintenance of the Bank’s facilities and is composed of John J. Schuster, Jr., Chairman, James R. Bosley, Jr., Steven W. Eline, J. Lawrence Mekulski, Teresa L. Smack.Smack, and Paul F. Wooden, Jr. Ronald W. Hux is an alternate. The Asset/Liability Committee, which met four times in 2018,2020, oversees the asset and liability positioning of the Bank and is composed of Ronald W. Hux, Chairman, James R. Bosley, Jr., and Paul F. Wooden, Jr. The Marketing Steering Committee, which met one timetwo times in 2018,2020, oversees the Bank’s marketing strategies and assists the Board with strategic development and is composed of Bruce L. Schindler, Chairman, James R. Bosley, Jr., Roger D. Cassell, Ronald W. Hux, and Teresa L. Smack
Director Independence
To determine whether each of the directors is independent, the Company Board has adopted the independence standards of The NASDAQ Stock Market Rules (the “NASDAQ Rules”). The Company Board has determined that each of Roger D. Cassell, Steve W. Eline, Edward A. Halle, Jr., Ronald W. Hux, J. Lawrence Mekulski, Louna S. Primm, Bruce L. Schindler, John J. Schuster, Jr., Teresa L. Smack,and Paul F. Wooden, Jr., is an “independent director” as that term is defined by Rule 5605(a)(2) of the NASDAQ Rules. Each member of the Compensation Committee andis an “independent director”. Each member of the Nominating Committee is an “independent director”. except for Teresa L. Smack. Each member of the Audit Committee satisfies the audit committee independence requirements of NASDAQ Rule 5605(c)(2)(A). In making these independence determinations,determining that each of the independent directors is independent, the Company Board considered, in addition to the transactions described in the “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” section of this proxy statement,the Bank’s purchase of services from a company in which Mr. Cassell has a controlling interest; products purchased from a company in which Mr. Eline has a controlling interest,interest; products purchased from a company in which Mr. Hux has a controlling interest,interest; and products purchased from a company in which Mr. Schindler has a controlling interest.
Board Leadership and Role in Risk Oversight
The Company Board has separated the positions of Chairman of the Board and CEO in an effort to maintain independent oversight of management. The Company Board elects from its members a Chairman who it believes will be an effective leader and who satisfies the “independent director” standards of NASDAQ Rule 5605(b)(1). The Company Board believes that this bifurcated structure best suits the Company because it helps to ensure that the BoardCompany has a strong, independent leader who can objectively review operations and the performance of management. In addition, the Company Board believes that it is important to allow the CEO to concentrate on running the day-to-day operations of the Company and the implementation of the Board’s policies and procedures without the added burden of also managing the Board of Directors.Company Board.
The Company Board of Directors administers risk oversight by assigning various organizational risk oversight functions to its committees, which report to the full Board on a regular basis.
The Bank’s Loan Committee monitors the Bank’s credit risk in accordance with guidelines established by the Bank’s board of directors and bank regulatory agencies, and is charged with approving loans made by the Bank within acceptable guidelines. The Bank’s Loan Committee also monitors the Bank’s concentrations of commercial real estate loans and the risk rating of loans.
The Audit Committee monitors compliance risk, risks related to our reputation, our internal control over financial reporting, including the internal audit function, and the performance of and reports by the Company’s independent registered public accounting firm.
The Executive Committee monitors the Bank’s market and strategic risks through its oversight of marketing and strategic initiatives, and regularly meets with the CEO, the Chief Financial Officer (the “CFO”), and the Chief Operations Officer (the “COO”) so that it may be kept apprised of the Bank’s general operating environment. The Executive Committee also helps ensure director independence through its nominating authority, and it manages compensation risk through its authority to review and recommend the Bank’s executive compensation practices and policies.
Interest rate risk, liquidity risk, and valuation risk are monitored by the Bank’s Asset Liability Committee. Credit risk and transaction risk are monitored by the Bank’s Loan Committee.
Attendance at Board Meetings
The Company Board of Directors held 13 meetings in 2018.2020. Each director who served as such during 20182020 attended at least 75% of the aggregate of (i) the total number of meetings of the Company Board of Directors (held during the period served) and (ii) the total number of meetings held by all committees of the Company Board on which that person served (held during the period served), except that Teresa L.Roger D. Cassell attended 63% and Terry Smack attended 63%73% of such meetings.
Director Recommendations and Nominations
The Nominating Committee will from time to time review and consider candidates recommended by stockholders. Stockholder recommendations should be labeled “Recommendation of Director Candidate” and be submitted in writing to: Corporate Secretary, Farmers and Merchants Bancshares, Inc., 4510 Lower Beckleysville Road, Suite H, Hampstead, Maryland 21074; and must specify (i) the recommending stockholder’s contact information, (ii) the class and number of shares of the Company’s capital stock beneficially owned by the recommending stockholder, (iii) the name, address and credentials of the candidate for nomination, (v) the number of shares of the Company’s capital stock beneficially owned by the candidate, and (iv) the candidate’s written consent to be considered as a candidate. Such recommendation must be received by the Corporate Secretary no less than 150 days nor more than 180 days before the date of the Annual Meeting of Stockholders for which the candidate is being recommended. For purposes of this requirement, the date of the meeting shall be deemed to be on the same day and month as the Annual Meeting of Stockholders for the preceding year. Accordingly, a stockholder who desires to recommend a person for consideration as a director nominee for the 2022 Annual Meeting of Stockholders must submit such recommendation as provided above no earlier than October 29, 2021 and no later than November 28, 2021.
Candidates may come to the attention of the Nominating Committee from current directors, executive officers, stockholders, or other persons. The Nominating Committee does not have a formal policy under which it considers the diversity of candidates for directorship when making nomination recommendations. The Nominating Committee periodically reviews its list of candidates available to fill Boarddirector vacancies and researches the talent, skills, expertise, and general background of these candidates. In evaluating candidates for nomination, the Nominating Committee uses a variety of methods and regularly assesses the size of the Company Board, whether any vacancies are expected due to retirement or otherwise, the need for particular expertise on the Company Board, and whether the Company’s market areas are adequately represented by Board members.directors. In nominating director candidates, the Nominating Committee generally seeks to choose individuals that have skills, education, experience and other attributes that will complement and/or broaden the strengths of the existing directors.
Whether recommended by a stockholder or another third party, or recommended independently by the Nominating Committee, a candidate will be selected for nomination based on his or her talents and the needs of the Company Board. The Nominating Committee’s goal in selecting nominees is to identify persons that possess complementary skills and that can work well together with existing Board members at the highest level of integrity and effectiveness. A candidate, whether recommended by a Corporation stockholder or otherwise, will not be considered for nomination unless he or she maintains strong professional and personal ethics and values, has relevant management experience, and is committed to enhancing financial performance. Certain Boardboard positions, such as Audit Committee membership, may require other special skills, expertise or independence from the Company.
It should be noted that a stockholder recommendation is not a nomination, and there is no guarantee that a candidate recommended by a stockholder will be approved by the Nominating Committee or nominated by the Board of Directors.Company Board. A stockholder who is entitled to vote for the election of directors and who desires to nominate a candidate for election to be voted on at a Meeting of Stockholders may do so only in accordance with Section 4 of Article II of the Company’s Amended and Restated Bylaws (the “Bylaws”), which provides that a stockholder may nominate a director candidate by written notice to the Chairman of the Board or the President not less than 150 days nor more than 180 days prior to the date of the meeting of stockholders called for the election of directors which, for purposes of this requirement, shall be deemed to be on the same day and month as the Annual Meeting of Stockholders for the preceding year. Such notice must contain the following information to the extent known by the notifying stockholder: (i) the name and address of each proposed nominee; (ii) the principal occupation of each proposed nominee; (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by each proposed nominee; (iv) the name and residence address of the notifying stockholder; (v) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the notifying stockholder; (vi) the consent in writing of the proposed nominee as to the proposed nominee’s name being placed in nomination for director; and (vii) all information relating to such proposed nominee that would be required to be disclosed by Regulation 14A under the Exchange Act and Rule 14a-11 promulgated thereunder, assuming such provisions would be applicable to the solicitation of proxies for such proposed nominee (and regardless of whether they do apply). Accordingly, a stockholder who desires to nominate a person for election to the Company Board at the 20202022 Annual Meeting of Stockholders must submit such nomination as provided above no earlier than October 26, 201929, 2021 and no later than November 25, 2019.28, 2021.
It should be further noted that the Company’s Amended and Restated Bylaws specify that no person, including an incumbent director, is eligible to serve on the Company Board after the annual meeting of stockholders that immediately follows his or her 75th birthday except for an incumbent director of the Bank who was (i) serving as such on August 8, 2016 (i.e., the date on which the Company was incorporated) and (ii) at least 75 years old as of July 1, 2006.birthday.
Stockholder Communications with the Board of Directors
Stockholders may communicate with the Company Board, of Directors, including the non-employee directors, by sending a letter to the Company Board, of Directors, c/o Corporate Secretary, Farmers and Merchants Bancshares, Inc., 4510 Lower BeckleyvilleBeckleysville Road, Suite H, Hampstead, Maryland 21074. The Corporate Secretary will deliver all stockholder communications directly to the Board of Directors for consideration.
The Company believes that the Annual Meeting of Stockholders is an opportunity for stockholders to communicate directly with directors and, accordingly, expects that all directors will attend each Annual Meeting of Stockholders. If you would like an opportunity to discuss issues directly with our Directors, please consider attending this year’s Annual Meeting of Stockholders. The 20182020 Annual Meeting of Stockholders was attended by nine11 persons who were then serving on the Board of Directors.Company Board.
Family Relationships Among Directors, Nominees and Executive Officers
There are no family relationship between any of the directors, director nominees or executive officers.
Policy with Respect to Hedging Transactions
The Company has not adopted any practices or policies regarding the ability of employees (including officers) or directors, or any of their designees, to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds), or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s equity securities (i) granted to the employee or director by the Company as part of his or her compensation or (ii) held, directly or indirectly, by the employee or director.
DIRECTOR COMPENSATION
The following table provides information about compensation paid to or earned by the Company’s directors during 20182020 who are not also named executive officers. All directors also serve on the board of directors of the Bank. Directors receive compensation only for their service to the Bank, and all such compensation is paid by the Bank. Neither the Company nor the Bank grants equity-based compensation or maintains any bonus (incentive or otherwise) or deferred compensation plans for directors.
Director Compensation | ||||||||||||
Name | Fees earned or paid in cash ($) | All other compensation | Total | |||||||||
Roger D. Cassell | 18,850 | - | 18,850 | |||||||||
Steven W. Eline | 14,239 | - | 14,239 | |||||||||
Edward A. Halle, Jr. | 19,710 | - | 19,710 | |||||||||
Ronald W. Hux | 11,429 | - | 11,429 | |||||||||
T. Edward Lippy | 5,895 | 4,050 | 9,945 | |||||||||
J. Lawrence Mekulski | 22,018 | - | 22,018 | |||||||||
Louna S. Primm | 14,550 | - | 14,550 | |||||||||
Bruce L. Schindler | 12,830 | - | 12,830 | |||||||||
John J. Schuster, Jr. | 29,265 | - | 29,265 | |||||||||
Teresa L. Smack | 6,260 | - | 6,260 | |||||||||
Paul F. Wooden, Jr. | 29,662 | - | 29,662 | |||||||||
| Note: | ||||||||||||
|
|
Director Compensation | |||
Name | Fees earned or paid in cash ($) | All other compensation | Total |
Roger D. Cassell | 14,945 | - | 14,945 |
Steven W. Eline | 13,105 | - | 13,105 |
Edward A. Halle, Jr. | 27,365 | - | 27,365 |
Ronald W. Hux | 17,637 | - | 17,637 |
J. Lawrence Mekulski | 21,580 | - | 21,580 |
Louna S. Primm | 24,800 | - | 24,800 |
Bruce L. Schindler | 26,602 | - | 26,602 |
John J. Schuster, Jr. | 20,986 | - | 20,986 |
Teresa L. Smack | 7,975 | - | 7,975 |
Paul F. Wooden, Jr. | 23,431 | - | 23,431 |
In 2018,2020, non-employee directors received $675$725 for each meeting of the Bank’s board meetingof directors attended and $430$460 for each committee meeting attended. Director compensation is set by the entire board of directors of the Bank. Each year, the Bank’s board of directors reviews one or more independently conducted director compensation surveys provided by the Bank’s independent registered public accounting firm. The Board did not retain a compensation consultant to provide advice with respect to the compensation paid to directors in 2018.
From time to time, the boards of the Company and the Bank may choose to appoint a person to serve as a director emeritus, where the boards believe that they may benefit from such person’s experience, insight and other attributes. A director emeritus is invited to attend all board meetings and to participate in board discussions, but he or she is not entitled to vote on any matter that may come before the board or any of its committees. A director emeritus is entitled to receive a cash fee for each meeting attended. For 2018, the fee amount was $675. These fees are paid by the Bank.
Upon his retirement from the Board of Directors in April 2017, the Board appointed Kenneth W. Hoffmeyer to serve as a director emeritus for a two-year term. Mr. Hoffmeyer served on the Board of Directors for 29 years, including as Chairman of the Board from 2010 - 2015. He was also Chairman of the Audit Committee for many years where his Certified Public Accountant designation and outside accounting experience were utilized. Through this service, Mr. Hoffmeyer gained valuable skills and valuable experience and knowledge about the Bank and the banking industry. Mr. Hoffmeyer’s compensation for 2018 was $11,110. As of the Record Date, Mr. Hoffmeyer beneficially owned 3,124 shares of the Common Stock (0.2% of the issued and outstanding shares of Common Stock).
Upon his retirement from the Board of Directors in April 2018, the Board appointed T. Edward Lippy to serve as a director emeritus for a two-year term. Mr. Lippy served on the Board of Directors for 54 years, including as Chairman of the Board from 2000-2005. He was also the Chairman of Loan Committee for many years. Through this service, Mr. Lippy gained valuable skills, experience, and knowledge about the Bank and the banking industry. As of the Record Date, Mr. Lippy beneficially owned 63,422 shares of the Common Stock (3.8% of the issued and outstanding shares of Common Stock).
AUDIT COMMITTEE REPORT
The Audit Committee has (i) reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 20182020 with the Company’s management;management, (ii) discussed with Rowles & Company LLP (“Rowles”), the Company’s independent auditors, the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU § 380),applicable requirements of the as adopted by the Public Company Accounting Oversight Board in Rule 3200T,(the “PCAOB”) and the SEC, and (iii) received the written disclosures and the letter from Rowles required by applicable requirements of the Public Company Accounting Oversight BoardPCAOB regarding Rowles’ communications with the Audit Committee concerning its independence, and discussed with Rowles its independence. Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements for the year ended December 31, 20182020 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2020.
By: AUDIT COMMITTEE
Paul F. Wooden, Jr. Edward A. Halle, Jr. Steven W. Eline Bruce L. Schindler |
EXECUTIVE OFFICERS
Information about the Company’s executive officers is set forth below, all of whom have served in their respective positions since the Company’s incorporation in August 2016. All officers serve in similar capacities at the Bank and are elected annually by, and serve at the pleasure of, the boards of directors of the Company and the Bank.
James R. Bosley, Jr., 57,59, has served as the President and CEO and as a director of the Company since August 2016, as the President and Chief Executive Officer of the Bank since March 28, 1995, and as a director of the Bank since 1991. Mr. Bosley also serves as President and a director of the Bank’s subsidiary, Reliable Community Financial Services, Inc. In addition, heHe is a past director of the Maryland Financial Bank.Bankers Association.
Christopher T. Oswald, 57,59, has served as the Senior Vice President of the Company since August 2016 and Executive Vice President - Chief Operations Officer of the Bank since April 2017. Mr. Oswald served as Senior Vice President - Chief Operations Officer of the Bank from April 2006 to April 2017, Senior Vice President of the Bank from January 2000 through April 2006, and as Vice President of the Bank from April 1994 through December 1999.
Mark C. Krebs, 58,60, has served as the Treasurer and Chief Financial Officer of the Company since August 2016 and Executive Vice President - Chief Financial Officer of the Bank since April 2017. Mr. Krebs served as Senior Vice President - Chief Financial Officer of the Bank from January 2010 to April 2017. From November 2007 to November 2009, Mr. Krebs served as a chief financial officer or consultant at several firms. From February 2004 to August 2007, he served as Senior Vice President, Treasurer and Director of Investor Relations of Fieldstone Investment Corporation, a publicly-traded real estate investment trust. Mr. Krebs worked for American Home Mortgage, a publicly-traded real estate investment trust, and its predecessor, Columbia National, Inc., a mortgage banker and servicer, between February 1986 and January 2004 as Senior Vice President, Treasurer and Controller. Mr. Krebs started his career in 1982 with KPMG, an international accounting firm. Mr. Krebs is a Certified Public Accountant.
EXECUTIVE COMPENSATION
Officers do not receive remuneration for their service to the Company. All compensation is paid by the Bank.
The Bank’s board of directors, upon the recommendation of its Compensation Committee, establishes executive compensation each year. In recommending compensation levels, the Compensation Committee reviews annual evaluations that measure performance against previously established goals for the year. In addition, the board reviews one or more independently conducted surveys. In 2018,2020, the Boardboard reviewed two surveys. One was a general publication that the Company’s independent registered public accounting firm provided at no cost to all of its clients, and the other was a general survey prepared by the American Bankers Association for which the Bank paid $300. The Bank’s CEO makes compensation recommendations to the Compensation Committee for executive officers other than himself. From time to time, the Compensation Committee retains outside compensation consultants to evaluate the Bank’s executive compensation practices and plans. The Compensation Committee did not retainNeither the Company Board nor the Bank’s board of directors retained a compensation consultant to provide advice with respect to the compensation paid to executive officersdirectors in 2018.2020.
The following table sets forth, for each of the last two calendar years (which were also the Company’s last two fiscal years), the total remuneration awarded to, earned by, or paid to (i) any person who served as the Company’s principal executive officer at any time during 2018,2020, (ii) the Company’s two most highly compensated executive officers other than the principal executive officer who were serving as such as of December 31, 20182020 and whose total compensation (excluding above-market and preferential earnings on nonqualified deferred compensation) exceeded $100,000 during 2018,2020, and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to the foregoing item (ii) had they been serving as executive officers of the Company as of December 31, 20182020 (the principal executive officer(s) and such other persons are referred to as the “named executive officers”). For this purpose, the term “executive officer” includes any executive officers of the Company or the Bank who performs a policy making function for the Company. The Company has determined that the named executive officers for purposes of this proxy statement include James R. Bosley, Jr., and Christopher T. Oswald and Mark C. Krebs. In calendar years 20182020 and 2017,2019, executive compensation included annual base salary, income from a nonequity incentive bonus plan, and income related to the Bank’s employee benefit plans.
SUMMARY COMPENSATION TABLE | |||||||
Name and principal position | Year | Salary ($) | Bonus ($) | Nonequity incentive plan compensation ($)(2) | Non-qualified deferred compensation earnings ($) | All other compen- sation ($)(3) – (5) | Total ($) |
James R. Bosley, Jr. President and CEO (1) |
|
| - - |
| - - |
|
|
Christopher T. Oswald EVP/COO |
|
| - - |
| - - |
|
|
Mark C. Krebs EVP/CFO |
|
| - - |
| - - |
|
|
Notes:
(1) | Mr. Bosley also serves on the boards of directors of the Company and the Bank but receives no director’s fees for such service. |
(2) | Amounts relate to the bonus pool program discussed below. |
(3) | For Mr. Bosley, the amounts include matching contributions of |
(4) | For Mr. Oswald, the amounts include matching contributions of |
(5) | For Mr. Krebs, the amount includes matching contributions of |
Employment Arrangements
Executive officers are appointed by the board of directors annually and are employed on an at-will basis. No executive officer is a party to any written employment agreement with the Company or the Bank. Each executive officer is paid a base salary, participates in a bonus program, and participates in various employee benefit plans and programs to the extent the executive officer qualifies for such participation under the terms and conditions of the benefit plans, including the Bank’s 401(k) profit sharing plan. Any employee, including an executive officer, may elect to waive coverage under the Bank’s health insurance plan, in which case he or she will be entitled to receive an amount in cash equal to 40% of the net annual cost to the Bank of the insurance coverage. Messrs. Bosley and Oswald are additionally eligible to receive benefits under the Bank’s bank-owned life insurance (“BOLI”) plan and Supplemental Executive Retirement Plan Agreements (“SERP Agreements”), as described below. Mr. Krebs is eligible to receive benefits under the Performance Driven Plan, as described below.
Base salary for each executive is set annually by the Bank’s board of directors, upon the recommendation of its Compensation Committee. The salaries for 20192021 for the Bank’s named executive officers are as follows: Mr. Bosley, $260,763;$277,988; Mr. Oswald, $183,575;$195,702; and Mr. Krebs, $188,226.$200,660.
Bonus ProgramsProgram
The Bank’s board of directors has implemented a bonus program under which certain officers are entitled to share each year in a bonus pool the amount of which is based on the Bank’s net income for that year. Participation is available to the President/CEO, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents, other than Senior Vice Presidents and Vice Presidents who are involved in lending activities. The bonus pool amount is determined as follows:
Net Income | Bonus Pool |
Less than $3.00 million | 0.0% of Net Income |
$3.00 million to $3.75 million | 3.5% of Net Income |
| $3.75 million to $4.50 million | 4.0% of Net Income |
Over $4.50 million | 4.5% of Net Income |
There is no formula for determining how much of the pool is paid to a particular officer. Rather, the amount for each officer is recommended by the Compensation Committee and approved by the Board. Historically, the percentages of the pool paid to Messrs. Bosley, Oswald, and Krebs have been 29%, 17% and 17%, respectively, and these were the amounts awarded in 20182020 and 2017.2019. These bonus amounts are shown in the Summary Compensation Table above under the heading “Nonequity incentive plan compensation”.
Profit Sharing Plan
The Bank has a profit sharing plan that qualifies under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “IRC”). All employees age 21 or older with six months of service are eligible to participate in the plan. The Bank matches employee contributions up to 4% of total compensation and may make additional optional contributions. Employee and employer contributions are 100% vested when made.
Bank-Owned Life Insurance Plan Benefits
To attract and retain key employees, the Bank implemented a BOLI plan in 2002 to provide benefits to the named beneficiaries of certain officers of the Bank, including Messrs. Bosley and Oswald. Mr. Krebs is not a participant in the BOLI plan.
In 2002 and 2004, the Bank invested $3,500,000 in life insurance policies covering 18 officers, including Messrs. Bosley and Oswald. The acquisition of Carroll Community Bank in 2020 added life insurance policies for 14 former Carroll officers. Although the Bank owns these policies, including the cash surrender values of the policies, the Bank currently intends to assign a portion of the death benefits payable under these policies to the covered executive’s estate at the time of his or her death, whether or not he or she is employed at the time of his death, unless the covered executive's employment was terminated for cause prior to his death. The amount of the portion to be assigned to a particular executive's estate will depend on the reason that such executive's employment was terminated at or prior to death. The aggregate cash surrender value of these policies at December 31, 20182020 is $7,053,354.$11,297,342.
The amounts of the benefits that could have been paid to the beneficiaries of Messrs. Bosley and Oswald in connection with these policies as of December 31, 20182020 are as follows:
Name |
Reason for Termination | Estimated BOLI Benefits | |||
Mr. Bosley | Death | $ | 1,033,210 | ||
| Disability | 283,210 | ||||
Other than death or disability | 283,210 | ||||
Mr. Oswald | Death | $ | 572,691 | ||
| Disability | 272,691 | ||||
Other than death or disability | 272,691 | ||||
Name | Reason for Termination | Estimated BOLI Benefits | |||
Mr. Bosley | Death Disability | $ | 1,018,018 268,018 | ||
Other than death or disability | 268,018 | ||||
Mr. Oswald | Death Disability | $ | 558,064 258,064 | ||
Other than death or disability | 258,064 | ||||
Group Term Life Insurance
The Bank provides group term life insurance coverage to all Bank employees, including each of the named executive officers. For federal tax purposes, employees recognize imputed income each year on the amount of premiums paid by the Bank for the portion of insurance in excess of $50,000.
Supplemental Executive Retirement Plan Agreements
The Bank entered into SERP Agreements with Mr. Bosley and Mr. Oswald in December 2010, which were amended in February 2011. The SERP Agreements, which are administered by the Board of Directors or one of its committees, are intended to provide deferred cash compensation to each of the executive officers under certain circumstances, including upon a Separation from Service. The term “Separation from Service” is defined as the termination of the executive’s employment with the Bank for reasons other than death, determined in accordance with Section 409A of the IRC. Under the SERP Agreements, benefits will be paid as follows:
● | Retirement Benefit. Mr. Bosley will be entitled to the annual cash benefit described below (the “Retirement Benefit”) for 20 years if he suffers a Separation from Service after reaching the retirement age of 57, and Mr. Oswald will be entitled to the Retirement Benefit for 20 years after attaining the retirement age of 63. The Retirement Benefit will be an amount equal to 35% of the average of the executives’ three highest base salaries for the three-year period preceding the date on which the payment obligation is triggered, including the year in which the triggering event occurs (the “Average Salary”). Each annual Retirement Benefit will be paid in 12 equal monthly installments commencing within 90 days following the triggering event. |
● | Early Involuntary Termination Benefit. If, after reaching age 48 but prior to reaching his specified retirement age, an executive suffers a Separation from Service that constitutes an Early Involuntary Termination, then the executive will be entitled to receive an annual benefit (the “Involuntary Termination Benefit”) for 20 years equal to a percentage of the executive’s Average Salary, determined as of the end of the Plan Year (as defined in the SERP Agreement). The percentage is based on the executive’s age at the time of the Separation from Service, starting at 20% for Mr. Oswald. Until age 62 for Mr. Oswald, the percentage increases by 1% for each additional year after age 48. Each annual Involuntary Termination Benefit will be paid in 12 equal monthly installments commencing within 90 days following the Separation from Service. The term “Early Involuntary Termination” means a Separation from Service (other than a termination for cause, as defined in the SERP Agreement) due to the independent exercise of the unilateral authority of the Bank to terminate the executive’s employment where the executive was willing and able to continue performing services. This benefit does not apply to Mr. Bosley since he has reached the retirement age. |
● | Early Voluntary Termination Benefit. If an executive experiences a Separation from Service prior to reaching his specified retirement age that constitutes an Early Voluntary Termination (as defined in the SERP Agreement), then the executive will be entitled to receive cash equal to 100% of the Accrual Balance determined as of the end of the month prior to the Separation from Service. The Accrual Balance will be paid over 20 years in equal monthly installments commencing within 90 days following the Separation from Service, provided that the executive is entitled to receive minimum annual payments of $2,547 for Mr. Oswald. The term “Accrual Balance” means the liability that the Bank is required to accrue, under GAAP, for the Bank’s obligation to the executive under the SERP Agreement, by applying Accounting Principles Board Opinion Number 12, as amended, and the Discount Rate. Interest will accrue on the unpaid portion of the Accrual Balance at a rate equal to the Discount Rate and will be added thereto. The term “Discount Rate” means the Moody’s 20 year AA Corporate Bond rate less 0.25%, with the initial rate set at 4.68%. The Board of Directors may adjust the Discount Rate to maintain the rate within reasonable standards according to GAAP and/or applicable bank regulatory guidance. This benefit does not apply to Mr. Bosley since he has reached the retirement age. |
16
The following table sets forth the current amounts that could be paid to the executives under each of the situations described above, calculated as of December 31,
If benefit payments have begun and an executive dies before all payments have been made, then the Bank will distribute the remaining benefits to the executive’s designated beneficiaries, at the same times and in the same manner as if the executive had not died. If an executive becomes entitled to benefits but dies before payments begin, then the Bank will pay the benefits, in a single lump sum on the first day of the fourth month following death, to the executive’s designated beneficiaries.
No benefits will be paid if an executive’s employment is terminated by the Bank for cause or if he is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act. Additionally, no benefit will be paid to the extent it constitutes an excess golden parachute payment under Section 280G of the IRC or is determined to be a prohibited golden parachute payment pursuant to 12 C.F.R. § 359.2.
The timing of the distribution of some or all of the foregoing benefits may be subject to a six-month waiting period under Section 409A of the IRC to the extent the executive is considered to be a “specified employee” of the Company. Section 409A of the IRC places restrictions on the ability of the Bank and/or the executives to change the form or timing of the payment of the benefits, and the SERP Agreements provide that any such change must be consistent with the requirements and limitations of Section 409A of the IRC. Notwithstanding the foregoing, if an executive becomes subject to tax on the benefits that could be paid under the SERP Agreement, then the Bank may, subject to the requirements of Section 409A of the IRC, make a limited distribution to the executive to cover such taxes. Any such distribution will reduce the benefits that are otherwise payable under the SERP Agreement.
In January 2011, to help fund the foregoing payment obligations, the Bank invested in life insurance policies on the lives of Mr. Bosley and Oswald.
17 Performance Driven Retirement Plan
On November 17, 2015, the Bank and Mr. Krebs entered into a Performance Driven Retirement Plan Agreement (the “Retirement Agreement”) to provide cash benefits to Mr. Krebs following his Separation of Service (as defined in the Retirement Agreement), his Disability (as defined in the Retirement Agreement), his death, or a Change in Control (as defined in the Retirement Agreement). The Retirement Agreement requires the Bank to establish a general ledger “account” for Mr. Krebs’ benefit that will be credited from time to time with cash contributions and interest thereon (the “Deferral Account”).
On the effective date of the Retirement Agreement, the Bank made an initial contribution of $5,565 to the Deferral Account. Thereafter, on the first day of each month during each Plan Year (as defined in the Retirement Agreement) that Mr. Krebs is employed, the Bank is required to make a contribution equal to 0.833% of Mr. Krebs’ Base Salary (as defined in the Retirement Agreement). The Bank will not be required to make monthly contributions during a Plan Year, however, if the Return on Equity (as defined in the Retirement Agreement) for the immediately preceding Plan Year is less than 6.25%. In the event of a Change in Control, the Bank is required to make a contribution to the Deferral Account in an amount determined by multiplying (i) 300% of Mr. Krebs’ then-current Base Salary by (ii) the average percentage of Base Salary contributed to the Deferral Account by the Bank during the three Plan Years that immediately preceded the Change in Control. The Bank’s board of directors may choose to make additional contributions to the Deferral Account at any time if it determines that such contributions would be in the best interest of the Bank. During each Plan Year prior to the earliest to occur of Mr. Krebs’ Disability, death or Separation from Service, interest on the balance of the Deferral Account will be credited at an annual rate equal to 67% of the Return on Equity for the prior Plan Year, provided that in no event will the annual rate of interest be less than 0.0% nor more than 10.0%. Except when Mr. Krebs is receiving the Early Retirement Benefit (defined below), interest on the balance of the Deferral Account will be credited following the commencement of distributions at an annual rate equal to the 20 Year Moody’s AA Corporate bond index less 0.25%, based on the Moody’s yield on the first business day of the Plan Year.
Subject to waiting periods and other restrictions that may be imposed by applicable law, including Section 409A of the IRC, distributions from the Deferral Account will be made in one of the following manners (each of which is exclusive of the other manners):
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