Our board of directors maintains the freedom to choose whether the roles of Chairman of the Board and Chief Executive Officer should be combined or separated, based on what it believes is best for the Corporation and its shareholders at any given time. The board of directors has determined that it is appropriate to separate the roles of Chief Executive Officer and Chairman of the Board for the Corporation.Board. Accordingly, R. Edward Nestlerode, Jr. serves as Chairman of the Board of the Corporation while Richard A. Grafmyre serves as Chief Executive Officer of the Corporation. The board of directors believes this arrangement provides stronger corporate governance and conforms to industry best practices.
Board Risk Oversight
Each member of the board of directors has a responsibility to monitor and manage risks faced by the Corporation. At a minimum, this requires the members of the board of directors to be actively engaged in board discussions, review materials provided to them, and know when it is appropriate to request further information from management and/or engage the assistance of outside advisors. Furthermore, because the banking industry is highly regulated, certain risks to the Corporation are monitored by the board of directors through its review of the Corporation’s and its banking subsidiariessubsidiaries' compliance with regulations set forth by the banking regulatory authorities. Because risk oversight is a responsibility for each member of the board of directors, the board’s responsibility for risk oversight is not concentrated into a single committee. Instead, oversight is delegated, to a large degree, to the various board committees with an independent director serving in the capacity of committee chairman. These committees meet formally, as needed, to discuss risks and monitor specific areas of the Corporation’s performance with their findings reported at the next scheduled full meeting of the board of directors. In addition, the composition of the board of directors and normal agenda allow for the continuous oversight of risk by providing an environment which encourages the directors to ask specific questions or raise concerns and allots them sufficient time and materials to do so effectively. The overlap of committee membership provides a broad perspective of various risks and the actions undertaken to manage risks in today’s environment.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee operates under a written charter, a copy of which is available on our website, www.jssb.comwww.pwod.com, under Investor Relations/Financial Information/Governance Documents and is available upon request to the President.President or the Chief Executive Officer. All members of the Committee are independent within the meaning of Nasdaq listing standards, and the Committee met once during 2015.2018. The Committee will consider candidates recommended by shareholders. Shareholders desiring to submit a candidate for consideration as a nominee of the board of directors must submit the same information with regard to the candidate as required to be included in the Corporation’s proxy statement with respect to nominees of the board of directors in addition to any information required by the Bylawsbylaws of the Corporation. Shareholder recommendations should be submitted in writing to Penns Woods Bancorp, Inc., 300 Market Street, Williamsport, PA 17701 (Attention: President and Chief Executive Officer), on or before December 31 of the year preceding the year in which the shareholder desires the candidate to be considered as a nominee. Although the board of directors at this time does not utilize any specific written qualifications, guidelines, or policies in connection with the selection of director nominees, candidates must have a general understanding of the financial services industry or otherwise be able to provide some form of benefit to the Corporation’s business, possess the skills and capacity necessary to provide strategic direction to the Corporation, be willing to represent the interests of all shareholders, be able to work in a collegial board environment, and be available to devote the necessary time to the business of the Corporation. In addition to these requirements, candidates will be considered on the basis of diversity of experience, skills, qualifications, occupations, education, and backgrounds, and whether the candidate’s skills and experience are complementary to the skills and experience of other board members. Candidates recommended by shareholders will be evaluated on the same basis as candidates recommended by the independent directors.
Nominations for director to be made at the Annual Meeting by shareholders entitled to vote for the election of directors must be submitted to the Secretary of the Corporation not less than ninety (90) days or more than one hundred fifty (150) days prior to the Annual Meeting, which notice must contain certain information specified in the Bylaws.bylaws. No notice of nomination for election as a director has been received from any shareholder as of the date of this proxy statement. If a nomination is attempted at the Annual Meeting that does not comply with the procedures required by the Bylawsbylaws or if any votes are cast at the Annual Meeting for any candidate not duly nominated, then such nomination and/or such votes may be disregarded.
COMPENSATION OF DIRECTORS
Director Compensation Table
| | | | Fees Earned or Paid in Cash | | Stock Awards | | Option Awards | | Non-Equity Incentive Plan Compensation | | Change in Pension Value and Non-qualified Deferred Compensation Earnings | | All Other Compensation | | Total | | Fees Earned or Paid in Cash | | Stock Awards | | Option Awards | | Non-Equity Incentive Plan Compensation | | Change in Pension Value and Non-qualified Deferred Compensation Earnings | | All Other Compensation | | Total |
Name | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) |
Daniel K. Brewer(1) | | $ | 50,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 50,000 |
| | $ | 69,250 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 69,250 |
|
Michael J. Casale, Jr. | | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
| | 60,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 60,500 |
|
William J. Edwards | | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
| | 63,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 63,000 |
|
James M. Furey, II | | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
| | 60,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 60,500 |
|
D. Michael Hawbaker | | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
| | 63,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 63,000 |
|
Leroy H. Keiler, III | | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
| | 58,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 58,000 |
|
Cameron W. Kephart | | | 58,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 58,000 |
|
Joseph E. Kluger | | 55,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 55,000 |
| | 55,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 55,000 |
|
John G. Nackley | | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
| | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
|
R. Edward Nestlerode, Jr. | | 55,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 55,000 |
| |
R. Edward Nestlerode, Jr. (1) | | | 69,250 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 69,250 |
|
William H. Rockey | | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
| | 58,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 58,000 |
|
Jill F. Schwartz | | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
| | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
|
Hubert A. Valencik | | 55,000 |
| | — |
| | — |
| | — |
| | — |
| | 25,552 |
| (1) | 80,551 |
| |
Ronald A. Walko | | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 50,000 |
| | 58,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 58,000 |
|
(1) Represents earnings from consulting agreement (described in detail below) and an additional $8,752 for health insurance benefits.
In connection with his retirement, Mr. ValencikChairman of the Board and the Corporation entered into a consulting letter agreement, effective August 1, 2005. UnderAudit Committee Chairman retainers were increased from $5,000 to $7,500 annually following the agreement, Mr. Valencik will continue to perform certain consulting services for the Corporation, principally in the areasecond quarter of business development. The agreement renews on each August 1, subject to either party’s right to terminate the agreement upon 45 days’ prior written notice. Mr. Valencik has been notified that the agreement will terminate on June 30, 2016. During the term of the consulting agreement, Mr. Valencik will be required to devote not more than 20 hours per week to the provision of consulting services. In consideration of the consulting services, he will be paid $1,400 per month and will be reimbursed for the after-tax cost of health insurance if he is then ineligible for coverage under the Corporation’s health insurance programs. 2018.
The Corporation pays aan annual retainer fee to each director of the Corporation of $28,000. In addition, the BanksJSSB and Luzerne pay aan annual retainer fee to each director of $22,000.$30,000 and $22,000, respectively. For the Corporation, Mr. Nestlerode received $6,250 for serving as Chairman of the Board and Mr. Brewer received $6,250 for serving as the Audit Committee Chairman. Messrs. Furey and Casale received $2,500 for the period during which each served as Chairman of the Board of JSSB and Mr. Kluger received $5,000 for serving as Chairman of the Board for the Corporation and Mr. Valencik and Mr. Kluger each received $5,000 for serving as Chairmanof Luzerne. Members of the Board for JSSB and Luzerne, respectively.succession planning committee received payment of $5,000 during 2018. In the aggregate, existing members of the existing board of directors of the Corporation earned $665,000$772,500 for all board service during 2015.2018. Directors do not receive additional fees for Boardboard or committee meeting attendance.
JSSB and Directors Casale, Furey, Rockey, and Walko have entered into director fee agreements pursuant to which each participating director may defer payment of all or a portion of his director’s fees earned for service on the boards of directors of the Corporation and JSSB. JSSB has established a deferral account for each participating director on its books. Benefits are funded by each director’s fees and JSSB’s general assets and are payable upon retirement, early termination, disability, death, or the occurrence of a change in control of the Corporation or JSSB. Interest is credited to each deferral account at an annual rate equal to 50% of the Corporation’s return on equity for the immediately prior year, compounded monthly. Following termination of service, interest is credited to a deferral account at a rate based on the yield of the 10-year treasury note. AGenerally, the amounts are payable, at the participating director's prior election, in a lump sum or in 60 equal monthly installments following the director's retirement or termination of service, or the occurrence of a change in control of the Corporation or JSSB. In addition, a participating director may receive a payment of his or her account if the board of directors has determined that, following a request by a participating director, such director has suffered a severe unforeseeable financial hardship and becomes payable at the board of directors discretion. Generally, the payments are payable, at the participating director’s prior election, in a lump sum or in 60 equal monthly installments. Following the occurrence of a triggering event, payments will commence within 30 days after, at the participating director’s prior election, his retirement or termination of service, or the occurrence of a change in control of the Corporation or JSSB.hardship. If payments are not triggered until the participating director’s death, the benefits will be paid within 90 days following receipt of the director’s death certificate.
Luzerne maintains a Director Deferred Fee Plandirector deferred fee plan in which all Luzerne directors, including Mr. Kluger, Mr. Nackley and Ms. Schwartz, participate. The Planplan is a non-qualified deferred compensation plan into which Luzerne directors can defer up to 100% of the board fees earned during a calendar year. All amounts deferred by a director are fully vested at all times and currently earn an annual interest rate equal to prime plus 3%, with a floor of 6%. Balances accrued in the Planplan prior to December 31, 2012 earn interest at 10%. Upon cessation of a Luzerne director’s service with Luzerne, Luzerne will pay the director all amounts credited to the director’s deferred fee account.
Mr. Grafmyre and Mr. Knepp did not receive any director fees during 2015. Commencing in 2011, employee directors elected toDirectors who are also employees of the board for the first time during 2010 and in any year thereafter (includingCorporation (currently Mr. Grafmyre and Mr. Knepp) willdo not receive any separate compensation for serving as a director of the Corporation or the Banks.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The BylawsCorporation's bylaws provide that the board of directors shall consist of not less than five (5) nor more than twenty-five (25) directors who are shareholders, the exact number to be fixed and determined from time to time by resolution of a majority of the full board of directors, or by resolution of the shareholders at any annual or special meeting with the number currently set at fifteen (15). The Articlesarticles of Incorporationincorporation and Bylawsbylaws further provide that the directors shall be divided into three (3) classes, as nearly equal in number as possible, known as Class 1, Class 2, and Class 3. The directors of each class serve for a term of three (3) years and until their successors are elected and qualified. Under Pennsylvania law, directors of the Corporation can be removed from office by a vote of shareholders only for cause. The directors of the Corporation serve as follows:
|
| | | | |
Nominees for election as Class 1 | | Class 2 Directors | | Class 3 Directors |
Directors whose term expires in 2019:2022: | | to serve until 2018:2021: | | to serve until 2017:2020: |
Daniel K. Brewer (age 53)56) | | William J. Edwards (age 44)47) | | James M. Furey, II (age 68)71) |
Michael J. Casale, Jr. (age 64)67) | | Leroy H. Keiler, III (age 52)55) | | Richard A. Grafmyre (age 62)65) |
Joseph E. Kluger (age 52)55) | | Jill F. SchwartzCameron W. Kephart (age 62)42) | | D. Michael Hawbaker (age 48)51) |
R. Edward Nestlerode, Jr. (age 63)66) | | Hubert A. ValencikJill F. Schwartz (age 74)65) | | Brian L. Knepp (age 41)44) |
William H. Rockey (age 69)72) | | Ronald A. Walko (age 69)72) | | John G. Nackley (age 63)66) |
The board of directors has affirmatively determined that all of the directors are independent within the meaning of the NASDAQNasdaq listing standards, except for Richard A. Grafmyre, President and Chief Executive Officer of the Corporation and Brian L. Knepp, Senior Vice President and Chief Financial Officer of the Corporation. The board categorically determined that a lending relationship resulting from a loan made by one of the Corporation's banking subsidiaries (Jersey Shore State Bank(JSSB or Luzerne Bank)Luzerne), to a director would not affect the determination of independence if the loan complies with Regulation O under the federal banking laws. The board also categorically determined that maintaining with the Banks a deposit, savings, or similar account by a director or any of the director’s affiliates would not affect the determination of independence if the account is maintained on the same terms and conditions as those available to similarly situated customers.
The proxies solicited hereunder will be voted “FOR” (unless otherwise directed) the five (5) director nominees of the board of directors listed previously for election as Class 1 directors. Each nominee has agreed to serve if elected and qualified. The Corporation does not contemplate that any nominee will be unable to serve as a director for any reason. However, in the event one or more of the nominees should be unable to stand for election, proxies will be voted for the remaining nominees and such other persons selected by the board of directors, in accordance with the best judgment of the proxy holders.
INFORMATION AS TO NOMINEES AND DIRECTORS
Set forth below is the principal occupation and certain other information regarding the nominees and other directors whose terms of office will continue after the annual meeting.Annual Meeting. In addition, below we provide the particular experience, qualification, attributes, or skills that led the board of directors to conclude that each director and nominee should serve as a director. Share ownership information for each director and nominee is included under “Beneficial Ownership and Other Information Regarding Directors and Management.”
NOMINEES FOR DIRECTOR
Daniel K. Brewer is a Certified Public Accountant and thea principal and owner of BrewerMcKonly & Company, LLC,Asbury, LLP, a private CPA firm. Mr. Brewer has served as a director since 2012. Mr. Brewer’s experience and knowledge of financial standards and reporting is valuable to the Audit Committee of which he serves as the Chairman. Mr. Brewer’s business and social involvement in the greater area of Columbia and Montour Counties provides insight into the economic stability of this region. In addition, Mr. Brewer’s knowledge of financial statements assists the board in their review of certain loan requests.
Michael J. Casale, Jr. is the principal of Michael J. Casale, Jr., Esq., LLC. Mr. Casale has served as a director since 1999. Because banking is a highly regulated industry and success in the industry is dependent on adequately managing certain lending risks, Mr. Casale’s legal, business, and real estate experience as an attorney is helpful to the board in reviewing the Corporation’s legal matters and documentation related to commercial lending matters. In September 2017, Mr. Casale entered voluntary guilty pleas in the Court of Common Pleas of Lycoming County to one count of criminal trespass and one count of wiretapping in connection with a personal domestic matter. Mr. Casale received probation for the offenses, which has been completed, and has paid all costs and fines.
Joseph E. Kluger is aVice Chairman of the Board of the Corporation and is one of two Managing PrincipalPrincipals of Hourigan, Kluger & Quinn P.C., where he has practiced law primarily in the fields of corporatebanking and finance, real estate, estates, and for-profit and not-for-profit corporate and business law for more than 2730 years. Mr. Kluger has served as a director since 2013. Mr. Kluger’s experience as an attorney is helpful to the board in reviewing the Corporation’s legal matters, real estate affairs, corporate governance issues, and documentation related to the lending process and workout matters.
R. Edward Nestlerode, Jr. is the Chairman of the Board of the Corporation and is Vice President and Chief Executive Officer of Nestlerode Contracting Co., Inc., which specializes in bridge building. Mr. Nestlerode has served as a director since 1995. Mr. Nestlerode maintains strong community ties in the Clinton County area, which is a region that the Corporation intends to grow its business. Through his business, Mr. Nestlerode has developed knowledge of the construction industry, which provides the board with insight regarding the development of potential customer relationships and opportunities. In addition, Mr. Nestlerode’s previous experience as a Chief Financial Officer is valuable as a member of the Audit Committee.
William H. Rockey is a retired former Senior Vice President of the Corporation. He was the president of the former First National Bank of Spring Mills. Mr. Rockey has served as a director since 1999. Mr. Rockey’s ties to Centre County, Pennsylvania will assist the Corporation in growing its business in the Centre County region. In addition, Mr. Rockey’s former position with the Corporation, along with his long-time professional banking experience in Centre County Pennsylvania, combined with his knowledge and familiarity of the Corporation’s culture and operating procedures, provide the board with significant business development resources and experience.
DIRECTORS CONTINUING IN OFFICE
William J. Edwards is President and owner of JEB Environmental Technologies, Inc., a storage tank construction company. Mr. Edwards has served as a director since 2012. Mr. Edwards, one of our youngest board members, adds to the diversity of the board and helps to ensure that the board will develop board members with a depth of knowledge of the Corporation, in order to avoid knowledge and experience voids as older board members retire. In addition, Mr. Edwards’ business involvement in various communities provides insight into the economic health of the communities, while also providing insight into potential customer relationships.
James M. Furey, II is the retired President and former owner of Eastern Wood Products. Mr. Furey has served as a director since 1990. Through Mr. Furey’s professional experience in the lumber industry, which is significant in the Williamsport region, he has developed strong ties to the community. From these community relationships, Mr. Furey provides the board with insight as to the growth opportunities and real estate industry within the Williamsport region.
Richard A. Grafmyre has served as President and Chief Executive Officer of the Corporation since joining the Corporation in October 2010. Prior to joining2010, and he serves on the Corporation,boards of both JSSB and Luzerne. Mr. Grafmyre served as President, Chief Executive Officer, and Chairman of FNB Bank since 1997.from 1997 until joining the Corporation. For the efficient operation of the board, the board believes that the President and Chief Executive Officer should have a position on the board to act as a liaison between the board and management and to assist with the board’s oversight responsibilities by ensuring the board receives information from management in a timely and accurate manner to permit the board to carry out its responsibilities effectively. Mr. Grafmyre’s extensive professional banking experience within a larger holding company structure enables him to provide the board with insight as to how the Corporation’s operations, policies, and implementation of strategic plans compare to those of its peers.
D. Michael Hawbaker is Executive Vice President of Glenn O. Hawbaker, Inc., a provider of heavy construction services and products throughout the company’s market area in Centre County, Pennsylvania. Mr. Hawbaker has served as a director since 2007. Mr. Hawbaker is one of our youngest board members, adds to the diversity of the board, and helps to ensure that the board will develop board members with a depth of knowledge of the Corporation, in order to avoid knowledge and experience voids as
older board members retire. Additionally, Mr. Hawbaker understands the community and political landscape of the Centre County area where the board intends to continue to grow the Corporation’s business. Mr. Hawbaker possesses a level of financial acumen important to his service as a member of the Audit Committee.
Leroy H. Keiler, III operates Leroy H. Keiler, Attorney at Law. Mr. Keiler has served as a director since 2006. Because banking is a highly regulated industry and success in the industry is dependent on adequately managing certain lending risks, Mr. Keiler’s experience as an attorney is helpful to the board in reviewing the Corporation’s legal matters and documentation related to residential lending matters. Additionally, Mr. Keiler’s relatively younger age adds to the diversity of the board and helps to ensure that the board will develop board members with a depth of knowledge of the Corporation, in order to promote continuity in the board.
Cameron W. Kephart is Executive Vice President of Susquehanna Transit Company and Susquehanna Trailways LLC, a third-generation, family-owned motorcoach company based in Avis, Pennsylvania. Mr. Kephart was appointed to the board during 2017. Mr. Kephart has over 20 years’ experience in the transportation industry and is responsible for the day to day operations of the school bus and motorcoach divisions of the company, which includes financial planning and budgeting as well as strategic planning. Mr. Kephart is knowledgeable in government regulations pertaining to the industry at the state and federal levels. Additionally, Mr. Kephart’s relatively younger age adds to the diversity of the board and helps to ensure that the board will develop board members with a depth of knowledge of the Corporation, in order to promote continuity in the board.
Brian L. Knepp joined the Corporation in 2005 and2005. He has served as the Chief Financial Officer of the Corporation since 2008.2008 and was appointed President of the Corporation in 2017. The board believes that Mr. Knepp's experience and knowledge of the Corporation's business lines coupled with his ability to act as a liaison, in conjunction with the Chief Executive Officer, between the board and management and to assist with the board’s oversight responsibilities by ensuring the board receives information from management in a timely and accurate manner will enhance board performance. MrMr. Knepp also serves as the Chief Executive Officer of JSSB's wholly owned subsidiary, The M Group, Inc. d/b/a The Comprehensive Financial Group. Mr. Knepp's nearly twenty years of banking experience coupled with experience in the manufacturing sector enables him to relate to the needs of the board.
John G. Nackley is President & CEO,and Chief Executive Officer of InterMetro Industries Corporation after serving as Vice President and Executive Vice President. Mr. Nackley has served as a director since 2013. Mr. Nackley’s experience in a Fortune 500 company provides the board with leadership in the business climate, financial reporting, strategic planning, marketing, and governance.
Jill F. Schwartz is the senior partner of Wyoming Weavers, Swoyersville, PAPennsylvania and President of Fortune Fabrics, Inc., positions she has held since 1985. She is also the owner of Gosh Yarn It!, a yarn boutique located in Kingston, PA.Pennsylvania. Ms. Schwartz has served as a director since 2013. As president of a local manufacturing company along with many years of experience as a bank director, Ms. Schwartz provides the board with an understanding of the local business climate and growth opportunities for the Corporation.
Hubert A. Valencik is a retired former Senior Vice President and Chief Operations Officer of the Corporation. Mr. Valencik has served as a director since 2005. As the former Chief Operations Officer, Mr. Valencik continues to provide the board valuable insight and information regarding the operations of the Corporation, which assists the board in providing adequate levels of management oversight.
Ronald A. Walko is a retired President and Chief Executive Officer of the Corporation. Mr. Walko remains active in various civic organization'sorganizations in the Williamsport area. Mr. Walko has served as a director since 2000. With 25 plusmore than twenty-five years of service with the Corporation, Mr. Walko possesses a deep understanding of the Corporation’s operations, which assists the board in strategic planning and management oversight.
PRINCIPAL OFFICERS OF THE CORPORATION
The following table lists the executive officers of the Corporation as of March 1, 2016:2019:
| | Name | | Age | | Position and/or Offices With the Corporation | |
Employee Since | | Number of Shares of the Corporation | | Year First Elected an Officer | | Age | | Position and/or Offices With the Corporation | |
Employee Since | | Number of Shares of the Corporation | | Year First Elected an Officer |
Richard A. Grafmyre | | 62 | | President & Chief Executive Officer of the Corporation | | 2010 | | 1,530 | | 2010 | | 65 | | Chief Executive Officer of the Corporation | | 2010 | | 4,236 | | 2010 |
Brian L. Knepp | | 41 | | Senior Vice President and Chief Financial Officer of the Corporation | | 2005 | | 1,496 | | 2005 | | 44 | | President and Chief Financial Officer of the Corporation | | 2005 | | 2,373 | | 2005 |
Aron M. Carter | | 43 | | Senior Vice President - Enterprise Risk Management of the Corporation | | 2013 | | 413 | | 2013 | | 46 | | Senior Vice President - Chief Risk Officer of the Corporation | | 2013 | | 598 | | 2013 |
Michelle M. Karas | | | 52 | | Senior Vice President, Secretary, & Chief Operating Officer of the Corporation | | 2012 | | 544 | | 2012 |
Biographical information for Mr. Grafmyre and Mr. Knepp is set forth above under the caption “Information as to Nominees and Directors.”
Mr.Aron M. Carter joined the BankCorporation in 2013 as a Senior Vice President - Enterprise Risk Management.Management and was promoted to Senior Vice President - Chief Risk Officer in 2018. Mr. Carter previously was employed as a bank examiner with the Office of the Comptroller of the Currency.
8Michelle M. Karas joined the Corporation in 2012 as a Vice President - Head of Institutional Advancement and was promoted to Senior Vice President - Chief Operating Officer in 2016 and Secretary in 2017. Ms. Karas previously was employed in various management positions at several community banks.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL OWNERS
As of March 1, 2016,2019, there were no persons who owned of record or who are known by the board of directors to be beneficial owners of more than 5% of the Corporation’s common stock.Common Stock.
BENEFICIAL OWNERSHIP AND OTHER INFORMATION REGARDING DIRECTORS AND MANAGEMENT
The following table sets forth, as of March 1, 2016,2019, information regarding the number of shares and percentage of the outstanding shares of common stockCommon Stock beneficially owned by each director, executive officer, and as a group. Unless otherwise indicated in a footnote, shares of our common stockCommon Stock have not been pledged as security.
| | Name | | Principal Occupation for Past Five Years | | Year First Became a Director | | Amount & Nature of Beneficial Ownership | | | % of Total Shares Outstanding | | Principal Occupation for Past Five Years | | Year First Became a Director | | Amount & Nature of Beneficial Ownership | | | % of Total Shares Outstanding |
Daniel K. Brewer | | Principal & Owner, Brewer & Company, LLC | | 2012 |
| | 2,100 |
| (1 | ) | | 0.04 | % | | Principal, McKonly & Asbury, LLP | | 2012 |
| | 2,100 |
| (1 | ) | | 0.04 | % |
Aron M. Carter | | Senior Vice President of the Corporation | | N/A |
| | 413 |
| (2 | ) | | 0.01 | % | | Senior Vice President of the Corporation | | N/A |
| | 598 |
| (2 | ) | | 0.01 | % |
Michael J. Casale, Jr. | | Principal, Michael J. Casale, Jr., Esq., LLC | | 1999 |
| | 22,084 |
| (3 | ) | | 0.47 | % | | Chairman of the Board of JSSB, Principal, Michael J. Casale, Jr., Esq., LLC | | 1999 |
| | 18,738 |
| (3 | ) | | 0.40 | % |
William J. Edwards | | President & Owner of JEB Environmental Technologies, Inc. | | 2012 |
| | 3,990 |
| (4 | ) | | 0.08 | % | | President & Owner of JEB Environmental Technologies, Inc. | | 2012 |
| | 5,857 |
| (4 | ) | | 0.12 | % |
James M. Furey, II | | President & Owner of Eastern Wood Products | | 1990 |
| | 14,607 |
| (5 | ) | | 0.31 | % | | Retired President & Former Owner of Eastern Wood Products | | 1990 |
| | 13,557 |
| (5 | ) | | 0.29 | % |
Richard A. Grafmyre | | President & Chief Executive Officer of the Corporation | | 2010 |
| | 1,530 |
| (6 | ) | | 0.03 | % | | Chief Executive Officer of the Corporation | | 2010 |
| | 4,236 |
| (6 | ) | | 0.09 | % |
D. Michael Hawbaker | | Executive Vice President of Glenn O. Hawbaker, Inc. | | 2007 |
| | 2,200 |
| (7 | ) | | 0.05 | % | | Executive Vice President of Glenn O. Hawbaker, Inc. | | 2007 |
| | 3,500 |
| (7 | ) | | 0.07 | % |
Michelle M. Karas | | | Senior Vice President, Secretary, & Chief Operating Officer of the Corporation | | N/A |
| | 544 |
| (8 | ) | | 0.01 | % |
Leroy H. Keiler, III | | Leroy H. Keiler, III, Attorney at Law | | 2006 |
| | 654 |
| (8 | ) | | 0.01 | % | | Leroy H. Keiler, III, Attorney at Law | | 2006 |
| | 744 |
| (9 | ) | | 0.02 | % |
Cameron W. Kephart | | | Executive Vice President of Susquehanna Transit Company | | 2017 |
| | 320 |
| (10 | ) | | 0.01 | % |
Joseph E. Kluger | | Chairman of the Board of Luzerne, Managing Principal of Hourigan, Kluger & Quinn P.C. | | 2013 |
| | 1,178 |
| (9 | ) | | 0.02 | % | | Chairman of the Board of Luzerne, Managing Principal of Hourigan, Kluger & Quinn P.C. | | 2013 |
| | 1,425 |
| (11 | ) | | 0.03 | % |
Brian L. Knepp | | Senior Vice President, Secretary, & Chief Financial Officer of the Corporation | | 2015 |
| | 1,496 |
| (10 | ) | | 0.03 | % | | President & Chief Financial Officer of the Corporation | | 2015 |
| | 2,373 |
| (12 | ) | | 0.05 | % |
John G. Nackley | | President and CEO of InterMetro Industries Corporation | | 2013 |
| | 1,432 |
| (11 | ) | | 0.03 | % | | President and CEO of InterMetro Industries Corporation | | 2013 |
| | 2,732 |
| (13 | ) | | 0.06 | % |
R. Edward Nestlerode, Jr. | | Chairman of the Board of the Corporation, Vice President and Chief Executive Officer of Nestlerode Contracting Co., Inc. | | 1995 |
| | 19,246 |
| (12 | ) | | 0.41 | % | | Chairman of the Board of the Corporation, President and Chief Executive Officer of Nestlerode Contracting Co., Inc. | | 1995 |
| | 24,664 |
| (14 | ) | | 0.53 | % |
William H. Rockey | | Retired; Former Senior Vice President of the Corporation and JSSB; Former President of First National Bank of Spring Mills | | 1999 |
| | 33,254 |
| (13 | ) | | 0.70 | % | | Retired; Former Senior Vice President of the Corporation and JSSB; Former President of First National Bank of Spring Mills | | 1999 |
| | 33,410 |
| (15 | ) | | 0.71 | % |
Jill F. Schwartz | | Senior Partner of Wyoming Weavers; President of Fortune Fabrics, Inc.; Owner of Gosh Yarn It! | | 2013 |
| | 16,000 |
| (14 | ) | | 0.34 | % | | Senior Partner of Wyoming Weavers; President of Fortune Fabrics, Inc.; Owner of Gosh Yarn It! | | 2013 |
| | 21,226 |
| (16 | ) | | 0.45 | % |
Hubert A. Valencik | | Chairman of the Board of JSSB, Retired; Former Senior Vice President & Chief Operations Officer of JSSB; Former Senior Vice President of the Corporation | | 2005 |
| | 15,078 |
| (15 | ) | | 0.32 | % | |
Ronald A. Walko | | Retired; Former President & Chief Executive Officer of the Corporation and JSSB | | 2000 |
| | 22,918 |
| (16 | ) | | 0.48 | % | | Retired; Former President & Chief Executive Officer of the Corporation and JSSB | | 2000 |
| | 23,260 |
| (17 | ) | | 0.50 | % |
All Executive Officers and Directors as a Group | | 158,180 |
| | | 3.34 | % | |
All Executive Officers and Directors as a Group (17 persons) | | All Executive Officers and Directors as a Group (17 persons) | | 159,284 |
| | | 3.39 | % |
|
| |
(1) | Shares held individually. |
| |
(2) | Shares held individually. |
| |
(3) | Includes 15,4181,000 shares held individually and 17,738 shares held jointly with his spouse, 1,660 shares held by his spouse, and 5,006 shares held by his children. |
| spouse. |
(4) | Includes 8732,740 shares held individually, 2,417 shareshares held jointly with his spouse, and 700 shares held by his spouse. |
| |
(5) | Includes 6,5477,047 shares held jointly with his spouse, 6,4304,880 held individually, and 1,630 shares held by his spouse. |
| |
(6) | Includes 1,3304,036 shares held individually and 200 shares held by his spouse. |
| |
(7) | Shares held jointly with his spouse. |
| |
(8) | Shares held jointly with his spouse. |
| individually. |
(9) | Shares held jointly with his spouse. |
(10) | Includes 282 shares held individually and 38 shares held jointly with his spouse. |
(10)(11) | Includes 247 shares held individually and 1,178 shares held jointly with his spouse. |
(12) | Shares held individually. |
| |
(11)(13) | Shares held individually. |
| |
(12)(14) | Includes 7,8459,284 shares held jointly with his spouse, 9,28111,927 shares held individually, 5981,385 shares held by his children,spouse, 339 shares held by his son, and 1,5221,729 shares held by Nestlerode Contracting Co., Inc. |
| |
(13)(15) | Shares held jointly with his spouse. |
| |
(14)(16) | Shares held individually. |
| |
(15)(17) | Includes 3,310 shares held jointly with his spouse, and 11,768 shares held individually. |
| |
(16) | Includes 19,96320,017 shares held jointly with his spouse and children, 2,3982,666 shares held individually, 435 shares held by his spouse, and 122142 shares held jointly by his spouse and children. |
SECTION 16 (a)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”) requires our officers and directors, and any persons owning ten percent or more of our common stock,Common Stock, to file in their personal capacities initial statements of beneficial ownership on Form 3, statements of changes in beneficial ownership on Form 4, and annual statements of beneficial ownership on Form 5 with the Securities and Exchange Commission (the “SEC”"SEC"). Persons filing such beneficial ownership statements are required by SEC regulation to furnish us with copies of all such statements filed with the SEC. The rules of the SEC regarding the filing of such statements require that “late filings” be disclosed in the Corporation’s proxy statement. Based solely on the reports received by us or filed with the SEC and on written representations from reporting persons, we believe all such persons complied with all applicable filing requirements during 2015.2018.
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Discussion and Analysis addresses the following issues: members of the Compensation Committee (the “Committee”) and their role, compensation-setting process, our philosophy regarding executive compensation, and components of executive compensation.
Committee Members and Independence
The Committee is comprised of four (4) independent directors under the requirements set forth in the Nasdaq listing standards. In determining the independence of members of the Compensation Committee, the Board considers all factors specifically relevant to determining whether the director has a relationship to the Corporation that is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including (i) the source of the director’s compensation, including any consulting, advisory or other compensation fees; and (ii) any affiliate relationship between the director and the Corporation or any of its subsidiaries. The members of the Committee are: Michael J. Casale, Jr., William J. Edwards, D. Michael Hawbaker, and R. Edward Nestlerode, Jr.
Role of Committee
The Committee’s focus is to establish a compensation policy and philosophy that will enable the Corporation to attract, retain, motivate, and reward executive officers that are critical to the success of the Corporation. In doing so, the Committee:
reviews and adjusts the principles guiding the compensation policy to maintain alignment with short and long-term strategic goals and to build shareholder value;
establishes performance objectives including, but not limited to, earnings, return on assets, return on equity, total assets, and quality of the loan portfolio;
evaluates the performance of the executive officers in comparison to the performance goals;
determines the compensation of executive officers and the components of the compensation;
administers the retirement plans of the Corporation, including the defined benefit, defined contribution, and 401(k) plans;
administers the 2006 Employee Stock Purchase Plan;
administers the 2014 Stock Option Plan;
recommends changes to compensation plans, cash or equity, to the full board of directors;
reviews and recommends changes to succession plans; and
reviews and recommends changes to director compensation.
Committee Meetings
The Committee meets as often as necessary. The Committee met twicethree times in 20152018 to gather input in anticipation of the wage and benefit changes to be approved for the 20162019 fiscal year. The Committee maintains a written charter.charter, a copy of which is available on our website, www.pwod.com, under Investor Relations/Financial Information/Governance Documents and is available on request to the President or Chief Executive Officer. The Committee works with the President and Chief Executive Officer to determine the meeting agenda and material to be reviewed. The materials and inputs utilized may include, but are not limited to, the following: financial reports outlining budget to actual performance;
reports of corporate achievement/recognition by outside parties;
forecasted financial results as compared to the current budget and actual results;
peer financial analysis and comparison;
completion and progress of meeting strategic goals;
peer equity and cash compensation data;
national and regional compensation surveys; and
financial impact of current and proposed compensation programs.
Committee Process
The Committee set the compensation of the executive officers and other employees during the firstfourth quarter of 20152017 for the period covering the majority of the 20152018 fiscal year. Although the decisions are made at a point in time, the Committee continuously monitors the performance of the Corporation and executives throughout the year as part of the routine full board of directors meetings.
The Committee utilizes the input and assistance of management when making compensation decisions. Management input includes:
employee performance evaluations and compensation recommendations;
reporting actual and forecasting future results;
establishing performance objectives;
review and recommendations of non-cash employee compensation programs; and
assistance with Committee meeting agendas.
The President and Chief Executive Officer has direct involvement with the Committee during the meetings in order to provide status updates on the attainment of strategic goals, discuss performance evaluations, and make recommendations on executive officer compensation packages for the named executive officers other than himself. The Chief Executive Officer does not participate in meetings of the Committee during which his compensation is discussed.
Annually, the Committee meets to evaluate the performance of the executive officers and to set the compensation for the fiscal year, and to determine their cash bonus to be paid during the first quarter of the year based on the results of the preceding fiscal year.
Compensation Elements
Base Salary
The Committee believes that the base salary of the named executive officers is the cornerstone of the compensation package and is the primary source of compensation to the executive. The base salary provides a consistent level of pay to the executive, which the Committee feels decreases the amount of executive turnover, promotes the long-term goals of the Corporation, and is a tax deductible expense. The factors used in determining the level of base salary include the executive’s qualifications and experience, tenure with the Corporation, responsibilities, attainment of goals and objectives, past performance, and peer practices. A review of past performance and the attainment of goals and objectives are reviewed annually as part of the formal annual performance review. During the review, objectives and goals for the current and following year and upcoming milestones related to the corporate
strategic plan were discussed. Peers for the Corporation are bank holding companies headquartered within Pennsylvania, Maryland, New Jersey, New York, Ohio, and West Virginia with assets between $1 billion and $2 billion and include the following:
|
| | | | |
1st Constitution Bancorp | | ACNB Corporation | | Ameriserv Financial, Inc. | | BCB Bancorp, Inc. |
Bridge Bancorp, Inc. | | Canandaigua National Corp. | | Cape Bancorp, Inc. |
Chemung Financial Corp. | | Citizens and Northern Corp. | | CNBCitizens Financial CorporationServices, Inc. |
Clifton Bancorp, Inc. | | Codorus Valley Bancorp | | ESBCommunity Financial Corp.Corporation |
DNB Financial Corporation | | ESSA Bancorp, Inc. | | Farmers & Merchants Bancorp |
First Mariner BancorpKeystone Corporation | | First United Corp. | | Fox ChaseFNCB Bancorp, Inc. |
Franklin Financial Services Co. | | Intervest BancsharesHeartland Bancorp | | Marlin Business Services Corp. |
Middlefield Banc Corp. | | LNB Bancorp, Inc. |
Old Line Bancshares, Inc.MVB Financial Corp. | | Norwood Financial Corp. |
Orrstown Financial Services, Inc. | | Peoples Bancorp, Inc. |
Peoples Financial Services Corp. | | Premier Financial Bancorp, Inc. | | Republic First Bancorp, Inc.QNB Corp. |
Shore Bancshares, Inc. | | SuffolkUnity Bancorp, | | Summit Financial Group, Inc. |
United Community Financial Corp. | | | | |
Data for these peers is gathered from various sources including, but not limited to, SEC filings, Federal Reserve filings, and other information publicly released by the peer companies. The Committee utilizes such comparative information as a component in determining base salary for such executives. Other components considered by the Committee include the factors described above. The Committee does not assign relative weights to any one component but considers the entire mix of information. The Committee does not consider such comparative information in connection with other elements of the overall compensation of such executives.
Annual Bonus Program
The Committee administers a Performance-Based Cash Incentive Plan originally adopted in March 2010 in which certain executive officers of the Corporation, including the named executive officers, participate. The plan provides at-risk compensation awards to eligible employees, which include full-time employees of the Corporation (except employees whose compensation is commission based) and part-time employees who areemployees. To be eligible to participate in the Corporation's Pension Plan and/or 401(k) Plan.receive payments employees must have been employed for a minimum of three months and be actively employed at time of payment. In addition, the employee must receive an overall rating of “Good”“Proficient” or higher on his or her most recent individual performance appraisal for the fiscal yearperiod covered by the performance appraisal. The plan is designed to support organizational objectives and financial goals set forth in the Corporation’s strategic business plan and financial plan. The plan further aligns the interests of the Corporation’s shareholders with employees and assists the Corporation in attracting, retaining, and motivating high-quality personnel, who contribute to the success and profitability of the Corporation.
The Committee by resolution establishes sixfor 2018 established five target results criteria on an annual basis.criteria. Target results are the quarterly and annual goals of the Banks, which are consistent with the Corporations’sCorporation’s strategic business plan and financial plan, which must be met in order to receive a cash award under the plan. The target results integrate industry peer group standards with the goals set forth in the Corporation’s strategic business plan and financial plan. Targets are weighted to reflect the relative importance of each goal to the Corporation’s goals under its strategic business plan and financial plan. Target measures that may be used by the Committee include, but are not limited to, return on equity, gross loan growth, growth in deposits (excluding brokered deposits), growth in core deposits, net interest margin,income, and net overhead as a percent of average assets.loan delinquency. Target results are set at levels intended to be challenging, but more likely than not to be achieved, or come substantially close to being achieved.
The Committee has the discretion to exclude nonrecurring or extraordinary items of income, gain, expense, or loss, or any other factor it may deem relevant in its determination as to whether the target results have been satisfied. The Committee must conclude that an award, in such a circumstance, would ensure that the best interests of the Corporation’s shareholders are protected and are not in conflict with the interests of the plan’s participants.
Cash awards are based upon a percentage of eligible compensation, which will be the employee’s Form W-2 gross wages net of anymaximum fixed amount included as a payment for any prior year bonus awards.and are paid quarterly. The higher the eligible employee’s position, the greater the percentage of the employee’s eligible compensation may be received as a cash award. This reflects the Corporation’s belief that the performance of our named executive officers and other members of upper management has relatively greater impact on the performance of the Corporation.
If the plan participants’ employment is terminated with the Corporation, other than retirement (which generally will be attaining the age of 65) or death during the plan year, the participant will not be eligible to receive a bonus award even if the target results are reached. If a plan participant is terminated as a result of death or retirement and the participant worked at least six months during the plan year, the participant, or in the case of death, the participant’s beneficiary, will be eligible to receive a pro-rated bonus at the same time and manner as cash bonuses are paid to the other participants in the plan.
The plan is administered by the Committee, but annual awards determined by the Committee under the plan are subject to the approval of the board of directors of the Corporation. The Committee may only make awards when it deems such awards are in the best interests of the Corporation, the Corporation’s shareholders, and the plan participants. The Committee or the board may
take action to amend, modify, suspend, reinstate, or terminate the plan at any time. Such amendments, modifications, suspensions, reinstatements, or terminations may apply retroactively.
For 2015,2018, the Committee established sixfive weighted performance targets to be satisfied as a condition to the payment of any bonuses under the plan for 2015 for theparticipating employees, of JSSB, which included Messrs. Grafmyre, Knepp, Carter and Carter.Ms. Karas. The performance factors and weightings for each factor for 2015,2018, all of which
exclude securities gains or losses where applicable, were as follows: Return on Equity (target: 12.06%13.38%; weighting: 30%20%); Gross Loan Growth (target: $41.042$25.387 million; weighting: 20%); Deposit Growth, excluding brokered deposits (target: $37.743$80.001 million; weighting: 5%20%); Core Deposit GrowthNet Income (target: $29.622$11.889 million; weighting: 15%); Net Interest Margin (target: 3.57%; weighting: 15%20%); and Net Overhead as a Percentage of Average AssetsLoan Delinquency (target: 1.79%1.34%; weighting: 15%20%). JSSB’s actualActual performance measured against the weighted target performance factors resulted in performance of 125%100% of targeted goals and resulted in potential cash awards for Tier 1 participants of up to 42.0% of base salary, with the Committee having the ability to increase the amount paid for exceptional service to the Corporation. Based on these factors, bonuses for 20152018 were paid as follows: Mr. Grafmyre - $283,799;$312,500; Mr. Knepp - $65,000; and$66,000; Mr. Carter - $26,654. Mr. Glunk terminated employment in November 2015$22,000; and accordingly, did not receive a bonus for 2015 under the plan.Ms. Karas - $22,000.
Equity Awards
The Committee has not in the recent past usedgranted stock options or other equity-based awards as part ofto the compensation package for its named executive officers. The Committee, however, inofficers, except Mr. Grafmyre, during 2018 under the 2014 recommended to the board that an equity incentive plan be put into place.Penns Woods Bancorp, Inc. Equity Incentive Plan. The Committee feels this tool is needed in order to continue to be able to attract top talent, retain management, and to provide a long-term compensation component. The boardGrants of directorsstock options during during 2018 to named executive officers totaled 27,500 shares at an exercise price of $46.00 per share and shareholders approved the 2014 Penns Woods Bancorp, Inc. Equity Incentive Plan15,000 shares at the 2014 Annual Meetingan exercise price of Shareholders.$45.11 per share. Total shares granted to each named executive officer were as follows: Mr. Knepp - 30,700; Mr. Carter - 5,200; and Ms. Karas - 6,600.
Additional Benefits
The named executive officers may participate in other employee benefit programs that are generally available to the other employees of the Corporation. Other perquisites received by the named executive officers are either included in the Summary Compensation Table in this proxy statement or do not exceed $10,000 in the aggregate annually.
Employment and Change in Control Agreements
We have entered into employment agreements with Messrs. Grafmyre, Knepp, Carter and Carter.Ms. Karas. A discussion of these agreements follows.
Richard A. Grafmyre.On September 27, 2018, Mr. Grafmyre, is a party tothe Corporation and JSSB executed an amended and restated employment agreement. The amended agreement superseded and replaced, effective October 1, 2018, Mr. Grafmyre’s then existing employment agreement with the Corporation and JSSB, which was effective November 1, 2014. Under the amended and restated employment agreement, Mr. Grafmyre serves as the Chief Executive Officer of both the Corporation and JSSB. Mr. Grafmyre also serves as President of the Corporation’s subsidiary, United Insurance Solutions, LLC.
The initial term of the amended agreement terminates on Novemberexpires April 30, 2023. The amended agreement renews annually beginning May 1, 2019 and renews on November 1, 2019 for an additional four-year period ending October 31, 2023, unlessprovided that either party givescan terminate the agreement upon ninety days’ prior written notice of non-renewal no later than Novemberafter May 1, 2018. Under the terms of the2023. The amended agreement Mr. Grafmyre receives an annual base salary of $425,000, subject to discretionary increasescan also be terminated by the Corporation or JSSB.JSSB at any time for specified events of “cause” or in the event of Mr. GrafmyreGrafmyre’s disability.
Mr. Grafmyre’s annual base salary under the amended agreement is also entitled to participate in any pension, retirement, profit sharing, stock option, incentive bonus, employee stock ownership, or other plans, benefits, and privileges available to employees and executive officers of the Corporation and JSSB. In addition, Mr. Grafmyre is entitled to the use of a mid-size automobile for business and ancillary personal use and payment of initiation fees, and membership assessments and dues for him and his spouse at two clubs.
$825,000. The amended agreement may be terminatedprovides for cause (as definedparticipation in the agreement), in which case the parties’ obligations under the agreement will cease. If the agreement is terminated without causeemployee benefit plans and there has not been a change-in-control (as defined in the agreement), then the Corporation and JSSB will continue to pay Mr. Grafmyre’s then current annual base salary for the greater of six months or the number of months remaining in the term of his employment agreement and provide Mr. Grafmyre, at no cost to him, with continuation of health and medical benefits for the period during which he is receiving continued payments of base salary. If, following a change-in-control, the agreement is terminatedprograms maintained by the Corporation and JSSB without cause orfor the benefit of their executive officers, including bonus programs, participation in health, disability benefit, life insurance, pension, profit sharing, retirement and stock-based compensation plans and certain fringe benefits, including use of an automobile and club dues. Commencing May 1, 2020, Mr. Grafmyre voluntarily terminates his employment for good reason (as definedwill be employed as a senior executive officer of the Corporation and JSSB in such positions and with such titles as may be designated by the agreement),boards of directors of the Corporation and JSSB, with a work schedule of thirty-two hours per week. At such time, Mr. Grafmyre’s annual base salary will be reduced to 80% of the amount in effect on May 1, 2020.
The amended agreement provides that if, on or within 24 months following a “change in control” of the Corporation or JSSB, will paythe Corporation or JSSB terminates Mr. Grafmyre infor a reason other than cause or disability, or if Mr. Grafmyre resigns after the occurrence of specified circumstances that constitute constructive termination (i.e., “good reason”), Mr. Grafmyre will receive a lump-sum cash within 30 days of termination, an aggregate amountpayment equal to two times the sum of Mr. Grafmyre’s(i) his then current base salary and (ii) the average of the last three annual bonuses paid to him preceding his bonus amounts over the prior three years and provide him with continuedtermination of employment. He would also be entitled to a continuation of health insurance benefits for a period of 24twenty-four months. If during the Corporation or JSSB terminates Mr. Grafmyre for a reason other than cause or disability absent a “change in control,” Mr. Grafmyre will continue to receive his then current base salary and health insurance benefits for the greater of the remaining term of the amended agreement Mr. Grafmyre voluntarily terminates employment, retires, dies, or becomes disabled (as defined in the agreement), the obligations of the parties under the agreement will cease, unless Mr. Grafmyre dies or becomes disabled after providing notice of termination for good reason following a change in control, in which case, Mr. Grafmyre, or his estate, as the case may be, will be entitled to the amounts described above.
six months.
The amended agreement provides for the reduction of any “change in control” payments to Mr. Grafmyre to the extent necessary to ensure that he will not receive “excess parachute payments” under Section 280G of the Internal Revenue Code which would result in the imposition of an excise tax to him and a loss of deduction to the Corporation.
The amended agreement contains noncompete covenants, which generally prohibit Mr. Grafmyre from engaging in banking activities with an institution headquartered within twenty-five miles of 300 Market Street, Williamsport, Pennsylvania.Pennsylvania, and
nonsolicitation covenants relating to customers and employees. These covenants generally extend for a period of one yearsix months after Mr. Grafmyre’s termination of employment unless his employment terminates as a result of a delivery of a notice of nonrenewal by the Corporation and JSSB, in which case these covenants end on the date the amended agreement terminates.
Brian L. Knepp. Mr. Knepp is a party to an amended and restated employment agreement withOn December 31, 2018, the Corporation and JSSB. TheMr. Knepp entered into a new employment agreement, which replaced Mr. Knepp’s then existing employment agreement, dated October 30, 2017, which prior agreement had an initial term of the amended and restated agreement terminates onending December 31, 2016 and then renews annually for one-year terms2018 with automatic annual renewals thereafter absent notice of nonrenewal by either party. The new employment agreement has an initial three-year term ending each December 31, 2021 with automatic annual renewals thereafter absent notice of nonrenewal by either party. Under the termsnew agreement, Mr. Knepp serves as President of the Corporation and President of the M Group, Inc. d/b/a The Comprehensive Financial Group, a wholly owned subsidiary of JSSB. Mr. Knepp will also continue to serve as the Corporation’s Chief Financial Officer.
Under the new agreement, Mr. Knepp will receive an annual base salary of at least $162,504,$200,000, subject to discretionary increases by the Corporation and JSSB.Corporation. Mr. Knepp is also entitled to participate in any pension, retirement, profit sharing, stock option,employee benefit and incentive bonus, employee stock ownership, or othercompensation plans benefits, and privilegesarrangements available to employees and executive officers of the Corporation and JSSB.Corporation. Mr. Knepp will also be provided with use of an automobile during the employment period under the agreement.
The agreement may be terminated for specified events of cause, (as defined in the agreement), in which case the parties’ obligations under the agreement will cease. If the agreement is terminated without cause and there has not been a change-in-control (as defined in the agreement), then the Corporation and JSSB will continue to pay Mr. Knepp’s then current annual base salary for the greater orof six months or the number of months remaining in the term of his employment agreement and will provide Mr. Knepp, at no cost to him, with continuation of health and medical benefits for the period during which he is receiving continued payments of base salary. If, following a change-in-control, the agreement is terminated by the Corporation or JSSB without cause or Mr. Knepp voluntarily terminates his employment for specified events of good reason, (as defined in the agreement), the Corporation and JSSB will pay Mr. Knepp, in cash, within 30 days of termination, an aggregate amount equal to two times the sum of Mr. Knepp’s then base salary and the average of his bonus amounts over the prior three years. If during the term of the agreement, Mr. Knepp voluntarily terminates employment, retires, dies, or becomes disabled, (as defined in the agreement), the obligations of the parties under the agreement will cease, unless Mr. Knepp dies or becomes disabled after providing notice of termination for good reason following a change in control, in which case, Mr. Knepp, or his estate, as the case may be, will be entitled to the amounts described above.
The agreement provides for the reduction of any “change in control” payments to Mr. Knepp to the extent necessary to ensure that he will not receive “excess parachute payments” under Section 280G of the Internal Revenue Code which would result in the imposition of an excise tax to him and a loss of deduction to the Corporation.
The agreement contains noncompete covenants, which generally prohibit Mr. Knepp from engaging in banking activities within twenty-five miles of 300 Market Street, Williamsport, Pennsylvania.Pennsylvania, and nonsolicitation covenants relating to customers and employees. These covenants generally extend for a period of one year after Mr. Knepp’s termination of employment unless his employment terminates as a result of a delivery of a notice of nonrenewal by Penns Woods and Jersey Shore State Bank,the Corporation, in which case these covenants end on the date the agreement terminates.
Aron M. Carter. Mr. Carter is a party to an employment agreement with the Corporation and JSSB. The initial term of the agreement terminates on December 31, 2016 and then renews annually for one-year terms ending each December 31 absent notice of nonrenewal by either party. Under the terms of the agreement, Mr. Carter will receive anserves as Senior Vice President and Chief Risk Officer of the Corporation and JSSB.
Mr. Carter’s annual base salary of at least $90,000,under the agreement is $115,000, subject to discretionary increases by the Corporation and JSSB. Mr. Carter is also entitled to participate in any pension, retirement, profit sharing, stock option, incentive bonus, employee stock ownership, or other plans, benefits, and privileges available to employees and executive officers of the Corporation and JSSB.
The agreement may be terminated for cause (as defined in the agreement), in which case the parties’ obligations under the agreement will cease. If the agreement is terminated without cause and there has not been a change-in-control (as defined in the agreement), then the Corporation and JSSB will continue to pay Mr.Carter’sMr. Carter’s then current annual base salary for the greater orof six months or the number of months remaining in the term of his employment agreement and will provide Mr. Carter, at no cost to him, with continuation of health and medical benefits for the period during which he is receiving continued payments of base salary. If, following a change-in-control, the agreement is terminated by the Corporation or JSSB without cause or Mr. Carter voluntarily terminates his employment for good reason (as defined in the agreement), the Corporation and JSSB will pay Mr. Carter, in cash, within 30 days of termination, an aggregate amount equal to two times the sum of Mr. Carter’s then base salary and the average of his bonus amounts over the prior three years. If during the term of the agreement, Mr. Carter voluntarily terminates employment, retires, dies, or becomes disabled (as defined in the agreement), the obligations of the parties under the agreement will cease, unless
Mr. Carter dies or becomes disabled after providing notice of termination for good reason following a change in control, in which case, Mr. Carter, or his estate, as the case may be, will be entitled to the amounts described above.
The agreement provides for the reduction of any “change in control” payments to Mr. Carter to the extent necessary to ensure that he will not receive “excess parachute payments” under Section 280G of the Internal Revenue Code which would result in the imposition of an excise tax to him and a loss of deduction to the Corporation.
The agreement contains noncompetenoncompetition covenants, which generally prohibit Mr. Carter from engaging in banking activities within twenty-five miles of 300 Market Street, Williamsport, Pennsylvania.Pennsylvania, and noncompetition covenants relating to customers and employees. These covenants generally extend for a period of one year after Mr. Carter’s termination of employment unless his employment terminates as a result of a delivery of a notice of nonrenewal by Penns Woodsthe Corporation and Jersey Shore State Bank,JSSB, in which case these covenants end on the date the agreement terminates.
Michelle M. Karas. Ms. Karas is a party to an employment agreement with the Corporation and JSSB. The agreement renews annually for one-year terms ending each December 31 absent notice of nonrenewal by either party. Under the agreement, Ms. Karas serves as Senior Vice President and Head of Institutional Advancement of the Corporation and JSSB.
Ms. Karas’ annual base salary under the agreement is $80,000, subject to discretionary increases by the Corporation and JSSB. Ms. Karas is also entitled to participate in any pension, retirement, profit sharing, stock option, incentive bonus, employee stock ownership, or other plans, benefits, and privileges available to employees and executive officers of the Corporation and JSSB.
The agreement may be terminated for cause (as defined in the agreement), in which case the parties’ obligations under the agreement will cease. If the agreement is terminated without cause and there has not been a change-in-control (as defined in the agreement), then the Corporation and JSSB will continue to pay Ms. Karas’ then current annual base salary for the greater of six months or the number of months remaining in the term of her employment agreement and will provide Ms. Karas, at no cost to her, with continuation of health and medical benefits for the period during which she is receiving continued payments of base salary. If, following a change-in-control, the agreement is terminated by the Corporation or JSSB without cause or Ms. Karas voluntarily terminates her employment for good reason (as defined in the agreement), the Corporation and JSSB will pay Ms. Karas, in cash, within 30 days of termination, an aggregate amount equal to two times the sum of Ms. Karas’ then base salary and the average of her bonus amounts over the prior three years. If during the term of the agreement, Ms. Karas voluntarily terminates employment, retires, dies, or becomes disabled (as defined in the agreement), the obligations of the parties under the agreement will cease, unless Ms. Karas dies or becomes disabled after providing notice of termination for good reason following a change in control, in which case, Ms. Karas, or her estate, as the case may be, will be entitled to the amounts described above.
The agreement provides for the reduction of any “change in control” payments to Ms. Karas to the extent necessary to ensure that she will not receive “excess parachute payments” under Section 280G of the Internal Revenue Code, which would result in the imposition of an excise tax to her and a loss of deduction to the Corporation.
The agreement contains noncompete covenants, which generally prohibit Ms. Karas from engaging in banking activities within twenty-five miles of 300 Market Street, Williamsport, Pennsylvania, and nonsolicitation covenants relating to customers and employees. These covenants generally extend for a period of one year after Ms. Karas’ termination of employment unless her employment terminates as a result of a delivery of a notice of nonrenewal by the Corporation and JSSB, in which case these covenants end on the date the agreement terminates.
COMPENSATION COMMITTEE REPORT
The Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on the Committee’s review and discussion with management, the Committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and in, through incorporation by reference from this proxy statement, our Annual Report on Form 10-K for the year ended December 31, 2015.2018.
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| Members of the Compensation Committee |
| Michael J. Casale, Jr. |
| William J. Edwards |
| D. Michael Hawbaker |
| R. Edward Nestlerode, Jr. |
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation for services in all capacities to the Corporation and the Banks for the year ended December 31, 20152018 for those persons who served as the principal executive officer or principal financial officer at any time during the last completed fiscal year and the other executive officers for the last completed fiscal year (collectively, the “named executive officers”).
Summary Compensation Table | | Name and Principal | | | | Salary | | Bonus | | Stock Awards | | Option Awards | | Non-Equity Incentive Plan Compensation | | Change in Pension Value and Non-qualified Deferred Compensation Earnings | | All Other Compensation | | Total | | | | Salary | | Bonus | | Stock Awards | | Option Awards | | Non-Equity Incentive Plan Compensation | | Change in Pension Value and Non-qualified Deferred Compensation Earnings | | All Other Compensation | | Total |
Position | | Year | | ($) | | ($)(1) | | ($) | | ($)(2) | | ($)(3) | | ($)(4) | | ($)(5)(6) | | ($) | | Year | | ($) | | ($)(1) | | ($) | | ($) | | ($)(2) | | ($) | | ($)(3)(4) | | ($) |
Richard A. Grafmyre | | 2015 | | $ | 447,525 |
| | $ | 600 |
| | $ | — |
| | $ | — |
| | $ | 283,800 |
| | $ | — |
| | $ | 35,016 |
| | $ | 766,941 |
| | 2018 | | $ | 723,229 |
| | $ | 400 |
| | $ | — |
| | $ | — |
| | $ | 312,500 |
| | $ | — |
| | $ | 25,513 |
| | $ | 1,061,642 |
|
President and Chief Executive | | 2014 | | 441,368 |
| | 50,800 |
| | — |
| | — |
| | 211,134 |
| | — |
| | 32,633 |
| | 735,935 |
| |
Officer (7) | | 2013 | | 349,093 |
| | 600 |
| | — |
| | — |
| | 108,545 |
| | — |
| | 32,458 |
| | 490,696 |
| |
Chief Executive Officer (5) | | | 2017 | | 538,934 |
| | 250 |
| | — |
| | 92,200 |
| | 257,000 |
| | — |
| | 24,482 |
| | 912,866 |
|
| | | 2016 | | 475,783 |
| | 400 |
| | — |
| | — |
| | 250,000 |
| | — |
| | 25,285 |
| | 751,468 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Brian L. Knepp | | 2015 | | 159,407 |
| | 600 |
| | — |
| | — |
| | 65,000 |
| | — |
| | 17,442 |
| | 242,449 |
| 2,016 |
| 2018 | | 184,000 |
| | 400 |
| | — |
| | 232,435 |
| | 66,000 |
| | — |
| | 15,770 |
| | 498,605 |
|
Senior Vice President & Chief | | 2014 | | 168,754 |
| | 800 |
| | — |
| | — |
| | 72,086 |
| | — |
| | 16,532 |
| | 258,172 |
| |
Financial Officer (8) | | 2013 | | 135,409 |
| | 600 |
| | — |
| | — |
| | 40,479 |
| | — |
| | 14,637 |
| | 191,125 |
| |
President & Chief Financial | | | 2017 | | 170,185 |
| | 250 |
| | — |
| | 69,150 |
| | 58,000 |
| | — |
| | 14,764 |
| | 312,349 |
|
Officer (6) | | | 2016 | | 164,898 |
| | 400 |
| | — |
| | — |
| | 50,667 |
| | — |
| | 10,406 |
| | 226,371 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Aron M. Carter | | 2015 | | 104,306 |
| | 600 |
| | — |
| | — |
| | 26,654 |
| | — |
| | 13,124 |
| | 144,684 |
| | 2018 | | 116,460 |
| | 400 |
| | — |
| | 40,380 |
| | 22,000 |
| | — |
| | 6,509 |
| | 185,749 |
|
Senior Vice President, | | | | | | | | | | | | | | | | | | 2017 | | 114,640 |
| | 250 |
| | — |
| | 27,660 |
| | 16,000 |
| | — |
| | 8,367 |
| | 166,917 |
|
Enterprise Risk Management (9)(7) | | | | | | | | | | | | | | | | | | 2016 | | 108,163 |
| | 400 |
| | — |
| | — |
| | 24,391 |
| | — |
| | 6,059 |
| | 139,013 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Glunk | | 2015 | | 179,521 |
| | — |
| | — |
| | 15,840 |
| | — |
| | — |
| | 8,258 |
| | 203,619 |
| |
Senior Vice President & Chief | | 2014 | | 166,333 |
| | 250 |
| | — |
| | — |
| | 25,173 |
| | — |
| | 10,062 |
| | 201,818 |
| |
Operating Officer (10) | | 2013 | | 147,120 |
| | 10,000 |
| | — |
| | — |
| | 45,875 |
| | 16,810 |
| | 9,732 |
| | 229,537 |
| |
Michelle M. Karas | | | 2018 | | 126,851 |
| | 400 |
| | — |
| | 51,326 |
| | 22,000 |
| | — |
| | 11,878 |
| | 212,455 |
|
Senior Vice President, Secretary & | | | 2017 | | 120,409 |
| | 250 |
| | — |
| | 27,660 |
| | 16,000 |
| | — |
| | 9,484 |
| | 173,803 |
|
Chief Operating Officer (8) | | | 2016 | | 96,874 |
| | 400 |
| | — |
| | — |
| | 21,925 |
| | — |
| | 5,952 |
| | 125,151 |
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The following table sets forth information concerning awards granted to the named executive officers for the year ended December 31, 20152018 under the 2014 Equity Incentive Plan. There were no options issued to Messrs. Grafmyre, Knepp, and Carter.