CNB CORPORATION
1400
Third Avenue
Conway, South Carolina 29526
(843) 248-5721
PROXY
STATEMENT
FOR THE ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MAY 13, 2008
We
are providing this Proxy Statement in connection with the solicitation of
proxies by the Board of Directors of CNB
Corporation, a South Carolina Corporation (the "Company"), for use at
the Annual Meeting of Shareholders to be held on Tuesday, May 13, 2008 (the
"Annual Meeting"), at 5:15 p.m., Conway, South Carolina time, in the Conway
Banking Office of The Conway National Bank at 1411 Fourth Avenue, Conway, South
Carolina, or any adjournment thereof. Throughout this Proxy Statement, we use terms such
as "we", "us", "our" and "our Company" to refer to CNB Corporation, the term
"our Bank" to refer to our wholly-owned subsidiary, The Conway National Bank, and
terms such as "you" and "your" to refer to our shareholders.
A Notice of Annual
Meeting is attached to this Proxy Statement, and a form of proxy is enclosed.
We first began mailing this proxy statement to our shareholders on or about
April 10, 2008. We are paying the costs of this solicitation. The only method
of solicitation we plan to use, other than this proxy statement, is personal
contact, including contact by telephone or other electronic means, by our
directors and regular employees, who will not be specially compensated for
their services. We will also request banking institutions, brokerage
firms, custodians, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of our common stock held of record by such persons,
and we will reimburse the forwarding expenses.
ANNUAL REPORT
The
annual report to shareholders covering our fiscal year ended December 31, 2007,
including financial statements, is enclosed. The annual report to shareholders
does not form any part of the material for the solicitation of proxies.
VOTING PROCEDURES AND MATTERS RELATING TO PROXIES
Voting
If
you hold your shares of record in your own name, you may vote your shares by
marking the enclosed proxy form, dating it, signing it, and returning it to us
in the enclosed postage-paid envelope. If you are a shareholder of record, you
can also attend the Annual Meeting and vote in person. If you hold your
shares in street name with a broker or other nominee, you can direct your vote
by submitting voting instructions to your broker or nominee in accordance with
the procedure on the voting card provided by your broker or nominee. If you
hold your shares in street name, you may attend the Annual Meeting, but you may
not vote in person without a proxy appointment from a shareholder of record.
Revocation of Proxy
If you are a record shareholder
and execute and deliver a proxy, you have the right to revoke it at any time
before it is voted by:
(a) giving written notice of revocation to W. Jennings Duncan, President, CNB Corporation, 1400 Third Avenue,
Conway, South Carolina 29526; (b) voting in person at the Annual Meeting; or
(c) executing and delivering to us a later dated proxy. Written notice of revocation or
delivery of a later dated proxy will be effective when we receive it. Your attendance at the Annual
Meeting will not in itself constitute revocation of a proxy. However, if you
are a record shareholder and desire to do so, you may attend the meeting and
vote in person in which case the proxy will not be used. If you hold your
shares in street name with a broker or other nominee, you may change or revoke
your proxy instructions by submitting new voting instructions to the broker or
other nominee.
Quorum, Vote Required and Method of Counting Votes
At the close of business on March 31,
2008, 840,871 shares of our common stock ($10.00 par value) were outstanding
and were held of record by approximately 851 persons. Each share outstanding
will be entitled to one vote upon each matter submitted at the meeting. You
are only entitled to notice of and to vote at the meeting if you were a stockholder
of record at the close of business on March 31, 2008 (the "Record
Date").
The presence in
person or by proxy of the holders of one-third of the outstanding shares of our
common stock entitled to vote at the Annual Meeting is necessary to constitute
a quorum at the Annual Meeting or any adjournment thereof. If a share is
represented for any purpose at the Annual Meeting by the presence of the record
owner or a person holding a valid proxy for the record owner, it is deemed to
be present for the purposes of establishing a quorum. Therefore, valid proxies
which are marked "Abstain" or "Withhold" or as to which no vote is marked,
including proxies submitted by brokers that are the record owners of shares
(so-called "broker non-votes"), will be included in determining the number of shares
present or represented at the Annual Meeting. If a quorum is not present or
represented at the meeting, the shareholders entitled to vote, present in
person or represented by proxy, have the power to adjourn the meeting from time
to time, without notice other than an announcement at the meeting, until a
quorum is present or represented. If the meeting is to be reconvened within thirty days, we will not give
any notice of the reconvened meeting other than an announcement at the
adjourned meeting. If the meeting is to be adjourned for thirty days or more,
we will give notice of the reconvened meeting as provided in the Bylaws. At any such reconvened meeting
at which a quorum
is present or represented, any business may be transacted that might have been
transacted at the meeting as originally noticed.
If a quorum is
present at the meeting, directors will be elected by a plurality of the votes
cast by shares present and entitled to vote at the meeting."Plurality" means that, if there are
more nominees than positions to be filled, the individuals who receive the
largest number of votes cast for the positions to be filled will be elected as
directors. Because the number of nominees for election at the 2008 Annual
Meeting is the same as the number of positions to be filled, we expect that all
of the Board of Directors' nominees will be elected. Votes that are withheld or
shares that are not voted in the election of directors will have no effect on
the outcome of election of directors. Cumulative voting is not permitted.
2
If
a quorum is present, all other matters that may be considered and acted upon by
our shareholders at the Annual Meeting, including ratification of appointment
of the independent registered public accounting firm, will be approved if the
votes cast in favor of the proposal at the Annual Meeting exceed the votes cast
against the proposal.
Actions to be Taken by the Proxies
Our Board of
Directors selected the persons named as proxies in the enclosed form of proxy.
When the form of proxy enclosed is properly executed and returned, the shares
that it represents will be voted at the meeting. Unless you otherwise specify
therein, your proxy will be voted:
▪
|
"For"
the election of the three persons named in this Proxy Statement as our Board
of Directors' nominees for election to the Board of Directors; and
|
▪
|
"For"
the ratification of the appointment of Elliott Davis, LLC as our independent registered
public accounting firm for the fiscal year ending December 31, 2008.
|
In each case where you
have appropriately specified how your shares are to be voted, they will be
voted in accordance with your specifications.Our Board of Directors is not aware of any other matters that may be
presented for action at the Annual Meeting of Shareholders; but if other
matters do properly come before the meeting, the persons named as proxies in
the form of proxy intend to vote on such matters in accordance with their best
judgment.
SHAREHOLDER PROPOSALS
If you wish to
present a proposal for action at the 2009 Annual Meeting of Shareholders, you may do so by delivering the proposal in writing to the President of CNB
Corporation, 1400 Third Avenue, Conway, South Carolina 29526. You must send or deliver such written proposals in
time for us to receive them prior to December 12, 2008, if you want us to
include them, if otherwise appropriate, in our proxy statement and form of
proxy relating to that meeting. If we do not receive notice of a shareholder
proposal prior to February 25, 2009, the persons named as proxies in the proxy
materials relating to that meeting will use their discretion in voting the
proxies when the proposal is raised at the meeting. Only proposals that are proper
for shareholder action and otherwise appropriate may be included in the Company's
proxy statement and proxy.
3
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
The
following table provides information as of March 1, 2008, about share ownership
of persons who are known to us currently to be beneficial owners of 5% or more
of our common stock.
Name of Beneficial Owner
|
Number of
Shares
Beneficially
Owned
|
Percent of
Outstanding
Shares
|
|
|
|
W.
Jennings Duncan
1400 Third Avenue
Conway, South Carolina 28526
|
54,559
|
6.43%
|
SECURITY OWNERSHIP OF MANAGEMENT
The following table
provides information as of March 1, 2008, about beneficial ownership of our common
stock by each of our executive officers named in the Summary Compensation
Table, each of our directors and each nominee for director, and all executive
officers and directors as a group.
Name
and Address
of Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
|
Percent
of Class
|
James W. Barnette, Jr. (1)
|
7,051
|
|
.83%
|
William R. Benson (2)
|
35,282
|
|
4.16%
|
Harold G. Cushman, Jr. (3)
|
2,493
|
|
.29%
|
Harold G. Cushman, III (4)
|
27,923
|
|
3.29%
|
W. Jennings Duncan (5)
|
54,559
|
|
6.43%
|
Marion E. Freeman, Jr.
|
45
|
|
.01%
|
M. Terry Hyman
|
112
|
|
.01%
|
Edward T. Kelaher
|
181
|
|
.02%
|
William O. Marsh (6)
|
1,394
|
|
.16%
|
L. Ford Sanders, II (7)
|
471
|
|
.06%
|
George F. Sasser (8)
|
1,411
|
|
.17%
|
Lynn Gatlin Stevens
|
347
|
|
.04%
|
Phillip H. Thomas (9)
|
431
|
|
.05%
|
John C. Thompson
|
1,083
|
|
.13%
|
|
|
|
All
Executive Officers and Directors as a Group
|
|
|
(14 persons)
|
|
132,783
|
15.58%
|
|
|
|
|
|
4
Except
as indicated below, each executive officer named and each director or director
nominee has sole voting and investment power with respect to all shares of our stock
owned by such executive officer, director, or director nominee.
(1)
|
Includes 5,838 shares held by Janet J. Barnette (wife).
|
(2)
|
Includes
181 shares held by Timna Benson (wife); 994 shares held by Ella Earle Benson
(mother); 16,478 shares held by the Ella Earle Benson Trust; 2,183 shares held
by The Busbee Trust; and 14,520 shares held by E Square Farms, LLC. Of the
total shares beneficially owned by Mr. Benson, 1,331 shares are pledged as
collateral.
|
(3)
|
Includes 995 shares held by Dianne C. Cushman (wife).
|
(4)
|
Includes
89 shares held by Harold G. Cushman, IV (son); 89 shares held by Kara Dawn
Cushman (daughter); 25,410 shares held by the Cushman Family Limited
Partnership; 683 shares held by the Marion Shannon Cushman Trust FBO Harold
G. Cushman, IV; and 682 shares held by the Marion Shannon Cushman Trust FBO
Kara Dawn Cushman.
|
(5)
|
Includes
2,041 shares held by Robin F. Duncan (wife); 4,467 shares held by Ann Louise
Duncan (daughter); 4,467 shares held by Willis Jennings Duncan, V (son); 4,467
shares held by Margaret Brunson Duncan (daughter); and 20,862 shares held as
personal representative of the estate of Willis J. Duncan. Of the total
shares beneficially owned by Mr. Duncan, 18,966 shares are pledged as
collateral.
|
(6)
|
Includes
121 shares held by Elizabeth Floyd Marsh (wife) and 1,083 shares held by the
Palmetto Chevrolet Co., Inc. Employees Profit Sharing Plan.
|
(7)
|
Includes
169 shares held by Michelle Calder Sanders (wife). Of the total shares
beneficially owned by Mr. Sanders, 454 shares are pledged as collateral.
|
(8)
|
Includes 731 shares held by Sara Jean Sasser (wife).
|
(9)
|
Includes 161 shares held by Rilla A. Thomas (wife).
|
ELECTION OF DIRECTORS
Our
Articles of Incorporation provide for our Board of Directors to be divided into
three classes, each as nearly equal in number as possible, and each serving a
three-year staggered term.
Our Board of
Directors has, by resolution, fixed the number of directors at ten. Three
directors will be elected at the Annual Meeting to each serve a three-year term.
Directors serve until their successors are elected and have qualified to serve. The Board has nominated for re-election Harold G.
Cushman, Jr., William O. Marsh, and John C. Thompson, each of whom is presently
serving as a director, as Class II directors, each to serve a three-year term.
All nominees were recommended for election to the Board by the Governance,
Nominating, and Compensation Committee of the Board of Directors. The
Governance, Nominating, and Compensation Committee is comprised of non-management
directors.
Information
about the nominees is set forth below under "INFORMATION ABOUT NOMINEES,
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING OF SHAREHOLDERS
AND EXECUTIVE OFFICERS - Nominees for Election to Serve until the 2011 Annual
Meeting of Shareholders." Each of the nominees has consented to be named in
this Proxy Statement. The nominees have advised our Board of Directors that
they will stand for election and will serve if elected. However, if any
nominee should become unable or unwilling to serve for any reason, the persons
acting as proxies intend to vote for the election, in his or her stead, of such
other persons as our Board of Directors may recommend. The Board of Directors
has no reason to believe that any nominee named above will be unable or
unwilling to serve if elected.
5
INFORMATION ABOUT NOMINEES,
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING OF SHAREHOLDERS
AND EXECUTIVE OFFICERS
Nominees
for Election to Serve until the 2011 Annual Meeting of Shareholders
Harold
G. Cushman, Jr.
, age 78,has been a
director of our Company since its founding in 1985 and our Bank since 1963. He
retired in 1995 as President of Dargan Construction Company, Inc. He is a director of Dargan Construction
Company, Coastal Crane Company, and the Myrtle Beach National Company. Mr.
Cushman graduated from The Citadel and served in the U.S. Army and in the South
Carolina National Guard. Mr. Cushman has served as president and director of
the Myrtle Beach Rotary Club and as secretary of the Governor's Task Force-StateMilitary Base Closing Commission. He is a former president of
the Dunes Golf & Beach Club. He was also a member of the Governing Board
of the Waccamaw Center for Mental Health and served on the Board of Advisors of
the Presbyterian Home of South Carolina. Mr. Cushman is an Elder of the First
Presbyterian Church of Myrtle Beach.
William
O. Marsh
, age 44, has served as member of the
Board of Directors of our Company and our Bank since 2007. He has been President of Palmetto Chevrolet Co., Inc. since
2000 and has been employed by Palmetto Chevrolet since 1995. Mr. Marsh is also
the Treasurer of Lowcountry Casualty Co., Chairman of the Florence/Myrtle Beach
Chevrolet Dealers Local Marketing Association, and a member of the Southeast
Region Chevrolet Area Marketing Advisory Board. Mr. Marsh is actively involved
in numerous community organizations. He has been a member of the Coastal
Educational Foundation since 2000 and served as its President from 2004-2006; a
member of the Coastal Carolina Alumni Association since 1988 and Past President
from 1996-1998; a Director of the Conway Chamber of Commerce since 1999; a
Director of the Winyah Rivers Foundation since 2006; a member of the Horry
County School District Business Advisory Cabinet; and a member and former
Chairman of the Board of Deacons of Kingston Presbyterian Church. Mr. Marsh
was also a director of Coastal Financial Corporation from 2005-2007. He holds
a B.S. in Business Administration from Coastal Carolina University, 1986.
John C. Thompson
,
age 77, has served
as member of the Board of Directors of our Company and our Bank since 2007. He
retired as an attorney with the Law Firm
of Thompson & Henry in 1999. Mr. Thompson graduated from Davidson College and the University of South Carolina Law School. He served three years
(1951-1954) in the United States Army, served one term in the House of
Representatives of the South Carolina General Assembly, and served eight years
as a member of the Board of Directors of the South Carolina Public Service
Authority. He served as a Director of Peoples National Bank of Conway, South Carolina, from 1963 until the time of its merger with C&S National Bank
in 1968. Mr. Thompson serves as a Director of Ocean Park, Inc., which has
interests in two motel operating companies in Myrtle Beach, South Carolina, and
as a Director of Burning Ridge Golf Club, Inc., which holds an interest in
Classic Golf, Inc. which owns and operates Golf Clubs.
6
Information
about Current Directors whose terms will continue after the 2008 Annual Meeting
The following table sets forth
the name and term as director for each of our directors whose term will
continue after the 2007 Annual Meeting of Shareholders.
Name
|
Director Since
|
Term Expires
|
James W. Barnette, Jr.
|
1984
|
2010
|
William R. Benson
|
2005
|
2009
|
W. Jennings Duncan
|
1984
|
2010
|
Harold G. Cushman, III
|
2007
|
2010
|
Edward T. Kelaher
|
2006
|
2009
|
George F. Sasser
|
2006
|
2009
|
Lynn G. Stevens
|
2006
|
2009
|
James
W. Barnette, Jr.
,
age 63, has been a director of our Company since its founding in 1985 and our
Bank since 1984. Mr. Barnette has been President of Surfside Rent Mart, a
general rental company located in Surfside Beach, South Carolina since 1992.
Mr. Barnette was the General Manager of Quail Creek, Burning Ridge, and Indian
Wells Golf Clubs from 1985 to 1988; was Vice President of Myrtle Beach Farms
Company and General Manager of Myrtlewood Golf Courses from 1970 to 1984; and
was a teacher at Conway High School from 1967 to 1970. Mr. Barnette has served
on the Horry County Board of Education and served as Chair of its Building
Committee and Finance Committee. Mr. Barnette has also served as a member and
Treasurer of the Executive Board of Golf Holiday and as a member of the
Executive Board of the Grand Strand Executive Golf Association.
William
R. Benson,
age
55, has been Senior Vice President and Inland Area Executive of our Bank since
2005. Mr. Benson was Vice President and Loan Officer of our Bank from 1985 to
2005. Mr. Benson has served as member of the Board of Directors of our Company
and our Bank since 2005. He began his banking career in 1976. Mr. Benson
currently serves as Trustee and Finance Committee Chairman of Conway Hospital;
Commissioner and Treasurer of Shoreline Behavioral Health Services; Chairman of
the Board of Visitors of Coastal Carolina University Wall School of Business;
and Board Member and Treasurer at Smith Jones Recreation Center.
W. Jennings Duncan
,
age 52, is President and Chief Executive Officer of our Company and our Bank.
He served as Interim President and Chief Executive Officer of our Company and
our Bank from May 22, 2006 until January 9, 2007, when he was appointed
President and Chief Executive Officer of our Company and our Bank. He
previously served as President and Chief Executive Officer of our Company and
our Bank from 1988 until June 2005. Mr. Duncan did not engage in other
employment during the interim period. Mr. Duncan has also served as a
director of our Company since its founding in 1985 and our Bank from 1984 to
June 2005 and from May 2006 to the present. Previously, Mr. Duncan has
served the company in the following capacities: Executive Vice President,
1985-1988, and Assistant Vice President and Credit Officer, 1982-1985. Mr.
Duncan is active in numerous community organizations. He is a member of
the Legislative Committee of the Independent Banks of South Carolina; a member
of the Board of Directors and Investment Committee of the Coastal Educational
Foundation; a member of the Horry County Schools Business Cabinet; a member of
the Conway High School Athletic Steering Committee and the Conway High All
Sports Booster Club; is the Horry County Chairman of the United
7
States Savings
Bonds Program; and is an Elder of Grace Presbyterian Church. Previously, Mr.
Duncan served the Coastal Educational Foundation in the capacity of
Secretary/Treasurer for 10 years, served as Chairman of the Coastal Educational
Foundation Finance/Budget/Audit Committee, and was a member of the Committee on
the Future; he has served as a member of the South Carolina Bankers Association
Board of Directors; the Conway Chamber of Commerce Board of Directors and was a
member of the Economic Affairs Committee; was a member of the Horry County
Industrial Council; Coastal Carolina Wall School of Business Board of Visitors;
Coastal Carolina Business Ethics Forum; Governor's Initiative for Work Force
Excellence - Horry County Business Roundtable Advisory Board; Frances Marion
College Board of Trustees; State College Board of Trustees; Conway High School
Booster Club Treasurer; Graingertown Community Development Grant Committee; he
was named the South Carolina Bankers Association Young Banker of the Year -
1992; and the Rotary Club Small Businessman of the Year - 1990. Mr. Duncan
holds a B.S. in Financial Management from Clemson University, an MBA in Banking
and Finance from the University of South Carolina, and is a graduate of the
Louisiana State University Graduate School of Banking of the South.
Harold
G. Cushman, III
, age 48, has served as member of the Board of Directors of our
Company and our Bank since 2007. He is a Vice President of Dargan Construction Company,
Inc., and is a Partner and Manager of its subsidiaries. Mr. Cushman is a
Director of Dargan Construction Company, Inc. and has been employed by this
company since 1982. He is the Licensed S.C. General Contractor Representative
for Dargan Construction Company, LLC. Mr. Cushman is a member of the Board of
Directors for Horry-Georgetown Technical College Foundation. He is a member of
the First Presbyterian Church of Myrtle Beach and the Dunes Golf and Beach
Club. Mr. Cushman is a past Executive Board Member of the Pee Dee Area Council
of the Boy Scouts of America and served as a Troop Leader for Boy Scout Troop
850.
Edward T. Kelaher
,
age 53, has served as member of the
Board of Directors of our Company and our Bank since 2006. He is the Rector at All Saints Parish, Waccamaw,
Episcopal Church in Pawleys Island, South Carolina and has served in this
capacity since February 2004. He was also named Rector of Church of the
Resurrection in Surfside Beach in 2007. Mr. Kelaher was formerly the senior
partner at the law firm of Kelaher, Connell & Connor, PC in Surfside Beach, South Carolina, from 1982 to 2006. He received the American Bar
Association's United States Pro Bono Lawyer of the Year award for 1993, and he
received the South Carolina Bar Association Pro Bono Lawyer of the Year award
for 1992 for his service in providing free legal services and assistance to
persons in need who were referred to him by various social agencies, churches,
and volunteer agencies. Other awards and recognitions have included his
receiving the Volunteer of the Year award for Horry County and being named
Surfside Beach Citizen of the Year. In addition to his considerable charitable
work, Mr. Kelaher has served on the South Carolina Bar Board of Governors, the
Myrtle Beach Area Chamber of Commerce Board, the Horry County Development
Board, the Horry County Higher Education Commission, and the Horry County
Schools Advisory Council.
8
George
F. Sasser,
age 71, has served as member of the
Board of Directors of our Company and our Bank since 2007. He retired as Athletic Director from Coastal Carolina University in 1999. Mr. Sasser has held various positions of leadership and
administrative positions of responsibility. These positions include service as
Commissioner of the Big South (NCAA) Conference and as Athletic Director at Coastal Carolina University, East Tennessee State University, Wofford College, and Conway High School. He also coached football at Appalachian State University, Wofford College, East Tennessee State University, and Conway High School. In 1982, Mr. Sasser
was named the Kodak Coach of the Year for the College Division. In 2003, Coastal Carolina University recognized his contributions by naming Coastal Carolina University's Athletic Hall of Fame in his honor. In addition, he has served in the
Conway Jaycees; the Waccamaw Kiwanis Club; the Conway Medical Center
Foundation; and as a deacon, elder, and trustee of Kingston Presbyterian
Church.
Lynn
Gatlin Stevens
, age 48, has been
a director of our Company and our Bank since 2006. Ms. Stevens is an attorney
and has been a shareholder with the McNair Law Firm, P.A. since 2001.
Previously, Ms. Stevens was a shareholder of and employed by the Thompson Law
Firm, P.A. from 1984 - 2001. Ms. Stevens currently serves as a Director for
the Coastal Carolina Housing Foundation, Inc. and as Chairperson of the Real
Estate Section of the South Carolina Bar Association. She is a panel member of
the Commission for Judicial Conduct for South Carolina; a member of the South Carolina and Horry County Bar Association; and is a member of First United Methodist Church, Conway, South Carolina.
Executive Officers of the Company
Our executive
officers are W. Jennings Duncan, President and Chief Executive Officer, and L.
Ford Sanders, II, Executive Vice President, Treasurer and Chief Financial
Officer. Information about Mr. Duncan is set forth above under "Information
about Current Directors whose terms will continue after the 2008 Annual Meeting." Mr.
Sanders, age 46, was named Executive Vice President, Chief Financial Officer,
and Treasurer of the Company in January 2007. He served as Interim Executive
Vice President, Chief Financial Officer, and Treasurer of the Company from May
2006 to December 2006, and as Assistant Treasurer of the Company from March
2005 to May 2006. Mr. Sanders has been employed by our Bank for 20 years,
since October 1987. He was named Executive Vice President, Chief Financial
Officer, and Cashier of the Bank in January 2007, and served as Interim
Executive Vice President, Chief Financial Officer, and Cashier from May 2006 to
December 2006. Mr. Sanders has also served the Bank in the following
capacities: Senior Vice President - Chief Accounting Officer, Vice President -
Senior Auditor and Loan Review Officer, and Assistant Vice President -
Lending. Mr. Sanders holds a B.S. in Business Administration - Finance from USC-Coastal Carolina College and a M.S. in Accountancy from the College of Charleston.
Executive Officers of the Bank
Mr. Duncan and Mr. Sanders are also executive
officers of the Bank. Information about Mr. Duncan is set forth above under
"Information about Current Directors whose terms will continue after the 2008
Annual Meeting." Information about Mr. Sanders is set forth above under
"Executive Officers of the Company." In addition to Mr. Duncan and Mr.
Sanders, William R. Benson, Marion E. Freeman, Jr., Phillip H. Thomas, and M.
Terry Hyman are also executive officers of the Bank. Information about Mr.
Benson is set forth above under "Information about Current Directors whose
terms will continue after the 2008 Annual Meeting." Information about Mr.
Freeman, Mr. Thomas and Mr. Hyman is set forth in the following paragraphs:
9
Marion
E. Freeman, Jr.
, age 51, has been Senior Vice President and Coastal Area
Executive of our Bank since 2005. Mr. Freeman joined our Bank in 1982 and
served as Vice President and Loan Officer from 1985 to 2005. He began his
banking career in 1978. Mr. Freeman currently serves as an Executive Committee
Member of the Myrtle Beach Area Economic Development Corporation, member of the
Board of Directors of the Horry-Georgetown Technical College Foundation and
member of the Finance Committee. Mr. Freeman currently serves as a member of
the Board of Visitors for Charleston Southern University. He is a member of Belin United Methodist Church where he previously held positions of Chairman of the
Administrative Board, Treasurer, and Chairman of the Personnel Committee. Mr.
Freeman is a member of the Horry County Schools Business Cabinet, previously
served as Myrtle Beach High School PTO President, Board member of the Academy of Arts and Science School Improvement Council, and President of the Socastee High
School Booster Club. He is current member of the Rotary Club of Myrtle Beach
and previously served as a charter member and President of the Rotary Club of
Surfside, Assistant District Governor of Rotary District 7770, Conference
Chairman of District Conference for Rotary 7770, and organizer of the Rotary
Club of Murrells Inlet. Mr. Freeman was awarded the Surfside Beach
Businessperson of the Year Award for 1992. He served as a former member of the
Town of Surfside Beach Accommodations Tax Committee. Mr. Freeman also served
as President of the Horry County Chapter of the American Heart Association, as
Chairman of the Board of Directors of the Ocean View Memorial Hospital
Foundation, as a member and Treasurer of the Myrtle Beach Area Chamber of
Commerce. Mr. Freeman is a graduate of Charleston Southern University and the
Louisiana State University Graduate School of Banking of the South.
Phillip H. Thomas
, age 53, has been Senior Vice President and Senior
Credit Administration Officer of the Bank since 2005. Mr. Thomas joined our
Bank in 1985 and served as Vice President and Senior Credit Administration
Officer of our Bank from 1987 to 2005. He began his banking career in 1977 and
holds a B.S. in both Finance and Accounting from the University of South Carolina. Mr. Thomas has also completed the American Bankers Association National Commercial Lending Graduate School at the University of Oklahoma. Mr. Thomas is a
board member of the Conway Rotary Club and is an Elder of Kingston Presbyterian
Church. In addition, he has previously served as Treasurer and as a Trustee of
Kingston Presbyterian Church. Mr. Thomas also serves as a member of the Grand
Strand Economic Outlook Board, an advisory board for the Waccamaw Regional
Council of Governments.
M. Terry Hyman
, age 49, is Senior Vice President and Conway City
Executive of our Bank. He began his banking career in 1980 and joined our Bank
in 1984 and has since served the Bank in numerous capacities. He holds a B.A.
in Political Science from USC Coastal Carolina College. Mr. Hyman has served
many community organizations and currently serves on the Trinity United
Methodist Church Finance Committee, United Way of Horry County Allocations
Committee, Conway Lions Club Board of Directors, Coastal Carolina University Athletic
Committee, and the Collin's Kids David Bennett Foundation Board of Directors.
Family Relationships
Harold G. Cushman,
III is the son of Harold G. Cushman, Jr., Chairman of the Board of Directors.
10
GOVERNANCE MATTERS
Director Independence
Our Board of Directors has
determined that none of James W. Barnette, Jr., Harold G. Cushman, Jr., Harold
G. Cushman, III, Edward T. Kelaher, William O. Marsh, George F. Sasser, Lynn G.
Stevens, or John C. Thompson has a relationship which, in the opinion of our
Board of Directors, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director, and that each
such director is independent as defined in The Nasdaq Stock Market, Inc.
Marketplace Rules, as modified or supplemented (the "Nasdaq Rules"). As disclosed under "Transactions with Related
Persons," each of our independent directors and some of their affiliates have
loan and deposit relationships with our Bank. These relationships are not
considered by our Board to compromise their independence.
Director Attendance at Board and Committee Meetings and the Annual Meeting of
Shareholders
During 2007, our Board
of Directors met nine times. Each Director attended at least 75% of the
aggregate of (i) the total number of meetings of the Board of Directors held
during the period for which he or she served as Director and (ii) the total
number of meetings held by all committees of the Board of Directors on which he
or she served.
The Company
encourages, but does not require, directors to attend annual meetings of
shareholders. All of our directors attended the 2007 Annual Meeting.
Committees of the Board of Directors
Governance Committee (Nominating and Compensation Committee)
Our Governance
Committee serves as our nominating committee and our executive compensation
committee. The current members of the Committee are James W. Barnette, Jr.,
Harold G. Cushman, Jr., and Edward T. Kelaher. Each member of the Compensation
Committee is independent as defined in the Nasdaq Rules. The Governance
Committee met five times in 2007.
In its capacity as
nominating committee, our Governance Committee acts pursuant to a written
Governance Committee Charter adopted by our Board of Directors, which was
attached to our 2006 Proxy Statement. In its capacity as our executive
compensation committee, our Governance Committee acts pursuant to a written
Compensation Committee Charter adopted by our Board of Directors, which was
attached to our 2007 Proxy Statement. Although the Company does not have a
website, the Bank has a website. These charters are not posted on the Bank's
website.
In serving as the
executive compensation committee, our Governance Committee reviews our
compensation policies and recommends to the Board the compensation levels and
compensation programs for executive officers and board and committee fees paid
to the directors. The ultimate decisions about compensation levels and compensation
programs are made by our full Board, which may accept or reject the
recommendations of the Committee. The Chief Executive Officer provides
information to assist the Committee in its deliberations but does not make recommendations
relating to the elements and amounts of executive officer compensation.
11
The
Compensation Committee does not delegate its authority to any other persons.
However, the Committee does delegate responsibility for administering parts of
our compensation programs to our Human Resources Department. As discussed
under the caption "-Compensation Discussion and Analysis-Compensation
Consultants," the Governance Committee utilizes compensation studies provided
by Clark Consulting, Inc. to assist it in its deliberations about executive
compensation.
Audit Committee
We have an Audit
Committee established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934. The Audit Committee is responsible for appointment of
the independent auditors and oversees the internal and external audit functions.
The Audit Committee acts pursuant to a written charter adopted by the Board of
Directors, a copy of which was attached to our 2006 Proxy Statement. This
charter is not posted on the Bank's website. The
members of the Audit Committee are James W. Barnette, Jr., Harold G. Cushman,
Jr., William O. Marsh, and George F. Sasser. Each member of the Audit
Committee is independent as defined in the "Nasdaq Rules." The Audit
Committee met twelve times in 2007.
Director Nomination Process
As noted above, our
Governance Committee functions as our nominating committee. In recommending
director candidates, the Governance Committee takes into consideration such
factors as it deems appropriate based on the Company's current needs. These
factors may include skills such as understanding of banking and general
finance, decision-making ability, inter-personal skills, experience with businesses
and other organizations of comparable size, community activities and relationships,
and the interrelationship between the candidate's experience and business
background, and other Board members' experience and business background, as
well as the candidate's ability to devote the required time and effort to serve
on the Board.
Our Governance
Committee will consider for nomination by the Board those director candidates
recommended by shareholders if the shareholders comply with the following
requirements. If you wish to recommend a candidate to the Board for consideration
as a Board of Directors' nominee, you must submit in writing to the Governance
Committee the recommended candidate's name, a brief resume setting forth the
recommended candidate's business and educational background and qualifications
for service, and a notarized consent signed by the recommended candidate
stating the recommended candidate's willingness to be nominated and to serve.
This information must be delivered to the Chairman of the Governance Committee
at our address and must be received no later than December 11 in any year for a
potential candidate to be considered as a potential Board of Directors'
nominee. The Governance Committee may request further information if it
determines a potential candidate may be an appropriate nominee. Director
candidates recommended by shareholders that comply with these requirements will
receive the same consideration that the Governance Committee candidates
receive.
Director candidates
recommended by shareholders will not be considered for recommendation by the
Board as potential Board of Directors' nominees if the shareholder
recommendations are received later than December 11 in any year. Nevertheless,
shareholders may make their own nominations of director candidates for election
at the annual meeting if they follow the procedures set forth in the Company's
Bylaws. Such nominations must be made in
12
writing
and must be delivered or mailed to the Secretary of the Company not later than
(i) with respect to an election to be held at an Annual Meeting of
shareholders, 90 days prior to the anniversary date of the immediately
preceding Annual Meeting of shareholders, and (ii) with respect to an election
to be held at a special meeting of shareholders, the close of business on the
tenth day following the date on which notice of such meeting is first given to
shareholders. Our Bylaws further provide that the notice must set forth certain
information concerning such shareholder and his or her nominee(s), including
their names and addresses, a representation that the shareholder is entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice, a description of all
arrangements or understandings between the shareholder and each nominee, such
other information as would be required to be included in a proxy statement
soliciting proxies for the election of the nominees of such shareholder, and
the consent of each nominee to serve as Director of the Company if so elected.
The Chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedures. Nominations not
made in accordance with this requirement may be disregarded by the presiding
officer of the meeting; and upon his instructions, the Corporate Secretary
shall disregard all votes cast for each such nominee.
Shareholder Communications with the Board of Directors
If you wish to send
communications to the Board of Directors, you should mail them addressed to the
intended recipient by name or position in care of: Corporate Secretary, CNB
Corporation, Post Office Drawer 320, 1400 Third Avenue, Conway, South Carolina 29528. Upon receipt of any such communications, our Corporate Secretary
will determine the identity of the intended recipient and whether the
communication is an appropriate shareholder communication. Our Corporate
Secretary will send all appropriate shareholder communications to the intended
recipient. An "appropriate shareholder communication" is a communication from a
person claiming to be a shareholder and the subject of the communication
relates solely to the sender's interest as a shareholder and not to any other
personal or business interest.
In the case of
communications addressed to our Board of Directors, our Corporate Secretary
will send appropriate shareholder communications to the Chairman of the Board.
In the case of communications addressed to our independent or outside
directors, the Corporate Secretary will send appropriate shareholder
communications to the Chair of the Audit Committee. In the case of
communications addressed to committees of the Board, the Corporate Secretary
will send appropriate shareholder communications to the Chair of such
committee.
Code of Ethics
We have adopted a
code of ethics applicable to our principal executive officer and principal
financial officer, and they have acknowledged receipt of the code of ethics and agreed to comply
with it.
13
COMPENSATION
OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation Discussion and Analysis
Overview
Our Board of
Directors believes that, to continue its success, our Company and our Bank must
focus on retaining and attracting highly qualified key executives, officers, and
directors. Setting compensation levels that are competitive in the market is
key to that initiative. Equally important with setting competitive levels of
compensation is tying compensation to personal and company performance.
Accordingly, our Board of Directors is committed to developing an overall
compensation program that is designed to attract, motivate, reward, and retain
senior management by providing competitive total compensation opportunities
based on performance, leadership, teamwork, and the creation of shareholder
value.
Our Governance
Committee, which acts as our executive compensation committee, has undertaken
to design an overall compensation strategy that is intended to:
▪
|
Compensate executives fairly and commensurate with their
relative duties and responsibilities within our Company and/or our Bank;
|
▪
|
Compensate executives with competitive salaries based on a
comparison of their positions with positions at financial institutions of a
similar size in our market area; and
|
▪
|
Align performance criteria on which compensation decisions
are based with our performance and our shareholders' interests.
|
Components of Compensation
and Performance Measures
The
Board has adopted a Compensation Committee Charter which breaks out executive
compensation into the following components:
▪
|
Base salary;
|
▪
|
Performance-based bonuses and incentive awards;
|
▪
|
Retirement benefits; and
|
▪
|
Other benefits and perquisites comparable to those provided by peer
institutions.
|
The
Governance Committee makes its decisions about allocations between long-term
and current compensation, allocations between cash and non-cash compensation,
and allocations among various forms of compensation, in its discretion based on
its subjective assessment of how these allocations will best meet our overall compensation
goals outlined above.
A primary goal in the determination of base
salaries is to establish an appropriate framework for ensuring that base
salaries are competitive and consequently provide some assurance of the
executive's continued employment. Performance based awards are designed to
align the goals of management with those of the shareholders in the form of
both short- and long-term rewards. Retirement benefits are designed to assist
executives in providing themselves with a financially secure retirement.
Reasonable other benefits and perquisites are provided to executives on a basis
comparable to those provided by peer institutions. The Company's overall
compensation objectives are broadly defined. The specific percentage award of
any individual component as a percentage of total awards is a function of: 1)
the subjective opinion of the Governance
14
Committee as to the appropriateness of an
individual award, and 2) the prevailing mix of award privileges in the banking
industry. All recommendations for awards are subject to the discretion of the
full Board.
Because performance
awards are based on predetermined criteria established by the Board of
Directors upon the recommendation of the Governance Committee, existing gains
associated with prior awards are not considered in the process of determining
current awards. The Committee does, however, periodically review the
appropriateness of percentage awards through reviews of trends including peer
practices. The CEO of the Company assists the Governance Committee in any
manner appropriate which the committee may from time to time request. This
includes providing market data in the form of salary surveys, other available
peer data, and financial and other performance information. The CEO may also
meet with the committee, at the committee's request, to answer questions or
address other concerns the committee may have. However, the CEO does not
participate in the formation of recommendations determined by the committee;
and all executive compensation is approved by the full Board.
For 2007,
base salary comprised approximately 68.1% of total executive officer
compensation, bonuses and incentive compensation comprised approximately 14.1%
of total executive officer compensation, gains from previously granted phantom
stock awards and growth in the benefit value from the Executive Supplemental
Income Plan comprised approximately 7.7% of total executive officer
compensation, and all other compensation comprised approximately 10.1% of total
executive officer compensation, including perquisites which comprised
approximately .2% of total executive officer compensation.
A more detailed
discussion of each of these components of executive compensation, the reasons
for awarding such types of compensation, the considerations in setting the
amounts of each component of compensation, the amounts actually awarded for the
periods indicated, and various other related matters is set forth in the
sections below.
Compensation Consultants
The
Governance Committee uses Clark Consulting, Inc. to assist in setting
appropriate levels of compensation, including:
▪
|
Collecting and analyzing
market data for comparably sized and located peer institutions;
|
▪
|
Reviewing all elements of
compensation to offer a clearer picture of our Company's and our Bank's
current compensation programs;
|
▪
|
Examining our Company's and
our Bank's compensation program in relation to peer financial institutions
and evaluating how well it supports our stated objectives; and
|
▪
|
Evaluating the structure of
the existing annual and long-term incentive programs to ensure that they are
objective-based, performance-driven, and understandable to participants.
|
15
Use of Market Surveys and
Peer Group Data
To remain
competitive in the executive workforce marketplace, we believe it is important
to consider comparative market information about compensation paid to executive
officers of other financial institutions in our market area, the State of South Carolina and the Southeastern United States, as well as compensation paid to other
executives with similar levels of skills and responsibility in those areas. We
want to be able to attract and retain highly skilled and talented executive
officers who have the ability to carry out our short- and long-term goals. To
do so, we must be able to compensate them at levels that are competitive with
compensation offered by other companies in our business or geographic
marketplace that seek similarly skilled and talented executives. The market
survey information we use is derived from publicly available compilations
prepared by regional investment banking firms in the southeast. The survey
data is utilized in conjunction with executive compensation studies prepared by
Clark Consulting and salary ranges recommended by the Bank's Job Evaluation Salary Administration Program
(JESAP), discussed in the section of the same name below, to determine the
appropriate range for each executive position.
During 2007 the
Committee reviewed the following market survey information:
▪
|
America's Community Bankers 2007 Compensation and Benefits
Survey (Southeast and National)
|
▪
|
Bank
Administration Institute 2007 Compensation and Benefits Survey (Southeast and
National)
|
▪
|
South
Carolina Bankers Association 2007 Compensation and Benefits Survey (All
participating S.C. Banks and participating SC Peer Banks)
|
▪
|
Salary
Source (web-based subscription service)
|
▪
|
Watson
Wyatt 2007 Compensation and Benefits Survey (Middle Southeast and National)
|
Other
Factors Considered
In
addition to considering market survey comparisons in setting compensation, we
consider each executive's knowledge, skills, scope of authority and
responsibilities, job performance and tenure with us as an executive officer,
as well as our perception of the fairness of the compensation paid to each
executive in relation to what we pay our other executive officers.
We review our
compensation program and levels of compensation paid to all of our executive
officers annually and make adjustments based on the foregoing factors as well
as other subjective factors.
Timing of Executive Compensation Decisions
Annual salary
reviews and adjustments and incentive and phantom stock awards are routinely
made in December of each year. Compensation determinations may also be made at
other times during the year in the case of newly hired executives or promotions
of existing employees. The committee does not time any form of compensation
award, including equity-based awards, to coincide with the release of material
non-public information. Awards are made and/or accrued in December of each
year based on projected performance for the current operating year.
16
Base Salaries
Base salaries are
initially set at levels believed to be externally competitive and internally
equitable. As noted above, in determining external competitiveness, we
consider peer group comparisons from survey data for executives with similar levels of skill and responsibility at
other financial institutions of comparable size and complexity in our market area, the State of South Carolina, and the Southeastern United States. In determining internal equity, we
consider criteria such as the executive's knowledge, experience, skill,
scope of decisions to be made, and level of authority.
Increases in base
salary are determined based upon the performance of the Company and the
performance evaluation of the individual executive.
For 2007, base
salaries were set within the salary range determined appropriate by the
Governance Committee for each individual executive based upon the survey data
listed above and commensurate with the individual executive's skill,
experience, and performance.
Incentive Compensation
The Board has
established an incentive compensation program that provides for annual
short-term, intermediate-term, and long-term incentive compensation equal to
percentages within specified ranges of base salary based on the level of our
corporate performance with respect to the following:
▪
|
return on average assets
for the current year;
|
▪
|
return on average equity
for the prior three years and;
|
▪
|
earnings per share growth
for the prior five years.
|
The
Board of Directors upon the recommendation of the Governance Committee has set required
performance levels for low to moderate percentage awards at reasonably
obtainable levels. Required performance levels for higher and top percentage
awards have been established at levels which would represent excellent and/or
unusual performance. The performance level awards for the threshold, target,
and maximum awards based on those levels are more specifically described in the
notes to the "Executive Compensation--2007 Grants of Plan-Based Awards table."
The Board may make adjustments to award levels in its discretion.
Phantom Stock Deferred Compensation Plan and Executive Supplemental Income
Agreements
From time to time,
we award phantom stock units under the Phantom Stock Deferred Compensation Plan.
Each phantom stock unit is equivalent in value to one share of our common
stock at market value. The number of units is required to be equitably
adjusted and restated to reflect changes in the number of common shares
outstanding resulting from stock splits, stock dividends, stock issuances, and
stock redemptions, and to reflect cash dividends paid to our common
shareholders. The units are credited with appreciation, if any, in the market
value of the unit as compared to the initial value per unit. The cash value of
the units, together with interest, is paid in installments after the
executive's death, retirement, or separation from service.
Our Board believes
that phantom stock awards provide an incentive that focuses each executive's
attention on managing our Company from the perspective of a shareholder with an
equity stake in the business. We believe that the costs to our Company of granting phantom
17
stock units as opposed to paying
additional cash compensation, including the impact on earnings under the new
accounting rules for stock-based compensation, are far outweighed by the
benefits provided to us in terms of providing incentives to our executive
officers to increase earnings and shareholder value. We do not award phantom
stock units every year.
Awards are made based upon pre-defined criteria
established by the Board of Directors, barring any unusual activities involving
the Company. The Committee did not grant phantom stock awards in 2005, 2006,
or 2007. The phantom
stock units are discussed in more detail in
the section "Phantom Stock Deferred Compensation Plan."
We have also
entered into Executive Supplemental Income Agreements that provide our
executive officers (or their beneficiaries, if applicable) with pre-retirement
death and disability benefits and post-retirement annuity benefits. These
arrangements are designed to encourage our executive officers to continue their
employment with us by providing increased benefit levels as their years of
service with us increase. The agreements are discussed in more detail in the
section "Executive Supplemental Income Agreements."
The events set
forth as triggering events for the payments in the Phantom Stock Plan and in
the Executive Supplemental Income Agreements were selected because they are
events the Committee believes to be similar to those provided for in many
similar agreements for executive officers of financial institutions throughout South Carolina. It has become increasingly common in South Carolina for community
financial institutions to provide for such payments under such conditions. We
believe the change of control arrangements in the plan and the agreements are
an important factor in attracting and retaining our executive officers by
assuring them financial and employment status protections in the event control
of our Company changes. We believe such assurances of financial and employment
protections help free executives from personal concerns over their futures,
and, thereby, can help to align their interests more closely with those of
shareholders.
Other Benefits
We also provide our
executive officers with insurance benefits provided to all other employees and
make contributions to our 401(k) Profit Sharing and Savings Plan on their
behalf on the same basis as contributions are made for all other employees.
The Governance Committee has determined that providing such benefits helps to
retain key executives and is an important factor in keeping our executive
compensation packages competitive in our market area.
We also pay
club dues for each of our executives participating in clubs, automobile
allowances, and life insurance.
In addition, we pay for our executives
and their spouses to attend certain banking conventions and seminars. The Governance
Committee has determined that these benefits play an important role in our
executive officers' business development activities on behalf of our Company.
All of the
foregoing additional elements of compensation awarded to named executives in
2007 were set at levels believed to be competitive with other financial
institutions in South Carolina.
Federal Tax Considerations Related to Executive Compensation
The various forms
of compensation provided by the Company involve differing tax consequences.
The tax consequences of the major components of compensation are outlined
below:
18
Base
salaries, cash incentives, and automobile allowances represent tax deductible
expenses for the Company and taxable income for the recipient executive.
Amounts expensed under the Company's 401(k) plan are tax deductible expenses
for the Company and represent deferred taxable income to recipient employees.
The Phantom Stock and Executive Supplemental Income Plans are not qualified
under the Internal Revenue Code and amounts expensed under the plans are not
tax deductible for the Company. These amounts represent deferred income to the
recipient executives which become taxable at the time the sums are payable.
Specific 2007 Compensation Decisions for Messrs. Duncan, Sanders, Benson,
Freeman, Thomas, and Hyman
We set 2007 base
compensation for Mr. Duncan, our President and Chief Executive Officer, at
$212,000 based on his knowledge, skills,
scope of authority and responsibilities, job performance, tenure, the
accomplishment of certain corporate financial goals prescribed by the Board,
and appropriately within the range as determined by the Governance Committee.
For 2007, we awarded Mr. Duncan incentive compensation of $43,873 based on
predetermined criteria outlined in the "Incentive Compensation" section above.
We set 2007 base
compensation for Mr. Sanders, our Executive Vice President and Chief Financial
Officer, at $184,620 based on his knowledge,
skills, scope of authority and responsibilities, job performance, tenure, the
accomplishment of certain corporate financial goals prescribed by the Board,
and appropriately within the range as determined by the Governance Committee.
For 2007, we awarded Mr. Sanders incentive compensation of $38,225 based on
predetermined criteria outlined in the "Incentive Compensation" section above.
We initially set
2007 base compensation for Mr. Benson, our Senior Vice President and Inland
Area Executive of The Conway National Bank, at $132,600 based on his knowledge, skills, scope of authority and
responsibilities, job performance, tenure, the accomplishment of certain goals,
and appropriately within the range as determined by the Governance Committee.
During 2007, however, Mr. Benson requested, and the Board of Directors agreed
for Mr. Benson, to work a reduced schedule. At that time Mr. Benson's base
compensation was reduced to $86,190, resulting in his total base compensation
for 2007 being $107,461. For 2007, we awarded Mr. Benson incentive
compensation of $22,240 based on predetermined criteria outlined in the
"Incentive Compensation" section above.
We set 2007 base
compensation for Mr. Freeman, our Senior Vice President and Coastal Area
Executive of The Conway National Bank, at $161,100 based on his knowledge, skills, scope of authority and
responsibilities, job performance, tenure, the accomplishment of certain goals,
and appropriately within the range as determined by the Governance Committee.
For 2007, we awarded Mr. Freeman incentive compensation of $33,484 based on
predetermined criteria outlined in the "Incentive Compensation" section above.
We set base
compensation for Mr. Thomas, our Senior Vice President and Senior Credit
Administration Officer of The Conway National Bank, at $139,200 based on his knowledge, skills, scope of authority and
responsibilities, job performance, tenure, the accomplishment of certain goals,
and appropriately within the range as determined by the Governance Committee.
For 2007, we awarded Mr. Thomas incentive compensation of $29,141 based on
predetermined criteria outlined in the "Incentive Compensation" section above.
19
We
set 2007 base compensation for Mr. Hyman, our Senior Vice President and Conway
City Executive of The Conway National Bank, at $125,484 based on his knowledge, skills, scope of authority and
responsibilities, job performance, tenure, the accomplishment of certain goals,
and appropriately within the range as determined by the Governance Committee.
For 2007, we awarded Mr. Hyman incentive compensation of $25,450 based on
predetermined criteria outlined in the "Incentive Compensation" section above.
Job Evaluation
Salary Administration Program (JESAP)
The Job Evaluation
Salary Administration Program Committee (JESAP), composed of seven Bank
officers, is charged with responsibility for establishing job position
descriptions; applying values to each job position in the form of a salary
range; and obtaining salary surveys at a local, regional, and national level to
determine that salary ranges were consistent with the industry and peers. The
JESAP Committee uses an independent management compensation consulting firm to
aid it in this process. Pursuant to the JESAP process, for each Bank employee,
including the Chief Executive Officer and all executive officers, a salary
minimum, midpoint, and maximum is established. The Governance Committee utilizes
the survey data, the ranges resulting from the JESAP process, and other
executive compensation reports from Clark Consulting to determine recommended
ranges and salaries for executive management.
Executive Compensation Agreements
The Company has not entered into any executive compensation
agreements with Messrs. Duncan, Sanders, Benson, Freeman, Thomas, or Hyman.
Security Ownership Guidelines and Hedging
We do not have any formal security ownership guidelines
for our executive officers or any policies regarding our executive officers'
hedging the economic risk of ownership of our shares.
Financial Restatement
The Board of Directors does not have a policy with
respect to adjusting retroactively any cash or equity based incentive
compensation paid to our executive officers where payment was conditioned on achievement
of certain financial results that were subsequently restated or otherwise adjusted
in a manner that would reduce the size of an award or payment, or with
respect to recovery of any amount determined to have been inappropriately
received by an individual executive. If such a restatement were ever to occur,
the Board would expect to address such matters on a case-by-case basis in light
of all of the relevant circumstances.
Compensation Committee Report
Our Governance
Committee (acting as Compensation Committee) has reviewed and discussed the
"Compensation Discussion and Analysis" included in this Proxy Statement with
management of our Company. Based on that review and discussion, the Committee
recommended that the "Compensation Discussion and Analysis" be included in our
2007 Annual Report on Form 10-K and in this Proxy Statement.
James W. Barnette, Jr. Harold G.
Cushman, Jr. Edward T. Kelaher
20
Compensation
Committee Interlocks and Insider Participation
As previously
stated, the Governance Committee serves our Company in the capacity of the
Compensation Committee. The members of the Governance Committee of the Board are
James W. Barnette, Jr., Harold G. Cushman, Jr., and Edward T. Kelaher.
Executive Officer
Compensation
The
following table sets forth information about compensation awarded to, earned by,
or paid to our Chief Executive Officer, Chief Financial Officer, Senior Vice
President and Inland Area Executive, Senior Vice President and Coastal Area
Executive, Senior Vice President and Senior Loan Administration Officer, and
Senior Vice President and Conway City Executive of our Bank for their services
during 2007.
Summary
Compensation Table
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Phantom
Stock
Awards
($)(1)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)(2)
|
Change in
Pension
Value and
Nonquali-
fied
Deferred
Compensa-
tion
Earnings
($)(3)
|
All
Other
Compen-
sation
($)(4)
|
Total
($)
|
W. Jennings Duncan
President and CEO
|
2007
2006
|
212,000
115,522
|
0
0
|
24,727
17,516
|
0
0
|
43,873
25,564
|
8,279
7,341
|
27,109
16,145
|
315,988
182,088
|
L. Ford Sanders, II
Executive Vice President
and CFO
|
2007
2006
|
184,620
145,313
|
0
0
|
0
0
|
0
0
|
38,225
38,225
|
780
686
|
28,417
23,580
|
252,042
207,804
|
William R. Benson
Senior Vice President
|
2007
2006
|
107,461
125,075
|
0
0
|
11,047
7,826
|
0
0
|
22,240
27,731
|
4,004
3,550
|
25,245
32,521
|
169,997
196,703
|
Marion E. Freeman, Jr.
Senior Vice President
|
2007
2006
|
161,100
152,448
|
0
0
|
17,413
12,335
|
0
0
|
33,484
33,484
|
4,283
3,794
|
25,661
23,488
|
241,941
225,549
|
Phillip H. Thomas
Senior Vice President
|
2007
2006
|
139,200
131,880
|
0
0
|
15,258
10,808
|
0
0
|
29,141
29,141
|
4,693
4,165
|
19,509
19,033
|
207,801
195,027
|
M. Terry Hyman
Senior
Vice President
|
2007
2006
|
125,484
114,660
|
0
0
|
12,967
9,186
|
0
0
|
25,450
25,450
|
1,984
1,758
|
14,754
13,872
|
180,639
164,926
|
(1)
|
Although there were no direct
grants of phantom stock awards during 2007, the amounts shown in this column
are the dollar amounts recognized with respect to outstanding phantom stock
awards for financial statement reporting purposes with respect to the fiscal
year in accordance with Financial Accounting Standard No.123R and do not
represent cash paid to the executive officers or amounts that may be received
by them in the future pursuant to these awards. The assumptions made in
valuation of these phantom stock awards are set forth in Note 14 to the
Company's audited financial statements for the year ended December 31, 2007,
which are included in our Form 10-K for the year ended December 31, 2007.
|
(2)
|
See "Compensation Discussion and
Analysis - Incentive Compensation" for further discussion of these awards. The
threshold, target, and maximum amounts that could have been awarded are set
forth in the 2007 Grants of Plan-Based Awards table.
|
(3)
|
Amounts in this column represent the aggregate change
in the actuarial present value of accumulated benefits under the Executive
Supplemental Income Agreements from the pension plan measurement date used
for financial statement reporting purposes with respect to the audited
financial statements for the prior completed fiscal year to the pension plan
measurement date used for financial statement reporting purposes with respect
to the audited financial statements for the current fiscal year.
|
(4)
|
Includes the Company's
contributions to our 401(k) Profit Sharing and Savings Plan, premiums for
medical insurance, disability insurance, life insurance, and automobile
allowance and expenses, and perquisites. All other compensation for 2007 is set
forth in the table below:
|
21
2007
All Other Compensation
Name
|
401(k)
|
Medical
|
Disability
|
Life
|
Automobile
|
Perquisites
and Personal
benefits (1)
|
W. Jennings Duncan
|
15,411
|
7,200
|
667
|
102
|
3,529
|
200
|
L. Ford Sanders, II
|
14,248
|
7,200
|
667
|
102
|
6,000
|
200
|
William R. Benson
|
9,520
|
7,200
|
398
|
102
|
7,800
|
225
|
Marion E. Freeman, Jr.
|
12,803
|
7,200
|
596
|
102
|
3,248
|
1,712
|
Phillip H. Thomas
|
11,067
|
7,200
|
515
|
102
|
0
|
625
|
M. Terry Hyman
|
9,847
|
3,981
|
464
|
102
|
0
|
360
|
(1) Includes club dues and travel expenses for spouse to attend
conventions
|
2007 Grants of Plan-Based Awards
Name
|
2007 Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards
|
Threshold
($) (4)
|
Target
($) (5)
|
Maximum
($) (6)
|
W. Jennings Duncan
|
|
|
|
Short-Term
Incentive Award (1)
|
3,650
|
19,550
|
35,450
|
Intermediate-Term
Incentive Award (2)
|
5,300
|
15,900
|
26,500
|
Long-Term
Incentive Award (3)
|
5,300
|
15,900
|
26,500
|
|
14,250
|
51,350
|
88,450
|
L. Ford Sanders, II
|
|
|
|
Short-Term
Incentive Award (1)
|
3,308
|
17,154
|
31,001
|
Intermediate-Term
Incentive Award (2)
|
4,616
|
13,847
|
23,078
|
Long-Term
Incentive Award (3)
|
4,616
|
13,847
|
23,078
|
|
12,540
|
44,848
|
77,157
|
William R. Benson
|
|
|
|
Short-Term
Incentive Award (1)
|
2,343
|
10,402
|
18,461
|
Intermediate-Term
Incentive Award (2)
|
2,686
|
8,059
|
13,431
|
Long-Term
Incentive Award (3)
|
2,686
|
8,059
|
13,431
|
|
7,715
|
26,520
|
45,323
|
Marion E. Freeman, Jr.
|
|
|
|
Short-Term
Incentive Award (1)
|
3,014
|
15,096
|
27,179
|
Intermediate-Term
Incentive Award (2)
|
4,028
|
12,083
|
20,138
|
Long-Term
Incentive Award (3)
|
4,028
|
12,083
|
20,138
|
|
11,070
|
39,262
|
67,455
|
Phillip H. Thomas
|
|
|
|
Short-Term
Incentive Award (1)
|
2,740
|
13,180
|
23,620
|
Intermediate-Term
Incentive Award (2)
|
3,480
|
10,440
|
17,400
|
Long-Term
Incentive Award (3)
|
3,480
|
10,440
|
17,400
|
|
9,700
|
34,060
|
58,420
|
M. Terry Hyman
|
|
|
|
Short-Term
Incentive Award (1)
|
2,569
|
11,980
|
21,391
|
Intermediate-Term
Incentive Award (2)
|
3,137
|
9,411
|
15,686
|
Long-Term
Incentive Award (3)
|
3,137
|
9,411
|
15,686
|
|
8,843
|
30,802
|
52,763
|
(1)
|
The
Board of Directors, upon the recommendation of the Governance Committee,
awards short-term cash incentive payments in a range of $1,000 plus 1% to 13%
of salary based on a current year operating return on average assets (ROA) in
a range of 1.00% to 1.44%. No awards are made if the current year ROA is
less than 1.00%. All awards are subject to adjustment in the discretion of
the Board. For 2007, the Board of Directors awarded a short-term incentive
payment of 5.6% of salary based on our achieving an ROA of 1.15%.
|
22
(2)
|
The Board of Directors, upon
the recommendation of the Governance Committee, awards intermediate-term cash
incentive payments in a range of 2% to 10% of salary based on the three-year
average return on average equity (ROE) in a range of 11.00% to 15.00%. No
awards are made if the three-year average ROE is less than 11.00%. All
awards are subject to adjustment in the discretion of the Board. For 2007,
the Board of Directors awarded an intermediate-term incentive payment of 5.3%
of salary based on our achieving an average ROE over the past three years of
12.77%.
|
(3)
|
The Board of Directors, upon
the recommendation of the Governance Committee, awards long-term cash
incentive payments in a range of 2% to 10% of salary based on the five-year
average earnings per share growth rate (EPS) in a range of 4.00% to 12.00%.
No awards are made if the five-year average EPS is less than 4.00%. All
awards are subject to the discretion of the Board. The Board, in its
discretion, may also award long-term incentive awards in the form of cash
and/or convert the awarded amounts to phantom stock shares. For 2007, the
Board of Directors awarded a long-term incentive payment of 5.7% of salary
based on our achieving average EPS growth over the past five years of 6.51%.
|
(4)
|
The threshold level of
possible incentive awards represents the minimal level of performance
required for the possible incentive awards and the amounts of minimum
possible incentive awards. All incentive awards are subject to adjustment in
the discretion of the Board.
|
(5)
|
The target level of possible
incentive awards represents the Board's expected and/or anticipated level of
performance and the Board's expected and/or anticipated amounts of incentive
awards. All incentive awards are subject to adjustment in the discretion of
the Board.
|
(6)
|
The maximum level of
possible incentive awards represents the Board's limitation of possible
incentive awards. The Board considers performance at these levels unusual
and rarely obtainable. All incentive awards are subject to adjustment in the
discretion of the Board.
|
Executive
Compensation Agreements
The Company has not
entered into any executive compensation agreements with Messrs. Duncan,
Sanders, Benson, Freeman, Thomas, or Hyman.
Outstanding Equity Awards at 2007 Fiscal
Year-End
The following table
provides information about unvested phantom stock units our executive officers
held at the end of 2007.
Executive Supplemental
Income Agreements
As reflected in the
"Pension Benefits" table above, we have entered into Executive Supplemental
Income Agreements with our executive officers. The Executive Supplemental
Income Agreements provide for pre-retirement death or disability benefits and
post-retirement annuity benefits. The agreements are designed to encourage
executive officers to continue their employment by providing increased benefit
levels as their years of service increase.
The agreements
provide for post-retirement benefits designed to supplement the executive's
retirement benefits from Social Security in order to provide him with a certain
percentage of his final average income at retirement age. The agreements
provide that, if the executive reaches age 65 (or later at the election of the
Board and the executive) while covered by the agreement, his retirement benefit
will be fully vested and non-forfeitable, and he may elect to terminate his
employment and begin receiving payments in equal monthly installments beginning
on the first business day of the month following such termination. The
retirement benefit payable is calculated as follows. The post-retirement
benefit is set at 45% of salary existing at the time the Company and the
executive entered into the agreement, less anticipated social security
benefits. We currently project that, upon their
24
reaching age 65, we would be
required to pay each of Messrs. Duncan, Sanders, Benson, Freeman, Thomas, and
Hyman 180 equal monthly installments of approximately $3,098, $562, $1,046, $1,770,
$1,371, and $1,013, respectively.
The agreements
provide that, if the executive dies while covered by the agreement and prior to
retirement or disability, his beneficiary will be paid a pre-retirement death
benefit calculated as follows. The Executive Supplemental Income Agreements
provide a pre-retirement death benefit based upon a percentage of salary
existing at the time the Company and the executive enter into the agreement
paid to the named beneficiary over a period of 15 years on a decreasing basis.
The percentage of salary paid for each of the fifteen years is as follows:
Year 1 -- 75%, Years 2 through 5 -- 50%, and Years 6 through 15 -- 35%. Such
benefit will be paid in equal monthly installments beginning on the first
business day of the month following death. If Mr. Duncan had died on December 31,
2007, we would have been required to pay his beneficiary 12 equal monthly
installments of approximately $7,625 each for Year 1, 48 equal monthly
installments of approximately $5,083 each for Years 2-5, and 120 equal monthly
installments of approximately $3,583 each for Years 6-15. If Mr. Sanders had
died on December 31, 2007, we would have been required to pay his beneficiary 12
equal monthly installments of approximately $3,167 each for Year 1, 48 equal
monthly installments of approximately $2,125 each for Years 2-5, and 120 equal
monthly installments of approximately $1,500 each for Years 6-15. If Mr.
Benson had died on December 31, 2007, we would have been required to pay his
beneficiary 12 equal monthly installments of approximately $4,250 each for Year
1, 48 equal monthly installments of approximately $2,833 each for Years 2-5,
and 120 equal monthly installments of approximately $2,000 each for Years 6-15.
If Mr. Freeman had died on December 31, 2007, we would have been required to
pay his beneficiary 12 equal monthly installments of approximately $5,333 each for
Year 1, 48 equal monthly installments of approximately $3,542 each for Years
2-5, and 120 equal monthly installments of approximately $2,500 each for Years
6-15. If Mr. Thomas had died on December 31, 2007, we would have been required
to pay his beneficiary 12 equal monthly installments of approximately $4,708 each
for Year 1, 48 equal monthly installments of approximately $3,125 each for
Years 2-5, and 120 equal monthly installments of approximately $2,208 each for
Years 6-15. If Mr. Hyman had died on December 31, 2007, we would have been
required to pay his beneficiary 12 equal monthly installments of approximately $4,000
each for Year 1, 48 equal monthly installments of approximately $2,667 each for
Years 2-5, and 120 equal monthly installments of approximately $1,875 each for
Years 6-15.
If the executive
becomes disabled, as determined by the Board of Directors, while covered by the
agreement, he may elect to begin to receive a disability benefit at any time
after being declared disabled. The disability benefit is calculated, at the
officer's election, in monthly installments for a period certain of a payment
amount necessary to amortize the Benefit Accrual at the interest rate used for
deferring the accounting liability or a life annuity utilizing the UP84
Mortality Table and the interest rate used for determining the accounting
liability, the present value of such annuity equaling the present value of the
benefit. The executive may only elect to receive such a disability benefit if
he is not receiving any other benefit payments under the Executive Supplemental
Income Agreement. If Mr. Duncan had become disabled and elected to receive the
disability benefits at December 31, 2007, he would have been entitled to a
total of approximately $142,483, the total of the equal monthly installments
based on a period certain to age 80. If Mr. Sanders had become disabled and
elected to receive the disability benefits at December 31, 2007, he would have
been entitled to a total of approximately $13,760, the total of the equal
monthly installments based on a period certain to age 80. If Mr. Benson had
become disabled and elected to receive the disability benefits at December 31,
2007, he would have been entitled to a total of approximately $67,720, the
total of the equal monthly
25
installments
based on a period certain to age 80. If Mr. Freeman had become disabled and
elected to receive the disability benefits at December 31, 2007, he would have
been entitled to a total of approximately $76,992, the total of the equal
monthly installments based on a period certain to age 80. If Mr. Thomas had
become disabled and elected to receive the disability benefits at December 31,
2007, he would have been entitled to a total of approximately $80,527, the
total of the equal monthly installments based on a period certain to age 80.
If Mr. Hyman had become disabled and elected to receive the disability benefits
at December 31, 2007, he would have been entitled to a total of approximately
$37,727, the total of the equal monthly installments based on a period certain
to age 80.
The agreements
provide further that, if the executive reaches age 55 while covered by the
agreement, his early retirement benefit will be fully vested and
non-forfeitable, and he may elect early termination of his employment and begin
receiving payments in equal monthly installments beginning on the first
business day of the month following such termination. The early retirement
benefit payable is calculated as follows. The early retirement benefit, at the
officer's election, is payable in monthly installments for a period certain of
a payment amount necessary to amortize the benefit accrual at the interest rate
used for determining the accounting liability or a life annuity utilizing the UP84
Mortality Table and the interest rate used for determining the accounting
liability, the present value of such annuity being equal to the present value
of the benefit. If the executive dies after commencement of retirement or
early retirement benefits, his remaining benefits will continue to be paid to
his beneficiary. As of December 31, 2007, none of the Company or Bank
executive officers were fully vested in these benefits or eligible for early
retirement.
To continue to be
covered by the agreements, the executive must be continuously employed by us
from the date of the agreement until the earlier of the date he (i) reaches age
65, (ii) elects early retirement between ages 55 and 65, (iii) is declared
disabled under the agreement, or (iv) dies. The agreements further provide
that, while the executive is receiving benefits under the agreement (except in
the case of a change of control), the executive is prohibited from competing
with us and require the executive to be available for consulting work for us. Subject
to these coverage qualifications, our executives are currently fully vested in,
and have a non-forfeitable interest in their benefit accruals. "Benefit
accrual" means the aggregate of the accruals for accounting under generally
accepted accounting methods of our obligation for the annual retirement benefit
amount set forth in the agreement. The aggregate of the accruals is from the
effective date of the agreement to the date of termination of employment. Upon
termination of employment, interest will accrue on the outstanding balance at
the interest rate used for determining the accounting liability.
The agreements
provide that, if we are subject to a change of control while the executive is
covered by the agreement, he will be fully vested and have a non-forfeitable
interest in his benefits under the agreement. In such case, continuous
employment will only be required if the executive voluntarily terminates his
employment, is declared disabled, or is discharged without just cause. "Change
of control" is defined by the agreements as: (i) a transaction or series of
transactions by which ownership of more than 25% of our common stock or of our
Bank's common stock is sold, or substantially all of our Bank's assets are
sold, to a person who does not already hold at least 25% of our common stock or
of our Bank's common stock; (ii) a transaction or series of transactions in
which our Bank is combined with another business entity after which combination
the persons who had owned at least 25% of our common stock or our Bank's common
stock on the effective date of the Executive Supplemental Income Agreement no
longer own at least 25% of the voting stock of the combined entity; or (iii) a
transaction or series of transactions in which at least 25% of our common
26
stock or
the common stock of our Bank is acquired by a person who did not own at least
25% of our common stock or our Bank's common stock on the effective date of the
Executive Supplemental Income Agreement. If we had been subject to a change of
control and, as of December 31, 2007, any of our executives had died,
voluntarily terminated his employment, terminated his employment as a result of
disability, or been discharged without cause, he (or his beneficiary) would
have been entitled to the amounts outlined in the paragraphs above with respect
to any such event.
We may accelerate
the benefits payable under the agreements to a single present value payment
with the written consent of the executive or his beneficiary. In such case,
the present value of the future payments will be calculated using the interest
rate used for determining the accounting liability of the agreement. If any of
the foregoing events had occurred as of December 31, 2007, and we had chosen to
pay the benefits in a lump sum, Mr. Duncan would have been entitled to approximately
$58,613 in the event of termination of employment as a result of disability, $80,760
in the event of voluntary termination or discharge without just cause after a
change of control at age 55, and his beneficiary would have been entitled to
approximately $480,913 in the event of his death. If any of the foregoing
events had occurred as of December 31, 2007, and we had chosen to pay the
benefits in a lump sum, Mr. Sanders would have been entitled to approximately
$4,760 in the event of termination of employment as a result of disability,
$7,596 in the event of voluntary termination or discharge without just cause
after a change of control at age 55, and his beneficiary would have been
entitled to approximately $200,929 in the event of his death. If any of the
foregoing events had occurred as of December 31, 2007, and we had chosen to pay
the benefits in a lump sum, Mr. Benson would have been entitled to
approximately $28,362 in the event of termination of employment as a result of
disability, $28,362 in the event of voluntary termination or discharge without
just cause after a change of control at age 55, and his beneficiary would have
been entitled to approximately $268,207 in the event of his death. If any of
the foregoing events had occurred as of December 31, 2007, and we had chosen to
pay the benefits in a lump sum, Mr. Freeman would have been entitled to
approximately $29,852 in the event of termination of employment as a result of
disability, $40,858 in the event of voluntary termination or discharge without
just cause after a change of control at age 55, and his beneficiary would have
been entitled to approximately $335,523 in the event of his death. If any of
the foregoing events had occurred as of December 31, 2007, and we had chosen to
pay the benefits in a lump sum, Mr. Thomas would have been entitled to
approximately $33,726 in the event of termination of employment as a result of
disability, $36,540 in the event of voluntary termination or discharge without
just cause after a change of control at age 55, and his beneficiary would have
been entitled to approximately $296,185 in the event of his death. If any of
the foregoing events had occurred as of December 31, 2007, and we had chosen to
pay the benefits in a lump sum, Mr. Hyman would have been entitled to
approximately $13,961 in the event of termination of employment as a result of
disability, $22,132 in the event of voluntary termination or discharge without
just cause after a change of control at age 55, and his beneficiary would have
been entitled to approximately $252,043 in the event of his death.
The agreements are
not qualified under the Internal Revenue Code. The agreements are unfunded, but
certain benefits under the agreements are presently expected to be paid with
funds provided by insurance policies owned by the Bank on the lives of the
covered executives.
The foregoing
summary discussion of certain provisions of the Executive Supplemental Income
Agreements is qualified in its entirety by reference to the agreements which
have been filed with the Securities and Exchange Commission and does not create
legal or equitable rights to any person.
27
Profit
Sharing and Savings Plan
The Conway National
Bank Profit Sharing and Savings Plan is a defined contribution pension plan
that covers all employees who have attained age twenty-one and have a minimum
of one year of service. Upon ongoing approval of the Board of Directors, the
Bank matches one hundred percent of employee contributions up to three percent
of salary deferred, and fifty percent of employee contributions in excess of
three percent and up to five percent of salary deferred. The Board of Directors
may also make discretionary contributions to the Plan. For the year ended
December 31, 2007, the Company contributed $712,000 under the plan.
2007 Nonqualified Deferred Compensation
Neither our Company
nor our Bank has plans which provide for the deferral of compensation, by executives
or other staff, on a basis that is not tax-qualified.
Plans or Agreements that Provide for Potential Payments upon Termination or a
Change of Control
We provide
supplemental benefits to certain key officers under The Conway National Bank
Executive Supplemental Income Plan discussed above and a Phantom Stock Deferred
Compensation Plan. These plans are not qualified under the Internal Revenue
Code. These plans are unfunded, but certain benefits under the Executive
Supplemental Income Plan are presently expected to be paid with funds provided
by insurance policies owned by the Bank on the lives of the covered executives.
Phantom Stock Deferred Compensation Plan
Our Phantom Stock Deferred
Compensation Plan provides that we may, at our discretion, award phantom stock
units to certain key employees, including Messrs. Duncan, Sanders, Benson,
Freeman, Thomas, and Hyman. Under the plan, "phantom stock" is defined as the
hypothetical number of shares that could be purchased on December 31 of the
year in which an award was made as determined by dividing the dollar amount of
the award by the fair market value of our common stock. For purposes of the
plan, "fair market value" of our common stock is defined as the appraised value
of our common stock based on the appraisal performed to determine the value of
our common stock for employee plans in the September preceding the date of the
award. For example, if on December 31, 2006, we credited the executive's
phantom stock account with $16,200 (100 shares at $162 per share), and the
September 2007 appraised value of the common stock were $162.50, per share, adjusted
for the effect of a 10% stock dividend, the executive's account would be
credited with 10.31 shares of phantom stock associated with this award. (Dollar
amount of the award divided by fair market value equals number of shares of
phantom stock credited to the executive's phantom stock account.)
The number of units
in an executive's account is required to be equitably adjusted and restated to
reflect changes in the number of common shares outstanding resulting from stock
splits, stock dividends, stock issuances, and stock redemptions. The number of
units is also required to be equitably adjusted and restated to reflect cash
dividends paid to our common shareholders. The units are credited with
appreciation, if any, in the market value of the unit as compared to the
initial value
28
per
unit. As discussed in more detail below, the cash value of the units, together
with interest, is paid to the executive or his beneficiary, as appropriate, in
installments after the executive's death, retirement, or separation from
service. No stock is ever issued to employees pursuant to the plan, and the
executive has no rights as a shareholder with respect to phantom stock credited
to his account.
The plan provides
that, if the executive's employment with us is terminated upon his reaching age
65, we are required to pay him the fair market value of the phantom stock credited
to his account. Fair market value is to be determined immediately prior to the
date of his termination. We are also required to pay interest on that amount at
the rate of eight percent per year, compounded monthly, from the December 31
st
of the year immediately prior to the date of termination of employment until
the commencement of payments. We are required to make the payments in 240
equal monthly installments, including interest at the rate of eight percent per
year, compounded monthly, beginning on the first day of the calendar month
following termination of employment.
If the executive's
employment with us is terminated before he reaches age 65 for any reason other
than death or disability, we are required to pay him the fair market value of
the phantom stock credited to his account (valued immediately prior to
termination of employment), multiplied by a vesting percentage for the year
immediately prior to the termination of employment as provided in his phantom
stock agreement. We are also required to pay interest on that amount at the
rate shown in his agreement, compounded monthly, from the date of termination
of employment until the commencement of payments. The non-vested portion of
the benefit will be forfeited. We are required to make the payments in 240
equal monthly installments, including interest at the rate set forth in his
agreement, compounded monthly, beginning on the first day of the calendar month
following the executive's reaching age 65. If the executive was employed by us
for fewer than ten years at the date of termination of employment, the interest
rate will be reduced for each year fewer than ten years for which the executive
was employed by us. If Mr. Duncan's employment had terminated under this
provision of the agreement as of December 31, 2007, we would have been required
to pay him 240 equal monthly installments of approximately $5,053 each
commencing on the first day of the month after his reaching age 65. If Mr.
Benson's employment had terminated under this provision of the agreement as of
December 31, 2007, we would have been required to pay him 240 equal monthly
installments of approximately $1,775 each commencing on the first day of the
month after his reaching age 65. If Mr. Freeman's employment had terminated
under this provision of the agreement as of December 31, 2007, we would have
been required to pay him 240 equal monthly installments of approximately $3,804
each commencing on the first day of the month after his reaching age 65. If
Mr. Thomas' employment had terminated under this provision of the agreement as
of December 31, 2007, we would have been required to pay him 240 equal monthly
installments of approximately $2,638 each commencing on the first day of the
month after his reaching age 65. If Mr. Hyman's employment had terminated
under this provision of the agreement as of December 31, 2007, we would have
been required to pay him 240 equal monthly installments of approximately $3,281
each commencing on the first day of the month after his reaching age 65.
If the executive
terminates his employment as a result of disability before he reaches age 65,
we are required to pay him the fair market value of the phantom stock credited
to his account. Fair market value is to be determined immediately prior to the
date of his termination. We are also required to pay interest on that amount
at the rate of eight percent per year, compounded monthly, from the December 31
st
of the year immediately prior to the date of termination of employment until
the commencement of payments. We are required to make the payments in 240
equal monthly
29
installments,
including interest at the rate of eight percent per year, compounded monthly,
beginning on the first day of the calendar month following the executive's
reaching age 65. If Mr. Duncan had become disabled and elected to receive the
disability benefits at December 31, 2007, we would have been required to pay
him 240 equal monthly installments of approximately $6,316 each commencing on
the first day of the month after his reaching age 65. If Mr. Benson had become
disabled and elected to receive the disability benefits at December 31, 2007,
we would have been required to pay him 240 equal monthly installments of approximately
$2,219 each commencing on the first day of the month after his reaching age 65.
If Mr. Freeman had become disabled and elected to receive the disability
benefits at December 31, 2007, we would have been required to pay him 240 equal
monthly installments of approximately $4,755 each commencing on the first day
of the month after his reaching age 65. If Mr. Thomas had become disabled and
elected to receive the disability benefits at December 31, 2007, we would have
been required to pay him 240 equal monthly installments of approximately $3,298
each commencing on the first day of the month after his reaching age 65. If
Mr. Hyman had become disabled and elected to receive the disability benefits at
December 31, 2007, we would have been required to pay him 240 equal monthly
installments of approximately $4,101 each commencing on the first day of the
month after his reaching age 65.
If we are subject to a change of control while the
executive is employed by us, we are required
to pay him the fair market value of the phantom stock credited to his account.
Fair market
value is to be determined on the date of the change of control. We are also
required to pay interest on that amount at the rate of eight percent per year
from the date of the change of control until the commencement of payments. We
are required to make the payments in 240 equal monthly installments, including
interest at the rate of eight percent per year, compounded monthly, beginning
on the first day of the calendar month following the executive's reaching age
65. The agreement defines "change of control" as (i) a tender offer made and
consummated for 25% or more of our outstanding voting securities; (ii) our
merger or consolidation with another entity after which less than 75% of the
voting securities of the surviving or resulting entity are owned by persons who
were our shareholders immediately prior to the transaction; (iii) a sale of
substantially all of our assets to an entity that is not our wholly owned
subsidiary; or (iv) an acquisition by any person of 25% or more of our
outstanding voting securities. If a change of control had occurred on December
31, 2007, we would have been required to pay Mr. Duncan 240 equal monthly
installments of approximately $6,316 each commencing on the first day of the month
after his reaching age 65. If a change of control had occurred on December 31,
2007, we would have been required to pay Mr. Benson 240 equal monthly
installments of approximately $2,219 each commencing on the first day of the
month after his reaching age 65. If a change of control had occurred on
December 31, 2007, we would have been required to pay Mr. Freeman 240 equal
monthly installments of approximately $4,755 each commencing on the first day
of the month after his reaching age 65. If a change of control had occurred on
December 31, 2007, we would have been required to pay Mr. Thomas 240 equal
monthly installments of approximately $3,298 each commencing on the first day
of the month after his reaching age 65. If a change of control had occurred on
December 31, 2007, we would have been required to pay Mr. Hyman 240 monthly
installments of approximately $4,101 each commencing on the first day of the
month after his reaching age 65.
If the executive
dies while he is employed by us, we are required to pay his beneficiary the
fair market value of the phantom stock credited to his account. Fair market
value is to be determined immediately prior to the date of his death. We are
also required to pay interest on that amount at the rate of eight percent per
year, compounded monthly, from the December 31
st
of the year
immediately
30
prior to
the date of death until the commencement of payments. We are required to make
the payments in 240 equal monthly installments, including interest at the rate
of eight percent per year beginning on the first day of the calendar month
following the executive's death. If Mr.
Duncan had died on December 31, 2007, we would have been required to pay his
beneficiary 240 equal monthly installments of approximately $1,771 each
commencing on the first day of the month following his death. If Mr. Benson
had died on December 31, 2007, we would have been required to pay his
beneficiary 240 equal monthly installments of approximately $791 each
commencing on the first day of the month following his death. If Mr. Freeman
had died on December 31, 2007, we would have been required to pay his
beneficiary 240 equal monthly installments of approximately $1,247 each
commencing on the first day of the month following his death. If Mr. Thomas
had died on December 31, 2007, we would have been required to pay his
beneficiary 240 monthly installments of approximately $1,093 each commencing on
the first day of the month following his death. If Mr. Hyman had died on
December 31, 2007, we would have been required to pay his beneficiary 240 equal
monthly installments of approximately $929 each commencing on the first day of
the month following his death.
If the executive
dies after benefit payments have commenced, any remaining benefits will be paid
to his beneficiary at the same times and in the same amounts as they would have
been paid had he lived. If the executive dies after termination of employment
but before commencement of payment of benefits, payment of benefits will be
accelerated to the first day of the calendar month following his death.
The amounts payable
under the plan may be reduced to the extent they would be deemed to constitute
an "excess parachute payment" under Section 280G of the Internal Revenue Code.
The plan makes
payment of benefits contingent upon the executive not engaging in activities
that are competitive to us, without our consent, during the period of his
employment and for a period of five years following termination of his
employment with us. Such prohibited competitive activities include engaging
in, or becoming interested in, as an owner, member, sole proprietor, partner,
or shareholder, or becoming associated with in the capacity of employee,
consultant, director, officer, principal, agent, trustee, or in any other
capacity, an enterprise conducted within a 25-mile radius of our main office,
which enterprise is, or may be deemed to be competitive with our business.
This prohibition on competition does not, however, apply in the event we are
subject to a change of control. Payment of benefits is also contingent upon
the executive not soliciting any of our employees or customers without our
consent for a period of five years following termination of his employment with
us. If the executive breaches any of these prohibitions, all payments owed to
him under his phantom stock agreement will terminate and no further amounts
will be due him.
The foregoing
summary discussion of certain provisions of the Phantom Stock Deferred
Compensation Plan is qualified in its entirety by reference to the plan which
has been filed with the Securities and Exchange Commission and does not create
legal or equitable rights to any person.
31
Executive Supplemental
Income Agreements
The Executive
Supplemental Income Agreements we have entered into with our executive officers
and the amounts we would have been required to pay our executives under these
agreements if the triggering events thereunder had occurred as of December 31,
2007, are discussed above in the section "Executive Supplemental Income
Agreements."
Compensation of Directors
In 2007, our
Directors who were not Bank officers received $900 for each monthly meeting of
the Board of Directors and an additional $300 for each committee meeting
attended. The Chairman of the Audit Committee received an additional $100 per
Audit Committee meeting attended. We do not pay or provide any other types of
compensation to our directors.
The table below
provides information about compensation we paid to each of our directors for
their service to the Company and the Bank in 2007. We do not pay directors'
fees to our executive officers who are also directors of the Company and Bank.
2007 Director Compensation
Name
|
Fees Earned or Paid in Cash
($)
|
James W. Barnette, Jr.
|
18,550
|
Harold G. Cushman, Jr.
|
17,750
|
Harold G. Cushman, III
|
8,700
|
Edward T. Kelaher
|
16,850
|
William O. Marsh
|
8,700
|
George F. Sasser
|
15,700
|
Lynn Gatlin Stevens
|
15,400
|
John C. Thompson
|
8,700
|
32
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of
the Securities Exchange Act of 1934 requires our directors and executive
officers and persons who own more than ten percent of a registered class of our
equity securities to file reports of ownership on Form 3 and changes in
ownership on Form 4 or 5 with the Securities and Exchange Commission (the
"SEC"). Such officers, directors, and 10 percent shareholders are
also required by SEC rules to furnish us with copies of all Section 16(a) forms
that they file.
Based solely
on its review of copies of such reports received and written representations to
us, we believe that during the fiscal year ended December 31, 2007, all Section
16(a) reports were filed in a timely manner.
TRANSACTIONS WITH RELATED PERSONS
In the ordinary
course of its business, our Bank makes loans to, accepts deposits from, and
provides other banking services to certain of our directors and executive officers,
their associates, and members of their immediate families. Loans are made on
substantially the same terms, including interest rates, collateral and
repayment terms, as those prevailing at the time for comparable transactions
with persons not affiliated with the Bank, and do not involve more than the
normal risk of collectibility or present other unfavorable features. Rates paid
on deposits and fees charged for other banking services and other terms of
these transactions are also the same as those prevailing at the time for
comparable transactions with other persons. Our
Bank expects to continue to enter into transactions in the ordinary course of
business on similar terms with our directors, officers, principal shareholders,
their associates, and members of their immediate families. Loans outstanding
to such persons at December 31, 2007 totaled $1,956,000. None of such loans
have been on non-accrual status, 90 days or more past due, or restructured at
any time.
From time to time
we may also enter into other types of business transactions or arrangements for
services with our directors, officers, principal shareholders, or their
associates. These types of transactions or services might include, among
others, contracts for the construction or renovation of bank premises,
purchases of automobiles, and legal services. We only enter into such
arrangements if we determine that the prices or rates offered are comparable to
those available to us from unaffiliated third parties. Our Board approves such
transactions on a case by case basis. We do not have written policies or
procedures with respect to such approvals.
During 2007, we
purchased insurance coverage through Peoples Underwriters, Inc. and paid
premiums of $131,603. H. Delan Stevens, who is married to Lynn Gatlin Stevens,
one of our directors, is an owner and the Vice President of Peoples
Underwriters, Inc. We believe that the premiums paid were comparable to those
we would have paid if we had purchased the insurance from an unrelated third
party.
33
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Our Board of
Directors has chosen Elliott Davis, LLC as our independent registered public
accounting firm for the fiscal year ending December 31, 2008, and recommends
that shareholders ratify this appointment.
Representatives of Elliott Davis, LLC are expected to be present at the Annual
Meeting and available to respond to appropriate questions and may make a
statement if they wish to do so.
Fees Billed By Independent Auditors
Elliott Davis, LLC served as our auditor during
the fiscal years ended December 31, 2007 and 2006. The following table shows
the fees that we paid or accrued for the audit and other services provided by
Elliott Davis, LLC for the fiscal years ended December 31, 2007 and 2006.
|
Year Ended
December 31, 2007
|
Year Ended
December 31, 2006
|
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
|
$ 69,775
40,000
11,950
9,000
$130,725
|
$ 59,175
36,000
13,517
12,400
$121,092
|
Audit
Fees.
This
category includes the aggregate fees billed for professional services rendered
by Elliott Davis, LLC for the audit of our annual consolidated financial
statements and for reviews of the financial statements included in our reports
on Forms 10-Q. These fees include amounts paid or expected to be paid for each
respective year's audit. Reimbursements for travel and other out-of-pocket
expenses are not included.
Audit-Related Fees.
This category includes the aggregate fees billed for assurance and related
services rendered by Elliott Davis, LLC that are reasonably related to the
performance of the audit or review of our financial statements and that are not
reported under "Audit Fees." These services principally include the
examination of our assertions regarding internal controls in accordance with
the Federal Deposit Insurance Corporation Improvement Act and the
Sarbanes-Oxley Act.
Tax Fees.
This
category includes the aggregate fees billed for tax services rendered by Elliott
Davis, LLC. These services were primarily for the preparation of our state and
federal tax returns. Additionally, Elliott Davis, LLC assists us with tax
compliance and provides limited assistance with quarterly estimated income tax
estimates.
All Other Fees.
This category includes the aggregate fees billed for all other services,
exclusive of the fees disclosed above. These other services consisted of
audits of the 401(k) plan.
34
Audit Committee Pre-Approval of
Audit and Permissible Non-Audit Services of Independent Auditors
Our Audit Committee
substantially pre-approves all audit and non-audit services and fees provided
by the independent auditors. These services include audit services,
audit-related services, tax services, and other services. All of the principal
accounting services and fees reflected in the table, unless otherwise noted,
were reviewed and approved by the Audit Committee. All of the services were
performed by individuals employed by the independent auditor.
AUDIT COMMITTEE REPORT
The Audit Committee
of our Board of Directors has reviewed and discussed with our management our
audited financial statements for the year ended December 31, 2007. Our Audit
Committee has discussed with our independent auditor, Elliott Davis, LLC, the
matters required to be discussed by Statement on Auditing Standards No. 61, as
amended (AICPA,
Professional Standards
, Vol. 1 AU section 380), as
adopted by the Public Company Accounting Oversight Board in Rule 3200T. Our
Audit Committee has also received the written disclosures and the letter from
Elliott Davis, LLC, required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1,
Independence Discussions with
Audit Committees
), as adopted by the Public Company Accounting Oversight
Board in Rule 3600T, and has discussed with Elliott Davis, LLC its independence.
Based on the review and discussions referred to above, our Audit Committee
recommended to our Board of Directors that the audited financial statements be
included in our Annual Report on Form 10-K for the year ended December 31, 2007,
for filing with the Securities and Exchange Commission.
James W. Barnette, Jr. Harold
G. Cushman, Jr. William
O. Marsh George
F. Sasser
OTHER BUSINESS
Our
Board of Directors does not know of
any other business to be presented at the Annual Meeting. If any other matters
are properly brought before the Annual Meeting, however, the persons named as
proxies in the accompanying form of proxy intend to vote such proxy in accordance
with their best judgment.
INCORPORATION BY REFERENCE
Neither
the Compensation Committee Report nor the Audit Committee Report shall be deemed
to be filed with the Securities and Exchange Commission and they shall not be
deemed incorporated by reference into any prior or future filings we have made or
make under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, except to the extent we
specifically incorporate such information by reference.
35