UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY
STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No.
)
Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to
§240.14a-12
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EAGLE FINANCIAL SERVICES, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules
14a-6(i)(4)
and
0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule
0-11
(set forth the amount on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act Rule
0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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EAGLE FINANCIAL SERVICES, INC.
2 East Main Street
P.O.
Box 391
Berryville, Virginia 22611
NOTICE OF 2017 ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders (the Annual Meeting) of Eagle Financial Services, Inc. (the Company) will be held
on Tuesday, May 16, 2017, at 5:30 p.m.at the Barns of Rose Hill, 95 Chalmers Court, Berryville, Virginia. The purpose of the meeting shall be as follows:
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To elect four (4) Directors, Thomas T. Byrd, Douglas C. Rinker, Robert E. Sevila and John D. Stokely, Jr., each for a term of three (3) years.
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To ratify the appointment of Yount, Hyde & Barbour, P.C., as our independent registered public accounting firm for the year ending December 31, 2017.
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To transact such other business as shall properly come before the Annual Meeting or any adjournment thereof.
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The Board of Directors has fixed the close of business on April 3, 2017, as the record date for determining the shareholders of the
Company entitled to notice of and to vote at the Annual Meeting and any adjournments thereof.
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By order of the Board of Directors,
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James W. McCarty, Jr.
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Vice President and Secretary-Treasurer
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Berryville, Virginia
April 14, 2017
Whether or not you plan
to attend the Annual Meeting, it is important that your shares be represented and voted. Please complete, sign, date and return the enclosed proxy card promptly using the enclosed postage-paid envelope. The enclosed proxy card, when returned
properly executed, will be voted in the manner directed in the proxy statement. You may also vote by phone or Internet by following the instructions on the enclosed proxy card.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 16, 2017:
The proxy statement and the Companys 2016 annual report on Form
10-K
are available at
www.bankofclarke.com/2017annualmeeting.html
EAGLE FINANCIAL SERVICES, INC.
2 East Main Street
P.O.
Box 391
Berryville, Virginia 22611
PROXY STATEMENT
2017
ANNUAL MEETING OF SHAREHOLDERS
May 16, 2017
This Proxy Statement is being furnished to the shareholders of Eagle Financial Services, Inc. (the Company) in connection with the
solicitation of proxies by the Board of Directors of the Company to be voted at the Annual Meeting of Shareholders to be held on May 16, 2017, at 5:30 p.m. at the Barns at Rose Hill, Berryville, Virginia, and at any adjournment thereof.
The cost of solicitation of proxies and preparation of proxy materials will be borne by the Company. Solicitations of proxies will be made by
use of the United States mail and may be made by direct or telephone contact by employees of the Company. Brokerage houses and nominees will be requested to forward the proxy materials to the beneficial holders of the shares held of record by these
persons, and the Company will reimburse them for their reasonable charges in this connection. Shares represented by duly executed proxies in the accompanying form received by the Company prior to the meeting and not subsequently revoked will be
voted at the meeting. The approximate date on which this proxy statement, the accompanying proxy card and Annual Report to Shareholders (which is not part of the Companys soliciting materials) are being mailed to the Companys
shareholders is April 14, 2017.
Where a shareholder directs in the proxy a choice with respect to any matter that is to be voted on,
that direction will be followed. If no direction is made, proxies will be voted in favor of the election of the nominees named in proposal one, for the ratification of accountants in proposal two and in the best judgment of Messrs. Robert W.
Smalley, Randall G. Vinson and James R. Wilkins, Jr. on such other business, if any, which may properly come before the meeting or any adjournment. Any person who has returned a proxy has the power to revoke it at any time before it is exercised by
submitting a subsequently dated proxy, by giving notice in writing to the Secretary of the Company, or by voting in person at the meeting. If your shares are held in street name by your bank or broker, please follow the instructions
enclosed with this proxy statement for instructions on how to vote, change your vote or revoke your proxy. Please also note that street name holders who wish to vote in person at the Annual Meeting must first obtain a legal proxy
from the record holder.
The close of business on April 3, 2017, has been fixed as the record date for the Annual Meeting and any
adjournment thereof. The number of shares of Common Stock outstanding on that date and entitled to vote at the Annual Meeting was 3,476,553. Each outstanding share of the Companys Common Stock is entitled to one vote on all matters submitted
to shareholders at the meeting. There are no cumulative voting rights. A majority of the shares of Common Stock entitled to vote, represented in person or by proxy, constitutes a quorum for the transaction of business at the Annual Meeting.
A shareholder may abstain or (only with respect to the election of directors) withhold his or her vote (collectively, Abstentions)
with respect to each item submitted for shareholder approval. Abstentions will be counted for purposes of determining the existence of a quorum. Abstentions will not be counted as voting in favor of or against the relevant item.
A broker who holds shares in street name has the authority to vote on certain items when it has not received instructions from the
beneficial owner. Except for certain items for which brokers are prohibited from exercising their discretion, a broker is entitled to vote on matters presented to shareholders without instructions from the beneficial owner. Broker shares
that are voted on at least one matter will be counted for purposes of determining the existence of a quorum for the transaction of business at the Annual Meeting. Where brokers do not have or do not exercise such discretion, the inability or failure
to vote is referred to as a broker nonvote. Under the circumstances where the broker is not permitted to, or does not, exercise its discretion, assuming proper disclosure to the Company of such inability to vote, broker nonvotes will not
be counted as voting in favor of or against the particular matter. A broker is prohibited from voting on proposal one without instructions from the beneficial owner; therefore, there may be broker nonvotes on proposal one. A broker may vote on
proposal two; therefore, no broker nonvotes are expected to exist in connection with this proposal. If you held your shares in street name, please vote to ensure your shares are voted at the Annual Meeting.
The purposes of the meeting are to elect Directors, ratify the appointment of the Companys accountants and vote on such other business,
if any, that may properly come before the meeting or any adjournment. The Board of Directors is not aware of any matters other than those described in this Proxy Statement that may be presented for action at the Annual Meeting. However, if other
matters do properly come before the Annual Meeting, the persons named in the enclosed proxy card possess discretionary authority to vote in accordance with their best judgment with respect to such other matters.
1
PROPOSAL ONE - ELECTION OF DIRECTORS
The Board of Directors of the Company is structured into three classes (I, II, and III) with one class elected each year to serve a three-year
term. The term of Class II Directors will expire at the Annual Meeting. The persons named below, all of whom are currently members of the Board, will be nominated to serve as Class II Directors. If elected, the Class II nominees will
serve until the 2020 Annual Meeting of Shareholders. All nominees have consented to be named and have indicated their intent to serve if elected. Those nominees receiving the greatest number of votes shall be deemed elected even though they may not
receive a majority. Abstentions and broker
non-votes
will not be considered a vote for, or a vote against, a Director and will have no effect on the outcome of this proposal.
Certain information concerning the nominees for election at the Annual Meeting as Class II Directors is set forth below, as well as
certain information about the Class III and I Directors, who will continue in office until the 2018 and 2019 Annual Meetings of Shareholders, respectively. The following biographical information discloses each Directors age, principal
occupation during the last five years and the year that each individual was first elected to the Board of Directors of the Company or previously to the Board of Directors of Bank of Clarke County (the Bank), the predecessor to and now a
wholly owned subsidiary of the Company. In addition, the following information includes the particular experiences, qualifications, attributes and skills that lead the Board to conclude that each person should serve as a Director.
The Board of Directors recommends a vote FOR the Directors nominated to serve as Class II Directors.
Class II (Nominees to be elected to serve until the 2020 Annual Meeting):
Thomas T. Byrd
, 71, has been a Director since 1995.
Mr. Byrd is the President and Publisher of both the Winchester Evening Star, Inc., a newspaper publishing company headquartered in
Winchester, Virginia and Rockingham Publishing Company, a publishing company located in Harrisonburg, Virginia. Additionally, Mr. Byrd is the Chairman of the Board and sole stockholder of Page-Shenandoah Newspaper Corporation, Inc., a
publishing company in Winchester, Virginia as well as a director of Winchester Cold Storage in Winchester, Virginia and a member of the Rotary Club of Winchester. Through his experiences, Mr. Byrd has developed relevant financial, accounting
and compliance knowledge.
Douglas C. Rinker
, 57, has been a Director since 2006.
Mr. Rinker is the Chairman of the Board and President of Winchester Equipment Company, an equipment sales, rental and service company in
headquartered in Winchester, Virginia. Additionally, Mr. Rinker currently serves on the Frederick County Economic Development Authority. As the chief executive officer of a successful company, Mr. Rinker provides the Board with valuable
insight and guidance on the issues of corporate strategy, business community growth and risk management. Additionally, Mr. Rinker has demonstrated his commitment to the community by assisting several community and civic organizations.
Robert E. Sevila
, 73, has been a Director since December 2012.
Mr. Sevila is a principal with Sevila, Saunders, Huddleston and White, P.C. in Leesburg, VA. Mr. Sevila joined the firm in 1974 and
his practice emphasizes land use and administrative and municipal law, civil litigation, real estate and commercial law. Mr. Sevila is a member and past Chairman of the Loudoun County Chamber of Commerce and Loudoun County CEO Cabinet, past
President of the Board of the Bluemont Concert Series and a former member of the MBA faculty at Shenandoah University where he taught Business Law. Having served in local government elected positions, his knowledge of the Loudoun County market is
valuable for the Companys future growth opportunities.
John D. Stokely, Jr.
, 64, has been a Director since 2006.
Mr. Stokely is the President and owner of Cavalier Land Development Corp., a real estate development company in Oakton, Virginia and is a
former President of the Northern Virginia Building Industry Association and the Home Builders Association of Virginia. Mr. Stokely is also a former Chairman and a current Trustee of Shenandoah University as well as a Trustee of the
University of Virginia School of Engineering and Applied Science. His broad experience and perspective as an entrepreneur brings to the Board a substantial resource with respect to finance, strategic planning and corporate governance.
Class I (Incumbent directors to serve until the 2019 Annual Meeting):
Thomas T. Gilpin
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64, has been a Director since 1986.
Mr. Gilpin is the Chairman of the Board of both the Company and the Bank. He is the President of Lenoir City Company, a real estate
investment company in Winchester, Virginia. He is also President of Clarco Corporation, which operates as Northside Lanes, a bowling center in Winchester, Virginia. He is also a Board member for Valley Health System. Mr. Gilpins broad
experience provides the Company leadership and consensus-building skills to guide the Board through critical discussions regarding its current challenges and future strategic initiatives.
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Scott M. Hamberger
, 45, has been a Director since 2016.
Mr. Hamberger is the President and CEO of Integrus Holdings, Inc. where he has been employed since founding the company in 1993.
Integrus flagship business, Fortessa Tableware Solutions, is a recognized global leader in commercial foodservice and upscale consumer tableware. As an entrepreneur and executive, Mr. Hamberger brings analytical ability and leadership
skills to his role as Director. Additionally, by living and operating a business in the Companys area of operations, Mr. Hamberger is able to help identify the needs of the Companys customers and potential customers.
Mr. Hamberger was recommended for consideration to the Board of Directors by Mr. Robert Sevila, an existing director.
John R. Milleson
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60, has been a Director since 1999.
Mr. Milleson has been the President and Chief Executive Officer of both the Company and the Bank
since 1999. From 1997 to 1999, he was Executive Vice President and Secretary-Treasurer of the Company and Executive Vice President and Chief Administrative Officer of the Bank. He brings operational risk management and financial accounting
knowledge.
Robert W. Smalley, Jr.
, 65, has been a Director since 1989.
Mr. Smalley is the President of Smalley Package Co., Inc., a company focused on real estate management in Berryville, Virginia.
He is also the Vice Chairman of Loudoun Mutual Insurance Company, a property and casualty insurance provider in the State of Virginia. Mr. Smalleys
institutional knowledge and longstanding board service make him a distinctively qualified member of the board.
Class III (Incumbent directors to
serve until the 2018 Annual Meeting):
Mary Bruce Glaize
, 61, has been a Director since 1998.
Mrs. Glaize is a retired educator and local volunteer. She currently serves on the finance committee of the Board of Shenandoah University
and is a member of the Garden Club of Virginia Partnership for Parks. Additionally, Mrs. Glaize is a founder and trustee emerita of the Shenandoah Valley Discovery Museum. Her involvement in the communities in which the Company operates allows
her to identify the needs of the Banks customers and potential customers.
Randall G. Vinson
, 70, has been a Director since 1985.
Mr. Vinson is a retired Pharmacist and previous Owner of Berryville Pharmacy in Berryville, Virginia. Mr. Vinson brings an
entrepreneurial perspective as well as an understanding of the importance of oversight and risk management.
James R. Wilkins, Jr.
, 71, has been a
Director since 1998.
Mr. Wilkins is the Vice President of Silver Lake Properties, Inc. and JRW Properties and Rentals, Inc. and a
member of Silver Lake, LLC, Wilkins Investments, L.P. and Wilkins Enterprises, L.P. These entities are real estate development and management companies in Winchester, Virginia. He is a member of Shenandoah Universitys Board and Trustees and a
member of the Board f Winchester Equipment Company. He is also a former Board member for Winchester Medical Center Board of Trustees. Until May 2005, Mr. Wilkins was President of Wilkins ShoeCenter, Inc., a footwear retailer in Winchester,
Virginia. As a former board member of a public financial institution, Mr. Wilkins brings significant expertise in the areas of management, strategic planning and business development.
Executive Officers Who Are Not Directors
Kathleen J.
Chappell
, 50, has served as Vice President and Chief Financial Officer of the Company and Senior Vice President and CFO of the Bank since January 2009. From 2005 to 2008 she served as Senior Vice President and Chief Financial Officer of
Middleburg Financial Corporation.
Kaley P. Crosen
, 51, has served as Senior Vice President and Human Resources Director since 2008.
Ms. Crosen served as Vice President of Human Resources from 1999 to 2008.
Carl A. Esterhay
, 61, has served as Senior Vice President and
Senior Trust Officer of the Bank since 2014. From 2012 to 2013 he served as Senior Vice President/Wealth Management Market Manager for Regions Financial Corporation. Mr. Esterhay served as Senior Vice President/Senior Trust Team Manager for
Wells Fargo Wealth Management from 2009 to 2011.
John E. Hudson
, 59, has served as Senior Vice President and Marketing Director of the Bank since
2003. Mr. Hudson served as Vice President and Marketing Director of the Bank from 1994 to 2003.
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James W. McCarty, Jr.
, 47, has served as Vice President and Secretary-Treasurer of the Company and
Executive Vice President and Chief Administrative Officer of the Bank since 2008. Mr. McCarty served as Vice President and Chief Financial Officer of the Company from 1997 to 2008. Mr. McCarty served as Senior Vice President and Chief
Financial Officer of the Bank since 2000.
Joseph T. Zmitrovich
, 47, has served as Senior Vice President and Chief Lending Officer of the Bank
since August 2016. From 2015 to July 2016 he served as Market President of the Southern Pennsylvania region for BB&T. From 2008 to 2015 he served as Senior Vice President and Commercial Executive for Susquehanna Bank.
SECURITY OWNERSHIP
Ownership of
Directors and Executive Officers
The following table sets forth, as of March 17, 2017, certain information with respect to
beneficial ownership of shares of Common Stock by each of the members of the Board of Directors, by each of the executive officers included in the Summary Compensation Table below (collectively, the named executive officers)
and by all Directors and executive officers as a group.
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Name of Beneficial Owner
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Amount and Nature
of
Beneficial
Ownership
(1)
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Percent of
Class
(2)
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Thomas T. Byrd
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60,519
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(3)
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1.74
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%
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Kathleen J. Chappell
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5,135
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(4)
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*
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Thomas T. Gilpin
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143,892
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(3)
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4.13
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%
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Mary Bruce Glaize
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8,549
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(3)
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*
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Scott M. Hamberger
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809
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*
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James W. McCarty, Jr.
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41,855
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(4)
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1.20
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%
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John R. Milleson
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104,562
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(4)
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3.00
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%
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Douglas C. Rinker
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9,322
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*
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Robert E. Sevila
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2,212
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*
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Robert W. Smalley, Jr.
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16,075
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(3)
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*
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John D. Stokely, Jr.
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11,635
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*
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Randall G. Vinson
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44,004
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(3)
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1.26
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%
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James R. Wilkins, Jr.
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273,331
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(3)
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7.85
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%
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Directors and executive officers
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as a group (17 persons)
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756,997
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(3
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21.74
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%
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Percentage of ownership is less than one percent of the outstanding shares of Common Stock.
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(1)
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For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule
13d-3
of the Securities Exchange Act of 1934 under which, in
general, a person is deemed to be the beneficial owner of a security if he has, or shares, the power to vote, or direct the voting, of the security or the power to dispose of, or direct, the disposition of the security, or if he has the right to
acquire beneficial ownership of the security within 60 days.
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(2)
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Based on 3,477,210 shares issued and outstanding at March 17, 2017.
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(3)
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Amounts presented include shares of Common Stock that the individuals beneficially own indirectly through family members and affiliated companies and other entities as follows: Mr. Byrd, 60,019; Mr. Gilpin,
98,802; Mr. Smalley, 1,539; Mr. Vinson, 12,434; Mr. Wilkins, 101,900.
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(4)
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Amounts presented include shares of Common Stock held in the Bank of Clarke County Employee 401(k) Savings and Stock Ownership Plan as follows: Mr. McCarty, 5,538; Mr. Milleson, 18,912.
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Ownership of Certain Beneficial Owners
The following table sets forth, as of March 17, 2017, certain information with respect to the beneficial ownership of shares of Common
Stock by each person who owns, to the Companys knowledge, more than 5% of the Companys Common Stock.
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Name and Address
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Number of
Shares
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Percent of
Class
(%) (1)
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James R. Wilkins, Jr.
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273,331
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(2)
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7.85
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13 South Loudoun Street
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Winchester, Virginia 22601
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(1)
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Based on 3,477,210 shares issued and outstanding at March 17, 2017.
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(2)
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Amount includes 36,000 shares held as trustee under the terms of certain trusts and 65,900 shares held by affiliated companies and other entities.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), requires the Companys directors and
executive officers, and any persons who own more than 10% of the outstanding shares of Common Stock, to file with the Securities and Exchange Commission (the SEC) reports of ownership and changes in ownership of Common Stock. Directors
and executive officers are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports that they file. Based solely on review of the copies of such reports furnished to the Company or written representation that no
other reports were required, the Company believes that, during the 2016 year, all filing requirements applicable to its officers and directors were timely satisfied other than as follows: Mrs. Chappell one late report reporting one
transaction; Mrs. Crosen one late report reporting one transaction; Mr. Hudson one late report reporting one transaction; Mr. McCarty one late filing reporting one transaction; Mr. Milleson one late
report reporting one transaction.
CORPORATE GOVERNANCE AND
THE BOARD OF DIRECTORS
General
The business and affairs of the Company are managed under the direction of the Board of Directors in accordance with the Virginia Stock
Corporation Act and the Companys Articles of Incorporation and Bylaws. Members of the Board are kept informed of the Companys business through discussions with the Chairman of the Board, the President and Chief Executive Officer and
other officers, by reviewing materials provided to them and by participating in meetings of the Board of Directors and its committees.
Independence of
the Directors
The Board of Directors has determined that the following ten individuals of its total 11 members are independent as
defined by the listing standards of the NASDAQ Stock Market (NASDAQ): Mrs. Glaize and Messrs. Byrd, Gilpin, Hamberger, Rinker, Sevila, Smalley, Stokely, Vinson and Wilkins. The Board of Directors considered the relationship between
the Company and Mr. Byrd and Mr. Sevila in determining that each were independent under NASDAQs listing standards. Mr. Byrd is the President of a newspaper company with which the Bank advertises and Mr. Sevila is a
principal with Sevila, Saunders, Huddleston and White, P.C., whom the Bank pays for general legal services rendered from time to time. Other than as set forth above and under Certain Relationships and Related Transactions, there are no
relationships between the Company and any other independent director. The only Director not considered independent is Mr. Milleson, who serves as the President and Chief Executive Officer of the Company.
Board Leadership Structure and Risk Oversight
The Company has been operating for over 135 years using a board leadership structure in which the President and Chief Executive Officer
(CEO) and Chairman of the Board of Directors positions are filled by separate individuals. The Company believes that its leadership structure is appropriate because by having an outside independent Chairman, there exists a certain degree
of control and balanced oversight of the management of the Boards functions and its decision making processes. In accordance with the Companys bylaws, the Board of Directors elects the CEO and the Chairman, and each of these positions
may be held by the same person or may be held by two persons. Under the Companys Corporate Governance Guidelines, the Board does not have a policy, one way or the other, on whether the role of the Chairman and CEO should be separate and, if it
is to be separate, whether the Chairman should be selected from the
non-employee
directors or be an employee. Under its charter, the Nominating and Corporate Governance Committee periodically reviews and
recommends to the Board the leadership structure of the Board. Because the Companys Chairman and CEO positions are served by two individuals, the Company currently does not require a Lead Director.
The Company believes that its leadership structure allows the directors to provide effective oversight of its risk management function. The
Audit Committee oversees the accounting and financial reporting processes of the Company, as well as legal and compliance matters and
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risk management. The Audit Committee charter provides that the Audit Committee is responsible for overseeing the internal controls of the Company along with its adherence with compliance and
regulatory requirements. In carrying out its responsibilities, the Audit Committee works closely with members of Companys executive management and employees of the firm to which the external audit services of the Company are outsourced. The
Audit Committee meets regularly and receives an overview of findings from various risk management initiatives including internal audits, Sarbanes Oxley and compliance reports. The Audit Committee also receives updates between its regular meetings
from the CEO, the Chief Administrative Officer (CAO) and the Chief Financial Officer (CFO), Director of Internal Audit and other members of management relating to risk oversight matters. The Audit Committee provides minutes
of all its meetings to the full Board. The full Board also engages in periodic discussions with the CEO, CAO, CFO and other corporate officers as the Board may deem appropriate.
In addition to the Audit Committee, the other committees of the Board consider the risks within their areas of responsibility. For
example, the Compensation Committee considers the risks that may exist in the Companys executive compensation programs. For a discussion of the Compensation Committees review of the Companys senior executive officer
compensation plans, employee incentive compensation plans and the risks associated with these plans, see Compensation Policy and Practices Review on page nine of this Proxy Statement.
Code of Ethics
The Board of Directors
has approved a Code of Ethics for directors, officers and all employees of the Company and the Bank. The Board has also approved an addendum to the Code of Ethics applicable to the Companys senior financial management, consisting of the Chief
Executive Officer and Chief Financial Officer. The Code of Ethics addendum addresses, among other things, standards that are reasonably necessary to promote honest and ethical conduct, including conduct with respect to conflicts of interest, full,
fair, accurate, timely and understandable disclosure in the Companys required periodic reports and compliance with applicable governmental rules and regulations. A copy of the Companys Code of Ethics and its addendum may be obtained by
visiting the Investor Relations section of the Banks website at
www.bankofclarke.com
.
Board and Committee Meeting Attendance
During 2016, the Board of Directors of the Company held nine meetings. The Directors of the Company also serve as Directors of the
Bank. The Banks Board held twelve meetings in 2016. During 2016, all but one Director attended greater than 75% of the aggregate number of meetings of both Boards of Directors and meetings of committees on which he or she was a member.
Executive Sessions
Independent Directors
meet periodically outside of regularly scheduled Board meetings. These sessions are led by the Chairman of the Board. The Independent directors met two times during 2016.
Committees of the Board
Audit
Committee.
The Audit Committee is appointed by the Board of Directors to fulfill its oversight responsibility to the shareholders relating to the integrity of the Companys financial statements, the Companys compliance with legal and
regulatory requirements and the qualifications, independence and the performance of the internal audit function. The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of both the
Companys Director of Internal Audit and the independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attestation services for the Company. The Audit
Committee and the Board of Directors have adopted a written charter for the Audit Committee, which may be viewed by visiting the Investor Relations section of the Companys website at
www.bankofclarke.com
.
The Audit Committee met five times during 2016. This committee consists of Messrs. Hamberger, Sevila, Smalley, Vinson and Wilkins. Each of the
members of the Audit Committee is independent as that term is defined in the listing standards of NASDAQ and Securities and Exchange Commission regulations. The Company does not have an audit committee financial expert as defined by
Securities and Exchange Commission regulations because the Board of Directors believes that each of the members of the Audit Committee has the ability to understand financial statements and generally accepted accounting principles, the ability to
assess the general application of such principles in connection with the accounting for estimates, accruals and reserves, an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions.
Compensation Committee.
The Compensation Committee is a committee of the Banks Board of Directors. The Compensation
Committee met three times in 2016. The Compensation Committee reviews the CEOs performance and compensation and reviews and sets guidelines for compensation of the other executive officers. All decisions by the Compensation Committee relating
to the compensation of the Companys executive officers are reported to the full Board of Directors. The Compensation Committee consists of Messrs. Hamberger, Rinker, Smalley, Stokely and Wilkins, each of whom is independent as that term is
defined by the listing standards of NASDAQ and Securities and Exchange Commission regulations. The Compensation Committee and the Board of Directors have adopted a written charter for the Compensation Committee, which may be viewed by visiting the
Investor Relations section of the Banks website at
www.bankofclarke.com
.
6
Nominating/Corporate Governance Committee.
The Nominating/Corporate Governance Committee
is appointed by the Board of Directors. The Nominating/Corporate Governance Committee did not meet during 2016. The Nominating/Corporate Governance Committee consists of Messrs. Byrd, Gilpin, and Sevila, each of whom is independent as that term is
defined in the listing standards of NASDAQ. The purpose of this committee is to recommend individuals for election to the Board of Directors in accordance with the Companys Articles of Incorporation and Bylaws and oversee the corporate
governance practices of the Company. The Nominating/Governance Committee and the Board of Directors have adopted a written charter for the Nominating/Corporate Governance Committee, which may be viewed by visiting the Investor Relations
section of the Banks website at
www.bankofclarke.com
.
In identifying potential nominees, the Nominating/Corporate Governance
Committee takes into account such factors as it deems appropriate, including the current composition of the Board, the range of talents, experiences and skills that would best complement those that are already represented on the Board, the balance
of management and independent Directors and the need for specialized expertise. The Board considers candidates for Board membership suggested by its members and management, and the Board will also consider candidates suggested informally by a
shareholder of the Company.
The Nominating/Corporate Governance Committee considers, at a minimum, the following factors for potential
new Directors or the continued service of existing Directors:
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the ability of the prospective nominee to represent the interests of the shareholders of the Company;
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the prospective nominees standards of integrity, commitment and independence of thought and judgment;
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the prospective nominees ability to dedicate sufficient time, energy and attention to the diligent performance of his or her duties, including the prospective nominees service on other public company boards;
and
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the extent to which the prospective nominee contributes to the range of talent, skill and expertise that represents a diversity of background appropriate for the Board.
|
The process used for selecting new candidates for the Board of Directors involves identifying the need to add a new member with specific
qualifications or to fill a vacancy. The Chairman of the Nominating/Corporate Governance Committee will initiate a search, which may involve seeking input from Board members and senior management, and considering any candidates recommended by
shareholders. A list of candidates which satisfy certain criteria and otherwise qualify for membership is presented to the Nominating/Corporate Governance Committee. The Chairman of the Board, along with the President and Chief Executive Officer,
conducts interviews with preferred candidates from the list. Afterwards, the Nominating/Corporate Governance Committee meets to conduct further interviews of preferred candidates, if necessary, and to recommend final candidates for approval by the
full Board of Directors.
Shareholders entitled to vote for the election of directors may submit candidates for formal consideration by
the Company in connection with an Annual Meeting if timely written notice is received, in proper form, for each such recommended Director nominee. If the notice is not timely and in proper form, the nominee will not be considered by the Company. To
be timely for the 2018 Annual Meeting, the notice must be received within the time frame set forth in the section titled Shareholder Proposals for the 2018 Annual Meeting within this Proxy Statement. To be in proper form, the notice must
include each nominees written consent to be named as a nominee and to serve, if elected, and information about the shareholder making the nomination and the person nominated for election.
Annual Meeting Attendance
The Company
has not adopted a formal policy on Director Attendance at its Annual Meeting, although all Directors are encouraged to attend and historically most have done so. All Directors attended the Companys 2016 Annual Meeting.
Shareholder Communication
Shareholders
and other interested parties may communicate with all members or any member of the Board of Directors by addressing correspondence to Board of Directors or to the individual Director. Such correspondence should be addressed to the
Secretary of the Company, P.O. Box 391, Berryville, Virginia 22611. All communications so addressed will be forwarded promptly, without screening, to the Chairman of the Board of Directors (in the case of correspondence addressed to Board of
Directors) or to the individual Director.
7
Director Compensation
The following table provides compensation information for the year ended December 31, 2016 for each
non-employee
director of the Companys Board of Directors:
Director Compensation Table
Fiscal Year 2016
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Name (1)
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Fees Earned
or Paid in Cash
($)
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|
Stock Awards
($) (2)
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Total
($)
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Thomas T. Byrd
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14,200
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|
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11,605
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25,805
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Thomas T. Gilpin
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21,700
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|
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11,605
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33,305
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|
Mary Bruce Glaize
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12,800
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11,605
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24,405
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Scott M. Hamberger
|
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10,900
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11,605
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22,505
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Douglas C. Rinker
|
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13,500
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11,605
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25,105
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Robert E. Sevila
|
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11,700
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11,605
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23,305
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Robert W. Smalley, Jr.
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13,400
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11,605
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25,005
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John D. Stokely, Jr.
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15,200
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|
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11,605
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26,805
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Randall G. Vinson
|
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12,100
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11,605
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23,705
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James R. Wilkins, Jr.
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13,600
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11,605
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25,205
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(1)
|
John R. Milleson, the Companys President and Chief Executive Officer is not included in this table as he receives no compensation for his services as a director. The compensation received by Mr. Milleson as
an employee is shown in the Summary Compensation Table on page 12.
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(2)
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The amounts in this column reflect the aggregate grant date fair value of the awards computed in accordance with the Financial Accounting Standards Boards Accounting Standards Codification Topic 718, Compensation
Stock Compensation (formerly FASB 123R, ShareBased Payment). The grant date fair value for these stock awards of $23.21 per share was based on the closing sales price of the Companys common stock on the grant date (June 15, 2016).
At December 31, 2016, each
non-employee
director had no shares of restricted stock outstanding. During 2016, each director received 500 shares of restricted stock in June, which vested in December.
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The Compensation Committee evaluates the compensation of the Directors annually. The Compensation Committee relies
primarily on information regarding the director compensation of similar financial institutions. Based on this evaluation, the Compensation Committee recommends changes in compensation to the Board of Directors for approval. During 2016, the
Compensation Committee recommended no changes be made in director stock compensation.
Non-employee
members of the Board of Directors each receive an annual retainer and $500 per Board
meeting attended for service as a member of the Banks Board of Directors. During 2016, the Chairman of the Boards retainer was $10,000 and other directors retainer was $5,000. Members of the Audit Committee and Compensation
Committee received $300 per meeting attended. Members of all other Bank committees received $100 per meeting attended during 2016. In addition to cash compensation,
non-employee
members of the Board of
Directors receive stock awards in accordance with the Companys Stock Incentive Plan, as disclosed in the footnotes of the table above.
Certain
Relationships and Related Transactions
The Company, through its subsidiary Bank, grants loans to and accepts deposits from its
directors, principal officers and related parties of such persons during the ordinary course of business. Loans are granted on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with
other customers not related to the Company and do not involve more than the normal risk of collectibility or present other unfavorable features. The aggregate balance of loans to directors, principal officers and their related parties was $4,686,789
at December 31, 2016. Deposits are accepted on the same terms, including interest rates, as those prevailing at the time for comparable transactions with other customers. The aggregate balance of deposits from directors, principal officers and
their related parties was $15,649,839 at December 31, 2016.
8
The Company has not adopted a formal policy that covers the review and approval of related person
transactions by the Board of Directors. The Board, however, does review all such transactions that are proposed to it for approval. During such a review, the Board will consider, among other things, the related persons relationship to the
Company, the facts and circumstances of the proposed transaction, the aggregate dollar amount of the transaction, the related persons relationship to the transaction and any other material information. The Audit Committee of the Board also has
the responsibility to review significant conflicts of interest involving directors or executive officers.
In addition, any extensions of
credit to directors and officers are required to be on substantially the same terms as comparable transactions to
non-related
parties at the time of the extension of credit, pursuant to Regulation O
Loans to Executive Officers, Directors and Principal Shareholders of Member Banks of the banking regulations applicable to us.
Compensation Policy and
Practices Review
The Compensation Committee has authority over the selection, use, and retention of any compensation consultant or any
other experts engaged to assist the Committee in discharging its responsibilities. During 2016, the Committee engaged Pearl Meyer and Partners, LLC (PM) to act as consultant and independent advisor to the Committee. PM assisted the Committee in
reviewing compensation strategy and recommending changes to the Companys peer group, as well as selecting and reviewing compensation and performance data for a peer group of comparable, community financial institutions. PM also aided with
conducting assessments of compensation policy, plans, practices to address reporting requirements, long term incentive grant determinations, risk assessment of compensation, and provided periodic updates on regulatory and reporting requirement
changes related to compensation. In the capacity as advisor to the Compensation Committee, PM worked directly for the Committee and periodically met with Committee Chair without the presence of Company management. PM did not provide any
consulting services to the Corporation other than in connection with executive compensation. As a result of the above noted actions, the Committee found that the Companys compensation policies, plans and practices do not encourage unnecessary
or unreasonable risk-taking and do not give rise to risks that are reasonably likely to have a material adverse effect on the Company.
EXECUTIVE COMPENSATION
General.
The Compensation Committee of the Banks Board of Directors reviews the salary and other compensation of executive
officers, including the named executive officers, and provides oversight of the compensation programs. The Compensation Committee consists entirely of
non-employee,
independent members of the Board of
Directors and operates under a written charter approved by the Board of Directors. All recommendations from the Compensation Committee regarding the compensation of executive officers are approved by the Board of Directors.
Management Say on Pay Vote Results for 2016.
At the Companys 2016 Annual Meeting of Shareholders, approximately 98% of the
shares voted on the say on pay proposal approved the compensation paid to the Companys named executive officers. The Compensation Committee believes that the shareholder vote confirms the philosophy and objective of linking our
executive compensation to our operating objectives and the enhancement of shareholder value. This level of shareholder support is viewed as an affirmation of the Companys current pay practices, and as a result, no significant changes were made
to our pay practices. The Compensation Committee will continue to consider the outcome of the Companys say on pay votes when making future compensation decisions for the named executive officers.
The Committee evaluates the appropriateness and competitiveness of the Companys total compensation program in light of shareholder
feedback generally and to ensure the Companys executive compensation program represents the best interests of shareholders. The Committee is committed to performing a thorough assessment and making changes as deemed necessary to attract and
retain the highest quality talent, to reward for achieving the Companys objectives, and to align with the best interests of the Company and its shareholders.
At the Companys 2013 Annual Meeting of Shareholders, the shareholders voted on the frequency with which their advisory vote should be
held in the future every one, two or three years. Consistent with shareholders voting, the Company will follow a three-year cycle, and shareholders will be asked to vote on a say on pay proposal again in 2019.
Objectives of the Compensation Program.
The primary objective of the executive compensation program is to attract and retain
highly skilled and motivated executive officers who will manage the company in a manner to promote its growth and profitability and to advance the interest of its shareholders. Additional objectives of our executive compensation program are the
following:
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align executive pay with shareholders interests;
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recognize individual initiative and achievements; and
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unite the entire executive management team to a common objective.
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Executive
Compensation Principles.
The executive compensation program generally consists of base salaries, annual cash incentive payments in the form of annual bonuses and long-term equity incentives in the form of stock awards. These components of
executive compensation are used together to strike an appropriate balance between cash and stock compensation and between short-term and long-term incentives. We expect a portion of an executive officers total compensation to be tied both to
the Companys annual and long-term performance as well as to the creation of shareholder value. In particular, we believe that short-term annual cash incentive compensation should
9
be tied directly to both company performance and individual performance for the fiscal year. In contrast, we believe that the value of long-term incentive compensation should be tied directly to
long-term company performance and an increase in shareholder value. Under the program, performance above targeted standards results in increased total compensation, and performance below targeted standards results in decreased total compensation.
We differentiate compensation to executive officers based on the principle that total compensation should increase with an executive
officers position and responsibility. Executive officers with greater roles and responsibilities associated with achieving performance targets should receive a lesser proportion of the reward if those targets are not achieved and should
receive a greater proportion of the reward if those targets are met or surpassed. In addition, as an executive officers position and responsibility increases, the use of long-term incentive compensation should increase where executive officers
have the greatest influence on strategic performance over time.
How Executive Pay Levels are Determined.
The Compensation
Committee reviews the executive compensation program and its elements annually. In determining the compensation of the executive officers, the Committee evaluates total overall compensation, as well as the mix of salary, cash bonus incentives and
equity incentives, using a number of factors including the following:
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the Companys financial and operating performance, measured by attainment of specific strategic objectives and operating results;
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the duties, responsibilities and performance of each executive officer;
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historical cash and equity compensation levels; and
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comparative industry market data to assess compensation competitiveness.
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With respect to
comparative industry data, the Compensation Committee reviews executive salaries and evaluates compensation structures and the financial performance of comparable companies in a designated peer group established by the Compensation Committee. The
peer group used for comparison purposes is primarily comprised of public companies in the banking industry that are similar in size with similar market capitalizations and other characteristics. In 2016, the Compensation Committee selected 21
companies for analysis of their financial performance and compensation structures. The financial metrics used by the Compensation Committee to evaluate the Companys performance and the performance of peer companies included return on assets,
return on equity, efficiency, asset quality and net interest margin. The companies included in the peer group for 2016 were:
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Bank of the James Financial Group, Inc.
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First National Corporation
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Old Point Financial Corporation
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Carolina Bank Holdings, Inc.
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First South Bancorp, Inc.
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Peoples Bancorp of North Carolina, Inc.
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Carolina Trust Bank
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First West Virginia Bancorp, Inc.
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Select Bancorp, Inc.
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Cordia Bancorp Inc.
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Glen Burnie Bancorp
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Shore Bancshares, Inc.
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F & M Bank Corp.
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Howard Bancorp, Inc.
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Southern National Bancorp of Virginia, Inc.
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Fauquier Bankshares, Inc.
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Live Oak Bancshares, Inc.
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Village Bank and Trust Financial Corp.
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First Capital Bancorp, Inc.
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Middleburg Financial Corporation
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Xenith Bankshares, Inc.
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Components of Executive Compensation.
The components of the executive compensation program
included base annual salary, annual cash incentive payments in the form of bonuses and long-term incentives through equity compensation under the Companys Stock Incentive Plan. The Company provides retirement benefits through a 401(k) savings
plan. The Company also provides health and welfare benefits that include participation in health, dental and vision plans and various insurance plans, including disability and life insurance.
Each of the components of executive compensation is designed to reward and provide incentives to executive officers consistent with the
Companys overall policies and principles on executive compensation. These components and the rationale and methodology for each are described below. Specific information on the amounts and types of compensation earned by the named executive
officers during 2016 can be found in the Summary Compensation Table and other tables and narrative disclosures following this discussion.
Base Salary
: The Companys philosophy regarding base salary is to provide reasonable current income to the named executive
officers in amounts that will attract and retain individuals with a broad, proven track record of performance.
The base salary for the
President and Chief Executive Officer of the Company is approved by the Board of Directors, excluding the President and Chief Executive Officer, based on the recommendation of the Compensation Committee. In making this determination for 2016, the
Compensation Committee evaluated the performance of the President and Chief Executive Officer based on the Companys financial performance, achievements in implementing the Companys long-term strategy, and the personal observations of the
Chief Executive Officers performance by the members of the Board of Directors. No particular weight was given to any particular aspects of the performance of the Chief Executive Officer.
10
Base salaries for executive officers other than the President and Chief Executive Officer are
approved by the Compensation Committee based on the recommendation of the President and Chief Executive Officer. In making base salary determinations for 2016, the President and Chief Executive Officer evaluated the performance of the executive
officers based on the Companys financial performance, achievements in implementing the Companys long-term strategy, and the personal observations of the executive officers performance by the Chief Executive Officer. The President
and Chief Executive Officer also reviews the salary survey prepared by the Virginia Bankers Association. No particular weight was given to any particular aspects of the performance of the executive officers.
Annual Incentive Bonus:
In 2016, the Compensation Committee approved performance metrics under our Management Incentive Plan (MIP),
which sets the target level of executive cash incentives as a percentage of base salary, as further described below, at December 31, 2016. Each of the named executive officers participates in the Management Incentive Plan.
Executive officers currently have the opportunity to earn an annual incentive award up to a predetermined percentage of total base salary
determined by achievement of the Companys operating or consolidated performance goals. In addition to promoting the achievement of corporate performance goals, the incentive awards are designed to align the interests of executive management
with those of shareholders in managing a profitable and sound institution.
In 2016, the MIP was designed to provide incentives that would
be reasonable in relation to the payment of base salaries and overall compensation to executive officers, to be competitive with market and peer group incentive practices, and to provide executive officers the opportunity to earn above-target
incentives for above-target performance. Consistent with the design goals of our MIP, the Compensation Committee determined that 2016 incentive opportunities for the named executive officers should be targeted at approximately 15% of base salary for
the President and CEO, 12% of base salary for the Vice President and Secretary-Treasurer and 10% of base salary for the Vice President and CFO. The incentive payout scale, depending on actual results versus target, is shown in the following table
extracted from our 2016 Management Incentive Plan.
Award Leverage Schedule: President and CEO
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Percent of all Corporate Measures of Performance
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Percent of Base Salary
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125%
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30
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%
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100%-124%
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15
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%
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85%-99%
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10
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%
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<85%
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Award Leverage Schedule: Vice President and Secretary- Treasurer
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Percent of all Corporate Measures of Performance
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Percent of Base Salary
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125%
|
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25
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%
|
100%-124%
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12
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%
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85%-99%
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8
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%
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<85%
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Award Leverage Schedule: Vice President and CFO
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Percent of all Corporate Measures of Performance
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Percent of Base Salary
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125%
|
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20
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%
|
100%-124%
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10
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%
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85%-99%
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7
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%
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<85%
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As shown above, awards are increased when performance exceeds performance targets, and awards are decreased
when performance falls below performance targets. Results that fall below a preset threshold result in no incentives being awarded. Ultimately, all incentive awards under the 2016 Management Incentive Plan are at the discretion of the Compensation
Committee. Based on discussion with executive management, the Compensation Committee approved the plan performance objectives and the award formula or matrix by which all awards under the 2016 Management Incentive Plan were calculated. Performance
measures were selected based on our most important priorities for 2016. The Committee approved a weight for each performance measure to indicate its relative importance and the percent of overall incentives that could be earned for that particular
performance measure.
11
Award Percentages and Performance Measure Weightings
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Participant
|
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Net Income
|
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|
Efficiency
|
|
|
Net Loan Growth
|
|
President & CEO
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50
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%
|
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|
25
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%
|
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|
25
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%
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Vice President & Secretary - Treasurer
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50
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%
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|
25
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%
|
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|
25
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%
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Vice President & CFO
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|
50
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%
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|
25
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%
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25
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%
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As shown above, the financial and operating targets approved by the Compensation Committee for the 2016
Management Incentive Plan were net income, efficiency and net loan growth. For 2016, the Committee approved the following target performance levels: Net Income of $5.3 million, efficiency ratio of 71.89% and net loan growth of
$50.0 million. For 2016, the Companys actual results were as follows: Net Income of $6.4 million, efficiency ratio of 70.30% and net loan growth of $21.9 million. Actual results for all three objectives averaged approximately
89% of target. The President and CEO received an incentive award equal to 11.25% of his base salary, the Vice President and Secretary Treasurer received an incentive award equal to 9.00% of his base salary and the Vice President and CFO
received an incentive award equal to 7.50% of her base salary. The 2016 incentive award payments to each executive officer are disclosed in the Summary Compensation Table below.
Equity Compensation
: The Compensation Committee may provide equity compensation to executive officers through long-term stock awards
pursuant to the 2014 Stock Incentive Plan. Equity compensation has been made to executive officers in the form of restricted stock, which is both time and performance based. The time based shares vest over a three year period whereby the executive
receives
one-third
of the shares on the anniversary of the grant date if that executive is employed on the anniversary date. The goal of the Compensation Committee in granting equity compensation is to
directly link an executives compensation opportunities with shareholder value creation. The multi-year vesting of stock awards focuses executive officers on consistent long-term growth in shareholder value and requires executive officers to
remain employed for extended periods to receive the full benefit of the awards.
The performance based shares granted in 2016 vest over a
one-year
period whereby the executive may receive a portion or all the shares on the
one-year
anniversary of the grant date depending upon the Companys overall ranking
in the Banks Street Partners, LLC Rank the Banks Report of seventy-nine Virginia banks, provided that the executive is employed on the anniversary date. The factors considered in the overall ranking of the Banks Street Partners, LLC Rank the Banks
are net interest margin, noninterest income, total overhead, asset quality and return on average equity. The Company must achieve an overall ranking of at least forty-seven (47) for executives to receive the minimum vesting level of 50.00% of
awarded performance shares. The Company must achieve a rank of eight (8) or better for the fiscal year of the vesting period for the executive to receive all of the eligible performance based shares granted during 2016. The Companys final
ranking in the Rank the Banks Report was
twenty-two
(22), resulting in the executives receiving
eighty-two
percent of the eligible performance based shares granted
during 2016.
On January 4, 2016, the Compensation Committee awarded restricted stock grants and performance vested shares to the
executive officers. The total amount of stock awards was set based on the executives position. The Compensation Committee determined that these stock awards should be split between time and performance based shares, but that more time-based
shares should be awarded than performance based to encourage long-term growth in shareholder value.
Retirement and Other Benefits
:
The Company provides additional compensation to the named executive officers through various plans which are also available to some or all of the employees. The Compensation Committee oversees these plans and the Compensation Committee considers
these plans when reviewing a named executive officers total annual compensation and when determining the annual and long-term compensation components described above. These plans are described below.
Pension Plan
Effective December 31,
2006, the pension plan was amended and frozen so that no further benefits will accrue under the plan and no additional employees may become participants. The pension plan was terminated effective September 30, 2011 and after receiving
final approval from the Internal Revenue Service, distributions in the form of
lump-sum
cash payments to plan participants, rollovers and purchasing annuity contracts were completed on December 19,
2011.
Employee 401(k) Savings and Stock Ownership Plan
The Company sponsors a 401(k) savings plan under which eligible employees, including executive officers, may defer a portion of their salary on
a pretax basis, subject to certain IRS limits. Each participant in this plan has the right to vote the shares of Common Stock allocated to his or her account. Prior to January 1, 2007, the Company matched 50 percent of employee
contributions, on a maximum of six percent of salary deferred, with Company common stock or cash, as elected by each employee. In conjunction with amending the pension plan, the 401(k) plan was amended, effective January 1, 2007, to include a
non-elective
safe-harbor employer contribution and an
age-weighted
12
employer contribution. Each December 31st, qualifying employees will receive a
non-elective
safe-harbor contribution equal to three percent of their salary
for that year. Also, each December 31st, qualifying employees will receive an additional contribution based on their age and years of service. The percentage of salary for the
age-weighted
contribution
increases on both factors, age and years of service, with a minimum of one percent of salary and a maximum of ten percent of salary.
In
2016, all executive officers participated in the 401(k) plan and each received all eligible matching contributions under the amended plan. The Companys contribution to this plan on behalf of each named executive is disclosed in the
Summary Compensation Table below.
Employment Agreements.
In order to retain and attract executive officers, the
Company recognizes the need to enter into employment agreements with provisions for benefits in connection with a termination of employment. The
Compensation Committee evaluates the potential payments to executive officers under various
arrangements that provide for severance payments, including termination and change of control arrangements, in connection with its annual review of executive compensation.
A description of the terms of our severance plans, the specific circumstances that trigger payment of benefits, an estimate of benefits
payable upon the occurrence of those triggering events and other information relating to such plans can be found under the captions of Employment Agreements and Potential Payments upon Termination of Employment or
Change-in-Control
below.
Annual Compensation of Executive Officers
The following tables and discussion summarize the compensation earned during 2016 and 2015 by (1) the chief executive officer and
(2) each of the two other most highly compensated executive officers who earned more than $100,000 in total compensation for services rendered in all capacities during 2016.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($) (1)
|
|
|
Non-Equity
Incentive Plan
Compensation
($) (2)
|
|
|
All Other
Compensation
($) (3)
|
|
|
Total
($)
|
|
John R. Milleson
|
|
|
2016
|
|
|
|
350,000
|
|
|
|
|
|
|
|
61,800
|
|
|
|
39,375
|
|
|
|
43,483
|
|
|
|
494,658
|
|
President and Chief
|
|
|
2015
|
|
|
|
330,000
|
|
|
|
29,000
|
|
|
|
55,200
|
|
|
|
19,800
|
|
|
|
42,096
|
|
|
|
476,096
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James W. McCarty, Jr.
|
|
|
2016
|
|
|
|
240,000
|
|
|
|
|
|
|
|
43,775
|
|
|
|
21,600
|
|
|
|
34,935
|
|
|
|
340,310
|
|
Vice President and
|
|
|
2015
|
|
|
|
240,000
|
|
|
|
|
|
|
|
39,100
|
|
|
|
14,400
|
|
|
|
34,784
|
|
|
|
328,284
|
|
Secretary-Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kathleen J. Chappell
|
|
|
2016
|
|
|
|
192,000
|
|
|
|
|
|
|
|
32,188
|
|
|
|
14,400
|
|
|
|
24,068
|
|
|
|
262,656
|
|
Vice President and
|
|
|
2015
|
|
|
|
180,000
|
|
|
|
|
|
|
|
28,750
|
|
|
|
10,800
|
|
|
|
22,438
|
|
|
|
241,988
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amounts reported reflect the aggregate grant date fair value of the awards computed in accordance with the Financial Accounting Standards Boards Accounting Standards Codification Topic 718, Compensation
Stock Compensation (formerly FASB 123R ShareBased Payment
)
. This presentation replaces the dollar amount recognized for financial statements purposes and has been reflected for all fiscal years presented. Stock awards consist of both
restricted and performance-based awards. Performance-based awards in the above table assume the probable outcome of performance conditions is equal to the maximum potential value of the awards. For valuation and discussion of assumptions related to
stock and option awards, please refer to Note 11 to the Companys audited financial statements for the fiscal year ended December 31, 2016, included in the Companys Annual Report on Form
10-K
filed with the Securities and Exchange Commission on March 29, 2017.
|
(2)
|
This column represents bonus amounts earned under the Companys Management Incentive Plan for achievements relating to Company performance and is discussed in further detail on page 11 under the heading
Annual Incentive Bonus. A bonus of 6.0% was paid for 2015. Based on the attainment of Company performance goals, the payout, as a percentage of base salary, for 2016 incentive plan was 11.25% for the President and CEO, 9.0% for the Vice
President and Secretary-Treasurer and 7.5% for the Vice President and CFO.
|
(3)
|
The amounts in this column are detailed in the table titled All Other Compensation below.
|
13
The Company has entered into employment agreements with Mr. Milleson, Mr. McCarty and
Mrs. Chappell as described below in the Employment Agreements section. All compensation paid to the named executive officers is determined as described above in the Compensation Discussion and Analysis section.
All Other Compensation
Fiscal Year 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
401(k)
Company
Contributions
($)
|
|
|
Life
Insurance
Premiums
($) (1)
|
|
|
Restricted
Stock
Dividends
($) (2)
|
|
|
Total
($)
|
|
John R. Milleson
|
|
|
38,902
|
|
|
|
1,745
|
|
|
|
2,836
|
|
|
|
43,483
|
|
James W. McCarty, Jr.
|
|
|
31,200
|
|
|
|
1,261
|
|
|
|
2,474
|
|
|
|
34,935
|
|
Kathleen J. Chappell
|
|
|
21,120
|
|
|
|
946
|
|
|
|
2,002
|
|
|
|
24,068
|
|
(1)
|
The amounts in this column represent the annual premium of group term life insurance with a death benefit equal to three times annual compensation, which the Bank provides to all employees.
|
(2)
|
The amounts in this column represent dividends received during 2016 on unvested shares of restricted stock. Under the Companys Stock Incentive Plan, holders are entitled to dividends from the grant date through
the vesting period.
|
Employment Agreements
The Company entered into employment agreements with John R. Milleson and James W. McCarty, Jr., effective January 1, 2004. Both agreements
were amended and restated on December 31, 2008. The agreements automatically renew and are extended by one year on a daily basis. Both Mr. Millesons and Mr. McCartys agreements provide for the termination of employment by
the Company without cause and the resignation of the executive for good reason (as those terms are defined in the Agreement). Under either of these circumstances, the agreements will entitle Mr. Milleson and
Mr. McCarty to (i) monthly payments equal to
one-twelfth
of their annual base salary for the remainder of the then current term of the Agreement, (ii) a payment in cash equal to the greater of
their highest cash bonus in any of the three fiscal years before the year in which termination occurs and the amount of cash bonus that they were designated to receive under the Companys annual incentive plan, (iii) the continued benefit
to them for the remainder of the then current term of the Agreement of all employee benefit plans and programs or arrangements in which they were entitled to participate prior to their termination and (iv) reasonable
out-placement
services paid by the Company up to an amount that does not exceed 10% of annual base salary. Mr. Milleson and Mr. McCarty will not be entitled to any compensation or other benefits under the
agreement if employment is terminated for cause. If they are terminated without cause or resign for good reason within one year following a change of control (as defined in the Agreement), they will receive an amount equal to 299% of
their average total compensation over the most recent five calendar year period of their employment with the Company prior to the change in control (subject to reduction to the extent that such payment constitutes an excess parachute
payment under the Internal Revenue Code of 1986, as amended). The agreement also contains covenants relating to
non-competition
and
non-solicitation,
each for a
period of 12 months following the last day of employment, and covenants relating to confidentiality and nondisclosure.
An employment
agreement with Kathleen J. Chappell became effective April 17, 2013. Following its initial term, this agreement automatically extends by one year on December 31st of each year. Mrs. Chappells agreement provides for the termination of
employment by the Company without cause and the resignation of the executive for good reason (as those terms are defined in the Agreement). Under either of these circumstances, the agreement will entitle Mrs. Chappell to
(i) monthly payments equal to annual base salary for the remainder of the then current term of the Agreement, (ii) a payment in cash equal to the greater of her highest cash bonus in any of the three fiscal years before the year in which
termination occurs and the amount of cash bonus that she was designated to receive under the Companys annual incentive plan and (iii) the continued benefit to her for the remainder of the then current term of the Agreement of all employee
benefit plans and programs or arrangements in which she was entitled to participate prior to his termination. Mrs. Chappell will not be entitled to any compensation or other benefits under the agreement if employment is terminated for cause. If
Mrs. Chappell is terminated without cause or resigns for good reason within one year following a change of control (as defined in the Agreement), she will receive an amount equal to 299% of her average total compensation over the
most recent five calendar year period of her employment with the Company prior to the change in control (subject to reduction to the extent that such payment constitutes an excess parachute payment under the Internal Revenue Code of
1986, as amended). The agreement also contains covenants relating to
non-competition
and
non-solicitation,
each for a period of 12 months following the last day of
employment, and covenants relating to confidentiality and nondisclosure.
14
The Company has not entered into any other agreement or arrangement that provides for the payment
of severance or similar benefits to any of the named executive officers in connection with a termination of employment for any other reason.
15
Holdings of Stock Options and Stock Awards
The following table contains information concerning unexercised stock options and unvested stock awards at December 31, 2016 for each of
the named executive officers.
Outstanding Equity Awards
Fiscal
Year-End
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Grant Date
|
|
|
Number of Shares
or Units of Stock That
Have Not Vested
(#) (1)
|
|
|
Market Value
of Shares or
Units of Stock
That Have
Not Vested
($) (3)
|
|
|
Equity Incentive
Plan Awards:
Number of Unearned
Shares, Units or
Other Rights That
Have Not Vested
(#) (2)
|
|
|
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not
Vested
($) (3)
|
|
John R. Milleson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/11/2014
|
|
|
|
400
|
|
|
|
10,300
|
|
|
|
|
|
|
|
|
|
|
|
|
1/2/2015
|
|
|
|
800
|
|
|
|
20,600
|
|
|
|
|
|
|
|
|
|
|
|
|
1/2/2016
|
|
|
|
1,200
|
|
|
|
30,900
|
|
|
|
1,200
|
|
|
|
30,900
|
|
James W. McCarty, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/11/2014
|
|
|
|
284
|
|
|
|
7,313
|
|
|
|
|
|
|
|
|
|
|
|
|
1/2/2015
|
|
|
|
567
|
|
|
|
14,600
|
|
|
|
|
|
|
|
|
|
|
|
|
1/2/2016
|
|
|
|
850
|
|
|
|
21,888
|
|
|
|
850
|
|
|
|
21,888
|
|
Kathleen J. Chappell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/11/2014
|
|
|
|
250
|
|
|
|
6,438
|
|
|
|
|
|
|
|
|
|
|
|
|
1/2/2015
|
|
|
|
500
|
|
|
|
12,875
|
|
|
|
|
|
|
|
|
|
|
|
|
1/2/2016
|
|
|
|
750
|
|
|
|
19,313
|
|
|
|
500
|
|
|
|
12,875
|
|
(1)
|
These amounts are comprised of unvested shares of time based restricted stock at December 31, 2016. All but the shares granted on June 11, 2014 vest over a three year period whereby the executive receives
one-third
of the shares on the anniversary of the grant date if that executive is employed on the anniversary date. The shares granted on June 11, 2014 vest over a three year period beginning January 2,
2015.
|
(2)
|
These amounts are comprised of unvested shares of performance based restricted stock at December 31, 2016, which were issued January 4, 2016. These shares vest over a one year period whereby the executive may
receive fifty percent of the eligible performance based shares granted if the Company achieves an overall ranking of at least forty-seven in the Banks Street Partners, LLC Rank the Banks Report of seventy-nine Virginia banks for the fiscal year of
the vesting period. The executive may receive all the eligible performance based shares granted during 2016 if the Company achieves a rank of eight or better the Banks Street Partners, LLC Rank the Banks Report of seventy-nine Virginia banks. The
Companys overall 2016 ranking in the Banks Street Partners, LLC Rank the Banks Report of seventy-nine Virginia banks was 29, resulting in the executives receiving 82% of the eligible performance shares upon their vesting in January 2017.
|
(3)
|
These amounts represent the fair market value of the restricted stock awards on December 31, 2016. The closing price of the Companys common stock was $25.75 on that date.
|
16
Equity Compensation Plan
The following table set forth the information as of December 31, 2016, with respect to compensation plans under which shares of Common
Stock are authorized for issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of Securities to Be
Issued upon Exercise of
Outstanding Options,
Warrants and Rights
|
|
|
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
|
|
|
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(1)
|
|
Equity Compensation Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved by Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 Stock Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
460,582
|
|
|
|
|
|
Equity Compensation Plans Not
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved by Shareholders:
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
460,582
|
|
(1)
|
Amounts exclude any securities to be issued upon exercise of outstanding options, warrants and rights.
|
(2)
|
The Company does not have any equity compensation plans that have not been approved by shareholders.
|
Potential Payments upon Termination of Employment or
Change-in-Control
Potential Payments Upon
Change-in-Control
In the event of termination without cause or resignation for good reason within one year of a change in control, Mr. Millesons,
Mr. McCartys and Mrs. Chappells employment agreements with the Company provide for a
lump-sum
severance payment equal to 2.99 times their average total compensation over the most recent
five calendar year period of his and her employment with the Company prior to a change of control.
Additionally, under the term of the
Companys Stock Incentive Plan, accelerated vesting of both outstanding stock options and restricted stock grants will occur in the event of a change in control. Typically, the payments relating to stock options represent the value of the
unvested and accelerated stock options, calculated by multiplying the number of accelerated options by the difference between the exercise price and the closing price of the Companys Common Stock on the applicable date. At December 31,
2016, Mr. Milleson, Mr. McCarty and Mrs. Chappell had unvested stock grants totaling 3,600, 2,551 and 2,000 shares, respectively. For Mr. Milleson, the value of the accelerated vesting of his stock grants was $92,700 at
December 31, 2016. For Mr. McCarty and Mrs. Chappell, the value of the accelerated vesting of their stock grants was $65,688 and $51,500, respectively at December 31, 2016.
Potential Payments Upon Involuntary Termination Without Cause or Good Reason
In the event Mr. Milleson or Mr. McCarty is terminated without cause or resigns for good reason, their employment agreements with the
Company provide for monthly payments equal to
one-twelfth
of their annual base salary for the remainder of the then current term of the Agreement, a payment in cash equal to the greater of their highest cash
bonus in any of the three fiscal years before the year in which termination occurs and the amount of cash bonus that they were designated to receive under the Companys annual incentive plan, the continued benefit to them for the remainder of
the then current term of the Agreement of all employee benefit plans and programs or arrangements in which they were entitled to participate prior to his termination and reasonable
out-placement
services paid
by the Company up to an amount that does not exceed 10% of annual base salary. The amount of cash bonus received under the Companys 2016 annual incentive was $39,375, or 11.25% of his base salary, for Mr. Milleson. The amount of cash
bonus received under the Companys 2016 annual incentive was $21,600, or 9.0% of his base salary, for Mr. McCarty.
17
In the event Mrs. Chappell is terminated without cause or resigns for good reason, her
employment agreement with the Company provides for monthly payments equal to
one-twelfth
of her annual base salary for the remainder of the then current term of the Agreement, a payment in cash equal to the
greater of her highest cash bonus in any of the three fiscal years before the year in which termination occurs and the amount of cash bonus that she was designated to receive under the Companys annual incentive plan and the continued benefit
to her for the remainder of the then current term of the Agreement of all employee benefit plans and programs or arrangements in which she was entitled to participate prior to her termination. The amount of cash bonus received under the
Companys 2016 annual incentive was $14,400, or 7.5% of her base salary, for Mrs. Chappell.
The following table shows potential
payments to the Companys named executive officers under existing employment agreements, plans or arrangements for various events involving a change of control or termination of employment of each of our named executive officers, assuming a
December 31, 2016 termination date, and where applicable, using the closing price of our Common Stock of $25.75 at December 31, 2016.
Potential Payments Upon Termination of Employment or Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Benefit
|
|
Termination
Without Cause or
Resignation
For Good Reason
|
|
|
Termination
Without Cause or
Resignation
For Good Reason
After Change
in Control
|
|
|
Death
Benefits
|
|
|
Disability
Benefits
|
|
John R. Milleson
|
|
Post-Termination Compensation
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
29,167
|
|
|
$
|
|
|
President and Chief
|
|
Non-Equity Incentive Plan Compensation
|
|
|
63,300
|
|
|
|
63,300
|
|
|
|
|
|
|
|
|
|
Executive Officer
|
|
Early vesting of Restricted Stock
|
|
|
61,800
|
|
|
|
61,800
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare benefits continuation
|
|
|
10,697
|
|
|
|
10,697
|
|
|
|
|
|
|
|
|
|
|
|
401(k) contributions
|
|
|
38,902
|
|
|
|
38,902
|
|
|
|
|
|
|
|
|
|
|
|
Early vesting of Performance Stock
|
|
|
30,900
|
|
|
|
30,900
|
|
|
|
|
|
|
|
|
|
|
|
Early vesting of Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Out-placement
services (1)
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
Excess change in control payment over
amounts payable above
|
|
|
|
|
|
|
577,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value
|
|
$
|
590,599
|
|
|
$
|
1,168,461
|
|
|
$
|
29,167
|
|
|
$
|
|
|
|
|
|
|
|
|
James W. McCarty, Jr.
|
|
Post-Termination Compensation
|
|
$
|
240,000
|
|
|
$
|
240,000
|
|
|
$
|
20,000
|
|
|
$
|
|
|
Vice President and
|
|
Non-Equity
Incentive Plan Compensation
|
|
|
44,997
|
|
|
|
44,997
|
|
|
|
|
|
|
|
|
|
Secretary-Treasurer
|
|
Early vesting of Restricted Stock
|
|
|
43,801
|
|
|
|
43,801
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare benefits continuation
|
|
|
9,387
|
|
|
|
9,387
|
|
|
|
|
|
|
|
|
|
|
|
401(k) contributions
|
|
|
31,200
|
|
|
|
31,200
|
|
|
|
|
|
|
|
|
|
|
|
Early vesting of Performance Stock
|
|
|
21,888
|
|
|
|
21,888
|
|
|
|
|
|
|
|
|
|
|
|
Early vesting of Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Out-placement
services (1)
|
|
|
24,000
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
Excess change in control payment over
amounts payable above
|
|
|
|
|
|
|
457,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value
|
|
$
|
415,272
|
|
|
$
|
872,503
|
|
|
$
|
20,000
|
|
|
$
|
|
|
|
|
|
|
|
|
Kathleen J. Chappell
|
|
Post-Termination Compensation
|
|
$
|
192,000
|
|
|
$
|
192,000
|
|
|
$
|
16,000
|
|
|
$
|
|
|
Vice President and
|
|
Non-Equity
Incentive Plan Compensation
|
|
|
34,997
|
|
|
|
34,997
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
Early vesting of Restricted Stock
|
|
|
38,625
|
|
|
|
38,625
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare benefits continuation
|
|
|
9,898
|
|
|
|
9,898
|
|
|
|
|
|
|
|
|
|
|
|
401(k) contributions
|
|
|
21,120
|
|
|
|
21,120
|
|
|
|
|
|
|
|
|
|
|
|
Early vesting of Performance Stock
|
|
|
12,875
|
|
|
|
12,875
|
|
|
|
|
|
|
|
|
|
|
|
Early vesting of Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess change in control payment over
amounts payable above
|
|
|
|
|
|
|
298,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value
|
|
$
|
309,515
|
|
|
$
|
607,863
|
|
|
$
|
16,000
|
|
|
$
|
|
|
(1)
|
This amount has been estimated using the most conservative approach of 10% of annual base salary.
|
18
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Board of Directors has appointed the firm of Yount, Hyde & Barbour, P.C., as independent public accountants to audit the
consolidated financial statements of the Company for the fiscal year ending December 31, 2017. Yount, Hyde & Barbour, P.C., as independent public accountants, audited the consolidated financial statements of the Company for the fiscal
year ending December 31, 2016. Prior to appointment as independent public accountants, Yount, Hyde & Barbour, P.C. had provided internal audit services to the Company and the Bank since 2005. Representatives of Yount, Hyde &
Barbour, P.C., are expected to be present at the Annual Meeting, will have an opportunity to make a statement, if they desire to do so, and are expected to be available to respond to appropriate questions from shareholders.
Although our Bylaws do not require shareholder ratification or other approval of the retention of our independent registered public accounting
firm, as a matter of good corporate governance, the Board of Directors is requesting that the shareholders ratify the appointment of Yount, Hyde & Barbour, P.C., as our independent registered public accounting firm for the fiscal year
ending December 31, 2017. A majority of the votes cast by the holders of our common stock is required for the ratification of the appointment of Yount, Hyde & Barbour, P.C., as our independent registered public accounting firm.
Abstentions and broker
non-votes
will not be considered votes cast and will have no effect on the outcome of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE TO RATIFY THE APPOINTMENT OF YOUNT, HYDE & BARBOUR, P.C., AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2017.
AUDIT INFORMATION
Audit Committee Report
The Audit
Committees Report to the Shareholders, which follows, was approved and adopted by the Committee on March 16, 2017.
Management
is responsible for the establishment and maintenance of the Companys internal controls over financial reporting, assessing the effectiveness of those internal controls over financial reporting, maintaining the financial reporting process to
ensure the accuracy and integrity of the Companys consolidated financial statements, and compliance with laws and regulations and ethical business standards. The independent registered accounting firm is responsible for performing an
independent audit of the Companys consolidated financial statements in accordance with generally accepted auditing standards and the Companys internal controls over financial reporting, expressing an opinion as to the conformity of the
Companys consolidated financial statements with U.S. generally accepted accounting principles.
The Audit Committee is responsible
for the appointment, compensation, retention and oversight of the work of the independent registered accounting firm engaged for the purpose of issuing an audit report and performing other audit, review, or attestation services for the Company. The
Audit Committee also monitors and oversees the accounting and financial reporting processes of the Company on behalf of the Board of Directors.
In this context, the Audit Committee has met and held discussions with management and Yount, Hyde & Barbour, P.C., the Companys
independent registered public accounting firm. Management represented to the Audit Committee that the Companys consolidated financial statements for the year ended December 31, 2016 were prepared in accordance with U.S. generally accepted
accounting principles. The Audit Committee has reviewed and discussed these consolidated financial statements with management and Yount, Hyde & Barbour, P.C., including the scope of the independent registered public accounting firms
responsibilities, critical accounting policies, and practices used and significant reporting issues and judgments made in connection with the preparation of such financial statements.
The Audit Committee also discussed with the independent registered public accounting firm the matters required to be discussed by Public
Company Accounting Oversight Board (PCAOB) Auditing Standard AS 1301, Communication with Audit Committees, and Rule
2-07
of Regulation
S-X
promulgated by the
SEC, as modified or supplemented.
In addition, the Audit Committee discussed with the independent registered public accounting firm the
auditors independence from the Company and its management, and the independent registered public accounting firm provided to the Audit Committee the written disclosures and letter required by PCAOB Rule 3526, Communication with Audit
Committees Regarding Independence.
The Audit Committee also discussed with the Companys internal auditor and the independent
registered public accounting firm the overall scope and plans for their respective audits. The Audit Committee met with the internal auditor and the independent registered public
19
accounting firm, with and without management in attendance, to discuss the results of their examinations, the evaluations of the internal controls of the Company, and the overall quality of the
financial reporting of the Company. This included the Audit Committees monitoring the progress of remediation of noted control deficiencies, until resolved.
Based on such reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be
included in the Companys Annual Report on Form
10-K
for the year ended December 31, 2016, which was filed with the Securities and Exchange Commission on March 29, 2017.
Audit Committee
James R.
Wilkins, Jr., Chairman
Scott M. Hamberger
Robert E. Sevila
Robert W.
Smalley, Jr.
Randall G. Vinson
Fees of
the Independent Registered Public Accounting Firm
Audit Fees.
The aggregate fees billed by Yount, Hyde & Barbour, P.C.
for professional services rendered for the audit of the Companys annual financial statements for the fiscal years ended December 31, 2016 and 2015 and for the review of the financial statements included in the Quarterly Reports on Form
10-Q
for those fiscal years were $71,000 and $69,000, respectively.
Audit Related Fees.
The
aggregate fees billed by Yount, Hyde & Barbour, P.C. for professional services for assurance and related services that are reasonably related to the performance of the audit or review of the Companys financial statements and not
reported under the heading Audit Fees above for the fiscal years ended December 31, 2016 and 2015 were $8,000 and zero, respectively. Audit related fees included consultation concerning financial accounting and reporting standards
and employee benefit plan audits.
Tax Fees.
The aggregate fees billed by Yount, Hyde & Barbour, P.C. for professional
services related to taxes during the fiscal years ended December 31, 2015 and 2015 were $8,200 and $12,273, respectively.
All
Other Fees.
The aggregate other fees billed by Yount, Hyde & Barbour, P.C. during the fiscal years ended December 31, 2016 and 2015 were zero.
Audit Committee
Pre-Approval
Policy
All audit and audit related services performed by Yount, Hyde & Barbour, P.C. were
pre-approved
in accordance with the Audit Committees Charter. The Audit Committee, or a designated member of the committee, must
pre-approve
all audit (including
audit related) and
non-audit
services performed by the independent registered public accounting firm in order to ensure that the performance of such services does not impair the registered public accounting
firms independence. Any interim
pre-approval
of permitted
non-audit
services is required to be reported to the Audit Committee at its next scheduled meeting. The
Audit Committee does not delegate its responsibilities to
pre-approve
services performed by the independent registered public accounting firm to management.
20
SHAREHOLDER PROPOSALS FOR 2018 ANNUAL MEETING
Under the regulations of the Securities and Exchange Commission, any shareholder desiring to make a proposal to be acted upon at the 2017
Annual Meeting must cause such proposal to be received, in proper form, by the Secretary of the Company, whose address is P.O. Box 391, Berryville, Virginia 22611, no later than December 15, 2017, in order for the proposal to be considered for
inclusion in the Companys Proxy Statement for that meeting. The Company anticipates holding the 2018 Annual Meeting on May 15, 2018.
The Companys Bylaws also prescribe the procedure that a shareholder must follow to nominate Directors or to bring other business before
shareholders meetings outside of the proxy statement process. For a shareholder to nominate a candidate for Director or to bring other business before a meeting, written notice must be received by the Company not less than sixty (60) days
and not more than ninety (90) days prior to the date of the 2018 Annual Meeting. The notice must describe various matters regarding the nominee and the shareholder giving the notice. For a shareholder to bring other business before the 2018
Annual Meeting, notice must be received by the Secretary of the Company not less than sixty (60) days and not more than ninety (90) days prior to the date of the 2018 Annual Meeting. The notice must include a description of the proposed
business, the reasons therefore, and other specified matters. Any shareholder may obtain a copy of the Companys Bylaws, without charge, upon written request to the Secretary of the Company. Based on an anticipated meeting date of May 15,
2018 for the 2018 Annual Meeting, the Company must receive any notice of nomination or other business no later than March 16, 2018 and no earlier than February 14, 2018.
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Companys 2016 Annual Report to Shareholders (the Annual Report), which includes a copy of the Companys Annual
Report on Form
10-K
for the fiscal year ended December 31, 2016 (excluding exhibits) as filed with the Securities and Exchange Commission, is being mailed to Shareholders with this Proxy Statement. A copy
of the Annual Report may also be obtained without charge by writing to James W. McCarty, Jr., Secretary of the Company, whose address is P.O. Box 391, Berryville, Virginia 22611. The Annual Report is not part of the proxy solicitation materials.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the Company is not aware of any matters to be presented for consideration at
the Annual Meeting other than as set forth herein. If any other matters properly come before the Annual Meeting, or any adjournment thereof, the person or persons voting the proxies will vote them in accordance with their best judgment.
|
By Order of the Board of Directors,
|
|
|
James W. McCarty, Jr.
|
Vice President and Secretary-Treasurer
|
April 14, 2017
21
ANNUAL MEETING OF SHAREHOLDERS OF
EAGLE FINANCIAL
SERVICES, INC.
May 16, 2017
PROXY VOTING INSTRUCTIONS
INTERNET - Access www.voteproxy.com and follow the
on-screen
instructions or scan the QR code with your smartphone. Have your
proxy card available when you access the web page.
TELEPHONE - Call toll-free
1-800-PROXIES
(1-800-776-9437)
in the United
States or
1-718-921-8500
from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card
available when you call.
Vote online/phone until 11:59 PM EST the day before the meeting.
MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible.
IN
PERSON - You may vote your shares in person by attending the Annual Meeting.
GO GREEN -
e-Consent
makes it easy to go
paperless. With
e-Consent,
you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.amstock.com to enjoy
online access.
COMPANY NUMBER
ACCOUNT NUMBER
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 16, 2017:
The Notice and Proxy Statement and Annual Report to Shareholders are available at http://www.bankofclarke.com/2017annualmeeting.html
Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet.
20430000000000000000 8 051617
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF DIRECTORS, AND FOR PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE X
1. Election of Directors: To elect four Class II Directors for the terms indicated in the Proxy Statement, as instructed below.
FOR ALL NOMINEES
WITHHOLD AUTHORITY FOR ALL NOMINEES
FOR ALL EXCEPT (See instruction below)
NOMINEES:
THOMAS T. BYRD Class II
DOUGLAS C. RINKER Class II
ROBERT E. SEVILA Class II
JOHN D. STOKELY, JR. Class II
FOR AGAINST ABSTAIN
2. The ratification of Yount, Hyde & Barbour, P.C. as the
independent registered public accounting firm for the year ending December 31, 2017.
3. To vote in accordance with their best judgment on such other business,
if any, that may properly come before the meeting.
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark FOR ALL EXCEPT and
fill in the circle next to each nominee you wish to withhold, as shown here:
To change the address on your account, please check the box at right and indicate your
new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.
Signature of
Shareholder Date: Signature of Shareholder Date:
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder
should sign. When signing are executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is
a partnership, please sign in partnership name by authorized person.
0
EAGLE FINANCIAL SERVICES, INC.
Proxy for 2017 Annual Meeting of Shareholders Solicited on behalf of the Board of Directors
The undersigned hereby appoints Messrs. Robert W. Smalley, Jr., Randall G. Vinson, and James R. Wilkins, Jr. or any one of them, as proxies, with the power of
substitution in each, to act for the undersigned, as designated below, with respect to all of the Companys Common Stock held of record by the undersigned on April 3, 2017, at the Annual Meeting of Shareholders to be held at the Barns of
Rosehill, 95 Chalmers Court, Berryville, VA on Tuesday, May 16, 2017 at 5:30 p.m., and at any adjournment thereof. This proxy, when properly executed, will be voted in the manner directed by the undersigned shareholder. If no direction is made,
this proxy will be voted FOR the nominees listed under Election of Directors and FOR Proposal Two.
(Continued and to be signed on the reverse side)
1.1 14475
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