UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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C&F FINANCIAL CORPORATION
(Name of registrantRegistrant as specified in its charter)
Specified In Its Charter)
(Name of person(s) filing proxy statement,Person(s) Filing Proxy Statement, if other than the registrant)Other Than The Registrant)
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C&F Financial Corporation 802 Main Street P.O. Box 391 West Point, Virginia 23181 |
Dear Fellow Shareholders:
You are cordially invited to attend the 20112014 Annual Meeting of Shareholders of C&F Financial Corporation, the holding company for Citizens and Farmers Bank and for Central Virginia Bankshares, Inc., which is the holding company for Central Virginia Bank. The meeting will be held on Tuesday, April 19, 2011,15, 2014, at 3:30 p.m. at theDoubletree by Hilton Williamsburg, Marriott, 50 Kingsmill Road, Williamsburg, Virginia. The accompanying Notice and Proxy Statement describe the matters to be presented at the meeting. Enclosed is our Annual Report to Shareholders that will be reviewed at the Annual Meeting.
Please complete, sign, date, and return the enclosed proxy card as soon as possible. Whether or not you will be able to attend the Annual Meeting, it is important that your shares be represented and your vote recorded. If you decide to attend the Annual Meeting in person, you can revoke your proxy at any time before it is voted at the Annual Meeting.Meeting (provided that, if you hold your shares through a bank, broker or other holder of record and you wish to vote in person, you must obtain a legal proxy or broker’s proxy card and bring it to the Annual Meeting as proof of your authority to vote the shares).
We appreciate your continuing loyalty and support of C&F Financial Corporation.
Sincerely, |
Larry G. Dillon |
Chairman, President & |
Chief Executive Officer |
West Point, Virginia
March 15, 201117, 2014
C&F FINANCIAL CORPORATION
802 Main Street
P.O. Box 391
West Point, Virginia 23181
NOTICE OF 20112014 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 19, 201115, 2014
The 20112014 Annual Meeting of Shareholders of C&F Financial Corporation (the “Corporation”) will be held at theDoubletree by Hilton Williamsburg, Marriott, 50 Kingsmill Road, Williamsburg, Virginia, on Tuesday, April 19, 2011,15, 2014, at 3:30 p.m. for the following purposes:
1. | To elect two Class III directors to the Board of Directors of the Corporation to serve until the |
2. | To approve, in an advisory, non-binding vote, the compensation of the Corporation’s named executive officers disclosed in the Proxy Statement. |
3. | To ratify the appointment of Yount, Hyde & Barbour, P.C. as the Corporation’s independent registered public accountant for the fiscal year ending December 31, |
4. | To transact such other business as may properly come before the meeting or any adjournment thereof. |
Shareholders of record at the close of business on March 1, 2011,3, 2014, are entitled to notice of and to vote at the Annual Meeting or any adjournment thereof.
By Order of the Board of Directors, |
Thomas F. Cherry |
Secretary |
March 15, 201117, 2014
IMPORTANT NOTICE
Please complete, sign, date, and return the enclosed proxy card in the accompanying postage paid envelope so that your shares will be represented at the meeting. Shareholders attendingIf you decide to attend the meeting may personallyAnnual Meeting in person, you can revoke your proxy at any time before it is voted at the Annual Meeting (provided that, if you hold your shares through a bank, broker or other holder of record and you wish to vote on all matters that are considered, in which event their signed proxies will be revoked.person, you must obtain a legal proxy or broker’s proxy card and bring it to the Annual Meeting as proof of your authority to vote the shares).
C&F FINANCIAL CORPORATION
802 Main Street
P.O. Box 391
West Point, Virginia 23181
PROXY STATEMENT
20112014 ANNUAL MEETING OF SHAREHOLDERS
April 19, 201115, 2014
The following information is furnished in connection with the solicitation by and on behalf of the Board of Directors (the “Board”) of the enclosed proxy to be used at the 20112014 Annual Meeting of Shareholders (the “Annual Meeting”) of C&F Financial Corporation (the “Corporation”) to be held Tuesday, April 19, 2011,15, 2014, at 3:30 p.m. at theDoubletree by Hilton Williamsburg, Marriott, 50 Kingsmill Road, Williamsburg, Virginia. The approximate mailing date of this Proxy Statement and accompanying proxy is March 15, 2011.17, 2014.
Important Notice Regarding the Availability of Proxy MaterialMaterials for the Shareholder Meeting to Be Held on April 19, 201115, 2014
The Notice of 20112014 Annual Meeting of Shareholders, this Proxy Statement, form of proxy and the 20102013 Annual Report to Shareholders are available on the internet at the following website:www.cffc.com/2011proxy2014proxy.
Revocation and Voting of Proxies
Execution of a proxy will not affect a shareholder’s right to attend the Annual Meeting and to vote in person. Any shareholder who has executed and returned a proxy may revoke it by attending the Annual Meeting and requesting to vote in person. A shareholder may also revoke his proxy at any time before it is exercised by filing a written notice with the Corporation or by submitting a proxy bearing a later date. Proxies will extend to, and will be voted at, any properly adjourned session of the Annual Meeting. If a shareholder specifies how the proxy is to be voted with respect to any proposals for which a choice is provided, the proxy will be voted in accordance with such specifications. If a shareholder returns a signed proxy card but fails to specify how to vote his or her shares with respect to Proposals One, Two or Three, set forth in the accompanying Notice and further described herein, the proxy will be votedFORthe director nominees named in Proposal One,FOR Proposal Two to provide advisory, non-binding approval of the compensation of the Corporation’s named executive officers, andFOR Proposal Three to ratify the appointment of Yount, Hyde & Barbour, P.C. (“YHB”) as the Corporation’s independent registered public accountant for the fiscal year ending December 31, 2011.2014.
If you hold your shares through a bank, broker or other holder of record, and you plan to vote in person at the Annual Meeting, you should contact your bank, broker or agent to obtain a legal proxy or broker’s proxy card and bring it to the meeting in orderas proof of your authority to vote in person.the shares. If you hold your shares through a bank, broker or other holder of record, you should contact your bank, broker or agent to revoke your proxy or change your vote.
Directions to Annual Meeting
To obtain directions to attend the Annual Meeting and vote in person, please contact the Secretary of the Corporation at (757) 741-2200.
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Voting Rights of Shareholders
Only those common shareholders of record at the close of business on March 1, 2011,3, 2014, are entitled to notice of and to vote at the Annual Meeting, or any adjournments thereof. The number of shares of Corporation common stock outstanding and entitled to vote at the Annual Meeting is 3,125,416.3,403,862. The Corporation has no other class of voting stock outstanding. A majority of the votes entitled to be cast, represented in person or by proxy, will constitute a quorum for the transaction of business.
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Each share of Corporation common stock entitles the record holder thereof to one vote for each matter to be voted upon at the Annual Meeting. Shares for which the holder has elected to abstain or to withhold the proxies’ authority to vote (including broker non-votes) on a matter will count toward a quorum, but will not be included in determining the number of votes cast with respect to such matter.
With regard to the election of directors, votes may be cast in favor or withheld. If a quorum is present, the two nominees receiving the greatest number of affirmative votes cast at the Annual Meeting, even though less than a majority, will be elected directors; therefore, votes withheld and broker non-votes will have no effect.
For all other proposals, votes may be cast in favor or against, or shareholders may abstain from voting. Approval of anythese other matterproposals (including the non-binding advisory vote onto approve executive compensation and the ratification of the Corporation’s independent registered public accountant) requires an affirmative vote of a majority of the shares cast on the matter. Thus, although abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum, they are generally not counted for purposes of determining whether such a matter has been approved, and therefore will have no effect.
Routine and Non-Routine Proposals
Applicable rules determine whether proposals presented at shareholder meetings are routine or non-routine. If a proposal is routine, a broker or other entity holding shares for an owner in street name generally may vote on the proposal without receiving voting instructions from the owner. If a proposal is non-routine, the broker or other entity generally may vote on the proposal only if the owner has provided voting instructions. A “broker non-vote” occurs when a broker or other entity returns a signed proxy card but does not vote shares on a particular proposal because the proposal is not a routine matter and the broker or other entity has not received voting instructions from the beneficial owner of the shares. The ratification of YHB as the Corporation’s independent registered public accountant for the fiscal year ending December 31, 20112014 is considered a routine matter, while the election of directors and the non-binding advisory vote onto approve executive compensation are considered to be non-routine matters.
Solicitation of Proxies
The cost of solicitation of proxies will be borne by the Corporation. Solicitations will be made only by the use of the mail, except that officers and regular employees of the Corporation and Citizens and Farmers Bank (the “Bank”) may make solicitations of proxies in person, by telephone or by mail, acting without compensation other than their regular compensation. We anticipate that brokerage houses and other nominees, custodians and fiduciaries will be requested to forward the proxy soliciting material to the beneficial owners of the stock held of record by such persons, and the Corporation will reimburse them for their charges and expenses in this connection. In addition, we may engage a proxy solicitor to assist in the solicitation of proxies to which we would pay customary fees and expenses.
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Security Ownership of Certain Beneficial Owners and Management
The following table shows as of March 1, 2011,3, 2014, the beneficial ownership of the Corporation’s common stock of each director and named executive officer and of all directors and executive officers of the Corporation as a group.
Name | Amount and Nature of Beneficial Ownership(1) | Percent of Class | Amount and Nature of Beneficial Ownership(1) | Percent of Class | ||||||||||||
J. P. Causey Jr. | 47,513 | (2) | 1.5 | % | 45,563 | (2) | 1.3 | % | ||||||||
Barry R. Chernack | 14,766 | (2) | * | 16,116 | (2) | * | ||||||||||
Larry G. Dillon | 75,993 | (3) | 2.4 | % | 66,768 | (3) | 1.9 | % | ||||||||
Audrey D. Holmes | 12,550 | (2) | * | 13,400 | (2) | * | ||||||||||
James H. Hudson III | 16,057 | (2) | * | 15,510 | (2) | * | ||||||||||
Joshua H. Lawson | 42,586 | (2) | 1.4 | % | 39,758 | (2) | 1.2 | % | ||||||||
William E. O’Connell Jr. | 15,633 | (2) | * | |||||||||||||
C. Elis Olsson | 13,745 | (2) | * | 14,595 | (2) | * | ||||||||||
Paul C. Robinson | 16,629 | (2) | * | 15,888 | (2) | * | ||||||||||
Thomas F. Cherry | 38,834 | (4) | 1.2 | % | �� | 41,194 | (4) | 1.2 | % | |||||||
Bryan E. McKernon | 34,595 | (5) | 1.1 | % | 25,095 | (5) | * | |||||||||
All Directors and Executive Officers as a group (11 persons) | 328,901 | 10.0 | % | |||||||||||||
All Directors and Executive Officers as a group (12 persons)(6) | 305,087 | 8.8 | % |
* | Represents less than 1% of the total outstanding shares of the Corporation’s common stock. |
(1) | 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 (“Exchange Act”) under which, in general, a person is deemed to be the beneficial owner of a security if he or she 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 or she has the right to acquire beneficial ownership of the security within 60 days (“presently exercisable”). Except as otherwise |
(2) | Includes |
(3) | Includes |
(4) | Includes |
(5) | Includes |
(6) | Includes shares beneficially owned by S. Dustin Crone and John A. Seaman III, who became executive officers of the Corporation in February 2014, including 10,850 shares of stock restricted as to sale or other transfer. |
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As of March 1, 2011,3, 2014, there are no shareholders known to the Corporation to be the beneficial owners of more than 5% of the Corporation’s common stock, par value $1.00 per share, which is the Corporation’s only voting security outstanding.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Corporation’s Board is divided into three classes (I, II and III) of directors. The term of office for Class III directors will expire at the Annual Meeting. The two persons named below, each of whom currently serves as a director of the Corporation, will be nominated to serve as Class III directors. If elected, the Class III nominees will serve until the 20142017 Annual Meeting of Shareholders. The two persons named in the proxy card will vote for the election of the nominees named below unless authority is withheld. The Corporation’s Board believes that the nominees will be available and able to serve as directors, but if any of these persons should not be available or able to serve, the proxies may exercise discretionary authority to vote for a substitute proposed by the Nominating Committee. After 14 years of distinguished service to the Corporation’s Board, William E. O’Connell, Jr. has reached the Corporation’s mandatory retirement age for directors and is not eligible for re-election at the Annual Meeting. Mr. O’Connell will retire from the Board at the Annual Meeting. In connection with Mr. O’Connell’s retirement, the number of directors serving on the Corporation’s Board will be reduced from nine to eight, effective on the date of the Annual Meeting.
Certain information concerning the nominees for election at the Annual Meeting as Class III directors is set forth below, as well as certain information about the Class I and II directors, who will continue in office until the 20122015 and 20132016 Annual Meetings of Shareholders, respectively, including the qualifications, skills and experience that the Board believes make the director or director nominee a good fit for service on the Board.
Class III Directors (Nominees) | Principal Occupation During Past Five Years and Qualifications, Skills and Experience | |
(To Serve Until the Annual Meeting) | ||
Director since 1984(1)(2) Age | In addition to being a self-employed attorney-at-law, Mr. Causey is Plan Administrator for Canal Corporation, formerly Chesapeake Corporation. Mr. Causey previously served as executive vice president, secretary and general counsel for Canal Corporation, formerly | |
Barry R. Chernack Director since 2002 Age | Prior to his retirement in December 1999, Mr. Chernack was the managing partner of PricewaterhouseCoopers LLP’s southern Virginia practice. Mr. Chernack specialized in audits of both public and non-public companies, including those operating in the financial services industry, such as banks, credit unions and broker dealers. Mr. Chernack has significant experience with the preparation of SEC filings, including periodic and annual reports and registration statements covering debt and equity offerings. Mr. Chernack’s |
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background enables him to provide significant contributions to Board deliberations regarding the financial health of the Corporation and its compliance requirements as an SEC registrant. Mr. Chernack qualifies as an “audit committee financial expert” under SEC guidelines. Mr. Chernack is the Audit Committee Chairman and is a member of the Compensation and Nominating Committees. |
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Class I Directors | Principal Occupation During Past Five Years and Qualifications, Skills and Experience | |
(Serving Until the Annual Meeting) | ||
Larry G. Dillon Director since 1989(1) Age | Mr. Dillon is the Chairman, President and Chief Executive Officer of the Corporation and the Bank. Mr. Dillon has worked for the Corporation and the Bank for over | |
James H. Hudson III Director since 1997 Age | Mr. Hudson is an attorney-at-law for Hudson & Bondurant, P.C. Mr. Hudson has practiced law for over | |
C. Elis Olsson Director since 2007 Age | Mr. Olsson is vice president and director of operations for Martinair, Inc. (“Martinair”), an aircraft charter and management company. Mr. Olsson has been with Martinair since May 2000. Mr. Olsson, as a vice president of Martinair, in addition to his operational duties, has responsibility for the review of financial information of Martinair. Prior to Martinair, Mr. Olsson worked for a Fortune 500 company where he held numerous roles including regional sales manager and vice president of operations. He also served on the Board of Directors for the Fortune 500 company. Mr. Olsson is actively involved in various community organizations in the markets the Bank serves. Mr. Olsson’s background brings valuable operational and financial expertise to the Board. Mr. Olsson is a member of the Audit and Nominating Committees. |
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Class II Directors | Principal Occupation During Past Five Years and Qualifications, Skills and Experience | |
(Serving Until the Annual Meeting) | ||
Audrey D. Holmes Director since 2007 Age | Ms. Holmes owns and operates her own legal practice, Audrey D. Holmes, Attorney-at-Law. Ms. Holmes conducts business in most of the communities served by the Bank. Ms. Holmes’ business experience as a sole practitioner is enhanced by her membership in a number of professional, civic and religious organizations. As a small business owner, Ms. Holmes understands many of the challenges faced by the Bank’s customers. Ms. Holmes is a member of the Nominating Committee. | |
Joshua H. Lawson Director since 2000 Age | Mr. Lawson is the president of Thrift Insurance Corporation, an independent insurance agency, and Thrift Realty, LLC, a real estate brokerage firm. Mr. Lawson has extensive knowledge of the real estate and insurance business gained over more than 40 years in the business. Managing a small business in the Bank’s area of operations, Mr. Lawson is able to identify the needs of the Bank’s customers and potential customers. Mr. Lawson is a member of the Nominating Committee. | |
Paul C. Robinson Director since 2000 Age | Mr. Robinson is the president of Francisco, Robinson & Associates, Inc., a real estate brokerage firm. Mr. Robinson has gained practical business experience through over |
(1) | If prior to |
(2) | Mr. Causey |
The Board of Directors of the Bank consists of the eight current members of the Corporation’s Board listed above and Bryan E. McKernon and William E. O’Connell, Jr., who will retire from the Bank’sJames T. Napier. The Board of Directors atof Central Virginia Bankshares, Inc. (“CVBK”) consists of the Annual Meeting.eight current members of the Corporation’s Board listed above, and the Board of Directors of Central Virginia Bank (“CVB”) consists of the eight current members of the Corporation’s Board listed above and James T. Napier.
The Board of Directors is not aware of any family relationship among any director or executive officer; nor is the Board of Directors aware of any involvement of any director or executive officer, currently or in the past ten years, in any legal proceedings that would be material to an evaluation of the ability or integrity of any director or executive officer. None of the directors serves, nor in the past five years has any director served, as a director of any other public company with a class of securities registered pursuant to Section 12 of the Exchange
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Act.Unless authority for the above nominees is withheld, the shares represented by the enclosed proxy card, if executed and returned, will be voted FOR the election of the nominees proposed by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE DIRECTORS NOMINATED TO SERVE AS CLASS III DIRECTORS.
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Board Leadership Structure and Risk Oversight
The Corporation has been operating for over 8085 years using the traditional U.S. board leadership structure, under which our President and Chief Executive Officer (“CEO”) also serves as Chairman of the Board of Directors. Over this period, there have been three persons who have served as CEO. Each CEO has also held the position of Chairman of the Board throughout his tenure as CEO. We believe that the Corporation, like many U.S. companies, has been well-served by this leadership structure. Having one person serve as both CEO and Chairman of the Board demonstrates for our employees, suppliers, customers and other shareholders that the Corporation is under strong leadership, with a single person setting the tone and having primary responsibility for managing our operations. Having a single leader for both the Corporation and the Board of Directors eliminates the potential for confusion or duplication of efforts, and provides clear leadership for our Corporation. We believe having one person serveour current leadership structure, under which our President and CEO serves as CEO and Chairman of the Board is bestand our Board committees are chaired and comprised by independent directors, remains the optimal Board leadership structure for our Corporation and our shareholders at this time.
While the Board has not formally designated a lead independent director, Mr. Hudson presides over executive sessions of the Board, which are attended solely by independent directors. Mr. Hudson also refers to the appropriate Board committee any issue brought to his attention by shareholders, directors and others. Mr. Hudson is the primary communicator between the directors and the CEO, who is directly responsible to the Board in its entirety, although individual Board members may communicate directly with the CEO and vice versa and may freely discuss their views with other Board members at any time.
The Corporation 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 Corporation, as well as legal and compliance matters and risk management. The Audit Committee Charter provides that the Audit Committee is responsible for overseeing the internal controls of the Corporation along with its adherence withto compliance and regulatory requirements. On at least a quarterly basis, the Corporation’s Director of Internal Audit provides a comprehensive report to the Audit Committee regarding the Corporation’s key risks, including operational, financial, credit quality and other risks. While the Audit Committee has primary responsibility for overseeing risk management, our entire Board of Directors is actively involved in overseeing this function for the Corporation. For example, on a routine basis, the Board receives a report from the Audit Committee Chairman and discusses risks that the Corporation is facing. The full Board also engages in periodic discussions with the CEO, Chief Financial Officer (“CFO”), and other corporate officers as the Board may deem appropriate. In addition to the roles performed by the Audit Committee, the Compensation Committee considers the risks that may arise through our compensation programs. The Compensation Committee Chairman also reports to the Board on a routine basis. The Corporation believes that its leadership structure promotes effective Board oversight of risk management because, while there is a single leader ultimately accountable for the management of the Corporation’s enterprise risks, a Board committee comprised solely of independent directors actively monitors the Corporation’s risk management, and the committee chairmen, each of whom is an independent director, are provided with the information necessary to evaluate the specific risks relevant to each committee’s areas of accountability.
On an annual basis, the Nominating Committee will evaluateevaluates our Board leadership structure to ensure that it remains the optimal structure for our Corporation and our shareholders. We believe our current leadership structure, under which our President and CEO serves as Chairman of the Board and our Board committees are chaired and comprised by independent directors, remains the optimal Board leadership structure for our Corporation and our shareholders at this time.
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Director Independence
The Board has determined that all non-employee directors, who comprise a majority of the Corporation’s Board, satisfy the independence requirements of the NASDAQ Stock Market (“NASDAQ”) listing standards. The Board has affirmatively determined that directors Causey, Chernack, Holmes, Hudson, Lawson, O’Connell, Olsson and Robinson are independent within the meaning of the NASDAQ listing standards. In conjunction with this determination, the Board considered the Corporation’s relationships with Mr. Hudson and Mr. Lawson. The firm of Hudson & Bondurant, P.C., of which Mr. Hudson is a partner, was retained to perform legal services for the Corporation during fiscal year 2010years 2011, 2012 and 2013 and in 2011.2014. Thrift Insurance Corporation, of which
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Mr. Lawson is president, was the Corporation’s insurance agencyagent during fiscal year 2010years 2011, 2012 and 2013 and in 2011.2014. In each case, however, the Board determined that the relationship did not interfere with the director’s ability to exercise independent judgment as a director of the Corporation. During 2010,2013, the Board of Directors held sixthree regularly-scheduled executive session meetings attended solely by its independent directors and over which Mr. Hudson presided.
Board Committees and Attendance
During 2010,2013, there were ten15 meetings of the Board of Directors of the Corporation. Each director attended at least 75% of all meetings of the Board and Board committees on which he or she served.
The Corporation has not adopted a formal policy on Board members’ attendance at its annual meeting of shareholders, although all Board members are encouraged to attend and historically most have done so. All Board members attended the Corporation’s 20102013 Annual Meeting of Shareholders.
The Board has three standing committees which are the Audit, Compensation and Nominating Committees. Each of these committees is comprised solely of independent directors, with each of the threeAudit and Compensation committees each having a separate chair, although thechair. The Nominating Committee does not currently have a Chairman. The duties of the committees are set forth in their respective committee charters. The chair of each of these committees is responsible for directing the work of the committee in fulfilling its responsibilities. In addition to these standing committees, all of the directors participate in the Corporation’s annual strategic planning process.
Audit Committee
Current members of the Corporation’s Audit Committee are Messrs. Causey, Chernack O’Connell and Olsson, each of whom is “independent” for this purpose according to NASDAQ listing standards and the regulations of the SEC. The Audit Committee engages the Corporation’s independent registered public accountant, approves the scope of the independent registered public accountant’s audit, reviews the reports of examination by the regulatory agencies, the independent registered public accountant and the internal auditor, and issues reportsregularly provides updates to the Board of Directors periodically.as to the Audit Committee’s activities. The Board has adopted a charter for the Audit Committee which is posted on the Corporation’s website atwww.cffc.com under “About C&F/C&F Financial Corporation/“Investor Relations/Corporate Governance.” The Audit Committee met ten12 times during 2010.2013. See “Report of the Audit Committee” on pages 3833 and 39.34.
Compensation Committee
Current members of the Corporation’s Compensation Committee are Messrs. Causey, Chernack and Hudson, each of whomHudson. Each member is “independent” for this purpose according to current NASDAQ listing standards.standards, as amended in December 2013, and which become effective for the Corporation as of April 15, 2014. The Corporation’s Board has made an affirmative determination that no member of the Compensation Committee has a relationship with the Corporation that would impair his independence. In conjunction with this determination, the Board considered the Corporation’s relationship with Mr. Hudson and all factors relevant to whether he has a relationship with the Corporation that would impair his ability to make independent judgments about the Corporation’s executive compensation. The Compensation Committee’s responsibilities include, among other duties, the responsibility to recommendCommittee recommends the level of compensation to be paid to the executive officers of the Corporation and certain key officers of the Bank and its subsidiaries. It alsosubsidiaries, administers all incentive and equity compensation plans for the benefit of such officers, directors and employees eligible to participate in such plans.plans, and regularly provides updates to the Board of Directors as to the Compensation Committee’s activities. The Board has adopted a charter for the Compensation Committee which is posted on the Corporation’s website atwww.cffc.com under “About C&F/C&F Financial Corporation/“Investor Relations/Corporate Governance.” The Compensation Committee met ten times during 2010.2013. See “Compensation Committee Report” on pages 28 through 32.page 27.
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Nominating Committee
Current members of the Corporation’s Nominating Committee are Ms. Holmes and Messrs. Causey, Chernack, Hudson, Lawson, O’Connell, Olsson and Robinson, each of whom is “independent” for this purpose according to NASDAQ listing standards. The Nominating Committee was formed in December 2009. Prior to this date, the independent members of the Board of Directors of the Corporation acted as the Nominating Committee. The Nominating Committee’s primary responsibility is to identify individuals who have the experience, qualifications, attributes and/or skills to serve on the Board of Directors and to recommend to the Board of Directors for selection, candidates for all directorships to be filled by the Board of Directors or by the Corporation’s shareholders. The Board has adopted a charter for the Nominating Committee which is posted on the Corporation’s website atwww.cffc.com under “About C&F/C&F Financial Corporation/“Investor Relations/Corporate Governance.” The Nominating Committee met twicefour times during 2010.2013. Currently there is no Chairman of the Nominating Committee. Mr. Hudson presided over all Nominating Committee meetings during 2010.2013 and directed the work of the committee in fulfilling its responsibilities in 2013.
While there are no formal procedures for shareholders to submit director recommendations, the Nominating Committee will consider candidates recommended by shareholders in writing. Such written submissions should include the name, address and telephone number of the recommended candidate, along with a brief statement of the candidate’s qualifications to serve as a director. All such shareholder recommendations should be submitted to the attention of the Corporation’s Secretary, P.O. Box 391, West Point, Virginia 23181, and must be received no later than January 1, 20122015 in order to be considered by the Nominating Committee for the annual election of directors in 2012.2015. Any candidates recommended by a shareholder will be reviewed and considered in the same manner as all other director candidates considered by the Nominating Committee.
Qualifications for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to the existing Board composition. However, minimum qualifications include high level leadership experience in business activities, breadth of knowledge about issues affecting the Corporation and time available for meetings and consultation on Corporation matters. The Nominating Committee seeks a diverse group of candidates who possess the background, skills and expertise to make a significant contribution to the Board, to the Corporation and its shareholders. All candidates must possess the aptitude or experience to understand fully the legal responsibilities of a director and the governance processes of a public company, as well as the personal qualities to be able to make a substantial active contribution to Board deliberations, including intelligence and wisdom, self-assuredness, interpersonal and communication skills, courage and inquisitiveness. Consideration will also be given to financial management, reporting and control expertise or other experiences that would qualify the candidate as a “financial expert” under established standards. The Nominating Committee also considers diversity in its evaluation of candidates for Board membership. Pursuant to its charter, in identifying candidates for Board membership, the Nominating Committee seeks to ensure that the Board, as a whole, is diverse and consists of individuals with various and relevant career experience and backgrounds. Consideration will beis given to assuring that the Board, as a whole, adequately reflects the diversity of our constituencies and the communities in which we conduct our business. The Nominating Committee may consider these and other appropriate factors that contribute to an overall diversity of perspective that enhances the Board’s ability to oversee the Corporation’s business and perform it responsibilities.
The Nominating Committee evaluates potential nominees, whether proposed by shareholders or otherwise, by reviewing their qualifications, reviewing results of personal and reference interviews and reviewing other relevant information. Candidates whose evaluations are favorable are then chosen by majority vote of the Nominating Committee to be recommended for nomination by the full Board. The full Board then selects and nominates candidates for election as directors by the shareholders at the Annual Meeting. The Nominating Committee follows the same process to identify new candidates for recommendation to the full Board in the event of a vacancy on the Board. No director first elected after February 1, 1995 who has reached the age of 72 prior to the date of the annual meeting will be eligible for election or re-election to the Board.
The Board has concluded that each director and director nominee possesses the personal traits described above. In considering the director and the director nominees’ individual experience, qualifications, attributes and skills, the Board has concluded that the appropriate experience, qualifications, attributes and skills are represented for the Board as a whole and for each of the Board’s committees. In addition, each director and director nominee possesses characteristics that led the Board to conclude that such person should serve as a director. The specific experience, qualifications, attributes and skills that the Board believes each director and director nominee possesses are discussed under Proposal One in the table entitled “Election of Directors.”
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In accordance with the Corporation’s bylaws, any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as director(s) at an Annual Meeting, if the shareholder gives written notice of his or her intent to make such nomination. A shareholder nomination must include the nominee’s written consent to serve as a director of the Corporation if elected, sufficient background information with respect to the nominee including, but not limited to, the nominee’s name and address, the amount and nature of the nominee’s beneficial ownership of the Corporation’s securities, his or her principal occupation for the past five years, his or her age, and a discussion of the specific experience, qualifications, attributes or skills that led to the conclusion that the nominee should serve as director, sufficient identification of the nominating shareholder, including the shareholder’s name and address, a description of any arrangements or understandings between the shareholder and the nominee pursuant to which the nomination is to be made by the shareholder, and a representation by the shareholder that he or she is the owner of stock of the Corporation entitled to vote at the Annual Meeting and that he or she intends to appear at the Annual Meeting (in person or by proxy) to nominate the individual specified in the notice. No such nomination was made for the annual election of directors in 2014. Nominations must be received by the Corporation’s Secretary at the Corporation’s principal office in West Point, Virginia, no later than February 14, 201215, 2015 for the annual election of directors in 2012.2015. These requirements are more fully described in Article III, Section 16 of the Corporation’s bylaws, a copy of which will be provided, without charge, to any shareholder upon written request to the Corporation’s Secretary.
Shareholder Communications with the Corporation’s Board of Directors
The Corporation provides a process for shareholders to send communications to the Board of Directors. Shareholders who wish to contact the Board of Directors or any of its members may do so by addressing their written correspondence to C&F Financial Corporation, Board of Directors, c/o Secretary, P.O. Box 391, West Point, Virginia 23181. Correspondence directed to an individual Board member will be referred, unopened, to that member. Correspondence not directed to a particular Board member will be referred, unopened, to the Chairman of the Board.
Director Compensation
The following table provides compensation information for the year ended December 31, 20102013 for each non-employee director of the Corporation’s Board of Directors.
Director Compensation Table for 20102013
Name1 | Fees Earned or Paid in Cash2 ($) | Stock Awards3 ($) | Option Awards4 ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation5 ($) | Total ($) | Fees Earned or Paid in Cash2 ($) | Stock Awards3 ($) | Option Awards4 ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation5 ($) | Total ($) | ||||||||||||||||||||||||||||||||||||||||||
J.P. Causey Jr. | $ | 23,600 | $ | 13,300 | — | — | — | $ | 1,175 | $ | 38,075 | |||||||||||||||||||||||||||||||||||||||||||||
J. P. Causey Jr. | $ | 32,500 | $ | 22,199 | — | — | — | $ | 1,660 | $ | 56,359 | |||||||||||||||||||||||||||||||||||||||||||||
Barry R. Chernack | $ | 24,600 | $ | 13,300 | — | — | — | $ | 1,175 | $ | 39,075 | $ | 35,750 | $ | 22,199 | — | — | — | $ | 1,660 | $ | 59,609 | ||||||||||||||||||||||||||||||||||
Audrey D. Holmes | $ | 16,500 | $ | 13,300 | — | — | — | $ | 1,175 | $ | 30,975 | $ | 21,750 | $ | 22,199 | — | — | — | $ | 1,660 | $ | 45,609 | ||||||||||||||||||||||||||||||||||
James H. Hudson III | $ | 20,500 | $ | 13,300 | — | — | — | $ | 1,175 | $ | 34,975 | $ | 25,750 | $ | 22,199 | — | — | — | $ | 1,660 | $ | 49,609 | ||||||||||||||||||||||||||||||||||
Joshua H. Lawson | $ | 16,000 | $ | 13,300 | — | — | — | $ | 1,175 | $ | 30,475 | $ | 21,750 | $ | 22,199 | — | — | — | $ | 1,660 | $ | 45,609 | ||||||||||||||||||||||||||||||||||
William E. O’Connell Jr. | $ | 19,750 | $ | 13,300 | — | — | — | $ | 1,175 | $ | 34,225 | |||||||||||||||||||||||||||||||||||||||||||||
C. Elis Olsson | $ | 18,000 | $ | 13,300 | — | — | — | $ | 1,175 | $ | 32,475 | $ | 24,500 | $ | 22,199 | — | — | — | $ | 1,660 | $ | 48,359 | ||||||||||||||||||||||||||||||||||
Paul C. Robinson | $ | 17,000 | $ | 13,300 | — | — | �� | $ | 1,175 | $ | 31,475 | $ | 23,250 | $ | 22,199 | — | — | — | $ | 1,660 | $ | 47,109 |
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1 | Larry G. Dillon, the Corporation’s Chairman of the Board, President and Chief Executive Officer is not included in this table as he is an employee of the Corporation and thus receives no compensation for his services as a director. The compensation received by Mr. Dillon as an employee of the Corporation is shown in the Summary Compensation Table on page |
2 | Includes any fees deferred pursuant to the Corporation’s Directors Non-Qualified Deferred Compensation Plan. Under the plan, each director may elect to defer any or all of his or her fees. Deferral elections are made in December of each year for amounts to be earned in the following year. |
3 | Reflects the grant date fair value of the restricted stock award granted to each non-employee director on May |
4 | As of December 31, |
5 | The amounts represent nonforfeitable dividends paid on unvested restricted stock awards pursuant to the 2013 Stock and Incentive Plan and the Amended and Restated C&F Financial Corporation 2004 Incentive Stock |
The Compensation Committee, appointed by the Board of Directors, annually reviews and evaluates the compensation of the Board, including the appropriate mix of cash and equity compensation. The Compensation Committee recommends changes in compensation to the Board of Directors for approval. In 2007, the Compensation Committee engaged Mercer Human Resource Consulting to conduct a study of director compensation to maintain competitiveness with entities of similar size and operations to the Corporation. Based on the results of the study, the Compensation Committee found that overall compensation for directors was comparable to entities of similar size and operations as the Corporation, but recommended a change from an annual stock option grant to an annual restricted stock grant, which the Board implemented in 2008. In August 2010,December 2011, the Compensation Committee engaged Pearl Meyer & Partners, an independent compensation consulting firm,consultant, to update the review of director compensation that was performed in August 2010 to assess the competitiveness of the Board’s total compensation program. The review concluded that total Board compensation, which includes cash and equity components, is near the peer group median. Based on this conclusion, the Compensation Committee recommended no change in the cash component of the director compensation program for 2011. The equity component will be determined during 2011. The peer group used for the director compensationthis review was the same peer group used for the August 2010 review of the CEO and CFO compensation, which is described on page 17pages 15 and 16 under “2010“Establishing Executive Compensation, Review”.” adjusted for changes in asset size due to mergers, acquisitions or growth. The review found that total director compensation, which includes cash and equity, was above the 75th percentile of the peer group. This was a result of the equity component of director compensation which was increased during 2011. The cash component of director compensation was at the 44th percentile of the peer group. In addition, the review found that the retainers for the Chairman of the Audit and Compensation Committees were below the median of the peer group. Based on the results of the updated review, the Compensation Committee recommended an increase in the cash component and to a lesser degree the equity component of the director compensation program for 2012, which increases were implemented effective January 1, 2012. No changes were made to director compensation for 2013.
Non-employeeFor 2013, non-employee members of the Board of Directors of the Corporation each receivereceived an annual retainer of $6,000.$9,000. In addition, Mr. Causey, as Chairman of the Corporation’s Compensation Committee, received an additional annual retainer of $4,000 and Mr. Chernack, as Chairman of the Corporation’s Audit Committee, each receivereceived an additional annual retainer of $1,600.$5,000. The retainers are payable in quarterly installments. The Chairman of the Nominating Committee (when such position is filled) does not receive an additional annual retainer. In addition, all non-employee members of the Board of Directors of the Corporation receive a base meeting fee of $500 per day for Corporation Board, Bank Board, Bank subsidiary Board, CVBK Board, CVB Board or committee meeting attendance and a fee of $250 for secondary meeting attendance for each additional Corporation Board, Bank Board, Bank subsidiary Board, CVBK Board, CVB Board or committee meeting of eitherany Board held on the same day as a meeting for which the base meeting fee is paid.
For 2014, non-employee members of the Board of Directors of the Corporation each will receive an annual retainer of $9,200. In addition, Mr. Causey, as Chairman of the Corporation’s Compensation Committee, will receive an additional annual retainer of $5,000 and Mr. Chernack, as Chairman of the Corporation’s Audit Committee, will receive an additional annual retainer of $6,000. The retainers will be payable in quarterly installments. In addition, all non-employee members of the Board of Directors of the Corporation will receive a base meeting fee of $600 per day for Corporation Board, Bank Board, Bank subsidiary Board or committee meeting attendance and a fee of $300 for secondary meeting attendance for each additional Corporation Board, Bank Board, Bank subsidiary Board or committee meeting of any Board held on the same day as a meeting for which the base meeting fee is paid.
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In addition to cash compensation, non-employee members of the Board of Directors of the Corporation becameare eligible to participate in the 2013 Stock and Incentive Plan and were previously eligible to participate in the 2004 Incentive Stock Plan whenafter it was amended in 2008. Under the 2013 Stock and Incentive Plan, directors are eligible to receive awards of restricted stock units, stock options, stock appreciation rights, restricted stock and other stock-based awards. Under the 2004 Incentive Stock Plan, directors arewere eligible to receive awards of restricted stock units, stock options, stock appreciation rights and restricted stock. On May 18, 2010,21, 2013, each non-employee director was granted 700450 shares of restricted stock and the fair value of the restricted stock on the grant date was $19.00.$49.33 per share. Prior to the 2008 amendment of the 2004 Incentive Stock Plan, non-employee members of the Board of Directors of the Corporation participated in the Amended and Restated C&F Financial Corporation 1998 Non-Employee Director Stock Compensation Plan (the “Director Plan”), which expired in 2008. Under the Director Plan, directors were granted annually a minimum of 1,000 and a maximum of 2,000 options to purchase the Corporation’s common stock at a price equal to the fair market value of the Corporation’s common stock at the date of grant. All options issued under the Director Plan expire ten years from the date of grant.
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Interest of Management in Certain Transactions
As of December 31, 2010,2013, the total maximum extensions of credit (including used and unused lines of credit) to policy-making officers, directors and their associates amounted to $583,826,$3.4 million, or 0.63%3.0% of total year-end capital. The maximum aggregate amount of such indebtedness outstanding during 20102013 was $932,669,$2.9 million, or 1.01%2.6% of total year-end capital. These loans were made in the ordinary course of the Bank’s and CVB’s business, on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the same time for comparable transactions with other unrelated parties, and in the opinion of management and the Corporation’s Board, do not involve more than the normal risks of collectability or present other unfavorable features. The BankCorporation expects to have similar banking transactions in the future similar banking transactions with the Corporation’sits officers, directors and their associates.
The Corporation’s Board of Directors has also adopted a written policy with respect to related party transactions that governs the review, approval or ratification of covered related party transactions. The Audit Committee manages this policy. The policy generally provides that we may enter into a related party transaction only if the Audit Committee approves or ratifies such transaction in accordance with the guidelines set forth in the policy and if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party or the transaction involves compensation approved by the Compensation Committee.
In the event management determines to recommend a related party transaction, the transaction must be presented to the Audit Committee for approval. After review, the Audit Committee will approve or disapprove such transaction and at each subsequently scheduled Audit Committee meeting,quarterly, management will update the Audit Committee as to any material change to the proposed related party transaction. The Audit Committee approves only those related party transactions that are in, or are not inconsistent with, the best interests of the Corporation and its shareholders, as the Audit Committee determines in good faith.
For purposes of this policy, a “related party transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which the Corporation or a subsidiary is, was or will be a participant and the amount involved exceeds $120,000 and in which any related party had, has or will have a direct or indirect material interest. For purposes of determining whether a transaction is a related party transaction, the Audit Committee refers to Item 404 of Regulation S-K, promulgated under the Exchange Act.
A “related party” is (i) any person who is, or at any time since the beginning of our last fiscal year was, a director or executive officer of the Corporation or a nominee to become a director, (ii) any person who is known to be the beneficial owner of more than 5% of any class of our voting securities, (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee)
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sharing the household of such director, executive officer, nominee or more than 5% beneficial owner, and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.
Compensation Committee Interlocks and Insider Participation
During 20102013 and up to the present time, there were transactions between the Corporation’s banking subsidiary and certain members of the Compensation Committee or their associates, all consisting of extensions of credit by the Bank in the ordinary course of business. Each transaction was made on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the same time for comparable transactions with other unrelated parties. In the opinion of management and the Corporation’s Board, none of the transactions involved more than the normal risk of collectability or presented other unfavorable features.
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None of the members of the Compensation Committee has served as an officer or employee of the Corporation or any of its affiliates. James H. Hudson III, a Class I director, currently serves as a member of the Compensation Committee. The firm of Hudson & Bondurant, P.C., of which Mr. Hudson is a partner, was retained to perform legal services for the Corporation during fiscal year 2010.2013. It is anticipated that the firm will continue to provide legal services to the Corporation during fiscal year 2011.2014.
Compensation Policies and Practices as They Relate to Risk Management
The Corporation, under the guidance of the Compensation Committee, has reviewed the compensation policies and practices of the Corporation as they relate to risk management. This review included both executive officer and non-executive officer compensation policies and practices and factors in place to mitigate any excess risk. In conducting the review, management focused on the risks associated with the Corporation’s compensation policies and practices and evaluated those risks in light of the Corporation’s operations and the internal compensation approval and compliance systems developed by the Corporation. The Corporation has determined that its policies and practices, including mitigating factors, are not reasonably likely to have a material adverse effect on the Corporation. See also “Executive
Although the Corporation is no longer a participant in the Capital Purchase Program, the Compensation -Committee decided to retain the position of senior risk officer and to meet with the Corporation’s senior risk officer to discuss, evaluate and review senior executive officer (“SEO”) compensation plans and other employee compensation plans and the risks these plans pose to the Corporation. In connection with this risk review, the Compensation Committee will identify and limit or mitigate features in SEO compensation plans that could encourage SEOs to take unnecessary and excessive risks that threaten the Corporation’s value (including behavior focused on short-term results rather than long-term value creation) and identify and limit or mitigate features in employee compensation plans that pose risks to the Corporation (including behavior focused on short-term results rather than long-term value creation). In addition, the Committee will discuss, evaluate and review employee compensation plans and eliminate or mitigate features that could encourage the manipulation of reported earnings to enhance an employee’s compensation. These reviews are completed at least once a year.
For the review conducted during May of 2013, the Committee evaluated the plans discussed in detail in the “Compensation Discussion and Analysis” presented below, as well as several additional employee compensation arrangements that provide for variable cash compensation, bonus, commission or incentive payments to employees other than the SEOs. As a result of the risk and “Compensationmanipulation review, the Compensation Committee Report” for additional information regardingconcluded that these plans do not encourage unnecessary and excessive risks that threaten the value of the Corporation or the manipulation of reported earnings to enhance the compensation of any employee and associated risk assessment reviews.determined that the potential risks arising from these plans are not reasonably likely to have a material adverse effect on the Corporation.
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EXECUTIVE COMPENSATION
By definition, “named executive officers” refers to a corporation’s CEO and CFO and up to three additional most highly compensated executive officers whose total compensation exceeded $100,000 for the most recent year. Throughout this Proxy Statement, the Corporation’s named executive officers are its CEO, its CFO and the President and CEO of C&F Mortgage Corporation (the “Mortgage Corporation”).
Compensation Discussion and Analysis
Overview of Compensation Program.The Compensation Committee (for purposes of this analysis,discussion, the “Committee”) of the Board has responsibility for establishing, implementing and continually monitoring adherence to the Corporation’s compensation philosophy. The Committee is responsible for ensuring that the total compensation paid to executives is fair, reasonable and competitive. The Committee may, consistent with applicable law, regulations, NASDAQ requirements or plan provisions, delegate certain of its authority to the CEO, a designee, or other appropriate members of management, including matters relating to the compensation or election as officers of the Corporation’s employees other than the Corporation’s executive officers.
Overall Philosophy. The Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Corporation, and which aligns executives’ interests with those of the shareholders by rewarding performance that exceeds established goals within the Corporation’s risk profile, with the ultimate objective of improving long-term shareholder value.
The overall compensation strategy is based on the following four principles: (1) achieve and sustain superior long-term performance, (2) directly support positive business strategies and goals, (3) attract and retain key executives who are crucial to the long-term growth and profitability of the Corporation, and (4) pay for performance by maintaining competitive compensation programs for top tier performance.
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Impact of Participatingperformance, in each case while maintaining the Capital Purchase Program. On January 9, 2009, the Corporation issued $20,000,000 of preferred stock to the United States Departmentoverall safety and soundness of the Treasury (the “Treasury”) pursuantCorporation.
2013 Say-on-Pay Vote. Although the advisory shareholder vote to approve executive compensation is non-binding, the Treasury’s Capital Purchase Program established pursuantCommittee has considered, and will continue to authority granted underconsider, the Emergency Economic Stabilization Actoutcome of 2008 (the “EESA”). The period beginningthis vote when making compensation decisions for our CEO and other named executive officers. At our 2013 Annual Meeting of Shareholders, approximately 94% of the shareholders who voted on January 9, 2009 and continuing until the Corporation redeems the preferred stock is referred to as the “TARP Period.”
As a condition to closing the transaction on January 9, 2009, the Corporation executed an Omnibus Benefit Plan Amendment to modify“say-on-pay” proposal approved the compensation bonus, incentive and other benefit plans, arrangements and policies and agreementsof our named executive officers, while approximately 6% voted against the proposal. The Committee believes that this shareholder vote strongly endorses the compensation philosophy of the Corporation to comply withCorporation. The Committee has not significantly changed the executive compensation provisions of the EESA. Also on January 9, 2009, each of Mr. Dillon, Mr. Cherry and Mr. McKernon executed a consent to the Omnibus Benefit Plan Amendment, including any future amendments necessary to comply with the EESA, and executed a waiver voluntarily waiving any claim against the Treasury or the Corporation for any changes to his compensation or benefits that are required by the executive compensation provisions of the EESA, as amended.
Following the Corporation’s issuance of the preferred stock to the Treasury, the American Recovery and Reinvestment Act of 2009 (the “Reinvestment Act”) was enacted in February 2009 which, among other things, amended the EESA and imposed additional restrictions on the compensation that may be paid by financial institutions participating in the Capital Purchase Program, including the Corporation. The compensation restrictions imposed by the EESA, as amended by the Reinvestment Act, and implemented by interim final rules published by the Treasury on June 15, 2009, as updated by technical corrections in December 2009 and by further guidance from the Treasury in early 2010 (collectively, the “TARP Standards”), include the following:
a prohibition on paying or accruing any bonuses, incentive compensation or retention awards to the most highly compensated employee of the Corporation during the period beginning on June 15, 2009 and continuing until the preferred stock is redeemed, subject to certain exceptions discussed below;
subjecting bonuses, incentive compensation or retention awards paid to any executive officer named in the Summary Compensation Table during the TARP Period, and to any of the next 20 most highly compensated employees of the Corporation during the period beginning on June 15, 2009 and continuing until the preferred stock is redeemed, to a recovery or a “clawback” provision if the payment is based on materially inaccurate financial statements or any other materially inaccurate performance criteria;
a prohibition during the period beginning on June 15, 2009 and continuing until the preferred stock is redeemed on any payments, including the acceleration of vesting, to any of the executive officers named in the Summary Compensation Table or any of the next five most highly compensated employeesprogram as a result of a terminationthe shareholder vote.
2013 Frequency of employment or a change in control that occurs beforeAdvisory Vote on Executive Compensation. Although the preferred stock is redeemed, subject to certain exceptions discussed below;
a prohibition duringadvisory shareholder vote on the period beginning on June 15, 2009 and continuing until the preferred stock is redeemed on providing formal or informal tax gross-up payments or other reimbursements for the payment of taxes to any executive officer named in the Summary Compensation Table and anyfrequency of the next 20 most highly compensated employeesadvisory vote on executive compensation is non-binding, the Committee has considered, and will continue to consider, the outcome of this vote. At our 2013 Annual Meeting of Shareholders, approximately 80% of the Corporation;
a limitationshareholders who voted on the tax deductibility“frequency” proposal voted for an every year frequency. The Committee, therefore, has decided to include a “say-on-pay” proposal every year. The next advisory vote to approve executive compensation will occur at the 2015 Annual Meeting of that portionShareholders.
Compensation Process. The Committee determines and recommends to the Board of Directors the compensation of the annualCEO. The Committee also approves all compensation of an executive officer named in the Summary Compensation Table in excess of $500,000; and
a prohibition during the period beginning on June 15, 2009 and continuing until the preferred stock is redeemed on any compensation plan that would encourage manipulation of reported earnings, encourage behavior focused on short-term results rather than long-term value creation, or encourage theCorporation’s executive officers named in the Summary Compensation Table to take unnecessary and excessive risks that could threaten the valuecertain other senior officers of the Corporation.Corporation and its subsidiaries, which include the CFO, Senior Vice President of Retail, Chief Credit Officer, Regional Presidents, the Senior Vice President of Human Resources and the Treasurer of the Bank; the President and CEO and the Executive Vice President and Chief Operating Officer of the Mortgage Corporation; the President, Executive Vice President and Senior Vice President of C&F Finance Company (“C&F Finance”); and the President of C&F Investment Services, Inc.
The Committee evaluates both performance and compensation to ensure that the Corporation maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of the Corporation’s peer companies.
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The prohibitionCommittee, on payingits own initiative, reviews the performance and compensation of each of these senior officers and following discussions with the CEO and, as it deems appropriate, a compensation consultant or accruing any bonuses, incentiveother appropriate advisors, establishes the senior officers’ compensation or retention awards doeslevels. For the remaining officers, the CEO makes recommendations to the Committee that generally, with minor adjustments, are approved. The Committee did not applyengage a compensation consultant in connection with executive compensation decisions for 2013, although Pearl Meyer & Partners (“PM&P”) did provide advice regarding the 2013 peer group in the course of its 2013 Review engagement discussed below.
In consultation with senior management, the Committee approves the Corporation’s compensation philosophy to payments or awards to whichensure that it is consistent with the officer or employee had a legally binding rightBoard’s intent, as of February 11, 2009. In addition, such prohibition does not apply towell as the long-term restricted stock awards, provided that (1) the valueinterests of the award on the date of grant does not exceed one-third of the officer’s or employee’s compensation for that fiscal year, including the value of the award, (2) except to the extent necessary to pay applicable taxes on vesting, the restricted stock does not become transferable until the preferred stock is redeemed, provided that if the preferred stock is redeemed in part, then 25% of the restricted stock can become transferable for every 25% of the preferred stock that is redeemed, and (3) the recipient of the award must be required to forfeit the restricted stock if he does not continue performing substantial services for us for at least two years from the date of grant, other than a cessation of services due to death, disability or certain change in control events. Certain salary or deferred compensation increases could be viewed as indirect bonuses subject to the above prohibition, such as a short-term increase in salary or a short-term increase in deferred compensation where the increase is based on a retrospective determination of a lost bonus.
The prohibition on severance payments or accelerated vesting as a result of a termination of employment or certain change in control events does not apply to any of the following: (1) payments pursuant to tax-qualified plans, (2) payments resulting from death or disability or (3) payments for services performed or benefits accrued prior to the date of termination, including benefits payable under our Supplemental Executive Benefit Plan, Executive Deferred Compensation Plan and individual deferred compensation agreements. In addition, if the Corporation were to be acquired by an unaffiliated third party which was not subject to the compensation restrictions described above immediately prior to the acquisition, then the acquirer and its employees (including any employees of the Corporation or the Bank who become employees of the acquirer as a result of the acquisition) will not be subject to the compensation restrictions described above so long as the primary purpose of the transactionCorporation’s shareholders. This includes, but is not limited to, avoid applicationannual review and approval of the TARP Standards.
The TARP Standards require the Compensation Committeegoals and objectives relevant to discuss, evaluate and review our compensation plans at least once every six months and to provide the disclosures and certifications set forth in the “Compensation Committee Report.” In addition, the TARP Standards require (1) the adoption of a policy regarding excessive or luxury expenditures, including which types or categories of expenditures are prohibited and which ones require prior approval, and (2) the submission to shareholders during the TARP Period of a non-binding proposal to approve the compensation of the CEO, and evaluation of the performance of the CEO in light of these goals and objectives. The Committee reviews and approves, as appropriate, any new incentive compensation plans, including equity-based plans, and, as may be deemed necessary, any amendments to existing plans relating to executive officers and other senior officers.
The Committee also acts as the Incentive Stock Committee (or similarly named executive officers. See “Advisory Vote on Executive Compensation (Proposal Two).”committee) for the Corporation’s stock incentive plans and recommends awards to the Board of Directors for approval, including stock options, restricted stock awards, performance stock awards, restricted stock units or other similar awards as provided in the 2013 Stock and Incentive Plan or any successor plan and previously under the 2004 Incentive Stock Plan.
Establishing Executive Compensation. To achieve the aims of the overall compensation strategy, within the limitations imposed by the TARP Standards, the Committee compensates executives and other selected senior managers through a combination of base salary, bonus, deferred and equity compensation designed to be competitive with comparable companies and to create alignment between executives’ and shareholders’ interests.
In 2006, the Committee engaged Mercer Human Resource Consulting (“Mercer”), an independent global human resources consulting firm, to conduct a review of the Corporation’s total compensation program for key executives. Mercer provided the Committee with relevant market data and alternatives to consider when making compensation decisions for the CEO and other key executives in 2007 and beyond.
The report prepared by Mercer compared base salary, cash incentives and equity awards against a peer group of publicly-traded financial institutions located in the southeastern region of the United States. This peer group consisted of financial institutions against which the Committee believed the Corporation competed for executive talent and for shareholder investment. The criteria used to determine the peer group were financial institutions in Virginia ranging in asset size from $500 million to $2 billion and financial institutions in other southeastern region states whose asset size was between $500 million to $1 billion. The companies comprising this peer group in the Mercer study for 2006 included 11 financial institutions in Virginia and 26 financial institutions in other southeastern region states who met the criteria above.
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Based on the extensive review that Mercer performed in 2006 for 2007, the Committee concluded that no substantive changes were required to the overall plan design for 2009 or 2010 and that cash incentive and equity award targets, retirement benefits and perquisites should remain generally the same. While there is no pre-established policy or target for the allocation between either cash and equity or short-term and long-term incentive compensation, the Committee utilized the information provided by Mercer in its 2006 review to determine the appropriate level and mix of base salary, cash incentives and equity compensation for 2008, 2009 and 2010.
Base annual salary and short-term incentive compensation for the President and CEO of the Mortgage Corporation are established by an employment agreement entered into in 1995 and amended in 1998, 2002, 2006 and 2008. The employment agreement provides for a fixed annual base salary and a performance-based short-term incentive directly related to the profitability of the Mortgage Corporation. The President and CEO of the Mortgage Corporation was responsible for bringing all of the critical personnel and operations of the Mortgage Corporation to the Corporation, at no cost to the Corporation. As a result, his employment agreement included a bonus provision for a percentage of future profits. Although the President and CEO of the Mortgage Corporation was the Corporation’s most highly compensated employee for 2009 and for 2010, the bonus provisions of his employment agreement, which was in place prior to February 11, 2009, satisfy the requirements for the exception to the general bonus prohibition imposed by the TARP Standards. The determination of the most highly compensated employee for any given year is based on the immediately preceding year’s compensation.
Benchmarking. In setting annual compensation for 2010, the Committee referred to compensation paid by the companies in the Corporation’s peer group, using the same criteria for determining the annual peer group that Mercer had used in its 2006 report. While the criteria for the peer group remains the same, the companies meeting this criteria, and thus comprising the peer group, may change from year to year, as the peer group is updated annually to account for changes in asset size due to mergers, acquisitions, or growth. For 2010, the updated peer group included the following 24 financial institutions in Virginia whose assets ranged from $500 million to $2 billion in size: Access National Corporation; Chesapeake Financial Shares, Inc.; First Bancorp, Inc.; National Bankshares, Inc.; Fauquier Bankshares, Inc.; Monarch Financial Holdings, Inc.; American National Bankshares Inc.; Eagle Financial Services, Inc.; Cardinal Financial Corporation; First National Corporation; Middleburg Financial Corporation; Old Point Financial Corporation; Highlands Bankshares, Inc.; Valley Financial Corporation; Alliance Bankshares Corporation; New Peoples Bankshares, Inc.; Eastern Virginia Bankshares, Inc.; Community Bankers Trust Corporation; Village Bank and Trust Financial Corporation; First Capital Bancorp, Inc.; Southern National Bancorp of Virginia, Inc.; F & M Bank Corp.; Bank of Southside Virginia Corporation and Commonwealth Bankshares, Inc. For 2010, the updated peer group included the following 32 financial institutions in other southeastern region states whose assets ranged from $500 million to $1 billion in size: First Citizens Bancshares, Inc. (TN); First Farmers and Merchants Corporation (TN); First Volunteer Corporation (TN); Independent Holdings, Inc. (TN); First South Bancorp, Inc. (NC); Arthur Financial Corporation (SC); CNB Corporation (SC); F&M Financial Corporation (NC); First Pulaski National Corporation (TN); Tri-County Financial Corporation (MD); North State Bancorp (NC); Southern First Bancshares, Inc. (SC); Jefferson Bancshares, Inc. (TN); ECB Bancorp, Inc. (NC); High Point Bank Corporation (NC); Four Oaks Fincorp, Inc. (NC); Peoples Bancorporation, Inc. (SC); F&M Financial Corporation (TN); Mountain National Bancshares, Inc. (TN); First Reliance Bancshares, Inc. (SC); New Century Bancorp, Inc. (NC); Community First, Inc. (TN); 1st Financial Services Corporation (NC); Southcoast Financial Corporation (SC); MidCarolina Financial Corporation (NC); Bank of the Carolinas Corporation (NC); Waccamaw Bankshares, Inc. (NC); Carolina Bank Holdings, Inc. (NC); HCSB Financial Corporation (SC); Tidelands Bancshares, Inc. (SC); Community Capital Corporation (SC); and First Community Corporation (SC). For comparison purposes, the Corporation’s asset size was above the median for this peer group.
2010 Executive Compensation Review (the “Review”).In August 2010, the Committee engaged Pearl Meyer & Partners (“PM&P”), an independent compensation consulting firm, to review executive compensation for key executives (the “2010 Review”), including the CEO and the CFO of the Corporation. While this information was not used in determining 2010 compensation for the CEO and the CFOThe results of the Corporation because of the timing of the engagement, the results of the2010 Review were used by the Committee to assess the reasonableness of the CEO’s and the CFO’s total direct compensation, which for purposes of the 2010 Review consists of base salary, performance-based incentive compensation and equity-based awards. For comparison purposes, the 2010 Review used a peer group (“2010 peer group”) analysis and a market analysis.
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The 2010 peer group analysis consisted of 28 publicly-traded commercial financial institutions headquartered in Virginia, Maryland, North Carolina, South Carolina and Tennessee and used 2009 proxy data, which was the most recently completed fiscal year at the time of the 2010 Review. The asset size for this peer group ranged fromwas within the range of $667 million to $2.1 billion, with a median of $1.3 billion based on December 31, 2009 assets. The peer group included all financial institutions satisfying these criteria with the exception of any financial institution that applied for participation in the Capital Purchase Program and did not receive approval. Based on these criteria, the following financial institutions were included in the peer group: Cardinal Financial Corporation (VA); NewBridge Bancorp (NC); Eagle Bancorp, Inc. (MD); First United Corporation (MD); Capital Bank Corporation (NC); Southern Community Financial Corporation (NC); BNC Bancorp (NC); Wilson Bank Holding Company (TN); First Security Group, Inc. (TN); Community Bankers Trust Corporation (VA); Shore Bancshares, Inc. (MD); Eastern Virginia Bankshares, Inc. (VA); Peoples Bancorp of North Carolina, Inc. (NC); Crescent Financial Corporation (NC); National Bankshares, Inc. (VA); Middleburg Financial Corporation (VA); Old Point Financial Corporation (VA); ECB Bancorp, Inc. (NC); First South Bancorp, Inc. (NC); Tri-County Financial Corporation (MD); American National BankshresBankshares Inc. (VA); 1st1st Financial Services Corporation (NC); HCSB Financial Corporation (SC); Community Capital Corporation (SC); Southern First Bancshares, Inc. (SC); Valley Financial Corporation (VA); Monarch Financial Holdings, Inc. (VA); and Access National Corporation (VA).
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The market analysis was based on the following surveys:
• | Towers Watson,2010/2011 Top Management Compensation Survey |
• | Towers Watson,2010/2011 Financial Services Survey Suite |
• | William M. Mercer,2010 Executive Compensation Survey |
The market analysis was also based on PM&P’s proprietary database of banking institutions. All survey data was updated to January 1, 2011, using an annual update factor of 3%, which was the projected total 2011 salary increase for the financial services industry according to WorldatWork’s 2010/2011Total Salary Increase Budget Survey.Survey.
The 2010 Review concluded that total compensation for the CEO was at the 18th percentile of the 2010 peer group data and was at 75% of the median using the market analysis data. When reviewing the data for the CFO, the 2010 Review considered data for both chief financial officers and chief operating officers in order to encompass the CFO’s currentrange of responsibilities. The 2010 Review concluded that total compensation for the CFO was at the 64th percentile of the 2010 peer group data and was at 93% of the median using the market analysis data.
In addition to reviewing compensation, the 2010 Review considered the structure of both the performance-based incentive and equity-based award metrics for key executives, including the CEO and the CFO. Based on the 2010 Review and recommendations from PM&P, including areas in which the metrics varied significantly from those used generally in the market and noting the need for more flexibility with regard to the level of achievement for the equity-based awards, for 2011 incentive compensation the Committee expanded the performance-basedperformance–based incentive metrics to include an asset quality component in addition to the ROE and ROA metrics already being used. In addition, the 2010 peer group described above will be used as the peer group for 2011 in determining performance-based incentive compensation. The Committee also revised the equity-based award metric of the relative five-year total shareholder return by replacing the NASDAQ Bank Index with a custom index comprised of the peer companies selected each year based on criteria developed by PM&P for the 2010 peer group mentioned above,Review and changed the measurement date for determining the equity-based awards from September 30th to December 31st beginning in 2011. Further, the Committee elected to incorporate a scaled payout percentage when determining the equity-based awards earned under the management incentive plan, rather than an absolute percentage based on achieving the overall goal. Finally, the Committee decided to use the same criteria from the 2010 peer group described above to determine the peer group in subsequent years, with the companies meeting these criteria subject to change from year to year as the peer group is updated to account for changes in asset size due to mergers, acquisitions or growth.
Base annual salary and short-term incentive compensation for the President and CEO of the Mortgage Corporation are established by an employment agreement originally entered into in 1995 and amended and restated as of January 1, 2013. The employment agreement provides for a fixed annual base salary and a performance-based short-term incentive directly related to the profitability of the Mortgage Corporation. The President and CEO of the Mortgage Corporation was responsible for bringing all of the critical personnel and operations of the Mortgage Corporation to the Corporation, at no cost to the Corporation. As a result, his employment agreement included a bonus provision for a percentage of future profits.
Benchmarking. In establishing a peer group for 2013, for purposes of performance-based incentive compensation and equity compensation, the Committee used the same criteria for determining the annual peer group that PM&P used in the 2010 Review except it excluded financial institutions in South Carolina and Tennessee. The exclusion of South Carolina and Tennessee was based on discussions with PM&P who was engaged to perform an updated executive compensation review in 2013 (discussed in more detail below). For 2013, the updated peer group (the “2013 peer group”) consisted of 17 publicly-traded commercial financial institutions headquartered in Virginia, Maryland and North Carolina. The asset size for this peer group was within the range of $764 million to $1.9 billion, with a median of $1.1 billion based on December 31, 2012 assets. The peer group included all financial institutions satisfying these criteria with the exception of any financial institution that applied for participation in the Capital Purchase Program and did not receive approval. Based on these criteria, the following financial institutions were included in the peer group: NewBridge Bancorp (NC); Access National Corporation (VA); Virginia Heritage Bank (VA); National Bankshares, Inc. (VA); Monarch Financial Holdings (VA); Valley Financial Corporation (VA); Yadkin Financial Corporation (NC); American National Bankshares Inc. (VA); The Community Financial Corporation (MD); Peoples Bancorp of North Carolina, Inc.
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(NC); Middleburg Financial Corporation (VA); Community Bankers Trust Corporation (VA); Old Line Bancshares, Inc. (MD); Old Point Financial Corporation (VA); Eastern Virginia Bankshares, Inc. (VA); Shore Bancshares, Inc. (MD); and First United Corporation (MD).
2013 PM&P Executive Compensation Review (2013 Review). During 2013, the Committee engaged PM&P to perform an updated executive compensation review. This review was completed and presented to the Committee in July 2013. Similar to the 2010 Review, the 2013 Review was performed to assess the reasonableness of the total direct compensation of the CEO, CFO and certain other senior officers of the Bank. The 2013 Review used a peer group analysis and a market analysis. The peer group for this 2013 Review (the “2013 peer group”) consisted of publicly–traded financial institutions headquartered in Maryland, North Carolina, South Carolina and Virginia, which consisted of 20 financial institutions with assets ranging from $766 million to $1.9 billion with a median asset size of $1.1 billion. The market analysis was based on data from the 2012 American Bankers Association Compensation and Benefits Survey, the Pearl Meyer & Partners 2012 Banking Compensation Survey Report, the Pearl Meyer & Partners 2012 National Banking Compensation Report and other additional Pearl Meyer and Partners proprietary survey sources. The results of the 2013 Review concluded that overall executive compensation was competitive with the market. Total compensation for the CEO was at the 65th percentile of the 2013 peer group data and was at 92% of the median using the market analysis data. When reviewing the data for the CFO, the 2013 Review considered data for both chief financial officers and chief operating officers in order to encompass the CFO’s range of responsibilities. The 2013 Review concluded that total compensation for the CFO was at the 83rd percentile of the peer group data and was at 137% of the median using the market analysis data. PM&P’s 2013 Review will be taken into account for 2014 executive compensation decisions; with the exception of the advice PM&P provided regarding the 2013 peer group, the 2013 Review did not affect 2013 executive compensation.
During 2013, PM&P did not provide any consulting services to the Corporation other than in connection with executive compensation, and it maintains no other economic relationship with the Corporation. The Committee assessed the independence of PM&P pursuant to SEC and NASDAQ rules and concluded that the advice it receives from PM&P is objective and not influenced by other relationships that could be viewed as conflicts of interest.
2013 Executive Compensation Components.For 2010,2013, the principal components of compensation for named executive officers as defined in Item 402 of Regulation S-K were:
base salary,salary;
performance-based incentive compensation,compensation;
equity compensation,compensation;
retirement and other benefits,benefits; and
perquisites.
These elements combine to promote the objectives described above. Base salary, retirement plans and other benefits and perquisites provide a minimum level of compensation that helps attract and retain qualified executives. Performance-based incentives and equity compensation reward achievement of long-termshort-term and short-termlong-term goals and align executive compensation with the creation of longer-term shareholder value and promote retention.
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Base Salaries. We provide named executive officers and other employees with base salaries to compensate them for services rendered during the fiscal year. Base salaries for named executive officers (with the exception of the President and CEO of the Mortgage Corporation) are determined for each executive based on his or her position and responsibility by using market data. Base salaries are generally targeted to be at the market medians of the peer group. The Committee targeted the market median for base salaries because the Committee believes a greater emphasis should be placed on performance-based compensation. Salary levels are considered annually as part of the Committee’s performance review process as well as upon a promotion or other change in job responsibility. During its review of base salaries for executives for 2010,2013, the Committee primarily considered:
Market data provided by MercerPM&P in 2006;2010;
Updated marketCompensation data onfor the Corporation’s2013 peer group;
Responsibilities of the executive;
Internal review of the executive’s compensation relative to other officers; and
Individual performance of the executive.
For 2010,2013, for the CEO, the Committee took into account the factors identified above and Mercer’s 2006 studyPM&P’s 2010 Review results that indicated the CEO medianaverage base salary for peer financial institutions was $268,000$345,000 in 2006.2009. At the CEO’s request, his base salary was limited to $243,000$268,000 in 2008, $248,0002011, $275,000 in 20092012 and $253,000$285,000 in 2010. The 2008, 2009 and 2010 amounts were below the median base salary for the peer financial institutions.2013. For the CFO, the Committee, after taking into account the factors identified above, determined that his base salary should be increased to $205,000$240,000 for 20102013 from $200,000 in 2009.$230,000 for 2012. In addition to the factors mentioned above, the Committee determined the base salary was appropriate in light of the CFO’s responsibilities, which include the functions of a chief operating officer in addition to chief financial officer functions, and his duties associated with the oversight of C&F Finance, Company, a significant subsidiary of the Corporation (“C&F Finance”).Corporation. Similar analyses were performed for other senior officers.
As mentioned above, the Committee engaged PM&P in August of 2010 to review executive compensation. See “2010 Executive Compensation Review” on pages 16 and 17 for further discussion.
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Performance-Based Incentive CompensationCompensation.. Short-term cash incentive compensation for the CEO and CFO is governed by the Corporation’s Management Incentive Plan (“MIP”) adopted in 2005. Under the MIP, at the beginning of 20102013 the Committee established performance objectives for the Corporation and the award formula or matrix by which all incentive awards were to be calculated. Executive officers were assigned a cash award target, to be paid if the Corporation achieved targeted performance goals in 2010.2013, as well as minimum and maximum award levels if the Corporation achieved below or above the targeted performance goals. The Committee has the discretion to adjust upward or downward any award earned under the MIP or to grant an award even when targetedminimum goals are not achieved.
For the named executive officers, with the exception of the President and CEO of the Mortgage Corporation, incentive compensation is designed to reward overall corporate performance by setting awards based on return on average equity (“ROE”) and return on average assets (“ROA”) relative to ROE and ROA of the peer financial institutions selected by the Committee to establish compensation levels for the CEO and CFO. The cash incentive compensation for the President and CEO of the Mortgage Corporation is set forth in his employment agreement and is based solely on a percentage of income before taxes generated by the Mortgage Corporation.
The remainder of management has more diverse performance goals consistent with the business they are managing. Where an employee has responsibility for the performance of a particular business, the performance goals are heavily weighted toward the operational performance of that unit. However, for members of the senior management team of the Bank (not including the named executive officers) at least 30% of their bonus is based on the ROE and ROA of the Corporation relative to the ROE and ROA of the peer financial institutions. All other employees earn bonuses based on the operational performance goals they have been assigned.
As in 2008 and 2009, theThe cash award targets for the CEO and CFO for 20102013 were based solely on achievement of a corporate goal, which was a weighted measure of the Corporation’s ROE and ROA for 20102013 relative to the 2013 peer group of financial institutions selected by the Committee for 2010 compensation determinations.group. This measure is the combined ranking of ROE and ROA of the 2013 peer group of financial institutions, placing twice the weight on ROE ranking. Depending on the level of achievement with respect to the corporate goal under the MIP, for 20102013 the CEO could earn a cash award of up to a maximum of 90% of his base salary as of January 1, 20102013 and the CFO could earn a cash award of up to a maximum of 70% of his base salary as of January 1, 2010.2013. The Committee chose these award levels so that the maximum awards would be paid when the Corporation has performed the best in Virginia and at or above the 90th percentile of the other financial institutions in the 2013 peer group based on combined ROE and ROA performance, while performance below the 40th percentile (the minimum award
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level) would result in no incentive payment. As mentioned above, theThe Committee has the discretion under the MIP to adjust upward or downward any award earned under the MIP.MIP within the minimum and maximum award levels established by the Committee, or to grant an award even if the minimum corporate goal is not achieved. In addition to the Corporation’s ROE and ROA performance versus the 2013 peer group, the Committee also reviewed the asset quality of the Corporation as part of its overall safety and soundness perspective. As part of this review, the Committee looked at asset quality measures at the Bank, C&F Finance and the Mortgage Corporation. These asset quality metrics included nonperforming assets to average loans, nonperforming assets to average assets, charge off ratios, delinquency percentages, loan indemnifications, and extension rates on loans and repossession rates, including quarterly trends and comparisons to available asset quality metrics of the companies in the 2013 peer group. Based on the Corporation’s ROE and ROA for 2010,2013, in which the Corporation achieved results in excess of the 87th90th percentile of the 2013 peer group, and the Committee’s review of financial institutions selected by the Committee under the MIP,relevant asset quality metrics, the CEO was entitled to and received a cash bonus of 73%79% of his base salary for 2010, but based on a recommendation from the CEO, the Committee awarded him a cash bonus of 30% of his base salary.2013. The CFO was entitled to and received a cash bonus of 57%61% of his base salary for 2010, but based on his recommendation2013.
In addition to the award earned under the MIP for the CFO, the Committee awarded himgranted a cash$55,000 bonus of 37%in light of his base salary.work performed in connection with the acquisition of CVBK during 2013.
All short-term incentive payments to the President and CEO of the Mortgage Corporation for 20102013 were made in accordance with his employment agreement and related directly to the profitability of the Mortgage Corporation. As noted above, although he was the most highly compensated employee for 2010, cash incentive compensation paid to the President and CEO of the Mortgage Corporation is required by his employment agreement, which was in place prior to February 11, 2009, and therefore satisfies the requirements for the exception to the general bonus prohibition imposed by the TARP Standards.
As mentioned above, the Committee engaged PM&P in August of 2010 to review executive compensation. See “2010 Executive Compensation Review” on pages 16 and 17 for further discussion, including changes made to the MIP for 2011 performance-based incentive awards.
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Equity CompensationCompensation.. The Corporation adopted the 20042013 Stock and Incentive Stock Plan effective April 20, 2004 and amended the plan in 2008 to add restricted stock units and permit awards to non-employee directors under the plan. As amended, the16, 2013. The plan permits the issuance of up to 500,000 shares of common stock for awards to key employees and non-employee directors of the Corporation and its subsidiaries, which includes members of a regional or advisory board of the Corporation and its subsidiaries in the form of stock options, stock appreciation rights, restricted stock, and restricted stock units.units, other stock-based awards and cash awards. With respect to executive compensation, the purpose of the 20042013 Stock and Incentive Stock Plan is to promote the success of the Corporation and its subsidiaries by providing incentives to key employees and non-employee directors thatto achieve corporate objectives and link their personal interests with the long-term financial success of the Corporation and with growth in shareholder value.value, without exposing the Corporation or its subsidiaries to imprudent risks. The 20042013 Stock and Incentive Stock Plan is designed to provide flexibility to the Corporation in its ability to motivate, attract, and retain the services of key employees.employees and directors. Prior to April 16, 2013, equity compensation awards were granted under the 2004 Incentive Stock Plan.
Each year, the Committee considers the desirability of granting long-term incentive awards under the 20042013 Stock and Incentive Stock Plan. The Committee may utilize stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards or a combination thereof, to focus executive officers, as well as other officers, on building profitability and shareholder value. The Committee notes in particular its view that equity grants make a desirable long-term compensation method because they closely align the interests of management with shareholder value. The Committee has the authority to establish equity goals and awards for all participants.
Historically, the primary form of equity compensation awarded by the Corporation was incentive and non-qualified stock options. This form was selected because of the favorable accounting and tax treatments received. However, beginning in 2006 the accounting treatment for stock options changed, making stock options a less attractive form of equity compensation. Consequently, certain changes were made to the equity award program. First, the form of equity award was changed to restricted stock. Second, a holding period and minimum stock ownership requirement was established for equity awards.
Under the MIP, executive officers may be awarded equity-based awards under the 20042013 Stock and Incentive StockCompensation Plan ifbased on the executive achievesachievement of targeted performance goal(s). For 2010,2013, the equity-based award targets for the named executive officers were based solely on achievement of one corporate goal, which was five-year total shareholder return of the Corporation compared to the NASDAQ Bank Index.2013 peer group. The Committee chose this longer-term measure because the Committee wanted to reward sustained performance. If the corporate goal is achieved under the MIP, for 20102013 the CEO could earn a target equity-based award of 45% of his base salary as of January 1, 20102013 and the CFO could earn a target equity-based award of 35% of his base salary as of
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January 1, 2010.2013. These targets were selected to maintain overall compensation competitiveness if the Corporation shows sustained total shareholder return. For 2010,return relative to its peers. The MIP permits the MIP did not provide a formula forCommittee to award a scaled payout based on performance that wasis higher or lower than the target.
For 2010,2013, if the Corporation’s five-year total shareholder return is equal to or higher than the 70th percentile of the 2013 peer group, the CEO and CFO would earn 50% of their target performance underaward; if the MIPCorporation’s five-year total shareholder return is not achieved, no equity-based awardequal to or higher than the 80th or 90th percentile of the 2013 peer group, the CEO and CFO would earn 65% or 80%, respectively, of their target award. If the Corporation’s five-year total shareholder return is earned, unlessbelow the 70th percentile or above the 100th percentile of the 2013 peer group, the Committee determines to award annual equity incentive compensation in the exercise of its discretion under the MIP. If the target goal is met, the executive will receive an award equal to the target percentage of his base salary, unless the Committee exercisescould use its discretion to reducegrant an award or increase the award. The Committee may reduce thean award to 0% or increase it up tono more than 200% of the target awards.target. This ability to make equity-based awards based on the scaled payout percentage is in addition to the Committee’s ability to adjust an award upward or downward in its discretion.
The President and CEO of the Mortgage Corporation does not have a targeted equity-based award stated as a percentage of his base salary. As with the CEO and CFO, if the one corporate goal mentioned above is met or the Committee at its discretion grants an award, the President and CEO of the Mortgage Corporation is eligible for an equity-based award. Grants of equity for the President and CEO of the Mortgage Corporation are recommended to the Committee by the CEO based on the performance of the Mortgage Corporation for the fiscal year.
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The measurement date for the 20102013 equity-based awards under the MIP was September 30, 2010. As of September 30, 2010, the five-year total shareholder return of the Corporation was slightly below the five-year total shareholder return of the NASDAQ Bank Index.December 31, 2013. As of December 31, 2010, however,2013, the five-year total shareholder return of the Corporation exceeded the 100th percentile for the five-year total shareholder return of the NASDAQ Bank Index. As2013 peer group. Based on this performance and the scaled payout formula discussed above, the Committee could have granted equity-based awards to the CEO and CFO equal to 200% of their equity-based award targets. Instead, in the exercise of its discretion as permitted byunder the MIP and the Committee exercised its discretion toCEO’s request for a smaller award, the equity incentive compensation even though the target performance was not met as of September 30, 2010. It was the recommendation of the Committee that the Board of Directors approve equity-based incentive awards to these executives to reward them for their individual performance in light of the difficult economic environment in 2010. Exercising its discretion,on January 21, 2014 the Committee granted 3,3004,000 shares of restricted stock each to the CEO and CFO and 750850 shares of restricted stock to the President and CEO of the Mortgage Corporation, which amounted to 30%59%, 37%70% and 9%16% of the base salaries of the CEO, CFO and President and CEO of the Mortgage Corporation, respectively. In exercising its discretion,Because the Committee also took into consideration thatCorporation’s performance exceeded the 100th percentile for 2008, 2009 and 2010, boththe 2013 peer group, the award to the CEO and the CFO was greater than their target awards of the Corporation accepted substantially less in cash bonus awards than the amounts they had actually earned under the MIP.45% and 35%, respectively, of base salary. The Committee also believedbelieves that granting these awards wouldwill assist in retaining the services of the CEO, CFO and President and CEO of the Mortgage Corporation because these awards generally do not vest for five years. The amount of each award was based primarilyon achieving the corporate goal mentioned above and on the executive officer’s performance, the level of his responsibilities, and internal equity considerations. As previously mentioned, the measurement date for determining the equity-based awards under the MIP has been changed from September 30th to December 31st beginning in 2011.
The Corporation’s practice is to determine the dollar amount of equity compensation that is to be awarded for the equity component of the MIP and then to grant a number of shares of restricted stock that have a fair market value equal to that amount on the date of grant.grant, rounded to avoid fractional shares. The fair market value is determined based on the closing price of the stock on the date of grant. WithFor named executive officers, awards are generally made at the January meeting of the Board of Directors each year. For all other employees, with the exception of significant promotions and new hires, awards are generally made at the December meeting of the Board of Directors each year. However, because the target goal was not met in 2010, the Committee delayed the equity compensation award for the CEO, CFO and the President and CEO of the Mortgage Corporation until January 2011, by which time the Corporation’s 2010 financial results could be further evaluated for discretionary award consideration. The restricted stock granted for 20102013 performance under the MIP is “time based.” In order for the restricted stock to be earned or vest, the employee must remain employed for a period of five years after the date of grant. Once restricted stock awards vest, employees may not sell more than 50% of the award until a minimum level of stock ownership by the employee is achieved. Minimum ownership levels range from three times annual base salary for the CEO, one and one-half times annual base salary for the other named executive officers, one times annual base salary for other senior officers, and for other selected officers one-half of such officer’s annual base salary. In addition, because the President and CEO of the Mortgage Corporation was the most highly compensated employee for 2010, his equity-based award under the MIP was made in shares of long-term restricted stock that contained the additional provisions required to qualify for the exception to the general bonus prohibition imposed by the TARP Standards.
As mentioned above, the Committee engaged PM&P in August of 2010 to review executive compensation. See “2010 Executive Compensation Review” on pages 16 and 17 for further discussion, including changes made to the MIP for 2011 equity-based awards.
Retirement and Other Benefits. Throughout 2008, the The Bank hadmaintains a tax-qualified non-contributory defined benefit retirementcash balance pension plan known as the VBA Master Defined Benefit Plan for Citizens and Farmers Bank (the “Retirement Plan”) covering substantially all Bank employees who had reached the age of 21 and had been fully employed for at least one year. The Retirement Plan historically provided participants with retirement benefits based on a benefit formula related to salary and years of credited service. Effective December 31, 2008, the Retirement Plan was converted to a tax-qualified cash balance pension plan, whereby benefits earned by participants under the Retirement Plan through December 31, 2008 were converted to an opening account balance for each participant. The opening account balance was calculated based on IRS mandated assumptions for lump sum payouts. The Corporation converted the Retirement Plan to a cash balance pension plan to reduce plan expense.
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Under the cash balance plan, each participant’s account receives two forms of credits: compensation credits and interest credits. Compensation credits equal a percentage of each participant’s compensation. Compensation for this purpose includes both salary and bonus, subject to the compensation limit applicable to tax-qualified plans, which limit was $245,000$255,000 for 2010.2013. The applicable compensation credit percentage ranges between 1% and 12% depending on the participant’s combined age and years of credited service at the end of each plan year. Interest credits for a year are based on the prior year’s December average yield on 30-year Treasuries plus 150 basis points.points, not to exceed the Internal Revenue Service (“IRS”) third segment rate.
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Upon termination of employment and after having completed at least three years of service, a participant will receive the amount then credited to the participant’s cash balance account in an actuarially equivalent joint and survivor annuity (if married) or single life annuity (if not married). The participant may also choose from other optional forms of benefit, including a lump sum payment in the amount of the cash balance account. The Retirement Plan does not cover non-employee directors. The amount expensed for the Retirement Plan during the year ended December 31, 20102013 was $408,453.$506,420. The Retirement Plan allows for early retirement at the age of 55. The amount available at this age will be the amount then credited to the participant’s cash balance account. Mr. Dillon is eligible for early retirement under the Retirement Plan and was entitled to a payment of $1,023,802$1,278,070 as of December 31, 2010.2013.
The Bank maintains a tax-qualified 401(k) plan known as the Virginia Bankers Association Master Defined Contribution Plan for Citizens and Farmers Bank (the “Savings Plan”), pursuant to which all Bank employees, including the CEO and CFO, may make pre-tax contributions to the plan of up to 95% of covered compensation, subject to certain limitations on the amount under federal law. The Bank will match 100% of the first 5% of pay that is contributed to the Savings Plan, subject to statutory limitations. All employee contributions to the Savings Plan are fully vested upon contribution and Bank matching contributions vest at 20% annually beginning after two years of service and are fully vested at six years of service, or earlier in the event of retirement, death or attainment of age 65 while an employee.
In addition, each plan year, the Bank may make a profit sharing contribution to the Savings Plan. The amount of such contribution, if any, is within the discretion of the Bank’s Board of Directors and will be determined during each plan year. Such contributions are only allocated to “covered participants,” which designation is determined annually based on working at least 1,000 hours and being employed on the last day of the year (or ceasing employment due to retirement or death). The CEO and CFO were covered participants in 2010.2013. For a covered participant, any profit sharing contribution is allocated to the employee’s account based on the proportion of the employee’s covered compensation to the covered compensation of all other covered participants. Profit sharing contributions are subject to the same vesting rules that apply to matching contributions under the Savings Plan. There was no profit sharing contribution to the Savings Plan for 2010.2013.
The Mortgage Corporation also maintains a tax-qualified 401(k) plan known as the C&F Mortgage Corporation 401(k) Plan (the “401(k) Plan”) pursuant to which eligible Mortgage Corporation employees can make pre-tax contributions of from 1% to 100% of compensation (with a discretionary company match), subject to statutory limitations. Substantially all employees of the Mortgage Corporation, including the President and CEO of the Mortgage Corporation, who have attained the age of 18 are eligible to participate on the first day of the next month following their employment date. The 401(k) Plan provides for an annual discretionary matching contribution to the account of each “eligible participant,” based in part on the Mortgage Corporation’s profitability for the year and on each employee’s contributions to the 401(k) Plan. The 401(k) Plan also permits an additional annual discretionary employer contribution for “eligible participants,” which is allocated to an employee’s account based on the proportion of the employee’s covered compensation to the covered compensation of all other eligible participants. “Eligible participants” are determined annually based on working at least 1,000 hours and being employed on the last day of the year. All employee contributions are fully vested upon contribution. An employee is vested in the employer’s contributions 25% after two years of service, 50% after three years of service, 75% after four years of service, and fully vested after five years or attainment of age 65 while employed.
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In addition to the Savings Plan and the 401(k) Plan, named executive officers and certain other eligible executives of the Corporation and its subsidiaries can participate in a non-qualified deferred compensation plan known as the Restated VBA Executives’ Non-Qualified Deferred Compensation Plan for C&F Financial Corporation (the “Nonqualified Plan”). The Nonqualified Plan is designed to provide for deferral opportunities otherwise restricted by qualified plan limits and to establish a long-term retention incentive for our executives. The plan provides for five types of deferrals:
(1) Employee deferrals whereby certain employees are permitted to make deferrals of salary or cash incentive compensation. The CEO, CFO and President and CEO of the Mortgage Corporation did not elect any deferral of salary or cash incentive compensation for 2010.2013.
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(2) Excess match deferrals whereby the Corporation contributes to the Nonqualified Plan the amount of employer matching contributions in excess of statutory limitations. Any matching amounts in excess of the maximum annual pre-tax contribution for qualified retirement plans allowed by the Internal Revenue Service are deposited in the Nonqualified Plan. For the CEO and CFO, the amount accrued in 20102013 was $2,150.$9,000 and $4,750 respectively. The CFO and President and CEO of C&F Mortgage Corporation did not receive an excess match deferral for 2010.2013.
(3) Excess profit sharing deferrals whereby the Corporation contributes to the Nonqualified Plan the amount of discretionary employer profit sharing contributions in excess of statutory limitations. No employer profit sharing contribution was made for 2010.2013.
(4) Excess cash balance deferrals whereby the Corporation contributes to the Nonqualified Plan the amount entitled under the Retirement Plan in excess of statutory limitations. For the CEO and CFO, the amount accrued in 20102013 was $3,080.$21,600 and $10,000 respectively. The CFO and President and CEO of C&F Mortgage Corporation did not receive excess cash balance deferrals in 2010. The ability to make these contributions to the Nonqualified Plan was added to the plan during 2009 so that an employee would not be penalized by arbitrary statutory limitations imposed by the Internal Revenue Service.2013.
(5) Supplemental retirement deferrals whereby the Corporation makes discretionary employer contributions for the CEO in recognition of his performance and service, and discretionary employer contributions for the CFO as a retention incentive consistent with the Corporation’s overall compensation strategy. For the CEO and CFO, the amounts accrued in 20102013 were $50,000 and $20,500,$24,000, respectively. While the contributions for the CEO vest immediately, the contributions for the CFO do not vest until death, disability, retirement or change in control. The President and CEO of C&F Mortgage Corporation was not awarded a supplemental deferral for 2010.2013.
The TARP Standards generally prohibit payments to any of the named executive officers as a result of a termination of employment or certain change in control events during the TARP Period. However, payments pursuant to the tax-qualified Retirement Plan, Savings Plan and 401(k) Plan and, to the extent benefits are not enhanced (for example, accelerated vesting) by reason of a change in control event, pursuant to the Nonqualified Plan are exempt from this prohibition.
Perquisites. The annual cost to the Corporation of perquisites, including mandatory executive physicals every two years, use of a Corporation-owned automobile, matching charitable contributions, club dues and tax preparation assistance common among the Corporation’s peer financial institutions, provided to the CEO exceeded $10,000 in the aggregate for 2012, but did not exceed $10,000 in the aggregate for 2010, 2009 or 2008.2013 and 2011.
The annual cost to the Corporation of perquisites, including mandatory executive physicals every two years, use of a Corporation-owned automobile, matching charitable contributions and club dues for the CFO did exceedexceeded $10,000 in the aggregate for 2010 but did not for 2009 or 2008.2013, 2012 and 2011. These amounts for 20102013 are detailed in note 1 to the All Other Compensation Table for 20102013 on page 33. 28.
The CEO and the CFO also participate in other benefit plans on the same terms as other employees. These plans include medical, dental, life, and disability insurance.
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The annual cost to the Corporation of perquisites, including use of a Corporation-owned automobile matchingand charitable contributions for 2013 and the use of a Corporation-owned automobile, charitable contributions and payments for medical and dental insurance in excess of those made for all salaried employees for 2012 and 2011, provided to the President and CEO of the Mortgage Corporation exceeded $10,000 in the aggregate for 2012 and 2011 but did not exceed $10,000 in the aggregate in 2013.
Change in Vacation Policy. In December 2011, the Bank amended its vacation policy for 2010, 2009all employees to reduce the amount of unused vacation that can be accrued and 2008. These amounts for 2010 are detailed in note 1carried forward to future periods. Specifically with regard to the All Other Compensation TableCEO and the CFO, prior to this amendment, the CEO and the CFO each could carry forward an unlimited amount of unused vacation. Beginning in 2012, a 120-hour vacation carryover limit was established for 2010the CEO and the CFO each. In connection with this policy change, in January 2012, the Bank made a one-time payout to affected employees, including the CEO and the CFO, of unused vacation accrued in excess of this carryover limit through December 31, 2011.
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Prohibition on page 33.Hedging and Pledging Transactions. Under the Corporation’s insider trading policy, directors and executive officers, including the named executive officers, are prohibited from (i) pledging the Corporation’s stock as collateral for loans and (ii) selling the Corporation’s stock “short,” trading in the Corporation’s stock in or through a margin account or otherwise engaging in hedging transactions or speculative or short-term trading of the Corporation’s stock. These provisions are part of the Corporation’s overall program to prevent the Corporation’s directors and executive officers, including the named executive officers, from trading on material non-public information.
Employment and Change in Control Agreements.As is typical in the mortgage industry, Mr. McKernon is employed by the Mortgage Corporation under an employment agreement originally dated November 30,entered into in 1995 and amended in 1998, 2002, 2006 and 2008.restated as of January 1, 2013. Under the agreement, the Mortgage Corporation has employed Mr. McKernon as its President and CEO under a three-year “evergreen” agreement, which remains in effect at all times unless and until terminated as permitted by the agreement. Either party, by notice to the other at any time and for any reason, may give notice of an intention to terminate the agreement three years from the date notice is received by the other. Additionally, either party may terminate the agreement in the event the Mortgage Corporation fails to meet certain specified financial performance criteria for a stipulated period or of a stipulated amount within a prescribed time period. The agreement terminates upon the death or disability of Mr. McKernon, or upon the failure of either party to fulfill its obligations under the agreement. Under the agreement, the Mortgage Corporation in 20102013 paid Mr. McKernon an annual base salary of $195,000,$220,000, payable in monthly installments. The Mortgage Corporation also is obligated to pay Mr. McKernon a bonus, computed and paid on a monthly basis, based upon a variable percentage of the Mortgage Corporation’s financial performance for the preceding month, subject to adjustment annually in order that the total bonus for a fiscal year will be equal to the specified percentage as determined by the year-end financial performance amount on which the bonus is based. The Mortgage Corporation has the right, at any time and at its option, to “buy out” Mr. McKernon’s agreement and terminate his employment for an amount based upon the Mortgage Corporation’s financial performance. In the event of a buy out of the agreement and termination of his employment for any reason other than pursuant to a three-year notice, the Mortgage Corporation also may purchase a limited non-competitionnon-solicitation commitment from Mr. McKernon.
The agreement also provides that Mr. McKernon will be entitled, during his employment, to benefits commensurate with those furnished to other employees of the Mortgage Corporation and to life insurance equal to three times his base salary.Corporation. The agreement also contains provisions requiring confidentiality of information regarding the Mortgage Corporation. Mr. McKernon may terminate his employment agreement upon an event of “covered termination” as defined in his change in control agreement. Any termination of the employment agreement also will terminate Mr. McKernon’s change in control agreement, except a termination of his employment agreement as described in the preceding sentence.
The agreement provides that any incentive-based compensation or award Mr. McKernon receives will be subject to any clawback required pursuant to law, rule, regulation or stock exchange listing requirement or any policy of the Corporation adopted pursuant to any such law, rule, regulation or listing requirement.
The Corporation has entered into “change in control agreements” with the CEO, CFO and the President and CEO of the Mortgage Corporation because the Board has determined that it is in the best interest of the Corporation and its shareholders to have the continued dedication of these executives, notwithstanding the possibility, threat or occurrence of a change in control. The agreement for the CEO provides certain payments and benefits in the event of a termination of his employment by the Corporation without “cause,” or by the CEO for “good reason,” during the period beginning on the occurrence of a “change in control” (as defined in the agreement) of the Corporation and ending 61 days after the second anniversary of the change in control date. In such event, the CEO would be entitled (i) to receive in a lump sum, two and one-half times the sum of his highest annual base salary during the 24-month period preceding the change in control date and his highest annual bonus for the three fiscal years preceding the change in control date; (ii) for a period of three years following termination, to receive continuing health insurance, life insurance, and similar benefits under the Corporation’s welfare benefit plans and to have the three-year period credited as service towards completion of any service requirement for retiree coverage under the Corporation’s welfare benefit plans; and (iii) if the CEO requests within six months after his termination, to have the Corporation acquire his primary residence for its appraised fair market value.
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The agreements for the CFO and the President and CEO of the Mortgage Corporation provide certain payments and benefits in the event of a termination of their employment by the Corporation without “cause,” or by the CFO and the President and CEO of the Mortgage Corporation for “good reason,”reason” within the period of coverage following a change in control. In March 2012, the agreements for the CFO and the President and CEO of the Mortgage Corporation were amended to provide for the same period of coverage as in the CEO’s agreement. As a result, the agreements for the CFO and the President and CEO of the Mortgage Corporation now provide for the payments and benefits described below in the event of a covered termination during the period beginning on the occurrence of a “changechange in control” (as defined in the agreement) of the Corporationcontrol and ending 61 days after the firstsecond anniversary of the change in control date. In such event, the CFO and the President and CEO of the Mortgage Corporation would each be entitled (i) to receive in a lump sum, two times his highest annual base salary during the 24-month period preceding the change in control date and (ii) for a period of two years following termination, to receive continuing health insurance, life insurance, and similar benefits under the Corporation’s welfare benefit plans and to have the two-year period credited as service towards completion of any service requirement for retiree coverage under the Corporation’s welfare benefit plans. In addition, the CFO would be entitled to two times his highest annual bonus for the three fiscal years preceding the change in control date.
Under these agreements following a change in control, the CEO, CFO and the President and CEO of the Mortgage Corporation may voluntarily terminate their employment for “good reason” and become entitled to these payments and benefits under certain circumstances. These circumstances include, but are not limited to, a material adverse change in position, authority or responsibilities, or a reduction in rate of annual base salary, benefits (including incentives, bonuses, stock compensation, and retirement and welfare plan coverage) or other perquisites as in effect immediately prior to the change in control date, as well as a right to terminate voluntarily during the 60-day periods after the change in control date, the first anniversary of the change in control date and the second anniversary of the change in control date. If any payments to or benefits under (collectively, “payments”) these change in control agreements would be subject to excise tax as an “excess parachute payment” under federal income tax rules, the Corporation has agreed to pay the CEO, CFO and the President and CEO of the Mortgage Corporation additional amounts (“gross-up payments”) to adjust for the incremental tax costs of such payments. However, if such payments and gross-up payments do not provide a net after-tax benefit of at least $25,000, as compared to the net after-tax proceeds resulting from an elimination of the gross-up payments and a reduction of the payments such that the receipt of payments would not give rise to any excise tax, then payments and benefits provided under the agreements will be reduced, so that the CEO, CFO and the President and CEO of the Mortgage Corporation will not be subject to a federal excise tax.
As noted above, as a condition to closing the transaction under the Capital Purchase Program, on January 9, 2009, the Corporation executed an omnibus benefit plan amendment (the “Omnibus Benefit Plan Amendment”) to modify the compensation, bonus, incentive and other benefit plans, arrangements and policies and agreements of the Corporation to comply with the executive compensation provisions of the EESA, as subsequently amended or implemented. As noted above, on January 9, 2009, each of Mr. Dillon, Mr. Cherry and Mr. McKernon also executed a consent to the Omnibus Benefit Plan Amendment, including any future amendments necessary to comply with the EESA, as it may be amended or implemented, and executed a waiver voluntarily waiving any claim against Treasury or the Corporation for any changes to his compensation or benefits that are required by the executive compensation provisions applicable to Capital Purchase Program participants. These executive compensation provisions prohibit any golden parachute payment such as the change in control agreements mentioned above for the named executive officers and also prohibit the Corporation from providing gross-up payments to any of the named executive officers during the TARP Period. Therefore, any payments which could have been made under these agreements to Mr. Dillon, Mr. Cherry or Mr. McKernon in 2010 if the triggering events had occurred would have been limited in accordance with the TARP Standards.
The Corporation does not provide for payments upon termination outside of the change in control agreements, but may negotiate individual severance packages with departing executives on a case-by-case basis, subject to the application of the TARP Standards during the TARP Period.basis. For terminations due to retirement, early retirement, disability and death, vesting of any unvested stock options, restricted stock and retirement benefits occur at the date of termination. Assuming termination for any of these reasons had occurred on December 31, 2010,2013, because all outstanding stock options were already fully vested, these types of terminations would only trigger additional vesting of restricted stock and retirement benefits. The value of restricted stock vesting would have been $178,480, $161,748$671,349, $659,932 and $111,550$173,546 for the CEO, CFO and President and CEO of Mortgage Corporation, respectively. The value of retirement benefits vesting would have been $202,817$377,106 for the CFO. The CEO and the President and CEO of the Mortgage Corporation would not have experienced any
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additional vesting with respect to retirement benefits because they are fully vested. The TARP Standards, however, would have prohibited the accelerated vesting upon termination due to retirement or early retirement on December 31, 2010 for the named executive officers.
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The following table shows the potential payments upon termination, including following a change ofin control of the Corporation, for the named executive officers.officers based on agreements and plans in effect as of December 31, 2013. The amounts in this table are calculated assuming the change in control or termination event occurred on December 31, 20102013 and all executives were paid in a lump sum payment.
Executive Payments and Benefits upon Termination Table(9)
Severance Compensation | Benefits and Perquisites | Severance Compensation | Benefits and Perquisites | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Name and Principal Position | Severance | Performance - Based Incentive Compensation | Unvested and Accelerated Restricted Stock | Welfare Benefits | Supplemental Retirement Benefits | 280G Tax Gross-ups5,6 | Total | Severance | Performance - Based Incentive Compensation | Unvested and Accelerated Restricted Stock | Welfare Benefits | Supplemental Retirement Benefits | 280G Tax Gross-ups5,6 | Total | ||||||||||||||||||||||||||||||||||||||||||
Larry G. Dillon Chairman/President/Chief Executive Officer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Larry G. Dillon | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chairman/President/Chief Executive Officer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Voluntary Termination1 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
By Corporation without Cause1 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
By Corporation with Cause1 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Change in Control2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
By Corporation without Cause | $ | 632,500 | $ | 187,500 | $ | 178,480 | $ | 29,130 | — | $ | 384,729 | $ | 1,412,339 | $ | 712,500 | $ | 560,000 | $ | 671,349 | $ | 34,676 | — | $ | 859,397 | $ | 2,837,922 | ||||||||||||||||||||||||||||||
By Executive with Good Reason | $ | 632,500 | $ | 187,500 | $ | 178,480 | $ | 29,130 | — | $ | 384,729 | $ | 1,412,339 | $ | 712,500 | $ | 560,000 | $ | 671,349 | $ | 34,676 | — | $ | 859,397 | $ | 2,837,922 | ||||||||||||||||||||||||||||||
Retirement | — | — | $ | 178,480 | — | — | — | $ | 178,480 | — | — | $ | 671,349 | — | — | — | $ | 671,349 | ||||||||||||||||||||||||||||||||||||||
Disability8 | — | — | $ | 178,480 | — | — | — | $ | 178,480 | — | — | $ | 671,349 | — | — | — | $ | 671,349 | ||||||||||||||||||||||||||||||||||||||
Death8 | — | — | $ | 178,480 | — | — | — | $ | 178,480 | — | — | $ | 671,349 | — | — | — | $ | 671,349 | ||||||||||||||||||||||||||||||||||||||
Thomas F. Cherry Executive Vice President/ Chief Financial Officer/ Secretary | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas F. Cherry | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Vice President/Chief Financial Officer/Secretary | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Voluntary Termination1 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
By Corporation without Cause1 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
By Corporation with Cause1 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Change in Control3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
By Corporation without Cause | $ | 410,000 | $ | 150,000 | $ | 161,748 | $ | 23,813 | $ | 202,817 | $ | 382,551 | $ | 1,330,929 | $ | 480,000 | $ | 404,000 | $ | 659,932 | $ | 28,042 | $ | 377,106 | $ | 868,679 | $ | 2,817,759 | ||||||||||||||||||||||||||||
By Executive with Good Reason | $ | 410,000 | $ | 150,000 | $ | 161,748 | $ | 23,813 | $ | 202,817 | $ | 382,551 | $ | 1,330,929 | $ | 480,000 | $ | 404,000 | $ | 659,932 | $ | 28,042 | $ | 377,106 | $ | 868,679 | $ | 2,817,759 | ||||||||||||||||||||||||||||
Retirement7 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Disability8 | — | — | $ | 161,748 | — | $ | 202,817 | — | $ | 364,565 | — | — | $ | 659,932 | — | $ | 377,106 | — | $ | 1,037,038 | ||||||||||||||||||||||||||||||||||||
Death8 | — | — | $ | 161,748 | — | $ | 202,817 | — | $ | 364,565 | — | — | $ | 659,932 | — | $ | 377,106 | — | $ | 1,037,038 | ||||||||||||||||||||||||||||||||||||
Bryan E. McKernon President/Chief Executive Officer of C&F Mortgage | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bryan E. McKernon9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
President/Chief Executive OfficerofC&F Mortgage | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Voluntary Termination1 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
By Corporation without Cause1 | $ | 146,250 | — | — | — | — | $ | 146,250 | $ | 165,000 | — | — | — | — | $ | 165,000 | ||||||||||||||||||||||||||||||||||||||||
By Corporation with Cause1 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Change in Control4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
By Corporation without Cause | $ | 390,000 | — | $ | 111,550 | $ | 40,987 | — | — | $ | 542,537 | $ | 440,000 | — | $ | 173,546 | $ | 29,644 | — | — | $ | 643,190 | ||||||||||||||||||||||||||||||||||
By Executive with Good Reason | $ | 390,000 | — | $ | 111,550 | $ | 40,987 | — | — | $ | 542,537 | $ | 440,000 | — | $ | 173,546 | $ | 29,644 | — | — | $ | 643,190 | ||||||||||||||||||||||||||||||||||
Retirement7 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Disability8 | — | — | $ | 111,550 | — | — | — | $ | 111,550 | — | — | $ | 173,546 | — | — | — | �� | $ | 173,546 | |||||||||||||||||||||||||||||||||||||
Death8 | — | — | $ | 111,550 | — | — | — | $ | 111,550 | — | — | $ | 173,546 | — | — | — | $ | 173,546 |
1 | There are no payments due for the CEO or CFO under separation of service voluntarily by the executive or by the Corporation with or without cause. The President and CEO of the Mortgage Corporation would receive a severance payment equal to nine months of his base salary if the Corporation elected to terminate his services without cause. |
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2 | The severance and performance-based incentive compensation upon change in control for the CEO represents two and one-half times his highest annual base salary during the 24 months preceding the assumed change in control date and two and one-half times his highest annual bonus in the three years preceding the assumed change in control date. The equity amounts represent the fair market value of |
3 | The severance and performance-based incentive compensation upon change in control for the CFO represents two times the highest annual base salary during the 24 months preceding the assumed change in control date and two times the highest annual bonus in the three years preceding the assumed change in control date. The equity amounts represent the fair market value of |
4 | The severance upon change in control for the President and CEO of the Mortgage Corporation represents two times the highest annual base salary during the 24 months preceding the assumed change in control date. The equity amount represents the fair market value of |
5 | If any payments to or benefits under (collectively, “payments”) the change in control agreements would be subject to excise tax as an “excess parachute payment” under federal income tax rules, the Corporation has agreed to pay the CEO, CFO, and the President and CEO of the Mortgage Corporation additional amounts (“gross-up payments”) to cover the excise tax liability and the taxes on the gross-up payment (provided the net after-tax benefit to the executive is at least $25,000 greater than providing no gross-up payment and cutting the payments back to the maximum on which no excise tax would be due). The amount shown represents the estimated amount of tax gross-up payment for the CEO and CFO. |
6 | The President and CEO of the Mortgage Corporation would not have been subject to excise taxes on these change in control payments. |
7 | The CFO and President and CEO of the Mortgage Corporation were not eligible for retirement on December 31, |
8 | Payments for separation of service due to disability or death include accelerated vesting of restricted stock for the CEO, CFO, and President and CEO of the Mortgage Corporation. In addition, the CFO would be immediately vested in supplemental retirement benefits of |
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Compensation Process.The Committee determines and recommends to the Board of Directors the compensation of the CEO. The Committee also approves all compensation of the Corporation’s executive officers and certain other senior officers of the Corporation and its subsidiaries, which include the CFO, Senior Vice President of Retail, Chief Credit Officer, Regional Presidents, the Senior Vice President of Human Resources of the Bank and the President and Senior Vice Presidents of C&F Finance.
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The Committee evaluates both performance and compensation to ensure that the Corporation maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of the Corporation’s peer companies.
The Committee, on its own initiative, reviews the performance and compensation of each of these senior officers and following discussions with the CEO and, as it deems appropriate, a compensation consultant or other appropriate advisors, establishes the senior officers’ compensation levels. For the remaining officers, the CEO makes recommendations to the Committee that, generally with minor adjustments, are approved.
In consultation with senior management, the Committee approves the Corporation’s compensation philosophy to ensure that it is consistent with the Board’s intent, as well as the long-term interests of the Corporation’s shareholders. This includes, but is not limited to, annual review and approval of goals and objectives relevant to the compensation of the CEO, and evaluation of the performance of the CEO in light of these goals and objectives. The Committee reviews and approves, as appropriate, any new incentive compensation plans, including equity-based plans, and, as may be required, any amendments to existing plans relating to executive officers and other senior officers.
The Committee also acts as the Incentive Stock Committee for the Corporation’s stock incentive plans and recommends awards to the Board of Directors for approval, including stock options, restricted stock awards, performance stock awards, restricted stock units or other similar awards as provided in the 2004 Incentive Stock Plan, to any executive officer, officer or employee of the Corporation.
Tax and Accounting Implications.As part of its role, the Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code (the “Code”), which provides that the Corporation may not deduct non-performance-based compensation of more than $1,000,000 annually that is paid to certain individuals. The Corporation has established and operated the MIP without regard to deductibility under Section 162(m) of the Code of compensation payable pursuant to it in order to provide the Committee flexibility in adjusting awards when it deems adjustment is warranted. In addition, the Corporation may choose to pay compensation that will not be deductible under Section 162(m) of the Code in order to ensure competitive levels of total compensation for its executive officers. As a Capital Purchase Program participant, the Corporation may not deduct compensation of more than $500,000 to its “senior executive officers” each year during the TARP Period. This limitation applies to deferred compensation, commission pay and performance-based compensation. The Corporation may pay compensation to the affected executive officers during the TARP Period without regard to this limitation, consistent with its goal of ensuring competitive levels of total compensation.
COMPENSATION COMMITTEE REPORT
As a result of the Corporation’s participation in the Capital Purchase Program, the Compensation Committee is required to meet with the Corporation’s senior risk officer to discuss, evaluate and review senior executive officer (“SEO”) compensation plans and other employee compensation plans and the risks these plans pose to the Corporation. In connection with this risk review, the Compensation Committee must identify and limit features in SEO compensation plans that could encourage SEOs to take unnecessary and excessive risks that threaten the Corporation’s value (including behavior focused on short-term results rather than long-term value creation) and identify and limit features in employee compensation plans that pose risks to the Corporation (including behavior focused on short-term results rather than long-term value creation). In addition, the Committee must discuss, evaluate and review employee compensation plans and eliminate features that could encourage the manipulation of reported earnings to enhance an employee’s compensation. These reviews must be completed every six months during the Corporation’s participation in the Capital Purchase Program commencing September 14, 2009.
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For the reviews conducted during May and November of 2010, the Committee identified the following plans in which the SEOs participate:COMPENSATION COMMITTEE REPORT
The MIP that governs cash bonuses for the CEO and CFO and equity incentives for the CEO, CFO and the President and CEO of the Mortgage Corporation;
The employment agreement with the President and CEO of the Mortgage Corporation;
The 2004 Incentive Stock Plan;
The change in control agreements with the CEO, CFO and the President and CEO of the Mortgage Corporation;
The Nonqualified Plan; and
Various retirement plans.
All of the above plans are discussed in detail in the “Compensation Discussion and Analysis” section preceding this report.
The Compensation Committee’s risk and manipulation reviews included the following procedures:
With input from management and legal counsel, reviewed existing SEO and employee incentive compensation plans and established a process for conducting the periodic risk reviews;
Briefed the Senior Risk Officer (“SRO”) on issues such as the Corporation’s compensation philosophy, incentive plan designs, performance metrics and payout curves that drive incentive payouts, and the executive performance appraisal process;
Directed the SRO to conduct the risk assessment and manipulation reviews;
Met with the SRO and identified (i) the short-term and long-term risks faced by the Corporation that could harm its value and threaten its existence as a successful enterprise and (ii) any features of existing incentive compensation plans that might encourage the Corporation’s employees to take those risks. The features of the Corporation’s incentive compensation arrangements reviewed included:
Performance measures used in the incentive compensation arrangements;
Performance target levels;
Length of the performance period; and
Overall design of the incentive compensation arrangements and the nature of the attendant risks.
Evaluated the identified risks in the context of the Corporation’s financial condition, competitive position, overall business climate and other factors which may influence the likelihood of realization of the risks and the magnitude of any such realization;
Determined whether an identified risk is reasonable or could jeopardize the Corporation’s viability within the current economic environment, taking into consideration any ongoing risk detection and management procedures already in place;
Considered whether to make any changes to incentive plan designs or related administrative practices to reduce or eliminate the possibility that employees will be motivated to take (and/or be rewarded for taking) unnecessary and excessive risks;
Discussed the results of the risk assessments and any necessary changes with senior management and legal counsel and considered their input; and
Briefed the Board, describing the results of the risk assessments and any proposed changes to reduce the incentive to take such risks.
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The Compensation Committee reached the following conclusions as a result of the risk and manipulation reviews described above:
The cash bonuses that are awarded to the CEO and CFO are based on targets established by the Committee as part of the MIP as discussed in the “Compensation Discussion and Analysis.” Base salaries for the CEO and CFO continue to be the majority of their cash compensation and are sufficient to avoid unnecessary or excessive risk taking. Notwithstanding the cash bonus determinations under the MIP, the cash bonus can be reduced or withheld if the Committee determines that the CEO or CFO has exposed the Corporation to unnecessary or excessive risk taking. The Committee believes that the MIP does not encourage the SEOs to take unnecessary and excessive risks that threaten the value of the Corporation or the manipulation of reported earnings to enhance the compensation of any employee.
The employment agreement with the President and CEO of the Mortgage Corporation provides for cash bonuses to be paid based on the profitability of the Mortgage Corporation. This employment agreement was entered into when the Mortgage Corporation was formed. As noted earlier, the President and CEO of the Mortgage Corporation was responsible for bringing all of the critical personnel and operations of the Mortgage Corporation to the Corporation, at no cost to the Corporation. As a result, his employment agreement includes a bonus provision for a percentage of future profits. Because of this highly leveraged component of the employment agreement, the Committee considered several mitigating factors when assessing risk. These factors included, but were not limited to, the following:
A portion of the bonus is withheld until all year-end adjustments to the Mortgage Corporation’s income have been made;
All significant estimates used in determining the income of the Mortgage Corporation are reviewed by the CEO and CFO of the Corporation;
The Mortgage Corporation is subject to a separate annual audit by the Corporation’s independent public accountant;
The Mortgage Corporation is subject to several audits conducted throughout the year by the Corporation’s internal auditor; and
The Mortgage Corporation is subject to annual audits from its purchasers of loans and regulatory agencies.
Based on the mitigating factors mentioned above, the Committee believes that the employment agreement with the President and CEO of the Mortgage Corporation does not encourage him to take unnecessary and excessive risks that threaten the value of the Corporation or the manipulation of reported earnings to enhance his compensation and that the mitigating factors are adequate to protect the Corporation.
The 2004 Incentive Stock Plan was approved by the Corporation’s shareholders and provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, or a combination thereof. The Committee believes that, to create value for our shareholders, it is important to utilize long-term equity incentives as a part of compensation to align the interests of management with shareholders. The awards include a long-term vesting schedule to further encourage positive long-range performance and to assist in the retention of management. In light of the long-term nature of these equity awards, the Compensation Committee believes that these equity awards do not encourage the SEOs to take unnecessary and excessive risks that threaten the value of the Corporation or the manipulation of reported earnings to enhance the compensation of any employee.
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The change in control agreements with our SEOs provide for severance payments if a termination of employment occurs under certain circumstances. As discussed in the “Compensation Discussion and Analysis,” due to the Corporation’s participation in the Capital Purchase Program, our SEOs are unable to receive any severance payments or accelerated vesting if their employment is terminated for reasons other than death or disability during the TARP Period.
The Nonqualified Plan provides for both employee and employer deferrals. In light of the long-term nature of these deferrals, the Committee believes that these deferrals do not encourage the SEOs to take unnecessary and excessive risks that threaten the value of the Corporation or the manipulation of reported earnings to enhance the compensation of any employee.
Because the contributions to and benefit formulas under the various retirement plans in which the SEOs participate are formulaic based solely on service, compensation and employee contributions, and in light of the long-term nature of these plans, the Committee believes that these plans do not encourage the SEOs to take unnecessary and excessive risks that threaten the value of the Corporation or the manipulation of reported earnings to enhance the compensation of any employee.
In addition to those plans and arrangements identified above, the Committee identified several additional employee compensation arrangements that provide for variable cash compensation bonus, commission or incentive payments to employees other than the SEOs. Each arrangement is structured for a unique group of employees and the amount received differs dependent upon job responsibilities and plan objectives. Compensation to Mortgage Corporation employees represented the majority of the variable cash compensation paid in 2010. The substantial majority of this amount related to sales commissions paid to mortgage loan origination officers in lieu of a base salary. These loan officers are compensated based on loan origination volume, which is subject to approval by a separate credit underwriting approval process. Further, variable compensation arrangements include provisions for the recapture of compensation on returned loans. Other variable cash incentive programs for other employees throughout the Corporation were also identified. The Committee reviewed the structure and implementation of these arrangements and discussed the risks they pose to the Corporation and determined that the arrangements do not encourage unnecessary and excessive risks that threaten the value of the Corporation or the manipulation of reported earnings to enhance the compensation of any employee because the arrangements are subject to appropriate internal approvals and controls.
As discussed in the “Compensation Discussion and Analysis” and elsewhere above, due to the restrictions imposed on Capital Purchase Program participants, the SEOs and the next five most highly compensated employees are generally unable to receive any severance payments or accelerated vesting if their employment is terminated for reasons other than death or disability during the TARP Period, other than vested benefits under employee benefit plans. In addition, the employee plans now contain a clawback provision, which requires the SEOs and the next 20 most highly compensated employees to return to the Corporation any bonus payment if it is subsequently discovered that the bonus payment was based on materially inaccurate financial statements or any other materially inaccurate performance criteria. The clawback provision is effective for a period of two years after the payment date of the bonus.
The Compensation Committee certifies that:
It has reviewed with the senior risk officer the SEO compensation plans and has made all reasonable efforts to ensure that these plans do not encourage SEOs to take unnecessary and excessive risks that threaten the value of the Corporation;
It has reviewed with the senior risk officer the employee compensation plans and has made all reasonable efforts to limit any unnecessary risks these plans pose to the Corporation; and
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It has reviewed the employee compensation plans to eliminate any features of these plans that would encourage the manipulation of reported earnings of the Corporation to enhance the compensation of any employee.
The Compensation Committee of the Corporation has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement.
Compensation Committee
J.P.J. P. Causey Jr., Chairman
Barry R. Chernack
James H. Hudson III
Summary Compensation Table for 20102013
The table below summarizes the total compensation paid or earned by each of the Corporation’s named executive officers for the fiscal years ended December 31, 2010, 20092013, 2012 and 2008.2011.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards1 ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation2 ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings3 ($) | All Other Compensation4 ($) | Total ($) | Year | Salary1 ($) | Bonus2 ($) | Stock Awards3 ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation4 ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings5 ($) | All Other Compensation6 ($) | Total ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Larry G. Dillon | 2010 | $ | 253,000 | — | $ | 60,630 | — | $ | 75,000 | $ | 83,287 | $ | 74,730 | $ | 546,647 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2009 | $ | 248,000 | — | $ | 12,870 | — | $ | 35,000 | $ | 81,719 | $ | 47,990 | $ | 425,579 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2008 | $ | 243,000 | — | — | — | $ | 22,000 | $ | 90,281 | $ | 46,410 | $ | 401,691 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Larry G. Dillon | 2013 | $ | 285,000 | — | $ | 157,443 | — | $ | 224,000 | $ | 83,965 | $ | 106,139 | $ | 856,547 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | $ | 328,355 | — | $ | 99,575 | — | $ | 150,000 | $ | 78,517 | $ | 117,782 | $ | 774,229 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2011 | $ | 268,000 | — | $ | 76,560 | — | $ | 135,000 | $ | 91,786 | $ | 88,405 | $ | 659,751 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas F. CherryExecutive | 2010 | $ | 205,000 | — | $ | 60,630 | $ | 75,000 | $ | 25,386 | $ | 51,053 | $ | 417,069 | 2013 | $ | 240,000 | $ | 55,000 | $ | 157,443 | — | $ | 147,000 | $ | 32,207 | $ | 79,195 | $ | 710,845 | ||||||||||||||||||||||||||||||||||||||||||
2009 | $ | 200,000 | — | $ | 9,653 | — | $ | 35,000 | $ | 29,695 | $ | 35,613 | $ | 309,961 | 2012 | $ | 288,066 | — | $ | 99,575 | — | $ | 140,000 | $ | 30,680 | $ | 81,266 | $ | 639,587 | |||||||||||||||||||||||||||||||||||||||||||
2008 | $ | 180,000 | — | — | — | $ | 22,000 | $ | 21,704 | $ | 35,590 | $ | 259,294 | 2011 | $ | 220,000 | — | $ | 76,560 | — | $ | 135,000 | $ | 32,606 | $ | 63,080 | $ | 527,246 | ||||||||||||||||||||||||||||||||||||||||||||
Bryan E. McKernon | 2010 | $ | 195,000 | — | $ | 15,158 | — | $ | 218,437 | — | $ | 26,878 | $ | 455,473 | 2013 | $ | 220,000 | — | $ | 32,296 | — | $ | 508,322 | — | $ | 6,756 | $ | 767,374 | ||||||||||||||||||||||||||||||||||||||||||||
2009 | $ | 195,000 | — | $ | 9,653 | — | $ | 1,116,107 | — | $ | 27,325 | $ | 1,348,085 | 2012 | $ | 195,000 | — | $ | 21,338 | — | $ | 665,684 | — | $ | 38,668 | $ | 920,690 | |||||||||||||||||||||||||||||||||||||||||||||
2008 | $ | 195,000 | — | — | — | $ | 442,147 | — | $ | 25,932 | $ | 663,079 | 2011 | $ | 195,000 | — | $ | 17,400 | — | $ | 418,138 | — | $ | 38,965 | $ | 669,503 |
1 | The amounts in this column for 2012 for the CEO and the CFO include the base salary earned in 2012 by the CEO and the CFO of $275,000 and $230,000, respectively, as well as a one-time vacation payout of $53,355 for the CEO and $58,066 for the CFO. In December 2011, the Bank amended its vacation policy for all its employees, which is discussed in further detail on page 22 under the heading “Change in Vacation Policy.” |
2 | In light of his work performed in connection with the acquisition of CVBK during 2013, the Committee awarded the CFO a bonus of $55,000, which is in addition to the award earned under the MIP. |
3 | The amounts in this column reflect the grant date fair value for restricted stock granted during fiscal years ended December 31, |
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The amounts in this column reflect the annual cash awards earned by the CEO and CFO under the MIP, which is discussed in further detail on |
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MIP performance goals. For the CFO, the amount reported is the reduced amount he |
The amounts in this column reflect the actuarial increase in the present value of the named executive officers’ accumulated benefits under the Retirement Plan established by the Corporation determined using credits based on age and years of service and interest credits consistent with those used in the Corporation’s audited financial statements. |
The amounts in this column for |
All Other Compensation Table for 20102013
Name | Perquisites and Other Personal Benefits1 | Tax Gross- Ups and Reimbursements | Dividends Paid on Stock Awards | Discounted Securities Purchases | Payments/ Accruals on Termination Plans | Corporation Contributions to Defined Contribution Plans2 | Corporation- paid Insurance Premiums3 | Other | Perquisites and Other Personal Benefits1 | Tax Gross- Ups and Reimbursements | Dividends Paid on Stock Awards | Discounted Securities Purchases | Payments/ Accruals on Termination Plans | Corporation Contributions to Defined Contribution Plans2 | Corporation- paid Insurance Premiums | Other | ||||||||||||||||||||||||||||||||||||||||||||||||
Larry G. Dillon | — | — | $ | 7,250 | — | — | $ | 67,480 | — | — | — | — | $ | 12,789 | — | — | $ | 93,350 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Thomas F. Cherry | $ | 12,053 | — | $ | 6,500 | — | — | $ | 32,500 | — | — | $ | 15,123 | — | $ | 12,572 | — | — | $ | 51,500 | — | — | ||||||||||||||||||||||||||||||||||||||||||
Bryan E. McKernon | $ | 19,521 | — | $ | 4,813 | — | — | — | $ | 2,544 | — | — | — | $ | 3,306 | — | — | $ | 3,450 | — | — |
1 | The aggregate value of perquisites did not exceed $10,000 for the |
2 | The amounts in this column include: (i) the Corporation’s accrued contributions for |
|
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The following table summarizes certain information with respect to restricted stock granted to the President and CEO of the Mortgage Corporation and the cash and restricted stock awards granted to the CEO and CFO during or for the year ended December 31, 20102013 under the Corporation’s MIP, and reflects the amounts that could have been paid under each such award under the MIP.
Grants of Plan-Based Awards for 20102013
Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards1 | Estimated Possible Payouts Under Equity Incentive Plan Awards2 | All Other Stock Awards: Number of Shares of Stock or Units3 (#) | Grant Date Fair Value of Stock and Option Awards4 ($) | Fair Value of Actual Awards Received5 ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards1 | Estimated Possible Payouts Under Equity Incentive Plan Awards2 | All Other Stock Awards: Number of Shares of Stock or Units3 | Grant Date Fair Value of Stock and Option Awards4 | Fair Value of Actual Awards Received5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) | Grant Date | ($) | ($) | ($) | ($) | ($) | ($) | (#) | ($) | ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash | $ | 56,925 | $ | 113,850 | $ | 227,700 | $ | 64,125 | $ | 128,250 | $ | 256,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity | 3/15/2010 | — | $ | 113,850 | $ | 227,700 | — | $ | 113,850 | $ | 76,560 | 1/15/2013 | $ | 64,125 | $ | 128,250 | $ | 256,500 | — | $ | 128,250 | $ | 167,880 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas F. Cherry | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash | $ | 35,875 | $ | 71,750 | $ | 143,500 | $ | 42,000 | $ | 84,000 | $ | 168,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity | 3/15/2010 | — | $ | 71,750 | $ | 143,500 | — | $ | 71,750 | $ | 76,560 | 1/15/2013 | $ | 42,000 | $ | 84,000 | $ | 168,000 | — | $ | 84,000 | $ | 167,880 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bryan E. McKernon6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity | 1/18/2011 | — | — | — | 750 | $ | 17,400 | $ | 17,400 | 1/21/2014 | — | — | — | 850 | $ | 35,675 | $ | 35,675 |
1 | The amounts shown in the threshold column reflect the minimum cash incentive payment level under the MIP, which is 50% of the amount shown in the target column, and the amounts shown in the maximum column are 200% of the target amount. Target percentages for the CEO and CFO are 45% and 35% of |
2 | Target percentages for equity incentive compensation under the MIP for the CEO and CFO are 45% and 35% of |
3 | The stock awards in this column represent the number of shares of restricted stock the Compensation Committee, in its discretion, issued to the President and CEO of the Mortgage Corporation for |
4 | The amounts in this column with respect to the CEO and CFO represent the grant date fair value of the equity incentive plan awards granted on |
5 | The amounts in this column represent the fair market value of the actual equity awards granted on January |
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6 | The annual non-equity incentive compensation for the President and CEO of the Mortgage Corporation is governed by the terms of his employment agreement as described on page |
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The following table includes certain information with respect to all previously-awarded unexercised options and unvested restricted stock awards held by the named executive officers at December 31, 2010.2013.
Outstanding Equity Awards at Fiscal 20102013 Year-End
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Option Awards | Stock Awards | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested1 (#) | Market Value of Shares or Units of Stock That Have Not Vested2 ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#) Exercisable1 | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested2 (#) | Market Value of Shares or Units of Stock That Have Not Vested3 ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Larry G. Dillon | 7,500 | — | — | $ | 37.99 | 12/20/2015 | 8,000 | $ | 178,480 | — | — | 7,500 | — | — | $ | 37.99 | 12/20/2015 | 14,700 | $ | 671,349 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
7,500 | — | — | $ | 39.29 | 12/21/2014 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,000 | — | — | $ | 42.00 | 12/16/2013 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4,500 | — | — | $ | 22.75 | 11/19/2012 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,500 | — | — | $ | 19.05 | 12/18/2011 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Larry G. Dillon | 7,200 | — | — | $ | 39.29 | 12/21/2014 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,000 | — | — | $ | 37.99 | 12/20/2015 | 7,250 | $ | 161,748 | — | — | 6,000 | — | — | $ | 37.99 | 12/20/2015 | 14,450 | $ | 659,932 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
6,000 | — | — | $ | 39.29 | 12/21/2014 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,500 | — | — | $ | 42.00 | 12/16/2013 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,500 | — | — | $ | 22.75 | 11/19/2012 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,500 | — | — | $ | 19.05 | 12/18/2011 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas F. Cherry | 6,000 | — | — | $ | 39.29 | 12/21/2014 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,000 | — | — | $ | 37.99 | 12/20/2015 | 5,000 | $ | 111,550 | — | — | 6,000 | — | — | $ | 37.99 | 12/20/2015 | 3,800 | $ | 173,546 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
6,000 | — | — | $ | 39.29 | 12/21/2014 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,500 | — | — | $ | 42.00 | 12/16/2013 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,500 | — | — | $ | 22.75 | 11/19/2012 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,000 | — | — | $ | 19.05 | 12/18/2011 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bryan E. McKernon | 6,000 | — | — | $ | 39.29 | 12/21/2014 | — | — | — | — |
1 |
|
The amounts in this column reflect the number of shares of restricted stock granted in |
The amounts in this column represent the fair market value of the restricted stock as of December 31, |
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The following table provides information regarding the value realized by our named executive officers who exercised an option award during 2010.2013. None of our named executive officers held restricted stock that vested during 2010.2013.
Option Exercises and Stock Vested for 20102013
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Name | Option Awards | Stock Awards | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise1 ($ ) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||||||||||||||||
Number of Shares Acquired on Exercise (#) | Value Realized on Exercise1 ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||||||||||||||||||||||
Larry G. Dillon | 3,500 | $ | 18,375 | — | — | 6,300 | $ | 68,376 | — | — | ||||||||||||||||||||||
Thomas F. Cherry | 2,500 | $ | 13,125 | — | — | 3,500 | $ | 37,873 | — | — | ||||||||||||||||||||||
Bryan E. McKernon | 2,500 | $ | 15,000 | — | — | 3,500 | $ | 40,141 | — | — |
1 | The value realized on exercise is the difference between the exercise price of the option and the fair market value of the Corporation’s stock on the date of exercise, multiplied by the number of shares subject to the exercise. |
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The following table shows the actuarial present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each named executive officer under the Retirement Plan, which is described in more detail in the “Compensation Discussion and Analysis” on pages 2120 and 22.21.
Pension Benefits for 20102013
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit1 ($) | Payments During Last Fiscal Year ($) | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit1 ($) | Payments During Last Fiscal Year ($) | ||||||||||||||||||||||
Larry G. Dillon2 | Retirement Plan | 33 | $ | 1,023,802 | — | Retirement Plan | 36 | $ | 1,278,070 | — | ||||||||||||||||||||
Thomas F. Cherry | Retirement Plan | 14 | $ | 200,918 | — | Retirement Plan | 17 | $ | 296,411 | — | ||||||||||||||||||||
Bryan E. McKernon3 | — | — | — | — | — | — | — | — |
1 | Assumptions used in the calculation of these amounts are included in Note |
2 | As noted earlier, Mr. Dillon is eligible for early retirement under the Retirement Plan. |
3 | Mr. McKernon is not a participant in the Retirement Plan. |
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The following table summarizes our named executive officers’ compensation under our Nonqualified Plan described in more detail in the “Compensation Discussion and Analysis” on page 23.pages 21 and 22.
Nonqualified Deferred Compensation for 20102013
Name | Executive Contributions in Last FY1 ($) | Registrant Contributions in Last FY2 ($) | Aggregate Earnings in Last FY3 ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE4,5 ($) | Executive Contributions in Last FY1 ($) | Registrant Contributions in Last FY2 ($) | Aggregate Earnings in Last FY3 ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE4,5 ($) | ||||||||||||||||||||||||||||||
Larry G. Dillon | — | $ | 30,793 | $ | 40,693 | — | $ | 460,062 | — | $ | 75,600 | $ | 46,895 | — | $ | 770,208 | ||||||||||||||||||||||||
Thomas F. Cherry | — | $ | 20,000 | $ | 25,290 | — | $ | 211,479 | — | $ | 36,700 | $ | 69,350 | — | $ | 397,683 | ||||||||||||||||||||||||
Bryan E. McKernon | — | — | $ | 267,840 | — | $ | 2,054,267 | — | — | $ | 529,198 | $ | 350,000 | $ | 2,501,536 |
1 | Pursuant to the Nonqualified Plan, certain executives, including named executive officers, may defer awards earned under the MIP or base salary. Deferral elections are made by eligible executives in December of each year for amounts to be earned in the following year. An executive may defer all or a portion of his or her annual non-equity incentive compensation and base salary. No employee deferrals were made in |
2 | Registrant contributions in |
3 | The investment options available to an executive under the deferral program are identical to the investment options under the Bank’s Savings Plan. |
4 | The aggregate balance includes |
5 | Of the amounts disclosed in this column, |
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PROPOSAL TWO
ADVISORY VOTE ONTO APPROVE EXECUTIVE COMPENSATION
The TARP Standards include a provision requiring that Capital Purchase Program participants, such asAs part of implementing the Corporation, permit a separate“say-on-pay” requirements of Section 14A of the Exchange Act, the SEC requires an advisory, non-binding shareholder vote at each annual meeting of shareholders held during the TARP Period to approve the compensation of executivesthe named executive officers in this Proxy Statement. Such a proposal, commonly known as disclosed pursuanta “say-on-pay” proposal, gives shareholders the opportunity to endorse or not to endorse the compensation rules of the SEC. Under TARP Standards and the SEC’s rules implementing this requirement of the TARP Standards, the shareholder vote (i) is not binding on the Board of Directors of the Capital Purchase Program participant, (ii) may not be construed as overriding any decision by the participant’s Board of Directors, and (iii) does not create or imply any additional fiduciary duty by such Board.
Corporation’s executive pay program. Accordingly, our shareholders are hereby given the opportunity to cast an advisory vote on the Corporation’s executive compensation as described above in this Proxy Statement under the heading “Compensation Discussion and Analysis” and the tabular disclosure of named executive officer compensation and the related material.
The Corporation has in place comprehensive executive compensation plans. This Proxy Statement fully and fairly discloses all material information regarding the compensation of the Corporation’s named executive officers, so that shareholders can evaluate the Corporation’s approach to compensating its executives. The Corporation believes that its executive compensation is competitive, is focused on pay for performance principles, is strongly aligned with the long-term interests of our shareholders and is necessary to attract and retain experienced, highly qualified executives critical to the Corporation’s long-term success and the enhancement of shareholder value.value within the Corporation’s risk profile. The Board of Directors believes the Corporation’s executive compensation achieves these objectives, and, therefore, unanimously recommends that shareholders vote “for” the proposal.
Because this vote is advisory, it will not be binding on the Board of Directors and will not be construed as overruling any decision made by the Board. The Compensation Committee and the Board of Directors will take into account the outcome of this advisory vote when considering future executive compensation arrangements, but they are not required to do so.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS ANTHAT SHAREHOLDERS VOTE “FOR” THIS PROPOSAL TO PROVIDE ADVISORY, NON-BINDING VOTE “FOR”APPROVAL OF THE COMPENSATION OF EXECUTIVES.NAMED EXECUTIVE OFFICERS.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTANT
The Audit Committee has appointed YHB as the Corporation’s independent registered public accountant for the fiscal year ending December 31, 2011.2014. YHB also served as independent registered public accountant for the fiscal year ended December 31, 2010.2013. In the event that the appointment of YHB is not ratified by shareholders at the Annual Meeting, the Audit Committee will consider making a change in the independent registered public accountant for 2012.2015.
The Audit Committee is responsible for approving the compensation paid to YHB as the Corporation’s independent registered public accountant. In order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be regular rotation of the independent public accounting firm. The members of the Audit Committee and the Board of Directors believe that continued retention of YHB to serve as the Corporation’s independent auditor is in the best interests of the Corporation and its shareholders.
Representatives of YHB are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to your questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF YOUNT, HYDE & BARBOUR, P.C., AS THE CORPORATION’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANT FOR THE FISCAL YEAR ENDING DECEMBER 31, 2011.2014.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of the Corporation is currently comprised of fourthree directors, all of whom satisfy all of the following criteria: (i) meet the independence requirements set forth in the NASDAQ listing standards’ definition of “independent director,” (ii) have not accepted directly or indirectly any consulting, advisory, or other compensatory fee from the Corporation or any of its subsidiaries, (iii) are not affiliated persons of the Corporation or any of its subsidiaries, (iv) have not participated in the preparation of the financial statements of the Corporation or any of its current subsidiaries at any time during the past three years, and (v) are competent to read and understand financial statements. In addition, at least one member of the Audit Committee has past employment experience in finance or accounting or comparable experience which results in the individual’s financial sophistication. The Board has determined that the Chairman of the Audit Committee, Mr. Barry R. Chernack, qualifies as an “audit committee financial expert” within the meaning of applicable regulations of the SEC promulgated pursuant to the Sarbanes-Oxley Act. Mr. Chernack is independent of management based on the independence requirements set forth in the NASDAQ listing standards’ definition of “independent director.” The Audit Committee has furnished the following report:
The Audit Committee is appointed by the Corporation’s Board of Directors to assist the Board in overseeing (1) the quality and integrity of the financial statements of the Corporation, (2) the independent registered public accountant’s qualifications and independence, (3) the performance of the Corporation’s internal audit function and independent registered public accountant, (4) the Corporation’s compliance with legal and regulatory requirements, (5) the review, approval and ratification of all covered related party transactions and (6) the Corporation’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Corporation’s risk assessment and risk management policies. The authority and responsibilities of the Audit Committee are set forth in a written charter adopted by the Board and include sole responsibility for the appointment, compensation and evaluation of the Corporation’s independent registered public accountant and the internal auditors for the Corporation, as well as establishing the terms of such
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engagements. The Audit Committee has the authority to retain the services of independent legal, accounting or other advisors as the Audit Committee deems necessary, with appropriate funding available from the Corporation, as determined by the Audit Committee, for such services. The Audit Committee reviews and reassesses its charter annually and recommends any changes to the Board for approval. The Audit Committee Charter is posted on the Corporation’s website.
The Audit Committee is responsible for overseeing the Corporation’s overall financial reporting process. In fulfilling its oversight responsibilities for the financial statements for fiscal year 2010,2013, the Audit Committee:
Monitored the preparation of quarterly and annual financial reports by the Corporation’s management;
Reviewed and discussed the annual audit process and the audited financial statements for the fiscal year ended December 31, 20102013 with management and YHB, the Corporation’s independent registered public accountant;
Discussed with management, YHB and the Corporation’s Director of Internal Audit the adequacy of the system of internal controls;
Discussed with YHB the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards Vol. I. AU Section 380), as adopted bythe auditing standards of the Public Company Accounting Oversight Board, in Rule 3200T,including Auditing Standard No. 16, relating to the conduct of the audit; and
Received written disclosures and a letter from YHB as required by the applicable requirements of the Public Company Accounting Oversight Board regarding YHB’s communications with the Audit Committee concerning independence. The Audit Committee discussed with YHB its independence.
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The Audit Committee also considered the status of pending litigation, taxation matters and other areas of oversight relating to the financial reporting and audit process that the Audit Committee determined appropriate. In addition, the Audit Committee’s meetings included, when appropriate, executive sessions with the Corporation’s independent registered public accountant and the Corporation’s Director of Internal Audit, in each case without the presence of the Corporation’s management.
In performing all of these functions, the Audit Committee acts only in an oversight capacity. Also, in its oversight role, the Audit Committee relies on the work and assurances of the Corporation’s management, which has the primary responsibility for financial statements and reports, and of the independent registered public accountant, who, in their report, express an opinion on the conformity of the Corporation’s annual financial statements to accounting principles generally accepted in the United States of America.
Based on the Audit Committee’s review of the audited financial statements and discussions with management and YHB, the Audit Committee recommended to the Board that the audited financial statements be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 20102013 for filing with the SEC.
Audit Committee
Barry R. Chernack,,Chairman
J. P. Causey Jr.
C. Elis Olsson
William E. O’Connell Jr.
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Principal Accountant Fees
The following table presents the fees for professional audit services rendered by YHB for the audit of the Corporation’s annual financial statements for the years ended December 31, 20102013 and 2009,2012, and fees billed for other services rendered by YHB during those periods. All such audit and non-audit services were pre-approved by the Audit Committee, which concluded that the provision of such services by YHB was compatible with the maintenance of that firm’s independence in the conduct of their auditing functions.
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2010 | 2009 | 2013 | 2012 | |||||||||||||
Audit fees(1) | $ | 174,302 | $ | 166,680 | $ | 253,900 | $ | 184,395 | ||||||||
Audit-related fees(2) | 29,883 | 30,036 | 61,200 | 32,119 | ||||||||||||
Tax fees(3) | 28,388 | 25,775 | 26,300 | 24,020 | ||||||||||||
All other fees | — | — | — | — | ||||||||||||
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$ | 232,573 | $ | 222,491 | $ | 341,400 | $ | 240,534 | |||||||||
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(1) | Audit fees consist of audit and review services, consents, review of documents filed with the SEC; C&F Mortgage Corporation’s and C&F Finance Company’s standalone audits; and attestation report on internal controls under SEC |
(2) | Audit-related fees consist of employee benefit plan audits, HUD |
(3) | Tax fees consist of preparation of federal and state tax returns, |
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Audit Committee Pre-Approval Policy
Pursuant to the terms of the Corporation’s Audit Committee Charter, the Audit Committee is responsible for the appointment, compensation and oversight of the work performed by the Corporation’s independent registered public accountant. The Audit Committee, or a designated member of the Audit Committee, must pre-approve all audit (including audit-related) and non-audit services performed by the independent registered public accountant in order to assure that the provision of such services does not impair the registered public accountant’s independence. The Audit Committee has delegated interim pre-approval authority to Mr. Barry R. Chernack, Chairman of the Audit Committee. 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 accountant to management.
The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. With respect to each proposed pre-approved service, the independent registered public accountant must provide detailed back-up documentation to the Audit Committee regarding the specific service to be provided pursuant to a given pre-approval of the Audit Committee. Requests or applications to provide services that require separate approval by the Audit Committee will be submitted to the Audit Committee (or the Audit Committee Chairman) by both the independent registered public accountant and the Corporation’s CFO, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence. The Audit Committee conducts an annual review of its pre-approval policy to evaluate the policy’s appropriateness and compliance with applicable law and exchange listing standards.
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2013 with respect to compensation plans under which equity securities of the Corporation are authorized for issuance:
Plan Category | Number of securities to be issued upon exercise of outstanding options (a) | Weighted-average exercise price of outstanding options (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
Equity compensation plans approved by shareholders(1) | 164,150 | $ | 38.21 | 458,456 | (2) | |||||||
Equity compensation plans not approved by shareholders | — | — | — | |||||||||
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Total | 164,150 | $ | 38.21 | 458,456 | ||||||||
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(1) | This plan category consists of (1) the 2004 Incentive Stock Plan, (2) the Director Plan and (3) the 2013 Stock and Incentive Plan. The Corporation ceased granting awards to non-employee directors under the Director Plan upon amendment of the 2004 Incentive Stock Plan by shareholders in 2008. |
(2) | Consists only of securities remaining available for future issuance under the 2013 Stock and Incentive Plan. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors, executive officers, and beneficial owners of greater than 10% of the Corporation’s common stock to file reports concerning their ownership of and transactions in Corporation common stock. Based on a review of the copies of those reports furnished to the Corporation, or written representations that no other reports were required, the Corporation believes that its officers and directors complied with all such filing requirements under Section 16(a) during 2010, except as follows: Form 4s to report the grant of restricted stock to Messrs. Dillon, Cherry and McKernon on January 19, 2010 were each filed one day late on January 22, 2010.2013.
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2010 with respect to compensation plans under which equity securities of the Corporation are authorized for issuance:
Plan Category | Number of securities to be issued upon exercise of outstanding options (a) | Weighted-average exercise price of outstanding options (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
Equity compensation plans approved by shareholders(1) | 383,450 | $ | 35.02 | 231,375 | (3) | |||||||
Equity compensation plan not approved by shareholders(2) | 7,167 | $ | 30.90 | — | ||||||||
Total | 390,617 | $ | 34.95 | 231,375 | ||||||||
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OTHER BUSINESS
As of the date of this Proxy Statement, management of the Corporation has no knowledge of any matters to be presented for consideration at the Annual Meeting other than Proposal One, Proposal Two and Proposal Three referred to above. If any other matters properly come before the Annual Meeting, the persons named in the accompanying proxy intend to vote such proxy, to the extent entitled, in accordance with their best judgment.
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SHAREHOLDER PROPOSALS FOR 20122015 ANNUAL MEETING
If any shareholder intends to propose a matter for consideration at the Corporation’s 20122015 Annual Meeting (other than shareholder nominations, discussed on pages 9 and 10), notice of the proposal must be received in writing by the Corporation’s Secretary by January 30, 2012.31, 2015. If any shareholder intends to present a proposal to be considered for inclusion in the Corporation’s proxy materials in connection with the 20122015 Annual Meeting, the proposal must meet the requirements of Rule 14a-8 under the Exchange Act and must be received by the Corporation’s Secretary, at the Corporation’s principal office in West Point, Virginia, on or before November 16, 2011.17, 2014.
In addition, the proxy solicited by the Board of Directors for the 20122015 Annual Meeting will confer discretionary authority to vote on any shareholder proposal presented at the meeting if the Corporation has not received notice of such proposal by January 30, 2012,31, 2015, in writing delivered to the Corporation’s Secretary.
By Order of the Board of Directors, |
Thomas F. Cherry |
Secretary |
West Point, Virginia
March 15, 201117, 2014
A copy of the Corporation’s Annual Report on Form 10-K (including exhibits) as filed with the Securities and Exchange Commission for the year ended December 31, 2010,2013, will be furnished without charge to shareholders upon written request to Secretary, C&F Financial Corporation, 802 Main Street, P.O. Box 391, West Point, Virginia 23181. Copies of the Annual Report on Form 10-K may also be obtained without charge by visiting the Corporation’s web site athttp://www.cffc.com.www.cffc.com.
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ANNUAL MEETING OF SHAREHOLDERS OF
C&F FINANCIAL CORPORATION
April 19, 201115, 2014
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The Notice of Meeting, proxy statement, proxy card and 20102013 Annual Report to Shareholders
are available atwww.cffc.com/2011 proxy2014proxy.
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
i Please detach along perforated line and mail in the envelope provided.i
¢ | 20230300000000001000 3 | 041514 |
PLEASE SIGN.SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
1. To elect two Class III directors as instructed below. | FOR | AGAINST | ABSTAIN | |||||||||||||||||||||||||||||||
2. | To approve, in an advisory, non-binding vote, the compensation of the Corporation’s named executive officers. | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||
¨ FOR ALL NOMINEES | ||||||||||||||||||||||||||||||||||
NOMINEES: ¡ J.P. Causey Jr. ¡ Barry R. Chernack | ||||||||||||||||||||||||||||||||||
¨ WITHHOLD AUTHORITY | FOR | AGAINST | ABSTAIN | |||||||||||||||||||||||||||||||
¨ FOR ALL EXCEPT (See |
| 3. |
| ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||
4. |
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INSTRUCTION: | To withhold authority to vote for any individual nominee(s), mark“FOR ALL EXCEPT” and fill in the circle next to each nominee for whom you wish to withhold authority, as shown here: l
| THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL DIRECTOR NOMINEES AND “FOR” PROPOSALS 2 AND 3. | ||||||||||||||||||||||||||||||||
Meeting Attendance I plan to attend the annual meeting on Tuesday, April
Please check here if you plan to attend the meeting.¨ | ||||||||||||||||||||||||||||||||||
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 as 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¢
C&F FINANCIAL CORPORATION
This Proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Larry G. Dillon and James H. Hudson III, jointly and severally, as proxies, with full power to act alone, and with full power of substitution to represent the undersigned, and to vote all shares of C&F Financial Corporation standing in the name of the undersigned as of the close of business on March 1, 2011,3, 2014, at the Annual Meeting of Shareholders to be held Tuesday, April 19, 201115, 2014 at 3:30 p.m. at theDoubletree by Hilton Williamsburg, Marriott, 50 Kingsmill Road, Williamsburg, Virginia, or any adjournments thereof, on each of the matters listed on the reverse side of this proxy card.This proxy, when properly executed, will be voted in the manner directed by the shareholder signing on the opposite side of this proxy card. If no direction is made, this proxy will be voted FOR all director nominees in Proposal 1 and FOR Proposals 2 and 3, and on any other matters, to the extent entitled, in the best judgment of the proxy agents.
(Continued and to be signed on Reverse Side)
¢ |