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. | ||
Class III Directors
(Term expires in 2025)
Name | ||
Steven W. Eline J. Lawrence Mekulski | ||
Bruce L. Schindler | ||
| Class IV Directors | ||
| (Term expires in 2026) | ||
| Name | ||
| Edward A. Halle, Jr. | ||
| Teresa L. Smack |
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 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 59.61. Director of the Company since 2016 and of the Bank since 1991; President and Chief Executive Officer (the “CEO”) of the Company and the Bank since 1995;between July 18, 2022 and December 31, 2022; President of the Company between 2016 and July 18, 2022 and of the Bank from 1995 to July 18, 2022; former director and President of the Bank’s subsidiary, Reliable Community Financial Services, Inc. (“RCFI”); a director of the Northeast Social Action Program; and a past director of the Maryland Bankers Association. The skills, experience and knowledge acquired by Mr. Bosley during his approximately 3739 years of service to the Bank, with the past 2527 years as both a director and as President/President and 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 60.62. Director of the Company since 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 1214 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.
Steven W. Eline, age 56.58. 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., Eline Monuments, LLC, 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 7nine 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 70.72. 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 1012 years as a director of the Bank, his experience as an attorney who specializes in land conservation, real estate, zoning and other related matters.
Gary A. Harris, age 52. Director of the Company and the Bank since July 18, 2022; President and CEO of the Company since January 1, 2023; President of the Company and the Bank between July 18, 2022 and January 1, 2023; President and director of RCFI; Executive Vice President – Chief Lending Officer of the Bank between 2021 and July 18, 2022; Senior Vice President – Commercial Banking of the Bank between 2016 and 2021; and Vice President – Commercial Banking of the Bank between 2008 and 2016. Mr. Harris’ qualifications to serve as a director include the knowledge and experience that he has gained during his 14-year career with the Bank, particularly with respect to the Bank’s lending operations, and his experience serving on the Bank’s Strategic Growth Committee, Asset-Liability Committee, and Officer’s Loan Committee.
Ronald W. Hux, age 65. 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 Director of Owings Mills Corporate Round Table, a business association. Mr. Hux’s qualifications to serve as a director include his 16 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 72.74. 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 1113 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 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 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 65.67. Director of the Company since 2016 and of the Bank since 1989 and Chairman of the Board since April 2020; director,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; 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 31years33 years 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 61.63. 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 areis a licensed tag and title agentsagent for the State of Maryland; co-owner of A&L, LLC, a tag and titling agent outside of Maryland; co-owner of 10710, LLC aand 1010 Balt. Blvd., LLC, both real estate investment corporation;corporations; Founder, past President and current Treasurermember of the Maryland Vehicle Titling Association, a trade association; member of the Carroll County Chamber of Commerce,Commerce; member of the Rape Crisis Foundation Board; past member of the Carroll Hospital Foundation Board and the Carroll County Historical Society.Board. Ms. Smack’s qualifications to serve as a director include her 3five 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 71.73. 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 TaylorPFW 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 3336 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 Board and the Bank’s board of directors 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 that may properly come before the board of directors, except for such business that only the board of directors is authorized by law to perform. The members of the Executive Committee are Bruce L. Schindler, Chairman, Ronald W. Hux, Vice Chairman, EdwardTheresa L. Smack, and Steven W. Eline. Gary A. Halle, Jr., Louna S. Primm and Paul F. Wooden, Jr.. James R. Bosley, Jr., who is a director and the CEO of the Bank,Harris 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 2020.2022.
Audit CommitteeCommittee. – The Audit Committee, which met six6 times in 2020,2022, 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 board 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 has adopted a written charter for the Audit Committee, a copy of which is available on our website, www.fmb1919.bank, and may be accessed by clicking on “Investor Relations”, then “Corporate Overview”, then “Committee Charting” and then “Audit Committee”.
Compensation CommitteeCommittee. – The Compensation Committee, which met two times in 2020,2022, 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 board 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 board 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.bank, and may be accessed by clicking on “Investor Relations”, then “Corporate Overview”, then “Committee Charting” and then “Compensation Committee”.
Nominating CommitteeCommittee. – The Nominating Committee consists of Roger D. Cassell, Chairman, Ronald W. Hux, Louna S. Primm, Bruce L. Schindler, Teresa L. Smack and 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 board 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 two timesone time in 2020.2022. The Nominating Committee has a written charter, a copy of which is available on our website, www.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 2625 times in 2020,2022, reviews and approves certain loan transactions, and its members are James R. Bosley, Jr., Roger D. Cassell, Edward A. Halle, Jr., Gary A. Harris, J. Lawrence Mekulski, and Louna S. Primm, and John J. Schuster, Jr.Primm. The Facilities Committee, which met fourtwo times in 2020,2022, oversees the maintenance of the Bank’s facilities and is composed of John J. Schuster, Jr., Ronald W. Hux, Chairman,, James R. Bosley, Jr., Steven W. Eline, Gary A. Harris, Teresa L. Smack, and Paul F. Wooden, Jr. Ronald W. Hux is an alternate. The Asset/Liability Committee, which met four times in 2020,2022, oversees the asset and liability positioning of the Bank and is composed of Ronald W. Hux, Chairman, James R. Bosley, Jr., Gary A. Harris, and Paul F. Wooden, Jr. The Marketing Steering Committee, which met two timesone time in 2020,2022, 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, Gary A. Harris, 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., and Paul F. Wooden, Jr., is an “independent director” as that term is defined by Rule 5605(a)(2) of the NASDAQ Rules. The Board has determined that, during the period in 2022 that he served as a director, John J. Schuster, Jr. was an “independent director”. Each member of the Compensation Committee is 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 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; products purchased from a company in which Mr. Hux has a controlling 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 Company 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 Company Board.
The Company Board 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 held 1314 meetings in 2020.2022. Each incumbent director who served as sucha director during 20202022 attended at least 75% of the aggregate of (i) the total number of meetings of the Company Board (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 Roger D. Cassell attended 63% and Terry Smack attended 73% of such meetings.for John J. Schuster, Jr.
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 2023 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 20222024 Annual Meeting of Stockholders must submit such recommendation as provided above no earlier than October 29, 202128, 2023 and no later than November 28, 2021.27, 2023.
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 director 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 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 board 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 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 2023 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 toFor further information, see the Company Board at the 2022 Annual Meetingsection of Stockholders must submit such nomination as provided above no earlier than October 29, 2021 and no later than November 28, 2021.this proxy statement entitled “SUBMISSION OF STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR 2024 ANNUAL MEETING”.
It should be further noted that the 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.
Stockholder Communications with the Board of Directors
Stockholders may communicate with the Company Board, including the non-employee directors, by sending a letter to the Company Board, c/o Corporate Secretary, Farmers and Merchants Bancshares, Inc., 4510 Lower Beckleysville 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 2023 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 20202022 Annual Meeting of Stockholders was attended by 1110 persons who were then serving on the 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 20202022 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 | Director Compensation | Director Compensation | |||||||||||||
Name | Fees earned or paid in cash ($) | All other compensation | Total | Fees earned or paid in cash ($) | All other compensation | Total ($) | |||||||||
Roger D. Cassell | 14,945 | - | 14,945 | 12,426 | - | 12,426 | |||||||||
Steven W. Eline | 13,105 | - | 13,105 | 19,385 | - | 19,385 | |||||||||
Edward A. Halle, Jr. | 27,365 | - | 27,365 | 27,510 | - | 27,510 | |||||||||
Ronald W. Hux | 17,637 | - | 17,637 | 26,317 | - | 26,317 | |||||||||
J. Lawrence Mekulski | 21,580 | - | 21,580 | 25,755 | - | 25,755 | |||||||||
Louna S. Primm | 24,800 | - | 24,800 | 28,695 | - | 28,695 | |||||||||
Bruce L. Schindler | 26,602 | - | 26,602 | 36,233 | - | 36,233 | |||||||||
John J. Schuster, Jr. | 20,986 | - | 20,986 | 3,510 | - | 3,510 | |||||||||
Teresa L. Smack | 7,975 | - | 7,975 | 16,240 | - | 16,240 | |||||||||
Paul F. Wooden, Jr. | 23,431 | - | 23,431 | 16,365 | - | 16,365 | |||||||||
In 2020,2022, non-employee directors received $725$775 for each meeting of the Bank’s board of directors attended and $460$490 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.
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 2022, the fee amount was $700. These fees are paid by the Bank.
The Board anticipates that it will appoint Louna S. Primm to serve as a director emeritus for a two-year term upon her retirement from the Board of Directors at the conclusion of the 2023 Annual Meeting. Ms. Primm served on the Board of Directors for five years. She was also on the Loan Committee for all of those years. In addition Ms. Primm has 54 years of banking experience, primarily in a senior management role. Through this service, Ms. Primm gained valuable skills and valuable experience and knowledge about the Bank and the banking industry.
AUDIT COMMITTEE REPORT
The Audit Committee has (i) reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 20202022 with the Company’s management, (ii) discussed with RowlesYount, Hyde & Company LLP (“Rowles”)Barbour, P.C., the Company’s independent auditors (“YHB”), the matters required to be discussed by the applicable requirements of the as adopted by the Public Company Accounting Oversight Board (the “PCAOB”) and the SEC, and (iii) received the written disclosures and the letter from RowlesYHB required by applicable requirements of the PCAOB regarding Rowles’YHB’s communications with the Audit Committee concerning its independence, and discussed with RowlesYHB 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, 20202022 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2022.
| By: |
/s/ Paul F. Wooden, Jr. /s/ Edward A. Halle, Jr. /s/ Steven W. Eline /s/ 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.below. 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.Gary A. Harris, , 59,52, has served as the President and CEO and as a director of the Company since August 2016, asJanuary 1, 2023. Additional biographical information about Mr. Harris is discussed above under the President and Chief Executive Officer of the Bank since March 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. He is a past director of the Maryland Bankers Association.section entitled, “QUALIFICATIONS OF DIRECTOR NOMINEES AND CURRENT DIRECTORS”.
Christopher T. Oswald, 59,61, 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, 60,62, has served as the Treasurer and Chief Financial OfficerCFO 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 2020,2022, the board 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.Association. 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. Neither the Company Board nor the Bank’s board of directors retained a compensation consultant to provide advice with respect to the compensation paid to executives or directors in 2020.2022.
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 2020,2022, (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, 20202022 and whose total compensation (excluding above-market and preferential earnings on nonqualified deferred compensation) exceeded $100,000 during 2020,2022, and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to the foregoing item (ii) had they been serving as executive officers of the Company as of December 31, 20202022 (the principal executive officer(s) and such other persons are referred to as the “named executive officers”). For this purpose, the term “executive officer” includes any executive officers of the Company or the Bank who performs a policy making function for the Company. The Company has determined that the named executive officers for purposes of this proxy statement include James R. Bosley, Jr., who retired as the Chief Executive Officer of the Company and the Bank on December 31, 2022, Gary A. Harris, and Christopher T. Oswald and Mark C. Krebs.Oswald. In calendar years 20202022 and 2019,2021, executive compensation included annual base salary, income from a nonequity incentive bonus plan, and income related to the Bank’s employee benefit plans.
SUMMARY COMPENSATION TABLE | ||||||||||||||||||||||||||||
Name and principal position | Year | Salary ($) | Bonus ($) | Nonequity incentive plan compensation ($)(3) | Nonqualified deferred compensation earnings ($) | All other compensation ($)(4)–(6) | Total ($) | |||||||||||||||||||||
James R. Bosley, Jr. | 2022 | 287,023 | - | 117,876 | - | 21,449 | 426,348 | |||||||||||||||||||||
| CEO (1) | 2021 | 277,988 | - | 73,480 | - | 20,576 | 372,044 | |||||||||||||||||||||
Gary A. Harris | 2022 | 235,587 | - | 123,182 | 62,706 | 421,475 | ||||||||||||||||||||||
| President (2) | 2021 | 186,175 | - | 93,152 | 12,031 | 291,358 | ||||||||||||||||||||||
Christopher T. Oswald | 2022 | 202,062 | - | 68,694 | - | 100,650 | 371,406 | |||||||||||||||||||||
| EVP/COO | 2021 | 195,702 | - | 42,634 | - | 84,805 | 323,141 | |||||||||||||||||||||
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Notes:
(1) | Mr. Bosley retired as the CEO of the Company and the Bank on December 31, 2022. He also serves on the boards of directors of the Company and the Bank but |
(2) | Mr. Harris served as the President of the Company and the Bank between July 18, 2022 and December 31, 2022. He also serves on the boards of directors of the Company and the Bank but does not receive any director’s fees for such service. |
| Amounts |
| For Mr. Bosley, the amounts include matching contributions of |
| For Mr. Harris, the amounts include matching contributions of $12,200 in 2022 and $11,173 in 2021 to the Bank’s 401(k) plan, imputed income of $947 in 2022 and $858 in 2021 attributable to the premium paid for group term life insurance coverage in excess of $50,000, and imputed income of $49,559 in 2022 and $0 in 2021 attributable to the economic value of accrued benefits under his supplemental executive retirement agreement discussed below. Mr. Harris did not receive any of the accrued benefits under his supplemental executive retirement agreement in 2022 or 2021 because the payment thereof is conditioned on the occurrence of a separation from service or Mr. Harris reaching a certain age. |
(6) | For Mr. Oswald, the amounts include matching contributions of |
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Employment Arrangements
Executive officers are appointed by the Board and the Bank’s 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,a Retirement Agreement and a Severance Agreement under certain circumstances, 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 20212023 for the Bank’s named executive officers are as follows:$300,000 for Mr. Bosley, $277,988;Harris and $209,134 for Mr. Oswald, $195,702; and Mr. Krebs, $200,660.Oswald.
Bonus Program
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, President, 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 | Bonus Pool Range | ||
Less than | 0.0% of Net Income | $0 | ||
$ | 2.0% of Net Income | $90,000 - $105,000 | ||
| $5.25 million to $6.00 million | 2.5% of Net Income | $131,250 - $150,000 | ||
| $6.00 million to $6.75 million | 3.0% of Net Income | $180,000 - $202,500 | ||
| $6.75 million to $7.50 million | 3.5% of Net Income | $236,250 - $262,500 | ||
$ | 4.0% of Net Income | $300,000 - $330,000 | ||
Over | 4.5% of Net Income | $371,250+ |
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 KrebsOswald have been 29%, 17% and 17%, respectively, and these were the amounts awarded in 20202022 and 2019.2021. These bonus amounts are shown in the Summary Compensation Table above under the heading “Nonequity incentive plan compensation”.
Mr. Harris did not participate in the foregoing bonus program in 2022 or 2021 because he was eligible to receive a loan and deposit production bonus, paid in cash. Under this program, Mr. Harris was entitled to receive a bonus, paid as a percentage of his base salary rate, if his annual loan production were to equal or exceed $7 million. The percentage started at 10% and could increase to a maximum of 57% for an annual loan production of $35 million or more. Mr. Harris was also eligible for a commission on Small Business Administration loans, including Paycheck Protection Program loans, that ranged from 10% for the first $100,000 of sales premium to 5% for sales premiums $200,000 or over. In addition, Mr. Harris was entitled to receive 0.25% of all new non-interest checking deposits in excess of $250,000, 0.20% for all new savings accounts in excess of $250,000, and 0.15% for all new certificates of deposit in excess of $500,000. The bonus amounts paid to Mr. Harris in 2022 and 2021 are shown in the Summary Compensation Table 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, Harris, and Oswald. Mr. Krebs is not a participant in the BOLI plan.
InBeginning in 2002, and 2004, the Bank has invested $3,500,000 in life insurance policies covering 18 officers, including Messrs. Bosley, Harris, 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, 20202022 is $11,297,342.$14,585,342.
The amounts of the benefits that could have been paid to the beneficiaries of Messrs. Bosley, Harris, and Oswald in connection with these policies as of December 31, 20202022 are as follows:
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Name | Reason for Termination | Estimated BOLI Benefits | |||
Mr. Bosley | Death | $ | 1,001,788 | ||
| Disability | 251,788 | ||||
Other than death or disability | 251,788 | ||||
Mr. Harris | Death | $ | 50,000 | ||
| Disability | - | ||||
| Other than death or disability | - | ||||
Mr. Oswald | Death | $ | 542,436 | ||
| Disability | 242,436 | ||||
Other than death or disability | 242,436 | ||||
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 SERPSupplement Executive Retirement Agreements with Mr.Messrs. Bosley and Mr. Oswald in December 2010, which were amended in February 2011. The SERP Agreements,2011, and with Mr. Harris in August 2022. These 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 “SeparationService (as defined in the agreements) other than for Cause (as defined in the agreements).
Mr. Bosley experienced a Separation from Service” is defined asService on December 31, 2022 after reaching the terminationretirement age of 57. As such, his agreement provides that he will receive an annual cash benefit equal to 35% of the executive’s employment withaverage of his three highest base salaries for 2022, 2021 and 2020, or $281,535. This annual benefit will be paid in 12 equal monthly installments for 20 years, commencing on June 30, 2023 upon the Bank for reasons other than death, determined in accordance withlapse of the six-month waiting period required by Section 409A of the IRC. UnderInternal Revenue Code.
Mr. Harris’ agreement (the “Harris SERP Agreement”) provides for the SERP Agreements, benefits will be paid as follows:following benefits:
● | Retirement Benefit. Mr. |
● | Early Termination Benefit. If Mr. Harris suffers a Separation from Service that constitutes an Early Termination, then he will be entitled to receive the Accrued Benefit, which will be paid over 20 years in equal monthly installments commencing in the month that follows the month in which the Separation of Service occurs, with interest credited on the unpaid balance at the Discount Rate (as defined in the Harris SERP Agreement) in effect at the time of the Separation from Service. The term “Early Termination” means a Separation from Service that occurs prior to Mr. Harris reaching the age of 65 and not within 24 months of a Change in Control (as defined in the Harris SERP Agreement). The term “Accrued Benefit” means the dollar value of the liability that should be accrued by the Bank, under Generally Accepted Accounting Principles (“GAAP”), for the Bank’s obligation to Mr. Harris under the Harris SERP Agreement, calculating by applying Financial Accounting Standards Board’s Accounting Standards Codification 710-10 and the Discount Rate. |
● | Disability Benefit. If Mr. Harris suffers a Disability (as defined in the Harris SERP Agreement) prior to reaching the age of 65, then he will be entitled to receive the Accrued Benefit, which will be paid over 20 years in equal monthly installments commencing in the month that follows the month in which the Disability occurs, with interest credited on the unpaid balance at the Discount Rate (as defined in the Harris SERP Agreement) in effect at the time the Disability occurs. |
● | Change in Control Benefit. If a Change in Control (as defined in the Harris SERP Agreement) occurs and, prior to reaching the age of 65, Mr. Harris suffers a Separation from Service within 24 months of such Change in Control, then Mr. Harris will be entitled to receive cash in an amount equal to the present value of a 20-year payment stream equal to 35% of the average of Mr. Harris’ 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 Separation of Service occurs, calculated using a 4.0% discount rate (the |
● | Death Benefit. If Mr. Harris dies prior to a Separation from Service, then his designated beneficiaries will be entitled to cash in an amount equal to the greater of (i) the Accrual Benefit and (ii) $2,127,275. This benefit will be paid in a single lump sum during the month that follows the month in which Mr. Harris dies. |
● | Benefit Upon Termination of the SERP Agreement. If the Bank terminates the Harris SERP Agreement (i) in connection with a Change in Control following the commencement of benefit payments under the Harris SERP Agreement, (ii) upon its dissolution or in connection with its bankruptcy, or (iii) in connection with the termination of all other compensatory arrangements that would be aggregated with the Harris SERP Agreement pursuant to Section 409A of the IRC (to the extent that Mr. Harris participated in such other arrangements), then, subject to certain conditions specified in the Harris SERP Agreement, including compliance with Section 409A of the IRC, Mr. Harris will be entitled to the Accrued Benefit. If the Bank terminates the Harris SERP Agreement in connection with a Change in Control before the commencement of benefit payments, then Mr. Harris will be entitled to the CiC Benefit. |
The Harris SERP Agreement provides that, subject to certain exceptions, Mr. Harris will forfeit any undistributed benefits in the event that he engages in certain activities that compete with the Bank, interferes with certain of the Bank’s employee and/or customer relationships, or improperly divulges the Bank’s confidential information.
Mr. Oswald’s agreement (the “Oswald SERP Agreement”) provides for the following benefits:
● | Retirement Benefit. Mr. Oswald will be entitled to an annual cash benefit for 20 years if he suffers a Separation from Service after reaching the retirement age of 63. The amount of this benefit will be equal to 35% of the average of Mr. Oswald’s 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 Separation of Service occurs. This benefit will be paid in 12 equal monthly installments commencing within 90 days |
● | Early Involuntary Termination Benefit. If, after reaching age 48 but prior to reaching his specified retirement age, |
● | Early Voluntary Termination Benefit. If |
● | Disability Benefit. If |
● | Change in Control Benefit. If a Change in Control (as defined in the SERP Agreement) occurs prior to |
● | Death Benefit. If |
● | Benefit Upon Termination of the SERP Agreement. If the Bank and |
The following table sets forth the current amounts that could be paid to the executivesMessrs. Harris and Oswald under each of the situations described above, calculated as of December 31, 2020. Mr. Bosley has reached his specified retirement age of 57.2022.
| Normal Retirement Benefit | Early Involuntary Termination Benefit | Early Voluntary Termination Benefit | Disability Benefit | CIC Benefit | Death Benefit | Benefit Upon Termination of Agreement | Normal Retirement Benefit | Early Involuntary Termination Benefit | Early Voluntary Termination Benefit | Disability Benefit | CIC Benefit | Death Benefit | Benefit Upon Termination of Agreement | |||||||||||||||||||||
Mr. Bosley | $88,356 | $0 | $0 | $0 | $0 | $1,315,674 | $1,315,674 | ||||||||||||||||||||||||||||
Mr. Harris | $ | 154,176 | $ | 3,592 | $ | 3,592 | $ | 3,592 | $ | 292,516 | $ | 2,217,275 | $ | 49,559 | |||||||||||||||||||||
Mr. Oswald | 72,688 | 56,928 | 47,399 | 47,399 | 201,608 | 834,459 | 683,049 | 72,865 | 68,667 | 62,537 | 62,537 | 208,238 | 862,858 | 862,858 | |||||||||||||||||||||
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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 Harris SERP AgreementsAgreement and the Oswald SERP Agreement 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 Harris SERP Agreement or the Oswald 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 Harris SERP Agreement and the Oswald SERP Agreement.
In January 2011, toTo help fund the foregoing payment obligations, the Bank invested in life insurance policies in 2011 on the lives of Mr. Bosley and Oswald.
Performance Driven Retirement PlanOswald and in 2022 on the life of Mr. Harris.
On November 17, 2015, the BankSeverance Agreement
The Company and Mr. Krebs entered intoHarris are parties to a Performance Driven Retirement PlanChange in Control Severance Agreement (the “Retirement“Severance Agreement”) pursuant to providewhich Mr. Harris will be entitled to receive a lump sum cash benefitspayment equal to Mr. Krebs following2.99 times his Separation of Servicethen-current annual base salary rate if the Company terminates his employment without Cause (as defined in the RetirementSeverance Agreement), or if he terminates his Disabilityemployment for Good Reason (as defined in the RetirementSeverance Agreement), his death, or within 12 months of a Change in Control (as defined in the RetirementSeverance Agreement). The Retirement Agreement requires, subject to any reduction necessary to ensure that such severance payment would not trigger 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 dateexcise tax under Section 4999 of the Retirement Agreement, the Bank made an initial contribution of $5,565Code. Mr. Harris’ entitlement to the Deferral Account. Thereafter,severance payment would be conditioned 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 eventhis execution, delivery, and non-revocation of a Change in Control, the Bank is requiredseparation agreement and general release pursuant to makewhich, among other things, he must agree to customary business protection and non-disparagement covenants for a contribution to the Deferral Account in an amount determined by multiplying (i) 300%period 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 creditedtwo years following the commencementtermination 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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The Retirement Plan permits the Bank’s board of directors to agree to make early “Hardship Distributions” under limited circumstances. As a general rule, distributions may not be accelerated for any reason. Certain restrictions apply to any amendment to the Retirement Agreement that would change the timing or form of payment.
Mr. Krebs will forfeit his right to receive the amount in the Deferral Account if the Bank terminates his employment for Cause (as defined in the Retirement Agreement). In addition, Mr. Krebs will forfeit his right to receive the amount in the Deferral Account if he engages in certain competitive activities described in the Retirement Agreement. Finally, in the event that any distribution would be treated as an “excess golden parachute payment” under Section 280G of the IRC, such distribution will be reduced to the extent necessary to avoid that characterization, and Mr. Krebs will forfeit the excess portion of that distribution.
At December 31, 2020, the balance of the Deferral Account was $120,236.employment.
As of December 31, 2022, Mr. Harris’ “base amount” was $300,000, and the gross amount to which Mr. Harris would have been entitled under the Severance Agreement as of such date is approximately $897,000.
Pay Versus Performance
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between compensation actually paid to our Principal Executive Officer (the “PEO”) and the other named executive officers (the “Non-PEO named executive officers”) and certain financial performance metrics of the Company using a methodology that has been prescribed by the SEC.
Pay Versus Performance | ||||||||||||||||||||||||
Year(s) | Summary Compensation Table Total for PEO
| Compensation Actually Paid to PEO (1) (2)
| Average Summary Compensation Table Total for Non-PEO Named Executive Officers (1)
| Average Compensation Actually Paid to Non-PEO Named Executive Officers (1) (2)
| Value of Initial Fixed $100 Investment Based On: | Net Income
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| (a) | (b) | (c) | (d) | (e) | Total Shareholder Return (f) | (g) | ||||||||||||||||||
2022 | $ | 426,348 | $ | 426,348 | $ | 396,441 | $ | 396,441 | $ | 174 | $ | 8,090,127 | ||||||||||||
2021 | 372,044 | 372,044 | 303,585 | 303,585 | 170 | 8,149,606 | ||||||||||||||||||
Notes:
(1) | For both 2022 and 2021, James R. Bosley, Jr. was the PEO used for purposes of calculating the amounts set forth in column (c). |
(2) | The amounts reported in columns (c) and (e) reflect no deductions from or additions to the amounts shown in columns (b) or (d), respectively, as the Company has not granted, or, thus, reported in the Summary Compensation Table, any stock awards or option awards. |
(3) | For 2022, Gary A. Harris and Christopher T. Oswald were the non-PEO named executive officers used for purposes of column (e). For 2021, Christopher T. Oswald and Mark C. Krebs were the non-PEO named executive officers used for purposes of calculating the amounts set forth in column (e). |
The graphs below describe the relationship between pay and performance by comparing compensation actually paid to our PEO and the average actual compensation paid to our Non-PEO named executive officers to our cumulative total shareholder return (TSR) and our net income.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following paragraphs discuss related party transactions that occurred thus far in 20212023 and during 20202022 and 2019,2021, as well as related party transactions that are contemplated during the remainder of 20202023 (other than compensation paid or awarded to the Company’s directors and executive officers that is discussed above). For this purpose, the term “related party transaction” is generally defined as any transaction (or series of related transactions) in which (i) the Company or any of its subsidiaries is a participant, (ii) the amount involved exceeds the lesser of (a) $120,000 or (b) 1.0% of the Company’s average total assets at year-end for the last two completed fiscal years, and (iii) any director, director nominee or executive officer of the Company or any person who beneficially owns more than 5% of the outstanding shares of the Company’s common stock (and the immediate family members and affiliates of the foregoing) has a direct or indirect interest. The term includes most financial transactions and arrangements, such as loans, guarantees and sales of property, and remuneration for services rendered (as an employee, consultant or otherwise) to the Company and its subsidiaries.
The Bank has entered into a contract of sale with a company of which director Teresa L. Smack is a co-owner under whichIn 2021, the Bank will sell to such company, for $1,370,000,sold a parcel of real property owned by the Bank that formerly housed a branch of Carroll Community Bank.Bank for $1,370,000 to a company of which director Teresa L. Smack is a co-owner. The purchase price, net of sales costs, representsrepresented the highest of multiple offers received by the Bank, including offers from an entity that is unrelated to the Company or its subsidiaries. The Bank expects the sale to close in the first quarter of 2021.
Thus far in 20212023 and during 20202022 and 2019,2021, the Company, through the Bank, had banking transactions in the ordinary course of its business with the Company’s directors, executive officers and immediate family members and affiliates of the foregoing. All of these transactions were substantially the same terms, including interest rates, collateral, and repayment terms on loans, as those prevailing at the same time for comparable transactions with persons who are not related to the Company and its subsidiaries. When made, the extensions of credit to these persons by the Bank did not involve more than the normal risk of collectability or present other unfavorable features.
The Company and the Bank have procedures in place to help ensure that the Company and the Bank comply with all legal requirements applicable to related party transactions. Among other procedures, the Audit Committee and/or the Bank’s Loan Committee must review and approve transactions with directors, executive officers and/or their respective related interests and submit such transactions to the full board of directors for approval. This review is intended to ensure compliance with Regulation O, which imposes requirements for extensions of credit to directors and executive officers, Sections 23A and 23B of the Federal Reserve Act, which governs transactions between the Bank and its affiliates, and Section 5-512 of the Financial Institutions Article of the Annotated Code of Maryland, which limits, and requires periodic review and approval of, extensions of credit to directors and executive officers.
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Proposal 1)
On July 6, 2021, the Company was notified by Rowles & Company, LLP (“Rowles”) that, effective July 1, 2021, substantially all partners and employees of Rowles joined YHB. As a result, effective July 6, 2021, Rowles resigned as the Company’s independent registered public accounting firm.
During the year ended December 31, 2021, the Company did not have any disagreements with Rowles on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Rowles, would have caused Rowles to make reference thereto in its report on the Company’s consolidated financial statements for such year had it issued such a report.
During the year ended December 31, 2021, the Company did not have any “reportable events” as described in Item 304 (a)(1)(v) of Regulation S-K promulgated by the SEC.
On July 19, 2021, the Board’s Audit Committee appointed YHB to serve as the Company’s independent registered public accounting firm for 2021.
During the year ended December 31, 2021, neither the Company nor anyone acting on the its behalf consulted YHB regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, or (ii) any matter that was either the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K promulgated by the Securities and Exchange Commission or a “reportable event” described in Item 304(a)(1)(v) of the Regulation S-K.
RATIFICATION OF APPOINTMENT OF ROWLES & COMPANY, LLP ASTHE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Proposal 2)
At the 20212023 Annual Meeting, stockholders will be asked to ratify the Audit Committee’s appointment of RowlesYHB as the Company’s independent registered public accounting firm for the fiscal year endedending December 31, 2021. Rowles2023. As discussed above, YHB has served as the Company’s independent registered accounting firm since July 2021 when it acquired Rowles, which had served as the Company’s incorporation onindependent registered public accounting firm since August 8, 2016 and as the Bank’s independent auditing firm since December 1997. RowlesYHB has advised the Audit Committee and the Board of Directors that neither it nor any of its partners or associates has any direct financial interest in or any connection with the Company or the Bank other than as the independent registered public accounting firm. A representative of RowlesYHB is expected to be present at the 20212023 Annual Meeting, will have an opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions.
The Board of Directors recommends that stockholders vote FOR the ratification of the appointment of Rowles & Company, LLPYHB as the Company’s independent registered public accounting firm for 2021.2023.
Because your vote is advisory, it will not be binding upon the Audit Committee, overrule any decision made by the Audit Committee, or create or imply any additional fiduciary duty by the Audit Committee. The Audit Committee may, however, take into account the outcome of the vote when considering future auditor appointments.
AUDIT FEES AND SERVICES
The following table shows the fees billed to the Company in 2020for the audit and 2019other services provided by YHB for 2022 and 2021.
FY 2022 | FY 2021 | |||||||
Audit Fees | $ | 98,550 | $ | 64,500 | ||||
Audit-Related Fees | - | 12,000 | ||||||
Tax Fees | 25,391 | 14,301 | ||||||
All Other Fees | - | - | ||||||
Total | $ | 123,941 | $ | 90,801 | ||||
Audit Fees for 2022 and 2021 include fees associated with the annual audits of the Company’s consolidated financial statements for those years and fees associated with the reviews of the Company’s Quarterly Reports on Form 10-Q.
Audit-Related Fees for 2021 include fees associated with the HUD audit required for FHA recertification.
Tax Fees for 2022 and 2021 include charges primarily related to tax return preparation and audit and tax consulting services.
The following table shows the fees billed to the Company for the audit and other services provided by Rowles for those years:2021:
FY 2020 | FY 2019 | FY 2021 | ||||||||||
Audit Fees | $ | 48,632 | $ | 57,300 | $ | 4,000 | ||||||
Audit-Related Fees | - | - | - | |||||||||
Tax Fees | 8,199 | 6,230 | 2,952 | |||||||||
All Other Fees | - | 550 | - | |||||||||
Total | $ | 56,831 | $ | 64,080 | $ | 6,952 | ||||||
Audit Fees for 2020 and 20192021 include fees associated with the annual audits of the Company’s consolidated financial statements for those years and fees associated with the reviews of the Company’s Quarterly Reports on Form 10-Q.
Tax Fees in fiscal years 2020 and 2019for 2021 include charges primarily related to tax return preparation and audit and tax consulting services.
All Other Fees in 2020 and 2019 include the cost of seminars held by Rowles that were attended by several of our officers and directors.
The Audit Committee has reviewed summaries of the services provided by YHB and Rowles and the related fees and has determined that the provision of non-audit services by those firms was compatible with maintaining the independence of Rowles.their independence.
It is the Audit Committee’s policy to pre-approve all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent registered public accounting firm, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(l)(B) of the Exchange Act, which, when needed, are approved by the Audit Committee prior to the completion of the independent registered public accounting firm’s audit. All of the 20202022 and 20192021 services described above were pre-approved by the Audit Committee.
DELINQUENT SECTION 16(a) REPORTS
Pursuant to Section 16(a) of the Exchange Act and the rules promulgated thereunder, the Company’s executive officers and directors, and persons who beneficially own more than 10% of the Company’s common stock, are required to file certain reports regarding their ownership of common stock with the SEC. Based solely on a review of copies of such reports and amendments thereto filed electronically with the SEC during the year ended December 31, 2020,2022, or written representations that no reports were required, the Company believes that none of such persons failed to timely filedfile any report required to be filed by Section 16(a) during the year ended December 31, 2020.2022.
SUBMISSION OF STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
FOR 20222024 ANNUAL MEETING
A stockholder who desires to present a proposal pursuant to Rule 14a-8 under the Exchange Act to be included in the proxy statement for, and voted on by the stockholders at, the 20222024 Annual Meeting of Stockholders must submit such proposal in writing, including all supporting materials, to the Company at its principal office no later than November 19, 202118, 2023 (120 days prior to the date of mailing based on this year’s proxy statement date) and meet all other requirements for inclusion in the proxy statement. Additionally, pursuant to Rule 14a-4(c)(1) under the Exchange Act and the Bylaws, a stockholder who intends to present a proposal for business to be considered at the 20222024 Annual Meeting of Stockholders but does not seek inclusion of that proposal in the Company’s proxy statement for such meeting must submit that proposal to the Company no later than December 28, 202127, 2023 (120 days prior to the first anniversary of the 20212023 Annual Meeting of Stockholders). If notice of a stockholder proposal is not timely received, then the proxies will be authorized to exercise discretionary authority with respect to the proposal.
A stockholder who desires to nominate a person for election to the Board at the 20222024 Annual Meeting of Stockholders must submit such nomination in accordance with Section 4 of Article II of the Bylaws no earlier than October 29, 202128, 2023 and no later than November 28, 2021.27, 2023.
“HOUSEHOLDING” OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (such as brokers, banks, trustees and other nominees) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.
A number of banks, brokers, trustees and other nominees with account holders who are our stockholders may be householding our proxy materials. A single Notice of Annual Meeting of Stockholders, proxy statement and Annual Report to Stockholders may be delivered to multiple stockholders sharing an address unless contrary instructions have been received from one or more of the affected stockholders. Once you have received notice from your bank, broker, trust or other nominee that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate Notice of Annual Meeting of Stockholders, proxy statement and Annual Report to Stockholders, please notify your bank, broker, trust or other nominee and also send a copy of your request to the Company c/o Lynnette Kitzmiller, Vice President/Corporate Secretary, 4510 Lower Beckleysville Road, Suite H, Hampstead, Maryland 21074 or call 410-374-1510 ext. 105. Stockholders who currently receive multiple copies of this proxy statement at their address and would like to request householding of their communications should contact their bank, broker, trust or other nominee.
ANNUAL REPORT AND FINANCIAL STATEMENTS
This proxy statement is accompanied by a copy of the Company’s Annual Report to Stockholders for the year ended December 31, 2022, which contains the information required by Rule 14a-3(b) under the Exchange Act. Upon the written request of any person solicited pursuant to this proxy statement, the Company will provide such person, without charge, a copy of the Company’s Annual Report on Form 10-K, including the financial statements and the financial statement schedules, required to be filed with the SEC pursuant to Rule 13a-1 under the Exchange Act for the year ended December 31, 2022. A written request must be sent to Mark C. Krebs, Executive Vice President/Chief Financial Officer, Farmers and Merchants Bancshares, Inc., P.O. Box 249, 25 Westminster Pike, Reisterstown, MD 21136.
OTHER MATTERS
As of the date of this proxy statement, the Board is not aware of any matters, other than those stated above, that may properly be brought before the meeting. If other matters should properly come before the meeting or any adjournment thereof, persons named in the enclosed proxy or their substitutes will vote with respect to such matters in accordance with their best judgment.
ANNUAL REPORT AND FINANCIAL STATEMENTS
This proxy statement is accompanied by a copy of the Company’s Annual Report to Stockholders for the year ended December 31, 2020, which contains the information required by Rule 14a-3(b) under the Exchange Act. Upon the written request of any person solicited pursuant to this proxy statement, the Company will provide such person, without charge, a copy of the Company’s Annual Report on Form 10-K, including the financial statements and the financial statement schedules, required to be filed with the SEC pursuant to Rule 13a-1 under the Exchange Act for the year ended December 31, 2020. A written request must be sent to Mark C. Krebs, Executive Vice President/Chief Financial Officer, Farmers and Merchants Bancshares, Inc., P.O. Box 249, 25 Westminster Pike, Reisterstown, MD 21136.
By order of the Board of Directors | ||
/s/ Lynnette Kitzmiller Vice President/Corporate Secretary March |
Appendix A
REVOCABLE PROXY
FARMERS AND MERCHANTS BANCSHARES, INC.
Solicited on Behalf of the Board of Directors
The undersigned hereby constitutes and appoints Cheryl Y. Lewis, Lynnette Kitzmiller, and Rachel Heird,Cherie Barrett, and each or any of them, as proxies, with the powers the undersigned would possess if personally present, and with full power of substitution, and hereby authorizes each of them to represent and to vote, as designated below, all the shares of common stock of Farmers and Merchants Bancshares, Inc. (the “Company”) that the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company to be held at 3:00 p.m., Tuesday, April 27, 202125, 2023 and any adjournment or postponement thereof, for the purposes identified on this proxy card and with discretionary authority as to any other matters that may properly come before the Annual Meeting, including substitute nominees if any of the named nominees for director should be unavailable to serve for election in accordance with and as described in the Notice of Annual Meeting of Stockholders.
1. |
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Class I Director | Class I Director | Class I Director |
(Term to Expire in 2027) | (Term to Expire in 2027) | (Term to Expire in 2027) |
☐ FOR ALL NOMINEES | ☐ WITHHOLD AUTHORITY FOR ALL NOMINEES | ☐ FOR ALL NOMINEES EXCEPT
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INSTRUCTION: To withhold authority to vote for a particular nominee, vote “FOR ALL NOMINEES EXCEPT” and strike through that nominee’s name.
The Board of Directors recommends a vote “FOR ALL NOMINEES” in Proposal 1.
2. |
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| ☐ FOR | ☐ AGAINST | ☐ ABSTAIN |
The Board of Directors recommends a vote “FOR” in Proposal 2. |
3. | Transact such other business as may be properly brought before the meeting or at any adjournment thereof. |
Shares represented by all properly executed proxy cards will be voted in accordance with instructions appearing on the proxy. In the absence of specific instructions, proxies will be voted FOR ALL NOMINEES in Proposal 1, FOR in Proposal 2, and in their discretion as to any other matters that properly come before the meeting.
meeting pursuant to Proposal 3.
| PLEASE PRINT NAME (S) HERE | PLEASE SIGN HERE | |||
| Date: | , 2022 |
Date: ____________________, 2021
NOTE: Joint holders must each sign this proxy. When signing as attorney, executor, administrator, trustee or guardian, please indicate the capacity in which you are signing. If the holder is a corporation or other entity, this proxy must be signed by an authorized person in full corporate or entity name.
PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE 20212023 ANNUAL MEETING OF STOCKHOLDERS: [ ]☐