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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE
is hereby given that the Annual Meeting (the “Annual Meeting”) of Shareholders of Live Oak Bancshares, Inc. (the “Company”) will be held as follows:Place: | Live Oak Corporate Offices | |
1741 Tiburon Drive | ||
Wilmington, NC 28403 | ||
Date: | May 12, 2020 | |
Time: | 9:00 a.m. |
The purposes of the meeting are:
1. | |
Election of Directors. To elect |
2. | Say-on-Pay Vote. To vote on a non-binding, advisory proposal to approve compensation paid to our named executive officers (commonly referred to as a “say-on-pay” vote); |
3. | Ratification of Independent Auditors. To vote on a proposal to ratify Dixon Hughes Goodman LLP as the Company’s independent auditors for |
4. | |
Other Business. To transact any other business properly presented for action at the Annual Meeting. |
YOU ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. HOWEVER, IF YOU ARE THE RECORD HOLDER OF YOUR SHARES OF OUR VOTING COMMON STOCK, WE ASK THAT YOU APPOINT THE PROXIES NAMED IN THE ENCLOSED PROXY STATEMENT TO VOTE YOUR SHARES FOR YOU BY SIGNING AND RETURNING THE ENCLOSED PROXY CARD OR FOLLOWING THE INSTRUCTIONS IN THE PROXY STATEMENT TO APPOINT THE PROXIES BY INTERNET, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOUR SHARES ARE HELD IN “STREET NAME” BY A BROKER OR OTHER NOMINEE, ONLY THE RECORD HOLDER OF YOUR SHARES MAY VOTE THEM FOR YOU, SO YOU SHOULD FOLLOW YOUR BROKER’S OR NOMINEE’S DIRECTIONS AND GIVE IT INSTRUCTIONS AS TO HOW IT SHOULD VOTE YOUR SHARES. DOING THAT WILL HELP US ENSURE THAT YOUR SHARES ARE REPRESENTED AND THAT A QUORUM IS PRESENT AT THE ANNUAL MEETING. THE GIVING OF AN APPOINTMENT OF PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE IT OR TO ATTEND THE MEETING AND VOTE IN PERSON.
THE NOTICE OF ANNUAL MEETING, PROXY STATEMENT, PROXY CARD AND ANNUAL REPORT ARE AVAILABLE IN THE INVESTOR RELATIONS SECTION OF OUR WEBSITE, WWW.LIVEOAKBANK.COM.
By Order of the Board of Directors | ||
/s/ James S. Mahan III | ||
James S. Mahan III | ||
Chairman and CEO | ||
April 3, 2020 |
Proxy Statement For The
Annual Meeting ofOf Shareholders
To Be Held May 9, 2017
TABLE OF CONTENTS
1 | ||
7 | ||
11 | ||
17 | ||
19 | ||
21 | ||
PROPOSAL 2: ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION | 42 | |
43 | ||
45 | ||
45 | ||
45 | ||
45 | ||
46 | ||
46 | ||
PROXY STATEMENT
Mailing Date: On or About March 31, 2017
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2017
This Proxy Statement is being furnished in connection with the solicitation by the Board of Directors of Live Oak Bancshares, Inc. (the “Company”) of appointments of proxy for use at the annual meeting of the Company’s shareholders (the “Annual Meeting”) to be held on May 9, 2017,12, 2020, at 9:00 a.m., at the Company’s corporate offices located at 1741 Tiburon Drive, Wilmington, North Carolina 28403, and at any adjournments thereof. The Company’s proxy solicitation materials are being mailed to our shareholders on or about March 31, 2017.April 3, 2020. In this Proxy Statement, the Company’s subsidiary bank, Live Oak Banking Company, is referred to as the “Bank.”
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDERANNUAL MEETING TO BE HELD ON MAY 9, 2017:
Copies of this Proxy Statement and our Annual Report are available in the
investor relations section of our website, www.liveoakbank.com.
Proposals to be Voted on at the Annual Meeting
At the Annual Meeting, record holders of our voting common stock will consider and vote on proposals to:
election of nine members of the Board of Directors for terms of one year;
a non-binding, advisory proposal to approve compensation paid to our named executive officers (commonly referred to as a “say-on-pay” vote);
ratification of the appointment of Dixon Hughes Goodman LLP as the Company’s independent auditors for 2017;2020; and
transaction of any other business properly presented for action at the Annual Meeting.
The Board of Directors recommends that you vote “FOR” the election of each of the 10nine nominees for director named in this Proxy Statement and “FOR” Proposal 2.
How You Can Vote at the Annual Meeting
Record Holders. If your shares of our voting common stock are held of record in your name, you can vote at the Annual Meeting in one of the following ways:
you can attend the Annual Meeting and vote in person;
you can sign and return the proxy card enclosed with this Proxy Statement and appoint the “Proxies” named below to vote your shares for you at the meeting,Annual Meeting, or you can validly appoint another person to vote your shares for you; or
You may appoint the Proxies by internet only until 11:59 p.m. Eastern Time on May 8, 2017,11, 2020, which is the day before the Annual Meeting date.Meeting. If you appoint the Proxies by internet, you need not sign and return a proxy card. You will be appointing the Proxies to vote your shares on the same terms and with the same authority as if you marked, signed and returned a proxy card. The authority you will be giving the Proxies is described below and in the proxy card enclosed with this Proxy Statement.
Shares Held in “Street Name.” Only the record holders of shares of our voting common stock or their appointed proxies may vote those shares. As a result, if your shares of our voting common stock are held for you in “street name” by a broker or other nominee, then only your broker or nominee (i.e. the record holder) may vote them for you, or appoint the Proxies to vote them for you, unless you make arrangements for your broker or nominee to assign its voting rights to you or for you to be recognized as the person entitled to vote your shares. You will need to follow the directions your broker or nominee provides you and give it instructions as to how it should vote your shares by completing and returning to it the voting instruction sheet you received with your copy of our Proxy Statement (or by following any directions you received for giving voting instructions electronically). Brokers and other nominees who hold shares in street name for their clients typically have the discretionary authority to vote those shares on “routine” matters when they have not received instructions from beneficial owners of the shares. However, they may not vote those shares on non-routine matters (including the election of directors) unless their clients give them voting instructions. To ensure that shares you hold in street name are represented at the Annual Meeting and voted in the manner you desire, it is important that you instruct your broker or nominee as to how it should vote your shares.
Solicitation and Voting of Proxy Cards
If you are the record holder of your shares of our voting common stock, a proxy card is included with this Proxy Statement that provides for you to name S. Brett Caines, our Chief Financial Officer, and Gregory W. Seward, our General Counsel, or any substitutes appointed by them, individually and as a group, to act as your “Proxies” and vote your shares at the Annual Meeting. We ask that you sign and date your proxy card and return it in the enclosed envelope or follow the instructions above for appointing the Proxies by internet, so that your shares will be represented at the meeting.
If you sign a proxy card and return it so that we receive it before the Annual Meeting, or you appoint the Proxies by internet, the shares of our voting common stock that you hold of record will be voted by the Proxies according to your instructions. If you sign and return a proxy card or appoint the Proxies by internet, but you do not give any voting instructions, then the Proxies will vote your shares “FOR” the election of each of the 10nine nominees for director named in Proposal 1 below and “FOR” Proposal 2.Proposals 2 and 3. If, before the Annual Meeting, any nominee named in Proposal 1 becomes unable or unwilling to serve as a director for any reason, your proxy card or internet appointment will give the Proxies discretion to vote your shares for a substitute nominee named by our Board of Directors. We are not aware of any other business that will be brought before the Annual Meeting other than the election of directors and ProposalProposals 2 and 3 described in this Proxy Statement, but, if any other matter is properly presented for action by our shareholders, your proxy card or internet appointment will authorize the Proxies to vote your shares according to their best judgment. The Proxies also will be authorized to vote your shares according to their best judgment on matters incident to the conduct of the meeting.
If you are a record holder of your shares and you do not return a proxy card or appoint the Proxies by internet, the Proxies will not have authority to vote for you and your shares will not be represented or voted at the Annual Meeting unless you attend the meeting in person or validly appoint another person to vote your shares for you.
Record Holders. If you are the record holder of your shares and you sign and return a proxy card or appoint the Proxies by internet and later wish to change the voting instructions or revoke the authority you gave the Proxies, you can do so before the Annual Meeting by taking the appropriate action described below.
To change the voting instruction you gave the Proxies:
you can sign a new proxy card, dated after the date of your original proxy card, which contains your new instructions, and submit it to us so that we receive it before the voting takes place at the Annual Meeting; or
if you appointed the Proxies by internet, you can go to the same internet website you used to appoint the Proxies (www.proxyvote.com) before 11:59 p.m. Eastern Time on May 8, 201711, 2020 (the day before the Annual Meeting), enter your control number (printed on the enclosed proxy card), and then change your voting instructions.
The Proxies will follow the last voting instructions they receive from you before the Annual Meeting.
To revoke your proxy card or your appointment of the Proxies by internet:
you can give our Corporate Secretary a written notice, before the voting takes place at the Annual Meeting, that you want to revoke your proxy card or internet appointment; or
you can attend the Annual Meeting and notify our Corporate Secretary that you want to revoke your proxy card or internet appointment and vote your shares in person. Simply attending the Annual Meeting alone, without notifying our Corporate Secretary, will not revoke your proxy card or internet appointment.
Shares Held in “Street Name.” If your shares are held in “street name” and you want to change the voting instructions you have given to your broker or other nominee, you must follow your broker’s or nominee’s directions.
Expenses of Solicitation
The Company will pay the cost of preparing, assembling, and mailing this Proxy Statement and other proxy solicitation expenses. In addition to the use of the mails and the internet, appointments of proxy may be solicited in person or by telephone by officers, directors, and employees of the Company or its subsidiaries without additional compensation. The Company will reimburse banks, brokers and other custodians, nominees and fiduciaries for their costs in sending the proxy materials to the beneficial owners of the Company’s voting common stock.
Record Date
The close of business on March 10, 2017,13, 2020, has been fixed as the record date (the “Record Date”) for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. Only those shareholders of record on that date will be eligible to vote on the proposals described herein.
The voting securities of the Company are the shares of its voting common stock, of which 100,000,000 shares are authorized and 29,850,81337,631,203 shares were issued and outstanding on March 10, 2017.13, 2020. There were 306333 holders of record of the Company’s voting common stock as of such date.
The Company has 10,000,000 shares of authorized non-voting common stock, of which 4,723,5302,715,531 shares were issued and outstanding on March 10, 2017,13, 2020, and 1,000,000 shares of authorized preferred stock, of which no shares are issued or outstanding.
Voting Procedures; Quorum; Votes Required for Approval
At the Annual Meeting, each shareholder will be entitled to one vote for each share of voting common stock held of record on the Record Date on each matter submitted for voting.
A majority of the shares of the Company’s voting common stock issued and outstanding on the Record Date must be present in person or by proxy to constitute a quorum for the conduct of business at the Annual Meeting.
Assuming a quorum is present; in the case of Proposal 1 below, the 10nine nominees receiving the greatest number of votes shall be elected. In the case of ProposalProposals 2 and 3 below, for sucheach proposal to be approved, the number of votes cast for approval must exceed the number of votes cast against the proposal. Abstentions and broker non-votes will have no effect.
Holders of the Company’s non-voting common stock are not entitled to vote at the Annual Meeting.
Beneficial Ownership of Our Common Stock
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of January 31, 20172020 for:
each of our named executive officers;
each of our directors;
all of our executive officers and directors as a group; and
each person, or group of affiliated persons, known by us to be the beneficial owner of more than 5% of our outstanding shares of voting common stock.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the “SEC”) and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60sixty days of January 31, 2017,2020, pursuant to the exercise of options, warrants or other rights, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. The table below calculates the percentage of beneficial ownership of our common stock based on 29,808,17837,602,876 shares of voting and 4,723,5302,715,531 shares of non-voting common stock outstanding as of January 31, 2017.
Shares Beneficially Owned | ||||
| Name | Number of Shares (1) | % | ||
| Directors and Named Executive Officers: | ||||
James S. Mahan III (2) | 6,100,478 | 17.7 | ||
Neil L. Underwood (3) | 1,282,723 | 3.7 | ||
Gregory B. Thompson (4) | 26,001 | * | ||
William H. Cameron (5) | 146,945 | * | ||
| Diane B. Glossman | 25,000 | * | ||
| Glen F. Hoffsis | 85,090 | * | ||
Donald W. Jackson (6) | 88,118 | * | ||
| Howard K. Landis III | 207,593 | * | ||
David G. Lucht (7) | 193,800 | * | ||
| Miltom E. Petty | 92,410 | * | ||
| Jerald L. Pullins | 244,380 | * | ||
William L. Williams III (8) | 1,316,520 | 3.8 | ||
All directors and executive officers as a group (17 persons) (9) | 10,408,878 | 30.1 | ||
| Greater than 5% Shareholders: | ||||
Maurice J. Koury Trust (10) P.O. Box 850 Burlington, North Carolina 27216 | 1,950,560 | 5.6 | ||
Wellington Management Group LLP (11) c/o Wellington Management Company LLP 280 Congress Street Boston, Massachusetts 02210 | 5,913,916 | 17.1 | ||
T. Rowe Price Associates, Inc. (12) 100 E. Pratt Street Baltimore, Maryland 21202 | 3,307,616 | 9.6 | ||
|
| Shares Beneficially Owned |
| |||||
Name |
| Number of Shares (1) |
|
| % |
| ||
Directors and Named Executive Officers: |
|
|
|
|
|
|
|
|
James S. Mahan III (2) |
|
| 6,403,739 |
|
|
| 15.9 |
|
S. Brett Caines |
|
| 263,952 |
|
| * |
| |
M. Huntley Garriott, Jr. |
|
| 55,000 |
|
| * |
| |
Susan N. Janson |
|
| 3,000 |
|
| * |
| |
Neil L. Underwood (3) |
|
| 1,305,434 |
|
|
| 3.2 |
|
William H. Cameron (4) |
|
| 158,267 |
|
| * |
| |
Diane B. Glossman |
|
| 47,102 |
|
| * |
| |
Glen F. Hoffsis |
|
| 110,692 |
|
| * |
| |
Howard K. Landis III |
|
| 217,810 |
|
| * |
| |
Miltom E. Petty |
|
| 114,012 |
|
| * |
| |
David G. Salyers |
|
| 2,100 |
|
| * |
| |
William L. Williams III (5) |
|
| 1,286,520 |
|
|
| 3.2 |
|
All directors and executive officers as a group (15 persons) (6) |
|
| 10,159,396 |
|
|
| 25.1 |
|
|
|
|
|
|
|
|
|
|
Greater than 5% Shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB Capital Management, LLC (7) 115 S. LaSalle Street, 34th Floor Chicago, IL 60603 |
|
| 2,190,393 |
|
|
| 5.4 |
|
|
|
|
|
|
|
|
|
|
T. Rowe Price Associates, Inc. (8) 100 E. Pratt Street Baltimore, Maryland 21202 |
|
| 5,175,793 |
|
|
| 12.8 |
|
* | |
Represents beneficial ownership of less than one percent. |
(1) | Included in the beneficial ownership tabulations are options to purchase the following number of shares of voting common stock: Mr. |
(2) | Includes |
(3) | Includes 1,255,434 shares held by the Neil L. Underwood Revocable Trust; also includes shared voting rights on |
(4) |
Includes 470 shares held by the GST-Exempt Trust for William H. Cameron and |
(5) | |
Includes 774,310 shares held by the William L. Williams III Revocable Trust, which shares are pledged as security for personal loans; also includes shared voting rights on |
(6) | |
Includes the beneficial ownership of |
(7) | |
| A Schedule 13G filed on |
over 42,885 shares; (iv) RMB Mendon Managers, LLC having shared voting and dispositive power over 802,899 shares; and (v) Mendon Capital Advisors Corp having shared voting and dispositive power over 1,344,609 shares. |
| A Schedule 13G/A filed on February |
Except as indicated in footnotes to the table above, we believe that the shareholders named in the table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such shareholders. Unless otherwise indicated, the address for each director and named executive officer listed is: c/o Live Oak Bancshares, Inc., 1741 Tiburon Drive, Wilmington, NC 28403.
Delinquent Section 16(a) Beneficial Ownership Reporting Compliance
Directors and executive officers of the Company are required by federal law to file reports with the Securities and Exchange Commission (the “SEC”)SEC regarding the amount of, and changes in, their beneficial ownership of the Company’s voting common stock. Based upon a review of copies of reports received by the Company, all required reports of directors and executive officers of the Company during 20162019 were filed on a timely basis.
Hedging Policy
The Company’s Insider Trading Policy prohibits all employees from entering into hedging transactions, including any transactions in puts, calls or other derivative securities (other than receipt or exercise of an employee stock option granted by the Company).
The Board of Directors has set the number of directors of the Company at 10nine and recommends that shareholders vote for the nominees listed below, each for a term of one year.
Name and Age | Position(s) Held | Director Since (1) | Principal Occupation and Business Experience During the Past Five Years | |||
William H. Cameron (66) | Director | 2013 | President, Cameron Management, Inc., an investment management company focusing on real estate development, brokerage, and property management. | |||
Diane B. Glossman (64) | Director | 2014 | Retired investment analyst with over 25 years of experience as an analyst and over | |||
Glen F. Hoffsis (79) | Director | 2008 | Special Assistant to the President, Lincoln Memorial University, July 2016 to present; Dean, Lincoln Memorial University College of Veterinary Medicine, 2014 to 2016; Dean, College of Veterinary Medicine, | |||
Howard K. Landis III (63) | Director | 2008 | Principal, Plexus Capital, an investment firm focused on middle market businesses. | |||
James S. Mahan III (68) | Chairman and CEO | 2008 | Chairman and Chief Executive Officer of the Company and the Bank. | |||
Miltom E. Petty (68) | Director | 2010 | Chief Financial Officer, Carolina Hosiery Mills, Inc., a privately held manufacturing and real estate development company. | |||
David G. Salyers (61) | Director | 2019 (2) | Retired Chick-fil-A marketing executive with 37 years of experience; currently serves of the board of directors for CenterState Bank Corporation. | |||
Neil L. Underwood (50) | Director and President | 2010 | President of the | |||
William L. Williams III (68) | Vice Chairman and EVP | 2012 | Executive Vice President and Vice Chairman of the Company and the Bank. |
(1) | The year first elected indicates the year in which each individual was first elected a director of the Company and does not reflect any break(s) in tenure. |
(2) | Mr. Salyers was appointed as a member of our Board of Directors effective October 3, 2019. |
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” EACH OF THE NOMINEES FOR DIRECTOR OF THE COMPANY FOR A TERM OF ONE YEAR.
William H. Cameron. Mr. Cameron has served on ourthe Company’s Board of Directors since November 2013. He is Chair of each of2013 and chairs the Compensation Committee and serves on the Nominating and Corporate Governance Committee and the Compensation Committee and serves on the Audit and Risk Committee. Mr. Cameron has extensive prior experience as a director of a financial institution, having served as a founding director of Port City Capital Bank and as a director of Crescent Financial Bancshares, Inc.,Corporation and Crescent State Bank until November 2011, following its acquisition of Port City Capital Bank in 2006. Mr. Cameron has extensive executive experience in corporate and real estate finance, real estate development, and private equity. He has been President of Cameron Management, Inc. since 2000 and has held leadership positions in a number of businesses over the last 25 years. Mr. Cameron served as Chief Operating Officer of Atlantic Telecasting Corporation, the NBC television affiliate in Wilmington, North Carolina. Mr. Cameron holds a B.S. in Business Administration and a Juris Doctor degree from the University of North Carolina at Chapel Hill. He has successfully completed the North Carolina Bank Directors’ College and has participated in numerous Advanced Bank Directors’ College programs. As an active business, civic and charitable leader, Mr. Cameron serves on the boardsboard of numerous organizations including the Cape Fear Memorial Foundation and the Champion McDowell Davis Foundation. Throughout his tenure asHe is president of Cameron Management, Inc. and president of the Dan Cameron Family Foundation, Inc., these organizations have which has made significant contributions to the economic and cultural development of the Wilmington area. We believe Mr. Cameron’s prior experience as a director of two FDIC-insured financial institutions over a period of 10 years brings to our Board of Directorsboard critical skills related to financial oversight of complex organizations, strategic planning and corporate governance and qualifies him to serve as one of our directors.
Diane B. Glossman.Ms. Glossman has served as a member of our Board of Directors since August 2014. She serves on the Compensation, Committee and the Audit and Risk Committee.and the Directors Loan Committees. Ms. Glossman is a retired investment analyst with over 25 years of experience as an analyst and almostover 20 years of governance experience on boards. Ms. Glossman also currently serves on the boards of directors of Ambac Assurance Company, WMIH Corp., QBE NA and the Bucks County SPCA. She is also a member of the boards of Barclays US LLC and Barclays Bank of Delaware.Delaware as well as the Bucks County SPCA. Previously, Ms. Glossman served on the board of directors of WMI Holdings Corp. from 2012 through July 2018 as well as the boards of directors of Ambac Assurance Company, QBE North America and A.M. Todd Company, from 1998 to July 2011, and as an independent trustee on State Street Global Advisors mutual fund board from October 2009 to April 2011.board. Ms. Glossman was a six-time member of Institutional Investor’s All-America Research Team and a member of the top ranked Global Bank Research team, along with winning the 2003 Wall Street Journal survey in the broker/dealer category and was ranked for several years in the Reuters large cap and mid cap bank surveys by both fund managers and companies. Further, she was a frequent commentator on industry and company events for such entities as The Nightly Business Report, The Wall Street Journal,, Financial Times,, The New York Times,, The Economist,, CNN, CNBC, and various trade publications. Ms. Glossman earned a B.S. in economics from the Wharton School at the University of Pennsylvania with a double major in finance and health care administration, having also attended the University of California at Davis. Ms. Glossman was awarded her Chartered Financial Analyst designation (CFA). We believe that Ms. Glossman’s depth of experience and financial expertise qualify her to serve as one of our directorsdirectors..
Glen F. Hoffsis.Dr. Hoffsis has served as a member of our Board of Directors since 2008. He serves on the Nominating and Corporate Governance Committee and the Compensation Committee. He is a veterinarian who has devoted most of his career to veterinary colleges as a clinician, teacher, researcher and administrator. Retiring in July 2013 as deanDean of the College of Veterinary Medicine at the University of Florida, Dr. Hoffsis was appointed deanDean of the newly established Lincoln Memorial University College of Veterinary Medicine effective July 2014. He relinquished the deanship in July 2016 to become Special
Banfield Pet Hospitals of Portland, Oregon, from 2010 to 2015. In MarchFebruary 2017, heDr. Hoffsis was appointed to the Board of Trustees of the Ross University Colleges of Medicine and the College of Veterinary Medicine.Medical Group. He is a diplomate of the American College of Veterinary Internal Medicine. Dr. Hoffsis is well known and respected within the veterinary profession. We believe that his wide range of knowledge and perspective relative to the business of veterinary medicine brings important skills and qualifies him to serve on the Board of Directors.
Howard K. Landis III. Mr. Landis has served as a member of our Board of Directors since 2008. He chairs the Nominating and Corporate Governance Committee and serves on the Audit and Risk Committee and the Compensation Committee. Since 2005, Mr. Landis has been a general partner of Plexus Capital, a small business investment company. He has over 25 years of experience in the banking industry, which includes serving as the Chief Executive Officer of RBC Centura Bank’s US Operations from 2001 to 2004 after serving as Chief Credit Officer, Chief Risk Officer, and President of Centura Bank. Mr. Landis graduated with a Bachelor of Science in Business Administration and a Master’s inMaster of Business Administration from the University of North Carolina at Chapel Hill. We believe Mr. Landis’ 25 years of prior experience in the banking industry, including his service as Chief Executive Officer of an FDIC-insured financial institution with over $20 billion in total assets, brings to our Board of Directors critical skills related to financial oversight of complex organizations, strategic planning and corporate governance and qualifies him to serve as one of our directors.
James S. Mahan III. Mr. Mahan is the Company’s founder, Chief Executive Officer and Chairman of the Board of Directors. Prior to starting Live Oak Bank, Mr. Mahan was the Chief Executive Officer and Chairman for S1 Corporation and founder of Security First Network Bank, the world’s first internetInternet bank. Under his leadership, S1 Corporation grew to become a $234 million software and services provider in only six years, averaging more than 200 percent growth year over year. At its peak, S1 had a market capitalization of over $6 billion. During his term as Chief Executive Officer, Mr. Mahan was ranked as one of the 10 Most Influential Personalities in Financial Services by FutureBanker magazine. Prior to founding Security First Network Bank and S1 Corporation, Mr. Mahan launched Cardinal Bancshares, where he served as Chairman and Chief Executive Officer. Mr. Mahan built
Miltom E. Petty. Mr. Petty has served as a member of our Board of Directors since August 2010. He serves as the Chair ofchairs our Audit and Risk Committee. Since June 1977, Mr. Petty has served as the Chief Financial Officer of Carolina Hosiery Mills, Inc., a privately held manufacturing and real estate development company. Since August 2013, Mr. Petty has served as a director of Trust Company of the South. Mr. Petty graduated with a Bachelor of Science degree in Business Administration from the University of North Carolina at Chapel Hill. He has held an active CPA license from the State of North Carolina for over 40 years. We believe Mr. Petty’s experience as a chief financial officer, including his familiarity with accounting standards and ability to serve as our Audit and Risk Committee financial expert, brings important skills and qualifies him to serve on our Board of Directors.
David G. SalyersJerald L. Pullins.. Mr. Pullins has servedSalyers was appointed as a member of our Board of Directors sinceeffective October 2011.3, 2019. He brings nearly 35spent 37 years at Chick-fil-A, Inc., and retired in 2018 as one of experiencetwo original marketing executives at the Atlanta-based restaurant chain. He spent his entire career at the company and saw growth of more than 2,300 Chick-fil-A restaurants around the country. In addition to his time at Chick-fil-A, Mr. Salyers has been involved in venture capital partnerships, technology ventures and
currently serves on various boards of national marketing organizations and nonprofits. He is the healthcare, real estate, mortgage banking, funeral, cemeteryco-author of the company culture book “Remarkable!” and insurance industries. This, combined with his MA degreeco-founded Champion Tribes, an organization that helps fathers and sons connect in meaningful ways. He was also recently hired by the University of Georgia to serve as the inaugural Startup Mentor in Residence. Mr. Salyers attended Wake Forest University, the Universidad de Madrid in Madrid, Spain, and graduated from the University of KansasGeorgia and MBA from the University of Texas, provides a wealth of financial expertise. He received an honorable discharge as a 1st Lieutenant from the United States Army after serving in Vietnam. Throughout his successful career, he has directed and managed finance, administration, accounting and operational functions at companies across a range of industries. Mr. Pullins served in a variety of management positions at Service Corporation International, most recently as President and Chief Operating Officer. Mr. Pullins is currently Chairman of U.S. Physical Therapy and serves as Chairman of the Governance and Nominating Committee. Mr. Pullins is also a member of U.S. Physical Therapy’s Audit Committee and Compensation Committee. He is a managing member of SeniorCare Homes, LLC, which develops, owns and operates supervised residential homes for seniors with memory impairment conditions.Harvard Business School Advanced Management Program. We believe that his wide range of knowledge of accounting, financeMr. Salyers’s experience will add valuable, independent insight on strategic planning, marketing positioning, leadership and administration across many business industries brings important skills and qualifies him to serve on the Board of Directors.
Neil L. Underwood. Mr. Underwood is a member of our Board of Directors, and serves as President of the Company and the Bank.as Partner of Canapi Advisors. Mr. Underwood helps to set the technological direction for the Company. Prior to joining the Bank, Mr. Underwood served as General Manager of S1 Corporation, where he was responsible for the S1 Enterprise division. S1, since acquired by ACI Worldwide, Inc., built and deployed financial services systems such as online banking, payments and mobile solutions to over 3,000 financial institutions worldwide. Before S1, Mr. Underwood played a key role in launching the Americas division of Brokat Technologies AG, a global financial services software supplier based in Stuttgart, Germany. Acting as Chief Operating Officer, he was responsible for Retail and Wholesale Banking solutions for the Americas. Mr. Underwood came to Brokat as a principal of Transaction Software, which was acquired by Brokat in May of 1999. While at the Bank, Mr. Underwood co-founded nCino, a cloud-based bank operating system now serving over 200 financial institutions globally. Through the venture arm of the Company, Mr. Underwood has incubated and helped raise capital for companies focused on digital bank transformation such as Finxact, Payrailz, DefenseStorm and Greenlight. In 2017, Mr. Underwood co-founded Apiture, a joint venture between the Bank and First Data Corporation, serving as a cloud-native omni-channel onboarding and servicing platform. Mr. Underwood currently serves on the board of directors of Live Oak Bank, DefenseStorm, Apiture, Payrailz, and is board observer at Finxact and Greenlight. A native of Miami, Florida, Mr. Underwood holds a Bachelor’s DegreeBachelor of Science Degree in Industrial Engineering from the Georgia Institute of Technology. Mr. Underwood’s experience in the technology sector, coupled with a talented approach to management and resource utilization, makes him well suited to serve as a member of our Board of Directors.
William L. Williams III. Mr. Williams is the Vice Chairman of our Board of Directors and one of the original founders of the Bank. He currently serves as Executive Vice President of the Company and the Bank. Prior to starting Live Oak Bank, Mr. Williams spent 19 years in corporate banking at Wachovia Bank & Trust Co. and worked for 14 years at Vine Street Financial doing SBA lending. Mr. Williams began his banking career in 1973 at Wachovia, where he worked with Wachovia Services, Inc, then Wachovia Regional Corporate Lending, calling on and lending to mid-market regional companies. In 1987, he relocated to Wilmington, North Carolina, where he managed the Wachovia Corporate Lending group for the three county area of Southeastern North Carolina. In 1992, he re-joined Mr. Mahan at Cardinal Bancshares as they began Vine Street Financial, a niche SBA lending division of Vine Street Trust Company. Mr. Williams held several positions within this group including President and Senior SBA lender. Through a series of mergers/acquisitions, Vine Street Financial became a division of BB&T, where Mr. Williams served as a senior SBA lender, resigning in May of 2007 to found Live Oak Bank’s predecessor. Mr. Williams graduated in 1973 from the University of North Carolina at Chapel Hill with a BSBachelor of Science degree in Business Administration. Mr. Williams’ over 40 years of corporate banking experience, including deep experience in the SBA lending sector and his involvement as a founder and organizer of our Company, make him uniquely qualified to serve as Vice Chairman of our Board of Directors.
Board Leadership Structure
Our Board of Directors (the “Board”) has a chairman whose duties are described in our Bylaws, and it performs its oversight role through various committees. The Board may select any of its members as its Chairman and has no formal policy as to whether our Chief Executive Officer (“CEO”) will serve as Chairman or whether any other director, including a non-employee or independent director, may be elected to serve as Chairman. At present, the positions of Chairman and Chief Executive OfficerCEO are both held by James S. Mahan III. The Board believes that the Company’s Chief Executive OfficerCEO is best situated to serve as Chairman because of his familiarity with the Company’s business and because he is the most capable of effectively identifying strategic opportunities and leading the execution of our business strategy. The Board has not appointed a lead independent director at this time.
Board’s Role in Risk Management
Risk is inherent in any business, and, as is the case with other management functions, our senior management has primary responsibility for managing the risks we face. However, as a financial institution, our business involves financial risks that do not exist, or that are more extensive than the risks that exist, in some other types of businesses. We are subject to extensive regulation that requires us to assess and manage those risks, and during their periodic examinations our regulators assess our performance in that regard. As a result, the Board is actively involved in overseeing our risk management programs.
The Board administers its oversight function primarily through committees, which may be established as separate or joint committees of the boards of the Company and/or the Bank. Those committees include our Audit and Risk Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The Board approves and periodically reviews the Bank’s operating policies and procedures.
We believe the Board’s involvement in our risk management results in Board committees that are more active than those of corporations that are not financial institutions or that are not regulated as extensively as financial institutions. We believe this committee activity enhances our Board’s effectiveness and leadership structure by providing opportunities for non-employee directors to become familiar with the Bank’s critical operations and actively involved in the Board’s oversight role with respect to risk management, as well as its other oversight functions.
Code of Ethics and Conflict of Interest Policy
The Board of Directors has adopted a Code of Ethics and Conflict of Interest Policy which applies to our directors and executive officers, and, among other things, is intended to promote:
honest and ethical conduct;
ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
full, fair, accurate, timely and understandable disclosure in reports and documents that we file with the SEC and in other public communications we make;
compliance with laws, rules and regulations;
prompt internal reporting of violations of the Code of Ethics and Conflict of Interest Policy to the Audit and Risk Committee; and
A copy of the Code of Ethics and Conflict of Interest Policy is posted in the investor relations section of the Company’s website at www.liveoakbank.com.
Director Independence
With the exception of Messrs. Lucht, Mahan, Underwood and Williams, each member of the Company’s Board of Directors is “independent” as defined by Nasdaq listing standards and the regulations promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). In making this determination, the Board considered certain transactions with directors for the provision of goods or services to the Company and the Bank. All such transactions were conducted at arm’s length upon terms no less favorable than those that would be available from an independent third party.
Director Relationships
With the exception of Mr. Salyers, who currently serves as a director of CenterState Bank Corporation, Winter Haven, Florida, and Ms. Glossman, who previously served as a director of WMIH Corp., Seattle, Washington, until July 2018, no other director is a director or nominee of a corporation with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act, or any corporation registered as an investment company under the Investment Company Act of 1940 with the exception of Mr. Pullins, who is a director of U.S. Physical Therapy, Inc., Houston, Texas, and Ms. Glossman who is a director of WMIH Corp., Seattle, Washington.
There are no family relationships among the Company’s directors and executive officers.
Selection of Nominees for the Board of Directors
The Nominating and Corporate Governance Committee of our Board of Directors has the responsibility for recommending which directors should stand for re-election to the Board and the selection of new directors to serve on the Board. The committee has formulated the following qualifications for director candidates:
having a basic knowledge of the banking industry, the financial regulatory system, and the laws and regulations that govern the operation of the Company;
a willingness to put the interests of the Company ahead of personal interests;
exercising independent judgment and actively participating in decision making;
having an inquiring and independent mind, practical wisdom, and sound judgment;
a willingness to avoid conflicts of interest;
having a background, knowledge, and experience in business or another discipline to facilitate oversight of the Bank;
a willingness and ability to commit the time necessary to prepare for and regularly attend Board and committee meetings; and
equity ownership in the Company.
The committee also considers diversity of experience in selecting candidates for director.
The Company’s Bylaws permit any shareholder of record to nominate candidates for director. Shareholders wishing to nominate a candidate for director must deliver a written nomination to our Corporate Secretary not less than 120 days prior to the meeting of shareholders at which time nominees will be considered for election to the Board of Directors. The shareholder making such nomination must also submit a detailed resume of the nominee, stating the reasons why such person would be qualified to serve on the Board of Directors and the written consent of the nominee that if elected, such nominee would serve as a member of the Board of Directors.
Meetings of the Board of Directors
There were 12eight meetings of the Board of Directors during 2016.2019. All of our directors attended at least 75% of the aggregate of all meetings of the Board of Directors and the committees on which he or she served during 2016.2019, with the exception of Mr. Pullins, who retired at the end of his term and did not stand for re-election at the Annual Meeting in May 2019. Although we do not have a formal written policy with respect to directors’ attendance at our annual meeting of shareholders,Annual Meeting, we generally encourage all directors to attend. AllWith the exception of Mr. Pullins, all of our directors who were on the Board of Directors at that time attended the annual meeting of shareholdersour last Annual Meeting in May 2016.
Committees of the Board of Directors
Our Board of Directors has the authority to appoint committees to perform certain management and administrative functions. Our Board of Directors has three permanent committees: the Audit and Risk Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. Each of these committees operates under a written charter approved by the Board that sets out the committee’s duties and responsibilities. We believe that each member of these committees is an “independent director” as that term is defined by Nasdaq’s listing standards. Copies of the charters of each of these committees are posted in the investor relations section of the Company’s website at
www.liveoakbank.com.In addition, from time to time, special committees may be established under the direction of our Board of Directors when necessary to address specific issues.
Information about each of the permanent committees of the Board follows:
Audit and Risk Committee.
The current members of the Audit and Risk Committee are Miltom E. Petty, Chair; William H. Cameron; Diane B. Glossman; and Howard K. Landis III. The Audit and Risk Committee metselecting and retaining an independent registered public accounting firm to act as the Company’s independent auditors for the purpose of auditing the Company’s annual financial statements;
setting the compensation of, overseeing the work done by and terminating, if necessary, the Company’s independent auditors;
selecting, retaining, compensating, overseeing and terminating, if necessary, any other registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attestation services for the Company;
pre-approving all audit and permitted non-audit and tax services that may be provided by the Company’s independent auditors or other registered public accounting firms;
• | establishing policies and procedures for the pre-approval of permitted services by the Company’s independent auditors and other registered public accounting firms on an ongoing basis; |
reviewing and discussing with the Company’s independent auditors (1) the auditors’ responsibilities under generally accepted auditing standards and the responsibilities of management in the audit process, (2) the overall audit strategy, (3) the scope and timing of the annual audit, (4) any significant risks identified during the auditors’ risk assessment procedures and (5) when completed, the results, including significant findings, of the annual audit;
reviewing and discussing with the Company’s independent auditors (1) all critical accounting policies and practices to be used in the audit; (2) all alternative treatments of financial information within generally accepted accounting principles (“GAAP”) that have been discussed with management, the ramifications of the use of such alternative treatments and the treatment preferred by the auditors; and (3) other material written communications between the auditors and management;
reviewing with management and the Company’s independent auditors the adequacy and effectiveness of the Company’s financial reporting processes, internal control over financial reporting and disclosure controls and procedures, including any significant deficiencies or material weaknesses in the design or operation of, and any material changes in, the Company’s processes, controls and procedures and any special audit steps adopted in light of any material control deficiencies;
reviewing and discussing with the Company’s independent auditors and management the Company’s annual audited financial statements (including the related notes) and the form of audit opinion to be issued by the auditors on the financial statements;
selecting and retaining services of internal audit providers, if outsourced, and conducting annual performance reviews of in-house internal audit providers;
approving the Company’s risk management framework and periodically reviewing and evaluating the adequacy and effectiveness of such framework;
approving a statement or statements defining the Company’s risk appetite, monitoring the Company’s risk profile and providing input to management regarding the Company’s risk appetite and risk profile;
receiving from members of management, and other officers or employees as appropriate, periodic reports on, and reviews of, the Company’s risk management framework and risk management programs and their results;
discussing with management the Company’s major risk exposures and reviewing the steps management has taken to identify, monitor and control such exposures; and
performing any other activities, including delegating its authority to one or more subcommittees or to management in furtherance of its responsibilities, consistent with its charter, the Company’s bylaws and governing law, as the committee or the Board deems necessary or appropriate or as required by law or regulation.
The Board of Directors has determined that Mr. Petty is an “audit committee financial expert” as such term is defined in Item 407(d) of Regulation S-K promulgated by the SEC.
Compensation Committee. The current members of the Compensation Committee are William H. Cameron, Chair; Diane B. Glossman; Glen F. Hoffsis; Howard K. Landis III; and Donald W. Jackson.David G. Salyers. The Compensation Committee met eightsix times during 2016.2019. The Compensation Committee is responsible for the following, among other things:
reviewing and approving annually the corporate goals and objectives applicable to the compensation of the chief executive officer (“CEO”),CEO, evaluating at least annually the CEO’s performance in light of those goals and objectives, and determining and approving the CEO’s compensation level based on this evaluation;
reviewing and approving the compensation of all other executive officers;
reviewing, approving and, when appropriate, recommending to the Board for approval, incentive compensation plans and equity-based plans, and where appropriate or required, recommending such plans for approval by the shareholders of the Company, which includes the ability to adopt, amend and terminate such plans;
administering the Company’s incentive compensation plans and equity-based plans, including designation of the employees to whom the awards are to be granted, the amount of the award or equity to be granted and the terms and conditions applicable to each award or grant, subject to the provisions of each plan;
reviewing, approving and, when appropriate, recommending to the Board for approval, any employment agreements and any severance arrangements or plans, including any benefits to be provided in connection with a change in control, for the CEO and other executive officers, which includes the ability to adopt, amend and terminate such agreements, arrangements or plans;
reviewing the Company’s incentive compensation arrangements to determine whether they encourage excessive risk-taking, reviewing and discussing at least annually the relationship between risk management policies and practices and compensation, and evaluating compensation policies and practices that could mitigate any such risk;
reviewing and recommending to the Board for approval the frequency with which the Company will conduct shareholder advisory votes on executive compensation;
reviewing and approving the proposals regarding the shareholder advisory votes on executive compensation and the frequency of the shareholder advisory votes on executive compensation to be included in the Company’s proxy statement;Proxy Statement;
reviewing director compensation for service on the Board and Board committees at least once a year and recommending any changes to the Board;
reviewing and approving compensation disclosures required by the rules of the Securities and Exchange CommissionSEC to be included in the Company’s Annual Report on Form 10-K or proxy statement;Proxy Statement; and
performing any other activities, including delegating its authority to one or more subcommittees or to management in furtherance of its responsibilities, consistent with its charter, the Company’s bylaws and governing law, as the committee or the Board deems necessary or appropriate or as required by law or regulation.
Nominating and Corporate Governance Committee. The current members of the Nominating and Corporate Governance Committee are Howard K. Landis III, Chair; William H. Cameron, Chair;Cameron; Glen F. Hoffsis; and Donald W.
determining the qualifications, qualities, skills, and other expertise required to be a director and developing criteria to be considered in selecting nominees for director (the “Director Criteria”);
identifying and screening individuals qualified to become members of the Board, consistent with the Director Criteria;
recommending to the Board the nominees to be submitted to a shareholder vote at the annual meeting of shareholders;Annual Meeting;
if a vacancy on the Board occurs, identifying, selecting and recommending to the Board candidates to fill such vacancy either by election by shareholders or appointment by the Board;
developing and recommending to the Board for approval standards for determining whether a director has a relationship with the Company that would impair his or her independence;
reviewing and approving the disclosures regarding corporate governance, the operations of the Committeecommittee and director independence required by the rules of the Securities and Exchange CommissionSEC to be included in the Company’s Annual Report on Form 10-K or proxy statement;Proxy Statement; and
performing any other activities, including delegating its authority to one or more subcommittees or to management in furtherance of its responsibilities, consistent with its charter, the Company’s bylaws and governing law, as the Committeecommittee or the Board deems necessary or appropriate or as required by law or regulation.
Compensation Committee Interlocks and Insider Participation
None of the current members of our compensation committee is or has been an officer or employee of our Company. None of our executive officers currently serve, or in the past year has served, as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire boardBoard of directors)Directors) or as a director of any entity that has one or more executive officers serving on our compensation committee or our Board of Directors.
Indebtedness of and Transactions with Management
The Company’s bank subsidiary, Live Oak Banking Company, hasBank and its subsidiaries, have had, and expectsexpect to have in the future, banking, investment advisory, and other transactions in the ordinary course of business with certain of its current directors, nominees for director, executive officers and associates. All such transactions are made on substantially the same terms, including interest rates, repayment terms and collateral, as those prevailing for comparable transactions with persons not related to the lender,Bank and its subsidiaries, and do not involve more than the normal risk of collection or present other unfavorable features. Loans made by Live Oak Banking Companythe Bank to directors and executive officers are subject to the requirements of Regulation O of the Board of Governors of the Federal Reserve System. Regulation O requires, among other things, prior approval of the Board of Directors with any “interested director” not participating, dollar limitations on amounts of certain loans and prohibits any favorable treatment being extended to any director or executive officer in any of the Bank’s lending matters.
Board Fees.CERTAIN RELATIONSHIPS AND R For 2016, each non-employee director was paid an annual retainerELATED PERSON TRANSACTIONS
Our Audit and Risk Committee, pursuant to its charter, is responsible for reviewing and approving transactions with related persons (as defined in Item 404 of $50,000. The chairmanSEC Regulation S-K). In the course of its review and approval of a related person transaction, the Audit and Risk Committee, received an additional annual retaineramong other things, considers, consistent with Item 404 of $36,000. The chairsSEC Regulation S-K, the following:
the nature and amount of the Compensationrelated person’s interest in the transaction;
the material terms of the transaction, including, without limitation, the amount and type of transaction; and
any other matters the Audit and Risk Committee deems appropriate.
The Board of Directors and its committees may also, in their discretion, review transactions involving the NominatingCompany’s directors, executive officers, holders of 5% or more of our capital stock, or any of their immediate family members, that do not necessarily qualify for disclosure as related person transactions under the securities laws.
Set forth below is a description of certain relationships and Corporate Governance Committeetransactions between the Company on the one hand, and any of our directors or executive officers, any holder of 5% or more of our capital stock or any member of their immediate family on the Bank's Directors Loan Committee each received an additional annual retainerother hand:
DefenseStorm, Inc.
DefenseStorm, Inc. (“DefenseStorm”) provides a broad range of $10,000.
Canapi Ventures
During 2019, Canapi Advisors, a wholly owned subsidiary of the Company, began providing investment advisory services to Canapi Ventures, a series of new funds focused on providing venture capital to new and emerging financial technology companies. The Company has committed to invest up to $17.0 million in Canapi Ventures’ two initial funds (the “Canapi Funds”). In April 2019, Mr. Mahan, our Chairman and Chief Executive Officer, and Mr. Underwood, President of Live Oak Bancshares and a member of our Board of Directors. NoDirectors, each committed to invest up to $1.0 million in the Canapi Funds. Total capital commitments to the Canapi Funds, inclusive of the commitments from the Company and Messrs. Mahan and Underwood, were $516.6 million as of December 31, 2019.
Immediate Family Members Employed by the Bank
The Bank employs several relatives of directors and executive officers, including three employees who were paid or earned compensation exceeding $120,000 in the aggregate during 2019. These employees also received benefits under certain employee benefit plans that are generally available to all
similarly situated Bank employees. These family members are adults who do not share the home of the director or executive officer, and the related director or executive officer does not have an interest in the family member’s compensation.
William L. Williams IV, the son of William L. Williams III, our EVP and Vice Chairman and a member of our Board of Directors, received any non-qualified deferredtotal cash compensation earnings in 2016.
We regard each of the above team members as a highly educated, trained and competent team member, and we believe these employment relationships are beneficial to the Company and its shareholders.
Name of Director | Fees Earned or Paid in Cash | Stock Awards (2) | Option Awards (3) | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | ||||||||||||
| William H. Cameron | $ | 75,000 | $ | 30,007 | -- | -- | -- | $ | 105,007 | |||||||||
| Diane B. Glossman | 50,000 | 30,007 | -- | -- | -- | 80,007 | ||||||||||||
| Glen F. Hoffsis | 50,000 | 30,007 | -- | -- | -- | 80,007 | ||||||||||||
Donald W. Jackson (1) | 50,000 | 30,007 | -- | -- | -- | 80,007 | ||||||||||||
| Howard K. Landis, III | 50,000 | 30,007 | -- | -- | -- | 80,007 | ||||||||||||
| Miltom E. Petty | 86,000 | 30,007 | -- | -- | -- | 116,007 | ||||||||||||
| Jerald L. Pullins | 50,833 | 30,007 | -- | -- | -- | 80,840 | ||||||||||||
The following table sets forth certain information regarding the Company’s current executive officers.
Name | Age | Position | Business Experience | |||
James S. Mahan III | 68 | Chairman and CEO | Chairman of the Board and Chief Executive Officer of the Company and the Bank since inception. Prior to Live Oak Bank, Mr. Mahan was the Chief Executive Officer and Chairman for S1 Corporation and founder of Security First Network Bank, the world’s first internet bank. | |||
Neil L. Underwood | 50 | President and Director | President of the Company | |||
William L. Williams III | 68 | EVP and Vice | Vice Chairman of the Company and the Bank since 2012; Executive Vice President since 2013. Before joining in 2007 as a founding member of the Bank’s predecessor, Mr. Williams held executive positions with several different banking institutions, including Wachovia Bank & Trust Co. and Vine Street Financial. | |||
S. Brett Caines | 41 | Chief Financial Officer | Chief Financial Officer of the Company and the Bank since 2011; Finance Officer of the Bank and its predecessor from 2007-2011. Prior to joining in 2007, Mr. Caines was Production Engineer for INVISTA and Process Engineer for Shell Chemical Company. | |||
M. Huntley Garriott, Jr. | 44 | President Live Oak Banking Company | President of the Bank since September 2018. Prior to joining the Bank, Mr. Garriott was a partner at Goldman Sachs in the Investment Banking Division and served as co-head of the Banks and Specialty Finance team within the Financial Institutions Group. Over his 20-year career at Goldman, Mr. Garriott covered regional banks throughout North America and held a variety of roles focused on traditional investment banking, private equity investing, debt capital markets and risk management. He was named managing director in 2007 and partner in 2014. | |||
Susan N. Janson | 71 | Chief Live Oak Banking Company | Chief |
Gregory W. Seward | 44 | General Counsel | General Counsel of the Company and the Bank since October 2015. Prior to joining the Company, Mr. Seward spent the majority of his career as an attorney in the legal department of Capital One Financial Corporation, most recently |
Steven J. Smits | 53 | Chief Credit Officer | Chief Credit Officer of the Company and the Bank since February 2015; joined the Company and the Bank in 2012. Mr. Smits is the former Associate Administrator for the Office of Capital Access at the U.S. Small Business Administration (the “SBA”). While at the SBA, he was responsible for managing and overseeing the agency’s programs and operations designed to expand access to capital for America’s small businesses. This included managing the agency’s $100 billion small business loan portfolio. Mr. Smits also played a critical role in implementing many of the provisions in the JOBS Act that was signed into law by President Obama in September 2010. | |||
J. Wesley Sutherland | 49 | Chief Accounting Officer | Chief Accounting Officer of the Company and the Bank since 2014.Prior to joining the Company, Mr. Sutherland was the founder and owner of an accounting and consulting firm, an audit partner in the financial institutions services group of the largest CPA firm based in the South and had served as the president of a $300 million mutual savings bank. Mr. Sutherland worked, earlier in his career, in the banking practices of two national accounting firms and served as a financial analyst for a Fortune 500 company. | |||
Compensation Discussion and Analysis
The following summarydiscussion provides a description of our philosophy and decision-making process for compensating our named executive officers in 2019. This discussion also describes the material components of our 2019 compensation table shows all cashprogram. This discussion should be read together with the compensation tables for our named executive officers under the heading “Summary Compensation and non-cash compensation paid to or received or deferred by Other Tables” beginning on page 33 of this Proxy Statement.
Our 2019 named executive officers were:
James S. Mahan III,, Chief Executive Officer
S. Brett Caines, Chief Financial Officer
M. Huntley Garriott, Jr. President, Live Oak Bank
Susan N. Janson, Chief Risk Officer, Live Oak Bank
Neil L. Underwood, President
Key 2019 Business and Gregory B. Thompson, who we refer to as our “named executive officers,” for services rendered to us Financial Highlights
We are a financial holding company and the Bankparent company of the Bank. Our results for 2019 demonstrated a continuation of strong underlying financial performance and solid growth momentum. Management continues to focus on building recurring revenue streams, promoting change within the financial technology industry, and building out selected existing verticals while adding new verticals to our business model. During the fourth quarter of 2018, we began implementing a strategic decision to retain a larger portion of our loans eligible for sale on our balance sheet. Management believes this decision will reduce future earnings volatility and maximize long-term profitability. Our performance for 2019 illustrated the continued success of this business model pivot. Further enhancing earnings stability, the strategic decision to sell fewer loans has contributed to significant reductions in all capacities duringour historically volatile servicing asset and related valuations.
Financial highlights and events for 2019 included the fiscalfollowing:
Loans and leases held for sale and held for investment increased by $1.08 billion, or 42.8%, to $3.61 billion at the end of 2019 as a result of over $2.00 billion in loan originations in combination with executing our strategic decision to retain higher levels of loans.
Guaranteed loans eligible for sale increased by $564.0 million, or 157.9%, as a result of robust government guaranteed loan origination volume and the aforementioned loan retention strategy.
Guaranteed loan sale volume decreased $604.8 million, or 64.0%, while net gains on sales of loans declined $46.2 million, or 61.4%.
Investment securities available-for-sale increased $159.6 million, or 41.9%, to enhance liquidity options while also improving asset-liability repricing mix and duration.
Combined net interest income and loan servicing revenue increased by $31.0 million, or 22.6%, to $168.1 million in 2019.
Total nonperforming unguaranteed loans and leases as a percentage of total loans and leases held for investment decreased from 0.79% at the end of 2018 to 0.68% at the end of 2019.
Net charge-offs as a percentage of average held for investment loans and leases for the years ended December 31, 20162019 and 2015.2018, were 0.17% and 0.31%, respectively.
• | Total deposits rose by 34.3% to $4.23 billion at the end of 2019 following successful deposit gathering campaigns to support higher loan retention. |
Net income totaled $18.0 million, or $0.44 per diluted share, for 2019 compared to $51.4 million, or $1.24 per diluted share, for 2018.
Investment in growth continued with the hiring of 11 seasoned SBA generalists along with ongoing diversification of lending activities, such as the entry into venture banking by providing financing and banking solutions to early and expansion stage venture-backed companies.
During 2019, our subsidiary Canapi Advisors began providing investment advisory services to Canapi Ventures, a series of new funds focused on providing venture capital to new and emerging financial technology companies.
General Compensation Philosophy
We, and our subsidiaries, partner with businesses that have a common focus of changing the banking industry by bringing efficiency and excellence to customers using technology and innovation. Our mission is to create an unprecedented banking experience for small business owners nationwide through service and technology. The Compensation Committee of our Board of Directors (the “Committee”) and our leadership team believe strongly that delivering on this mission will build long-term shareholder value, and the Committee has designed a compensation program intended to motivate employees, and particularly our leadership team, to successfully execute this mission.
The Committee believes that the most effective incentive compensation programs strive to achieve the following objectives:
align compensation with responsibilities and performance;
align employees’ interests with those of our shareholders;
motivate performance toward the achievement of business objectives;
clearly communicate compensation policies and structures to employees;
motivate behaviors to increase long-term profitability while maintaining a focus on credit quality and underwriting standards; and
attract and retain talent and build leadership succession within business units.
Role of the Compensation Committee
The Committee is responsible for annually reviewing the performance of the CEO and reviews all compensation and equity awards to executive officers. The Committee has the exclusive authority and responsibility to determine all aspects of executive compensation and seeks input and recommendations from the CEO for the executive officers other than the CEO. The Committee operates under a written charter that it reviews at least annually to ensure that the scope of the charter is consistent with the Committee’s role. In accordance with the charter, in 2019 the Committee delegated final approvals, certifications and other determinations with respect to equity-based compensation intended to satisfy the exception provided under Rule 16b-3 promulgated under the Exchange Act (“Rule 16b-3”) to a subcommittee (the “Subcommittee”) consisting of members of the Committee, each of whom satisfies the requirements of a “non-employee director” for purposes of Rule 16b-3.
Role of the Executive Officers
The CEO provides the Committee with his recommendation for overall compensation for all executive officers other than himself. The Committee determines the level of compensation for the CEO based on a general compensation comparison to banks of similar size and performance as well as our overall performance in relation to corporate strategic goals.
Key 2019 Compensation Highlights
➢ | Mr. Mahan received a base salary and perquisites and other benefits for 2019. Mr. Mahan’s salary has not increased since we completed our initial public offering (“IPO”) in July 2015. Due to his long-standing and substantial stock ownership in the Company, the Committee has not awarded Mr. Mahan any equity-based awards since the IPO. |
➢ | Each of our named executive officers, other than Messrs. Mahan and Underwood, received a discretionary cash bonus in February 2020 based on the Committee’s review of our performance during 2019. See “2019 Discretionary Cash Bonus” below for more details. |
➢ | Each of our named executive officers, other than Messrs. Mahan and Underwood, received restricted stock units (“RSUs”) that vest pro rata over five years. These RSUs were granted in February 2020 based on the Committee’s review of Company and individual performance during 2019. See “2019 RSU Awards” below for more details on these RSUs. |
➢ | Our named executive officers serve at the discretion of the Board of Directors, and no named executive officer is party to an employment agreement. |
2019 Compensation Program
The Committee seeks to align management’s incentives with the long-term interests of our shareholders by designing incentive compensation to reward corporate performance. When approving compensation for the 2019 performance year for our named executive officers, the Committee reviewed key financial measures and performance related to our strategic plan and financial results. When it considered the base salary and any equity-based awards for the named executive officers, the Committee’s evaluation of our performance was more subjective in nature than objective without specific financial targets, objectives, or time periods under review. The Committee also had the goal of attracting and retaining its talented named executive officers through the compensation program. In February 2020, the Committee determined to award (i) discretionary cash bonuses based on its review of our 2019 performance and (ii) RSUs based on its review of Company and individual performance during 2019. The Committee did not target any specific mix or percentage of compensation components and believes that the overall mix of 2019 compensation components for the named executive officers, including base salary that provided fixed pay, a discretionary cash bonus that provided for cash payouts based on our performance over the 2019 fiscal year, and awards of RSUs that will vest pro rata over a five-year period, appropriately motivated the named executive officers and aligned their interests with the long-term interests of shareholders.
Base Salaries. We aim to provide our named executive officers with a base salary that is commensurate with similar financial institutions and appropriate for the overall responsibility of the individual based on experience, performance and any other unique factors or qualifications such as the difficulty of replacing the officer with someone of comparable experience and skill. The base salaries are intended to compensate our named executive officers for the day-to-day services performed for us. When setting base salaries for our executive officers, the Committee considers the scope of the officer’s role and the officer’s ability to contribute to our success. The Committee also considers length of service as well as other forms of compensation awarded. For executive officers other than the CEO, the Committee takes
into account the CEO’s input and recommendations. After considering these factors, the Committee chose not to increase 2019 base salaries for any named executive officers from their 2018 salaries.
2019 Discretionary Cash Bonus. In February 2020, the Committee reviewed our performance for 2019 and determined to award a discretionary cash bonus to each named executive officer other than Messrs. Mahan and Underwood. Consistent with bonuses paid at the same time to employees across the Company, each cash bonus represented approximately 10% of the named executive officer’s 2019 base salary.
Equity Compensation. At various times, the Committee awards incentive compensation to our named executive officers consisted of cash salary, bonus, option awards, stock awards, non-equity incentive plan compensation paid in cash and other compensation as detailed in the footnotes provided. Noform of equity-based compensation in order to further align management and shareholder interests and to reward management for increases in shareholder value. The Committee also uses these awards to attract and retain its named executive officers. Grants are not made on a pre-determined schedule but are typically made during an open trading window pursuant to our Insider Trading Policy.
2019 RSU Awards. In February 2020, the Committee reviewed both Company and individual performance during 2019and determined to grant RSU awards that vest pro rata over five years to each named executive officer other than Messrs. Mahan and Underwood.
Mr. Caines received an award of 10,011 RSUs with a grant date value of $179,998. The Committee determined to grant this award based upon Mr. Caines’s leadership in managing our balance sheet in 2019, particularly as we implemented the strategic decision to retain a larger portion of loans eligible for sale on our balance sheet. The Committee also considered Mr. Caines’s role in our success enhancing our liquidity profile and improving asset-liability repricing mix and duration.
Mr. Garriott received an award of 22,246 RSUs with a grant date value of $399,983. The Committee determined to grant this award based upon Mr. Garriott’s leadership in driving solid financial results at the Bank while enhancing our organizational and management structure and overseeing progress on several critical initiatives, including technology and infrastructure development.
Ms. Janson received an award of 10,011 RSUs with a grant date value of $179,998. The Committee determined to grant this award based upon Ms. Janson’s success improving and enhancing the Bank’s risk management framework, including the build-out of our compliance and other functions in connection with the Bank’s anticipated launch of a new technology platform.
Market Price RSU Modifications. In May 2018 soon after she joined the Company, Ms. Janson received an award of Market Price RSUs under the 2015 Omnibus Stock Incentive Plan that would only vest if the closing price of our common stock attains $48.00 for at least twenty consecutive trading days at any non-qualified deferred compensation earningstime prior to the end of the seven-year term. In February 2019 the Committee and Subcommittee approved modifications to her award that lengthened the vesting schedule from seven years to ten years and provided for vesting of a portion of the RSUs at multiple target stock prices. Under the terms of Ms. Janson’s Market Price RSU award as modified, 25% of the RSUs will vest at the following target stock prices if they are attained at any time prior to May 14, 2028: $35.00, $40.00, $45.00 and $48.00. The closing price for our common stock from April 2, 2018, to April 30, 2018 ranged from $27.30 to $29.35. The Committee believed that modifying Ms. Janson’s Market Price RSUs and setting the price targets at these levels enhanced alignment of Ms. Janson’s interests with the long-term interests of our shareholders, particularly in 2016light of our strategic decision in the fourth quarter of 2018 to retain a larger portion of its loans eligible for sale on our balance sheet intended to maximize long-term profitability.
In August 2018, Mr. Caines, and other recipients, received an award of Market Price RSUs under our 2015 Omnibus Stock Incentive Plan. These awards only vest if the closing price of our common
stock attains specified price targets that are set above the closing price on the date of grant. In February 2019, the Committee and the Subcommittee approved modifications to these awards that lengthened the vesting schedule from seven years to ten years and changed the amount of RSUs that vest at the target stock prices. As modified, the Market Price RSUs vest according to the following schedule:
Target Stock Price |
| Portion of RSUs Vested |
$35.00 |
| 20.0% |
$40.00 |
| 20.0% |
$45.00 |
| 20.0% |
$50.00 |
| 20.0% |
$55.00 |
| 20.0% |
In order for the stock price condition to be met, our common stock must attain a closing price equal to or 2015.
Name and Principal Position | Year | Salary | Bonus (1) | Option Awards (2) | Stock Awards (3) | Non-Equity Incentive Plan Compensation (4) | All Other Compensation (5) | Total | ||||||||||||||||||||||
| James S. Mahan III | 2016 | $ | 510,600 | -- | -- | -- | $ | 26,423 | $ | 267,616 | $ | 804,639 | ||||||||||||||||||
Chairman and Chief Executive Officer | 2015 | 510,600 | -- | -- | -- | 61,272 | 375,260 | 947,132 | ||||||||||||||||||||||
| Neil L. Underwood | 2016 | 700,174 | -- | -- | $ | 11,135,100 | 48,984 | 84,495 | 11,968,753 | |||||||||||||||||||||
| President | 2015 | 424,200 | -- | -- | -- | 50,904 | 60,481 | 535,585 | ||||||||||||||||||||||
| Gregory B. Thompson * | 2016 | 400,008 | $ | 20,000 | -- | 897,000 | 27,934 | 47,926 | 1,392,868 | |||||||||||||||||||||
| Chief Operating Officer | 2015 | 76,669 | -- | $ | 873,000 | -- | 9,121 | 7,949 | 966,739 | |||||||||||||||||||||
When determining the timing and number of shares under each Market Price RSU award for the named executive officers, the Committee and the Subcommittee considered the overall responsibility of the individual based on experience, performance and any other unique factors or qualifications. This evaluation of the individual’s responsibility and performance was more subjective in nature than objective, without reference to any specific financial targets or objectives. Rather than following specific policies or targets in making awards, the Committee undertakes a holistic analysis based on the factors and goals described above. The Committee’s goal in awarding Market Price RSUs was to further align the interests of the named executive officers with the interests of shareholders and to retain the named executive officers. The Committee believed that Market Price RSUs had the potential to achieve this goal more effectively than time-based RSUs without stock price conditions or stock options with exercise prices set at the fair market value of our common stock on the date of grant. The Committee has been and will continue to monitor and evaluate the operation and effectiveness of the Market Price RSUs.
Garriott Sign-on Equity Awards.* Mr. ThompsonGarriott joined the Company in October 2015 and was promotedSeptember 2018 as President of Live Oak Bank. In February 2019, the Committee granted to Chief Operating Officer on January 6, 2016.
Set forth below is additional information regarding our equity compensation plans that the quarterly goals for fully funding loans and operating earnings per share were not met, the quarterly cash payment that was not paid out was eligible to be made up in subsequent quarterseffect or at the end of the fiscal year. Eligible employees participatingunder which awards were outstanding in the 2016 Profit Share Plan for the full year received approximately 7% of base salary for 2016.
plan. The original 2015 Omnibus Stock Incentive Plan was approved by theour shareholders of the Company at the 2015 annual meeting of shareholders.Annual Meeting. The 2015 Omnibus Stock Incentive Plan replaced the 2008 Incentive Stock Option Plan, the Restricted Stock Plan and the 2008 Nonstatutory Stock Option Plan (collectively, the “Prior Plans”). The aggregate number of shares of our voting common stock that may be issued pursuant to the 2015 Omnibus Stock Incentive Plan is 7,000,000,currently 8,750,000, less such shares as are issued or subject to outstanding grants under the Prior Plans since the date of adoption of the 2015 Omnibus Stock Incentive Plan. The awards may be issued in the form of incentive stock options, non-qualified stock options, restricted stock, restricted stock unitsRSUs or stock appreciation rights. As of December 31, 2016,2019, there were a total of 6,485,1776,127,452 shares of our voting common stock reserved for issuance in connection with outstanding awards under the 2015 Omnibus Stock Incentive Plan and the Prior Plans.
2008 Incentive Stock Option Plan
Options granted under the 2008 Plan were intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code, or the Code. Under the Code, options are afforded favorable tax treatment to recipients upon compliance with certain restrictions but do not result in tax deductions to the Company. The purpose of the 2008 Plan was to increase the performance incentive for employees of the Bank, to encourage the continued employment of current employees and to attract new employees by facilitating their purchase of a stock interest in the Company.
The 2008 Plan was adopted by theour Board of Directors of the Company in connection with the reorganization of the Bank into the holding company form of organization on March 31, 2009. Upon our adoption of the 2008 Plan, by the Company, all outstanding options to purchase shares of the Bank were converted into options to purchase shares of the Company’sour common stock. The 2008 Plan was replaced
Restricted Stock Plan
This plan was replaced by the 2015 Omnibus Stock Incentive Plan, and no further shares of the Company’sour common stock may be issued under the restricted stock plan.
2008 Nonstatutory Stock Option Plan
Options granted under the 2008 Directors’ Plan do not qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code. The purpose of the 2008 Directors’ Plan is to encourage the continued participation of members of our boardBoard of directors,Directors, to align the interests of directors with those of shareholders and to facilitate the recruitment of new members of the boardBoard of directorsDirectors as necessary or desirable.
The 2008 Directors’ Plan was adopted by our boardBoard of directorsDirectors in connection with the reorganization of the Bank into the holding company form of organization on March 31, 2009. Upon our adoption of the 2008 Directors’ Plan, by the Company, all outstanding options to purchase shares of the Bank were
converted into options to purchase shares of the Company’sour common stock. The 2008 Directors’ Plan was replaced by the 2015 Omnibus Stock Incentive Plan, and no further grants of stock options will be made under the 2008 Directors’ Plan.
Severance Benefits
We do not have employment agreements in place with any executive officer, and any severance benefits are negotiated on an individual basis.
For additional information regarding severance benefits, see “Potential Payments Upon Termination or Change in Control” on page 37.
Retirement Plans
We sponsor a 401(k) plan pursuant to which we match each participating employee’s contributions up to the first 6% of the employee’s salary. We do not have any non-qualified deferred compensation plans, pension plans or other retirement plans for any employees.
Change in Control
We do not have employment agreements in place with any executive officer that would provide benefits in connection with a change in control. Some of the outstanding equity awards to our named executive officers include provisions that provide for accelerated vesting in connection with a change in control. See “Potential Payments Upon Termination or Change in Control” below for more information.
Perquisites and Other Benefits
We annually review the perquisites that named executive officers receive. The primary perquisites for these individuals include 401(k) matching contributions and the dollar value of insurance premiums paid on behalf of the named executive officers for group term life, health, dental and disability insurance. These benefits are provided to named executive officers under the same terms as provided to all of our employees. Our named executive officers also participate in our other benefit plans on the same terms as other employees. These plans include medical insurance, life insurance and a medical reimbursement plan.
Perquisites for a limited number of executive officers include personal use of the Company’s aircraft. The Committee has adopted a Personal Use of Corporate Aircraft Policy. Under this policy, our CEO is permitted to use Company aircraft for personal travel up to 150 flight hours in 2019. Each of our President, our Vice Chairman and the President of the Bank is permitted to use Company aircraft for personal travel up to 50 flight hours each in 2019.
Canapi Ventures Carried Interest Plan
We allocate carried interest from each of Canapi Ventures Fund, L.P. and Canapi Ventures SBIC Fund, L.P. (the “Canapi Funds”) to a Delaware limited liability company, from which select employees who are admitted as members are eligible to invest capital and/or to receive a share of the carried interest allocation. The share of carried interest a member is entitled to receive is expressed in terms of “profit sharing points.” A total of nine points have been allocated to the Company and select employees as of December 31, 2019. In 2019, Mr. Underwood was admitted as a member of the carry pool and granted 2.75 profit sharing points. Distributions of carried interest in cash (or ratably in kind) to Mr. Underwood and other individuals who participate in the carry pool depends on the realized proceeds and timing of the cash realizations of the investments owned by the Canapi Funds. Carried interest distributions are
generally made to the employee following the actual realization of the investment, although the managing member may, in its discretion, hold back a portion of such carried interest to secure any future “clawback” obligation related to a Canapi Fund. To the extent any “clawback” obligation were to be triggered, carried interest previously distributed to Mr. Underwood would have to be returned to such Canapi Fund, thereby reducing his overall compensation for any such year. Mr. Underwood did not receive any cash distributions attributable to carried interest in 2019. Because the amount of carried interest distributions is directly tied to the realized performance of the Canapi Funds, Mr. Underwood's direct ownership of carried interest fosters a strong alignment of his interests with the interests of the Canapi Fund investors, including the Company, thus ultimately benefiting Canapi Fund investors and our shareholders through our success as a whole.
Mr. Underwood’s profit sharing points are subject to vesting. Vesting serves as an employment retention mechanism and thereby enhances the alignment of interests between Mr. Underwood and the Company. The profit sharing points vest according to a graded vesting schedule, with 25% vested on the date of grant and the remaining 35% through 95% vesting on each of the first through ninth anniversaries of the final closing of a Canapi Fund. In addition, the profit sharing points will become fully vested if (i) the Company ceases to control Canapi Advisors, LLC or (ii) the Company has a “change of control” (as defined in the LLC agreement for the carry pool). To the extent any carried interest proceeds in respect of a Canapi Fund are distributed to Mr. Underwood, such carried interest proceeds will be fully vested on the date of distribution.
2020 Compensation Program Preview
In February 2020, the Committee reviewed base salaries for the named executive officers and considered the same factors as discussed above for 2019 base salaries. For named executive officers other than the CEO, the Committee also considered the CEO’s recommendations. After taking into account these factors and recommendations, the Committee determined to increase the 2020 base salaries of Mr. Caines to $380,000 and Ms. Janson to $325,000. The Committee did not approve any increases to the 2020 base salaries for Messrs. Mahan, Underwood or Garriott. The Committee has discussed potential plans and programs for cash and equity incentive compensation for the named executive officers for 2020 but, as of the date of this Proxy Statement, the Committee has not made any decisions or determinations beyond setting base salaries. The Committee expects to consider potential cash and equity incentive awards for the named executive officers late in 2020 or early 2021 after considering our 2020 financial performance, individual contributions to that performance and other relevant factors at that time, including the results of the say-on-pay vote discussed elsewhere in this Proxy Statement. Our 2020 compensation program will be more fully discussed in the proxy statement for our 2021 annual meeting of shareholders.
Clawback Policy
The Committee is committed to adopting a formal compensation recovery or “clawback” policy for adjustment or recovery of incentive awards or payments in the event the performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment. On July 1, 2015, the SEC proposed a rule implementing Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) regarding the adoption and disclosure of clawback policies to recover incentive-based compensation received by current or former executive officers. The Committee intends to fully comply with the Dodd-Frank Act regarding this issue once rulemaking has been completed with respect to these provisions.
Until formal guidance is available, the Committee will seek to address any situation that may arise and determine the proper and appropriate course of action in fairness to shareholders and named
executive officer award recipients. Each RSU granted by the Company during 2019 is subject to an award agreement in which we reserve the right to recover all compensation payable under the award agreement pursuant to our clawback policy then in effect or Section 954 of the Dodd-Frank Act.
Compensation Consultant; Benchmarking
In making compensation decisions for 2019, the Committee did not utilize the services of a compensation consultant, and the Committee did not obtain or perform compensation benchmarking from an external compensation consultant.
Risk Considerations
The Committee reviews the risks and rewards associated with our compensation programs from time to time. This review assesses the material elements of executive and non-executive employee compensation and has concluded that our policies and practices do not create risk that is reasonably likely to have a material adverse effect on us. We believe that our compensation programs encourage and reward prudent business judgment and appropriate risk taking over the short-term and long-term.
Stock Ownership Guidelines
We believe that it is in the best interest of the Company and our shareholders to align the personal financial interests of our directors and officers with those of our shareholders. While the Board of Directors has not implemented stock ownership guidelines for our directors and executive officers, the board periodically analyzes the ownership of our common stock by such individuals and believes that their personal financial interests are aligned with those of our shareholders.
Tax and Accounting Considerations
In consultation with management, we evaluate the tax and accounting treatment of our compensation program to ensure an understanding of the financial impact of the program. To preserve maximum flexibility in the design and implementation of our compensation program, we have not adopted a formal policy that requires all compensation to be tax deductible. However, to the greatest extent possible, it is our intent to structure our compensation programs in a tax efficient manner.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Code (“Section 162(m)”) limits our ability to deduct certain compensation in excess of $1 million paid to certain executive officers, referred to as “covered employees” (who will generally be the same as our named executive officers). Before 2018 this limitation did not apply to compensation that qualified under applicable regulations as “performance-based compensation.” In line with this, we have generally aimed to design and approve the performance-based compensation paid to its covered employees so that such compensation would satisfy the requirements for exclusion from the limit on deductibility under Section 162(m). Before 2018 the compensation committee considered Section 162(m) when making compensation decisions. However, other considerations, such as providing our covered employees with competitive and adequate incentives to remain with the Company and increase our business operations, financial performance and prospects, as well as rewarding extraordinary contributions, also significantly factored into the compensation committee’s decisions. Moreover, because of ambiguities in the application and interpretation of Section 162(m) and the regulations issued thereunder, there is no assurance that any compensation granted in the past that was intended to satisfy the requirements for deductibility under Section 162(m) actually was or will be deductible.
In December 2017, a significant tax bill was enacted, which amended Section 162(m). The amendment repealed the exception to Section 162(m) that had generally permitted deductions for qualified performance-based compensation, effective for tax years beginning after December 31, 2017. Accordingly, commencing with our fiscal year ending December 31, 2018, compensation to our covered employees in excess of $1,000,000, other than qualified performance-based compensation awarded pursuant to a binding written contract that was in place on November 2, 2017, generally will not be deductible. Qualified performance-based compensation awarded to our covered employees pursuant to written binding contracts in effect on November 2, 2017, are expected to continue to qualify for the performance-based compensation exemption under Section 162(m) so long as the awards are not materially modified on or after that date. Because of ambiguities in the application and interpretation of Section 162(m) and the regulations and guidance issued thereunder, the future deductibility of these grandfathered awards cannot be guaranteed.
The Compensation Committee has reviewed and discussed, among other things, the Compensation Discussion and Analysis contained in this Proxy Statement with the Company’s management. Based on such review and discussions, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Submitted by the Compensation Committee: | ||
William H. Cameron, Chair | ||
Diane B. Glossman | ||
Glen F. Hoffsis | ||
Howard K. Landis III | ||
David G. Salyers |
VE OAK BANCSHARES, INC. 1741 TIBURON DRIVE WILMINGTON, NC 28403 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. To Vote, MARK BLOCKS BELOW IN BLUE OR BLACK IMK
. Continued and to be signed on reverse side Equity Compensation Plan Information
The following table sets forth additional information with respect to the Company’s equity compensation plans at December 31, 2019.
Plan Category |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
| Weighted-average exercise price of outstanding options, warrants and rights |
|
| Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) |
| |||
|
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
2015 Omnibus Stock Incentive Plan and Prior Plans |
|
| 6,127,452 |
| (1) | $ | 11.42 |
| (2) |
| 1,397,271 |
|
Employee Stock Purchase Plan (3) |
|
| — |
|
|
| — |
|
|
| 176,872 |
|
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 6,127,452 |
|
| $ | 11.42 |
|
|
| 1,574,143 |
|
(1) | Includes 3,611,725 outstanding RSUs under the 2015 Omnibus Stock Incentive Plan. Also includes 1,279,310 shares to be issued upon exercise of outstanding options and stock awards under the Prior Plans, which include our 2008 Incentive Stock Option Plan, Restricted Stock Plan and 2008 Nonstatutory Stock Option Plan. |
(2) | Does not reflect RSUs because they have no exercise price. |
(3) | Under this plan, eligible employees are able to purchase available shares with post-tax dollars at a 15% discount to fair market value. There were 29,493 shares purchased under the Employee Stock Purchase Plan at a weighted average price of $14.81 during 2019. |
Summary Compensation and Other Tables
Summary Compensation Table. The following Summary Compensation Table shows all cash and non-cash compensation paid to or received or deferred by James S. Mahan III, S. Brett Caines, M. Huntley Garriott, Jr., Susan N. Janson and Neil L. Underwood, who we refer to as our “named executive officers,” for services rendered to us and the Bank in all capacities during the fiscal years ended December 31, 2019, 2018 and 2017. Compensation paid to our named executive officers consisted of cash salary, cash bonus, stock awards and other compensation as detailed in the footnotes provided. No named executive officer received any non-equity incentive plan compensation or non-qualified deferred compensation earnings in 2019, 2018 or 2017.
Name and Principal Position |
| Year |
| Salary |
|
| Bonus(1) |
|
| Option Awards |
|
| Stock Awards(2) |
|
| All Other Compensation(3) |
|
| Total |
| ||||||
James S. Mahan III |
| 2019 |
| $ | 510,600 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 205,626 |
|
| $ | 716,226 |
|
Chairman and |
| 2018 |
| 510,600 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 476,094 |
|
|
| 986,694 |
| |
Chief Executive Officer |
| 2017 |
| 510,600 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 291,749 |
|
|
| 802,349 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. Brett Caines |
| 2019 |
| $ | 365,004 |
|
| $ | 36,500 |
|
| $ | — |
|
| $ | 307,800 |
|
| $ | 42,588 |
|
| $ | 751,892 |
|
Chief Financial Officer |
| 2018 |
|
| 365,004 |
|
|
| — |
|
|
| — |
|
|
| 799,500 |
|
|
| 38,331 |
|
|
| 1,202,835 |
|
|
| 2017 |
|
| 328,341 |
|
|
| — |
|
|
| — |
|
|
| 38,999 |
|
|
| 38,519 |
|
|
| 405,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Huntley Garriott, Jr. |
| 2019 |
| $ | 800,004 |
|
| $ | 80,000 |
|
| $ | — |
|
| $ | 4,868,900 |
|
| $ | 135,265 |
|
| $ | 5,884,169 |
|
President, Bank |
| 2018 |
|
| 227,694 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39,463 |
|
|
| 267,157 |
|
|
| 2017 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan N. Janson |
| 2019 |
| $ | 380,646 |
|
| $ | 27,500 |
|
| $ | — |
|
| $ | 464,438 |
|
| $ | 33,198 |
|
| $ | 905,782 |
|
Chief Risk Officer, Bank |
| 2018 |
|
| 194,971 |
|
|
| 75,000 |
|
|
| — |
|
|
| 1,313,250 |
|
|
| 23,464 |
|
|
| 1,606,685 |
|
|
| 2017 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neil L. Underwood |
| 2019 |
| $ | 702,000 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 130,455 |
|
| $ | 832,455 |
|
President |
| 2018 |
|
| 702,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 103,111 |
|
|
| 805,111 |
|
|
| 2017 |
|
| 702,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 92,971 |
|
|
| 794,971 |
|
|
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(1) | In 2017, the Company established a profit share plan for employees but excluded all executive officers of the Company as eligible employees under the plan. In 2018, the Company established a profit sharing plan for employees, including certain named executive officers, but there was no payout under the plan to any employee in 2018. Amounts in this column for 2019 represent payouts for discretionary cash bonuses based on review of the Company’s 2019 performance. See “2019 Discretionary Cash Bonus” on page 24 of this Proxy Statement for more information. |
$48.00 per share, subject to continued service. The amount shown for Ms. Janson in 2019 represents the increase in fair value of the May 14, 2018 Market Price RSUs after the modification on February 11, 2019. Mr. Garriott received a Market Price RSU award on February 11, 2019. The value for the Market Price RSUs was calculated by multiplying the number of units awarded by the fair value of the units calculated using a Monte Carlo simulation. The Market Price RSUs granted on February 11, 2019, were valued using the following assumptions: risk free interest rate of 2.62%; expected dividend yield of 0.78%; and expected volatility of 37.6%. The weighted average grant date fair value for the Market Price RSUs granted to Mr. Garriott on February 11, 2019, was $8.81. The methodology used in calculating the fair value of RSUs is described in more detail in Note 14 to the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2019. Mr. Garriott also received a time-vested award of 30,000 RSUs on February 11, 2019. The grant date fair market value of the time-vested RSUs granted on February 11, 2019, was $15.43 per share. Additional information regarding outstanding RSU awards is provided under the heading “Outstanding Equity Awards at Fiscal Year-End” on page 35 of this Proxy Statement. |
(3) | Includes 401(k) matching contributions, relocation, and the dollar value of insurance premiums paid on behalf of the named executive officers for group term life, health, dental and disability insurance. Also includes personal use of the Company aircraft by the named executives where applicable. For 2017, 2018 and 2019, amounts for personal use of the Company’s aircraft were calculated using aggregate incremental cost to the Company (AIC) and are based on variable costs incurred including fuel, applicable fees, maintenance service, crew travel and other operating expenses. The value based on the AIC method is included in 2019 “All Other Compensation” for Messrs. Mahan, Garriott and Underwood in the amount of $170,674, $78,997 and $87,867, respectively. |
Grants of Plan-Based Awards. The Grants of Plan-Based Awards Table below sets forth the total number of equity awards granted or modified in 2019 for our named executive officers and the grant date fair values of those awards. The table should be read in conjunction with the Summary Compensation Table provided above.
|
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| Estimated future payouts under equity incentive plan awards |
|
| All other stock awards: Number of shares of stock |
|
| All other option awards: Number of securities underlying |
|
| Exercise or base price of option |
|
| Grant date fair value of stock and |
| |||||||||||||
Name |
| Grant date |
|
| Threshold (#) |
|
| Target (#) |
|
| Maximum (#) (1) |
|
| or units (#) (2) |
|
| options (#) |
|
| awards ($/Sh) |
|
| option awards (3) |
| ||||||||
James S. Mahan III |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
S. Brett Caines |
| 8/10/2018 |
|
|
| — |
|
|
| — |
|
|
| 50,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $ | 307,800 |
| |
M. Huntley Garriott, Jr. |
| 2/11/2019 |
|
|
| — |
|
|
| — |
|
|
| 500,000 |
|
|
| 30,000 |
|
|
| — |
|
|
| — |
|
| $ | 4,868,900 |
| |
Susan N. Janson |
| 5/14/2018 |
|
|
| — |
|
|
| — |
|
|
| 75,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $ | 464,438 |
| |
Neil L. Underwood |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $ | — |
|
(1) | Amounts shown in this column reflect the number of Market Price RSUs granted or modified to each named executive officer during 2019. As in effect on December 31, 2019, a portion of the Market Price RSUs granted on February 11, 2019, will vest if the Company's voting common stock attains various closing prices for at least twenty consecutive trading days at any time prior to February 11, 2029, in accordance with the following: 20% of the RSUs will vest upon the attainment of closing stock prices of $35.00 per share, $40.00 per share, $45.00 per share, $50.00 per share, and $55.00 per share, subject to continued service. The Market Price RSUs granted to Ms. Janson on May 14, 2018 and Mr. Caines on August 10, 2018 were modified on February 11, 2019 to extend the vesting period from seven to ten years. Mr. Caines’s grant was modified to vest if the Company's voting common stock attains various closing prices for at least twenty consecutive trading days at any time prior to August 10, 2028, in accordance with the following: 20% of the RSUs will vest upon the attainment of closing stock prices of $35.00 per share, $40.00 per share, $45.00 per share, $50.00 per share, and $55.00 per share, subject to continued service. Ms. Janson’s grant was modified to vest if the Company's voting common stock attains various closing prices for at least twenty consecutive trading days at any time prior to May 14, 2028, in accordance with the following: 25% of the RSUs will vest upon the attainment of closing stock prices of $35.00 per share, $40.00 per share, $45.00 per share, and $48.00 per share, subject to continued service. No threshold or target amounts were established in connection with these awards. |
each February 11, 2020, 2021, 2022 and 2023, subject to continued service.No threshold or target amounts were established in connection with these awards. |
(3) | The value of Mr. Garriott’s RSUs granted on February 11, 2019, was calculated by multiplying the number of RSUs awarded by the grant date fair value of $15.43 per share, which was the closing price of our common stock on the grant date. The value for the Market Price RSUs was calculated by multiplying the number of units awarded by the fair value of the units calculated using a Monte Carlo simulation. The Market Price RSUs granted on February 11, 2019, were valued using the following assumptions: risk free interest rate of 2.62%; expected dividend yield of 0.78%; and expected volatility of 37.6%. The weighted average grant date fair value for the Market Price RSUs granted on February 11, 2019 was $8.81. |
Non-Equity Incentive Plan Compensation. The Company did not have a non-equity incentive plan in place as of December 31, 2019.
Outstanding Equity Awards at Fiscal Year-End
|
| Stock Awards |
| |||||||||||||
| Number of shares or units of stock that have not vested |
|
| Market value of shares or units of stock that have not vested* |
|
| 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* |
| |||||
James S. Mahan III |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
S. Brett Caines |
|
| — |
|
|
| — |
|
|
| 103,427 |
| (1) | $ | 1,966,147 |
|
M. Huntley Garriott, Jr. |
|
| 30,000 |
| (2) | $ | 570,300 |
|
|
| 500,000 |
| (3) | $ | 9,505,000 |
|
Susan N. Janson |
|
| — |
|
|
| — |
|
|
| 75,000 |
| (4) | $ | 1,425,750 |
|
Neil L. Underwood |
|
| — |
|
|
| — |
|
|
| 600,000 |
| (5) | $ | 11,406,000 |
|
| Option Awards | ||||||||
Number of securities underlying unexercised options exercisable | Number of securities underlying unexercised options unexercisable | Option exercise price | Option expiration date | |||||
| Gregory B. Thompson | 6,001 | 53,999 (1) | $ 14.55 | November 19, 2025 | ||||
* | |
|
| Stock Awards | ||||||||||||
Number of shares or units of stock that have not vested | Market value of shares or units of stock that have not vested* | 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* | |||||||||
| Neil L. Underwood | 435,000 (1) | $ | 8,047,500 | 600,000 (2) | $ | 11,100,000 | ||||||
| Gregory B. Thompson | -- | -- | 100,000 (3) | $ | 1,850,000 | |||||||
| Market value based on the closing price of a share of the |
(1) | Includes the following RSUs: |
(a) | An award of 50,000 Market Price RSUs. In order for these RSUs to vest as in effect on December 31, 2019, a portion of these Market Price RSUs will vest, as modified on February 11, 2019, if the Company's voting common stock attains various closing prices for at least twenty consecutive trading days at any time prior to August 10, 2028, in accordance with the following: 20% of the RSUs will vest upon the attainment of closing stock prices of $35.00 per share, $40.00 per share, $45.00 per share, $50.00 per share, and $55.00 per share, subject to continued service. |
(b) | An award of 3,427 Market Price RSUs. In order for these RSUs to vest, the Company’s voting common stock must attain a closing price equal to or greater than $38.00 per share for at least twenty consecutive trading days at any time prior to January 31, 2024, subject to continued service. In addition, the vesting of these RSUs was subject to the Company achieving total revenue of at least $100 million for fiscal year |
(c) | An award of 50,000 Market Price RSUs. In order for these RSUs |
(2) | An award of 30,000 RSUs. These RSUs vest in four equal installments, in accordance with the following: 25% of the RSUs will vest each February 11, 2020, 2021, 2022 and 2023, subject to continued service. |
stock prices of $35.00 per share, $40.00 per share, $45.00 per share, $50.00 per share, and $55.00 per share, subject to continued service. |
(4) | An award of 75,000 Market Price RSUs. In order for these RSUs to vest as in effect on December 31, 2019, a portion of these Market Price RSUs will vest, as modified on February 11, 2019, if the Company's voting common stock attains various closing prices for at least twenty consecutive trading days at any time prior to May 14, 2028, in accordance with the following: 25% of the RSUs will vest upon the attainment of closing stock prices of $35.00 per share, $40.00 per share, $45.00 per share, and $48.00 per share, subject to continued service. |
(5) | An award of 600,000 Market Price RSUs. In order for these RSUs to vest, the |
Option Exercises and Stock Vested. None of our named executive officers had any option exercises or vesting of stock during 2019.
Pension Benefits. There are no pension benefits outstanding for our named executive officers.
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans. There are no nonqualified defined contribution or other nonqualified deferred compensation plans for our named executive officers.
Potential Payments Upon Termination or Change in Control
The following table sets forth additional informationdiscussion presents the potential payments for each of our named executive officers upon a termination of employment or change in control. Pursuant to applicable SEC rules, the analysis contained in this discussion does not consider or include payments made to a named executive officer with respect to contracts, agreements, plans or arrangements to the Company’s equity compensation plans at December 31, 2016.
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) | |||
| (a) | (b) | (c) | ||||
| Equity compensation plans approved by security holders | ||||||
2015 Omnibus Stock Incentive Plan and Prior Plans | 6,485,177 (1) | $11.51 (2) | 381,151 | |||
Employee Stock Purchase Plan (3) | -- | -- | 243,338 | |||
| Equity compensation plans not approved by security holders | -- | -- | -- | |||
| Total | 6,485,177 | $11.51 | 624,489 | |||
The Company’s named executive officers serve at the discretion of the Board of Directors, and no named executive officer is party to an employment agreement. In the event of a named executive officer’s termination of employment for any reason whatsoever, any severance benefits or other cash payments would be negotiated on an individual basis.
Awards Under the 2015 Omnibus Stock Incentive Plan
In the event a named executive officer voluntarily terminates his or her employment, he or she would forfeit all unvested equity awards. The named executive officer would have three months from date of termination to exercise any vested stock options.
In the event of termination of a named executive officer’s employment by the Company, with or without Cause (as defined in the 2015 Omnibus Stock Incentive Plan and summarized below), he or she would forfeit all unvested equity awards. The named executive officer would have three months from date of termination to exercise any vested stock options, unless the officer is terminated for Cause in which case he or she may not exercise any stock options after the date of termination.
As defined in the 2015 Omnibus Plan, “Cause” is generally defined as:
the officer’s performance of any act, or failure to perform any act, in bad faith and to the detriment of the Company or its subsidiaries;
the officer’s dishonesty, intentional misconduct or material breach of any agreement with the Company or its subsidiaries;
the removal of the officer from office or permanent prohibition of the officer from participating in the affairs of the Company or its subsidiaries by regulatory order;
the occurrence of any event that results in the officer being excluded from coverage, or having coverage limited for the officer, under the Company’s blanket bond or other fidelity or insurance policy covering its directors, officers, or employees; or
the officer’s commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person.
In the event of termination of a named executive officer’s employment due to death or Disability (as defined in the 2015 Omnibus Stock Incentive Plan and summarized below), a portion of outstanding and unvested Market Price RSUs would vest if the applicable modified stock price condition detailed in the award agreement is met. Unvested options do not vest upon termination for death or Disability, and
the named executive officer would have twelve months from the date of termination to exercise any vested stock options.
As defined in the 2015 Omnibus Plan, “Disability” generally means a “disability” (or similar word) as defined under the long-term disability policy of the Company or its subsidiaries. If the Company or its subsidiaries do not have a long-term disability plan in place, “Disability” means that an officer is unable to carry out the responsibilities and functions of the position held by the officer by reason of any medically determinable physical or mental impairment for a period of not less than ninety consecutive days.
None of the outstanding equity awards for any named executive officer provides for acceleration or continued vesting of the awards in the event of retirement.
Terminations Involving a Change in Control. In the event of a change in control of the Company, defined as a Corporate Transaction in the 2015 Omnibus Stock Incentive Plan and summarized below, a portion of outstanding and unvested Market Price RSUs would vest effective on the date of the Corporate Transaction if the applicable modified stock price condition detailed in the award agreement is met. If the modified stock price condition is met, the named executive officer’s employment does not have to be terminated in connection with the Corporate Transaction for the applicable portion of the unvested Market Price RSUs to vest. All unvested time-based RSUs would become fully vested immediately in the event a named executive officer’s employment is terminated within twelve months following a Corporate Transaction for any reason other than Cause. All unvested stock options would become fully vested immediately in the event a named executive officer’s employment is terminated within twelve months following a Corporate Transaction for any reason other than Cause, and the named executive officer would have twelve months from the date of termination to exercise any vested options.
As defined in the 2015 Omnibus Plan, “Corporate Transaction” generally means any of the following transactions:
a merger or consolidation in which the Company is not the surviving entity (except for a transaction the principal purpose of which is to change the state in which the Company is incorporated);
the sale, transfer or other disposition of all or substantially all of the assets of the Company;
the complete liquidation or dissolution of the Company;
any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but (A) the shares of the Company’s common stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger; or
acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities.
The table below presents the amounts shown that would be owed to the named executive officers in the event of termination or a change in control. In the case of a change in control, the presentation
assumes that the Corporate Transaction occurred on December 31, 2019 and that the named executive officer’s employment was terminated on December 31, 2019, for a fully diluted basis.reason other than Cause.
Name and Principal Position |
| Voluntary or Involuntary Termination |
|
| Death* |
|
| Disability* |
|
| Retirement |
|
| Change in Control |
|
| |||||
Chairman and Chief Executive Officer |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
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| �� |
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S. Brett Caines Chief Financial Officer |
|
| — |
|
|
| — |
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| — |
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| — |
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| — |
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M. Huntley Garriott, Jr. President, Bank |
|
| — |
|
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| — |
|
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| — |
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| — |
|
| $ | 570,300 |
| (1) |
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Susan N. Janson Chief Risk Officer, Bank |
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| — |
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| — |
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| — |
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| — |
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| — |
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Neil L. Underwood President |
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| — |
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| — |
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| — |
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| — |
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| — |
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(1) | Amount shown for Mr. Garriott includes the value of unvested RSUs that would become fully vested upon termination of Mr. Garriott’s employment within twelve months following a Corporate Transaction for any reason other than Cause, calculated on the closing price of our common stock on December 31, 2019. |
Principal Executive Officer Pay Ratio
As required by Section 953(b) of the Dodd-Frank Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our median employee and the annual total compensation of Mr. James S. Mahan III, our CEO, as of December 31, 2019.
For 2019, our median employee annual total compensation (for all employees other than our CEO) was $82,439. The annual total compensation for our CEO during the same period was $716,226. Based on this information, the ratio of the annual total compensation of our CEO to the median employee was 8.7 to 1.
We identified our median employee using our entire workforce (other than our CEO), as of December 31, 2019, of approximately 577 full-time and part-time employees. We utilized payroll records for fiscal 2019 wages as reported to the Internal Revenue Service. We did not annualize compensation for employees who were not active for the entire year. No full-time adjustments were made for part-time employees. We identified our median employee using a standard median formula based on the compensation measure, which was consistently applied to all employees included in this calculation. We believe the principal executive officer pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
With respect to the annual total compensation of the median employee, we identified and calculated compensation for 2019 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $82,439. With respect to the annual total compensation for the CEO, we used the amount reported in the “Total” column of our 2019 Summary Compensation Table.
Under the SEC’s rules and guidance, companies are allowed to adopt numerous ways to identify the median employee. In addition, Mr. Mahanother companies have different employee demographics and compensation and benefit practices. As a result, principal executive officer pay ratios reported by other companies may vary significantly and are likely not comparable to our CEO pay ratio.
Board Fees. For 2019, each non-employee director was paid an annual retainer of $50,000. The chairman of the Audit and Risk Committee received an additional annual retainer of $36,000. The chairs of the Compensation Committee and the Nominating and Corporate Governance Committee each received an additional annual retainer of $10,000. Each non-employee director who is a member of the boardBank’s Directors Loan Committee each received an additional annual retainer of $10,000.
2015 Omnibus Stock Incentive Plan. Our directors are eligible for awards under our 2015 Omnibus Stock Incentive Plan as amended effective May 15, 2018 (the “2015 Omnibus Stock Incentive Plan” or the “Omnibus Plan”). The awards may be issued in the form of nCino. Instock options, restricted stock, RSUs or stock appreciation rights. Each non-employee director, other than Messrs. Pullins and Salyers, received an award of 2,990 RSUs on May 14, 2019, valued at $49,993. Mr. Salyers received a prorated award of 1,885 RSUs on November 18, 2019, valued at $34,005. Information regarding the opinion2015 Omnibus Stock Incentive Plan can be found under the heading “2015 Omnibus Stock Incentive Plan” on page 25.
The following table presents a summary of management, the terms of the Bank’s software service agreement with nCino are no less favorable to the Bank than would be available from an independent third party software provider. Total payments of approximately $1.0 million wereall compensation paid to nCino by the BankCompany to its non-employee directors for their service during the year ended December 31, 2016. The term of the agreement expires in 2018.
Name of Director |
| Fees Earned or Paid in Cash |
|
| Stock Awards (3) |
|
| Option Awards (4) |
|
| All Other Compensation |
|
| Total |
| |||||
William H. Cameron |
| $ | 70,000 |
|
| $ | 49,993 |
|
| $ | — |
|
| $ | — |
|
| $ | 119,993 |
|
Diane B. Glossman |
|
| 56,667 |
|
|
| 49,993 |
|
|
| — |
|
|
| — |
|
|
| 106,660 |
|
Glen F. Hoffsis |
|
| 60,000 |
|
|
| 49,993 |
|
|
| — |
|
|
| — |
|
|
| 109,993 |
|
Howard K. Landis III |
|
| 60,000 |
|
|
| 49,993 |
|
|
| — |
|
|
| — |
|
|
| 109,993 |
|
Miltom E. Petty |
|
| 86,000 |
|
|
| 49,993 |
|
|
| — |
|
|
| — |
|
|
| 135,993 |
|
Jerald L. Pullins (1) |
|
| 25,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,000 |
|
David G. Salyers (2) |
|
| 12,500 |
|
|
| 34,005 |
|
|
| — |
|
|
| — |
|
|
| 46,505 |
|
(1) | Mr. Pullins retired from the Board of Directors effective May 14, 2019. |
(2) | Mr. Salyers was appointed to the Board of Directors effective October 3, 2019. |
(3) | Each non-employee director, except for Messrs. Pullins and Salyers, received an award of 2,990 RSUs with a grant date fair value of $49,993 on May 14, 2019. The RSUs vest on May 1, 2020. On November 18, 2019, Mr. Salyers received an award of 1,885 RSUs with a grant date fair value of $34,005. The RSUs vest one year from the date of grant. There were no other RSUs outstanding for any director as of December 31, 2019. |
(4) | No options were awarded to non-employee directors in 2019. At December 31, 2019, each of Mr. Cameron, Ms. Glossman, Mr. Petty and Mr. Landis had 30,000 options outstanding, of which 15,000 were exercisable. Dr. Hoffsis had 24,000 options outstanding, of which 9,000 were exercisable. Mr. Pullins had 18,000 options outstanding, all of which were exercisable. |
PROPOSAL 2: ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION
Section 14A of the Exchange Act requires that the Company invested $2.75 millioninclude in Finxact LLC,its Proxy Statement a developer of core processing software and services forresolution subject to a shareholder advisory vote on the banking industry. compensation paid to the Company’s named executive officers as disclosed in this Proxy Statement (commonly referred to as a “say-on-pay” vote).
The Company holds approximately 18.8% of Finxact on a fully diluted basiscompensation paid to the Company’s named executive officers is disclosed in this Proxy Statement in the form of both votingsection above entitled “Executive Compensation and non-voting equity, including approximately 14.1% voting control. Each of Messrs. Mahan and Underwood also invested in Finxact and collectively hold approximately 7.5% of Finxact on a fully diluted basis in the form of non-voting equity.
“RESOLVED, that the shareholders approve, on an advisory basis, the compensation paid to Live Oak Bancshares, Inc.’s named executive officers who are set forth in the summary compensation table of Related Person Transactions
The affirmative vote of a related person transaction,majority of our voting common stock present or represented and voting on our executive compensation is required to approve our executive compensation. Abstentions and broker non-votes will have no effect on the Auditoutcome of this proposal.
This “say-on-pay” advisory vote is not binding on the Board of Directors. The vote will not be construed to overrule any decision by the Company or the Board of Directors. Although non-binding, the Board of Directors and Riskthe Compensation Committee amongvalue constructive dialogue on executive compensation and other things, considers, consistent with Item 404 of SEC Regulation S-K,important governance topics and the following:
When you cast your vote, we urge you to consider the description of our executive compensation program contained in the transaction;
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” APPROVAL OF THE ABOVE RESOLUTION REGARDING THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS.
The Audit and Risk Committee, pursuant to authority granted to it by the Board of Directors, has appointed the firm of Dixon Hughes Goodman LLP, independent registered public accountants, as the Company’s independent auditors for 2017.2020. The Board of Directors has ratified and confirmed the appointment. A representative of Dixon Hughes Goodman LLP is expected to be present at the Annual Meeting and available to respond to appropriate questions and will have the opportunity to make a statement if he or she desires to do so.
The Board of Directors is submitting this proposal to the vote of the shareholders as a matter of good corporate governance. If shareholders do not ratify the selection of Dixon Hughes Goodman LLP, the Audit and Risk Committee will reconsider, but might not change, their appointment.
The Company has paid Dixon Hughes Goodman LLP fees in connection with its assistance in the Company’s annual audit, review of the Company’s financial statements and certain other matters. The following table sets forth Dixon Hughes Goodman LLP fees in various categories during 20162019 and 2015.
AUDIT FEES
Category |
| 2019 |
|
| 2018 |
| ||
Audit Fees (1) |
| $ | 342,202 |
|
| $ | 314,907 |
|
Audit-Related Fees (2) |
|
| 14,600 |
|
|
| — |
|
Tax Fees (3) |
|
| — |
|
|
| — |
|
All Other Fees |
|
| — |
|
|
| — |
|
Total Fees Paid |
| $ | 356,802 |
|
| $ | 314,907 |
|
| Category | 2016 | 2015 | ||||||
Audit Fees (1) | $ | 196,696 | $ | 399,096 | ||||
Audit-Related Fees (2) | 10,433 | 4,743 | ||||||
Tax Fees (3) | -- | -- | ||||||
| All Other Fees | -- | -- | ||||||
| Total Fees Paid | $ | 207,129 | $ | 403,839 | ||||
(1) | Includes fees paid or expected to be paid for audits of annual consolidated financial statements, reviews of consolidated financial statements included in quarterly reports on Form 10-Q, consents issued, reviews of registration statements, and reviews of various Form 8-Ks. |
(2) | Includes fees paid for |
(3) | Includes fees paid for services relating to tax planning, preparation and compliance. |
All services rendered by Dixon Hughes Goodman LLP during 20162019 were subject to pre-approval by the Audit and Risk Committee. The Audit and Risk Committee has adopted a policy for the pre-approval of all audit and permitted non-audit services that may be performed by our independent auditors. Under this policy, each year at the time it engages the independent auditor, the Audit and Risk Committee pre-approves the engagement terms and fees and may also pre-approve detailed types of audit-related and permitted tax services to be performed during the year. All other permitted non-audit services are required to be pre-approved by the Audit and Risk Committee on an engagement-by-engagement basis. The Audit and Risk Committee has considered whether Dixon Hughes Goodman LLP’s provision of other non-audit services to the Company is compatible with maintaining independence of Dixon Hughes Goodman LLP. The Audit and Risk Committee has determined that it is compatible with maintaining the independence of Dixon Hughes Goodman LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “
FOR” PROPOSALThe Audit and Risk Committee of the Company is responsible for receiving and reviewing the annual audit report of the Company’s independent auditors and reports of examinations by bank regulatory agencies, and helps formulate, implement, and review the Company’s internal audit program. The Audit and Risk Committee assesses the performance and independence of the Company’s independent auditors and recommends their appointment and retention. The Audit and Risk Committee has in place pre-approval policies and procedures that require an evaluation of any conflicts of interest that may impair the independence of the independent auditors and pre-approval of an engagement letter that outlines all services to be rendered by the independent auditors.
During the course of its examination of the Company’s audit process in 2016,2019, the Audit and Risk Committee reviewed and discussed the audited financial statements with management. The Audit and Risk Committee also discussed with the independent auditors, Dixon Hughes Goodman LLP, all matters that are required to be discussed in accordance with standards adopted by the Public Company Accounting Oversight Board (“PCAOB”). Furthermore, the Audit and Risk Committee received from Dixon Hughes Goodman LLP disclosures regarding their independence in accordance with applicable standards of the PCAOB, and have discussed with Dixon Hughes Goodman LLP their independence.
Based on the review and discussions above, the Audit and Risk Committee recommended to the Board that the audited financial statements be included in the Company’s annual report on Form 10-K for the year ended December 31, 2016,2019, for filing with the SEC.
This report is submitted by the Audit and Risk Committee:
William H. Cameron
Diane B. Glossman
Howard K. Landis III
Miltom E. Petty
The Board of Directors knows of no other business that will be brought before the Annual Meeting. Should other matters be properly presented for action at the Annual Meeting, the Proxies, or their substitutes, will be authorized to vote shares represented by appointments of proxy according to their best judgment.
Shareholders may present proposals for action at meetings of shareholders only if they comply with the proxy rules established by the SEC, applicable North Carolina law and our Bylaws.
Under SEC Rule 14a-8, in order for a shareholder proposal to be included in our proxy solicitation materials for the 2018 annual meeting of shareholders,2021 Annual Meeting, it must be delivered to our principal executive offices located at 1741 Tiburon Drive, Wilmington, North Carolina 28403 by December 1, 2017;4, 2020; provided, however, that if the date of the 2018 annual meeting2021 Annual Meeting is more than 30 days before or after May 9, 2018,12, 2021, a shareholder proposal must be received by a reasonable time before the Company begins to print and mail its proxy solicitation materials for such annual meeting.
Our Bylaws permit any shareholder of voting common stock to nominate directors. Shareholders wishing to nominate a director must deliver written notice of the nomination to our Corporate Secretary at least 120 days prior to the meeting at which directors will be elected. The shareholder making such nomination must also submit a detailed resume of the nominee, stating the reasons why such person would be qualified to serve on the Board of Directors and the written consent of the nominee that, if elected, such nominee would serve as a member of the Board of Directors.
Management’s proxy holders for the 2018 annual meeting2021 Annual Meeting will have discretion to vote proxies given to them on any shareholder proposal of which the Company does not have notice on or before February 14, 2018.
As required by applicable SEC rules and regulations, the Company has furnished a notice of internet availability of proxy materials to all shareholders as part of this Proxy Statement and all shareholders will have the ability to access this Proxy Statement and other reports the Company has filed with the SEC, by visiting the investor relations section of our website, www.liveoakbank.com.
The SEC has adopted rules that permit companies to deliver a single copy of proxy materials to multiple shareholders sharing an address unless a company has received contrary instructions from one or more of the shareholders at that address. This means that only one copy of the proxy materials may have been sent to multiple shareholders in your household. If you would prefer to receive separate copies of the proxy materials either now or in the future, please contact our Corporate Secretary at the Company’s offices at 1741 Tiburon Drive, Wilmington, North Carolina 28403 or at (910) 790-5867. Upon written or oral request to the Corporate Secretary, the Company will provide a separate copy of the proxy materials. In addition, shareholders at a shared address who receive multiple copies of proxy materials may request to receive a single copy of proxy materials in the future in the same manner as described above.
The Company does not currently have a formal policy regarding shareholder communications with the Board of Directors; however, any shareholder may submit written communications to our Corporate Secretary at the Company’s offices at 1741 Tiburon Drive, Wilmington, North Carolina 28403, and such communications will be forwarded to the Board of Directors as a group or to the individual director or directors addressed.
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2019, as filed with the SEC is accessible free of charge in the investor relations section of our website atwww.liveoakbank.com. www.liveoakbank.com. The Annual Report on Form 10-K contains audited consolidated balance sheets of the Company as of December 31, 20162019 and 2015,2018, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2016.2019. You can request a copy of our Annual Report on Form 10-K free of charge by contacting our Corporate Secretary, Live Oak Bancshares, Inc., 1741 Tiburon Drive, Wilmington, North Carolina 28403.
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY E99088-P35176 ! ! ! For All Withhold All For All Except For Against Abstain ! ! ! To withhold authority to vote for any individual nominee(s), mark "For All Except" and write the number(s) of the nominee(s) on the line below. LIVE OAK BANCSHARES, INC. 1741 TIBURON DRIVE WILMINGTON, NC 28403 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. LIVE OAK BANCSHARES, INC. 2. Say-on-Pay Vote. Advisory proposal to approve compensation paid to our named executive officers. 3. Ratification of Independent Auditors. Proposal to ratify Dixon Hughes Goodman LLP as the Company's independent auditors for 2020. 01) William H. Cameron 02) Diane B. Glossman 03) Glen F. Hoffsis 04) Howard K. Landis III 05) James S. Mahan III 06) Miltom E. Petty 07) David G. Salyers 08) Neil L. Underwood 09) William L. Williams III 1. Election of Directors Nominees: The Board of Directors recommends you vote FOR the following: The Board of Directors recommends you vote FOR proposal 2. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. ! ! ! The Board of Directors recommends you vote FOR proposal 3. For Against Abstain
E99089-P35176 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. REVOCABLE PROXY LIVE OAK BANCSHARES, INC. Annual Meeting of Shareholders May 12, 2020 9:00 AM This proxy is solicited by the Board of Directors The undersigned hereby appoints S. Brett Caines and Gregory W. Seward (the "Proxies"), and any substitute appointed by them, as the undersigned's attorneys and proxies, and authorizes any one or more of them to represent and vote, as designated on the reverse side of this appointment of proxy, all of the shares of voting common stock of Live Oak Bancshares, Inc. (the "Company") held of record by the undersigned on March 13, 2020, at the Annual Meeting of Shareholders of the Company to be held at the Live Oak Corporate Offices, 1741 Tiburon Drive, Wilmington, North Carolina, at 9:00 AM, Eastern Time on May 12, 2020, and at any adjournments of the Annual Meeting. The undersigned directs that the shares represented by this appointment of proxy be voted as indicated on the reverse side of this appointment of proxy. In the absence of any instruction, those shares may be voted "FOR" the election of each nominee named in Proposal 1 and "FOR" Proposals 2 and 3. If, before the Annual Meeting, any nominee listed in Proposal 1 becomes unable or unwilling to serve as a director for any reason, the Proxies are authorized to vote for a substitute nominee named by the Board of Directors. On any other matter properly presented for action by shareholders at the Annual Meeting and on matters incident to the conduct of the meeting, the Proxies are authorized to vote the shares represented by this appointment of proxy according to their best judgment. This appointment of proxy may be revoked by the undersigned at any time before the voting takes place at the Annual Meeting by filing with the Company's Corporate Secretary a written instrument revoking it or a duly executed appointment of proxy bearing a later date, or by attending the Annual Meeting and announcing an intention to vote in person. Continued and to be signed on reverse side