SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
THE HOLDING COMPANY FOR
6830 Old Dominion Drive
McLean, Virginia 22101
NOTICE OF 20172020 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, JUNETHURSDAY, MAY 21, 2017
Stockholders of Southern National Bancorp of Virginia, Inc.:
NOTICE IS HEREBY GIVEN that the 20172020 Annual Meeting of Stockholders (the “Annual Meeting”) of Southern National Bancorp of Virginia, Inc. (the “Company”) will be held at International Country Club, 13200 Lee Jackson Highway, Fairfax,Sonabank Headquarters, 10900 Nuckols Road, Suite 325, Glen Allen, Virginia 22033,23060, on Wednesday, JuneThursday, May 21, 2017,2020, beginning at 22:30 p.m. (local time),(Eastern Time).
We intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) outbreak; we are sensitive to the public health and travel concerns our stockholders may have and the protocols and restrictions that federal, state, and local governments have imposed. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. Please monitor our annual meeting website atwww.meetingcenter.io/232532568 for updated information. If you are planning to attend our meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the Annual Meeting.
The Annual Meeting will be held for the following purposes:
1. | ELECTION OF DIRECTORS. To elect: three (3) Directors of Class II to serve on the Board of Directors of the Company until the Company’s 2023 Annual Meeting of Stockholders and until his successor is duly elected and qualified, or until his earlier resignation or removal; |
2. | RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS. To ratify the appointment of Dixon Hughes Goodman LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2020; |
3. | ADVISORY VOTE ON EXECUTIVE COMPENSATION. To conduct an advisory (non-binding) vote to approve the compensation of the Company’s named executive officers; and |
4. | OTHER BUSINESS. To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. |
The foregoing items of business are more fully described in the proxy statement, which is attached hereto and made a part thereof.
The close of business on April 24, 20173, 2020 has been fixed as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting or at any adjournments thereof. A list of stockholders entitled to vote at the Annual Meeting will be available for inspection by any stockholder at the Company’s office at 550 Broadview Avenue, Warrenton,10900 Nuckols Road, Suite 325, Glen Allen, Virginia 2018623060 during usual business hours for a period of at least ten days prior to the Annual Meeting.
Your Vote is Important
You are cordially invited and urged to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting in person, you are urged to submit your proxy as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. You may vote by signing, dating and mailing the proxy card. The proxy is revocable in the manner described in the Proxy Statement at any time before it is voted at the Annual Meeting. If you attend the Annual Meeting, you may vote in person if you wish, even if you have previously returned your proxy card.
If you plan to attend the Annual Meeting, please note that we may ask to see valid picture identification, such as a driver’s license, to identify you as a stockholder. Stockholders holding stock in brokerage accounts (“street name” holders) will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date.
Cameras (including cellular phones with photographic capabilities), recording devices and other similar electronic devices will not be permitted at the meeting. Please silence your cell phones during the Annual Meeting as a courtesy to others.
By order of the Board of Directors, | |
W. Rand Cook | |
Chairman of the Board |
April 13, 2020
McLean, Virginia
SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
PROXY STATEMENT
FOR20172020 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, JUNETHURSDAY, MAY 21 2017
General Information
This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors of Southern National Bancorp of Virginia, Inc. (the “Company”) for use at the 20172020 Annual Meeting of Stockholders of the Company to be held at International Country Club, 13200 Lee Jackson Highway, Fairfax,Sonabank Headquarters, 10900 Nuckols Road, Suite 325, Glen Allen, Virginia 23060, on Wednesday, JuneThursday, May 21, 2017,2020, beginning at 22:30 p.m. (local(Eastern time), and any adjournments or postponements thereof (the “Annual Meeting”) for the purposes set forth in this Proxy Statement and the accompanying Notice of 20172020 Annual Meeting of Stockholders.
We intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) outbreak; we are sensitive to the public health and travel concerns our stockholders may have and the protocols and restrictions that federal, state, and local governments have imposed. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. Please monitor our Annual Meeting website atwww.meetingcenter.io/232532568 for updated information. If you are planning to attend our meeting, please check the website one week prior to the meeting date.
This Proxy Statement, the Notice of Meeting and the enclosed proxy card will first be sent to stockholders on or about May 15, 2017.April 13, 2020. For information on how to vote your shares, see the instructions included on the enclosed proxy card and under “Information About Voting” below.
Important Notice regarding the Availability of Proxy Materials for the Annual Meeting to be Held on JuneThursday, May 21, 2017.
The Proxy Statement and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20162019 are available atwww.edocumentview.com/www.envisionreports.com/SONA.
We have mailed to certain shareholders a notice of internet availability of proxy materials on or about April 13, 2020. This notice contains instructions on how to access and review the Company’s Proxy Statement and Annual Report on Form 10-K on the internet. The notice also contains information on how to submit your proxy on the internet or by phone or, if you prefer, to obtain a paper or email copy of the materials.
Information About Voting
You are entitled to vote at the meeting if you were a holder of record of the Company’s common stock, $0.01 par value (“Common Stock”), at the close of business on April 24, 2017.
Stockholders can vote in person at the Annual Meeting or by proxy. You can vote by proxy by signing, dating and mailing the enclosed proxy card.
If your shares are held in the name of a bank, broker of other holder of record, you will receive instructions from the holder of record, which you should follow in order to vote your shares. If your shares are not registered in your own name and you plan to vote your shares in person at the Annual Meeting, you should contact your broker or agent to obtain a legal proxy or broker’s proxy card and bring it to the Annual Meeting in order to vote.
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If you vote by proxy, the individuals named on the proxy card (your “proxies”) will vote your shares in the manner you indicate. You may specify whether your shares should be voted for or against each of the proposals. If you sign and return the card without indicating your instructions, your shares will be voted as follows:
· | FOR the election of the nominees for Director; |
· | FOR the ratification of the appointment of Dixon Hughes Goodman LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; and |
· | FOR the advisory (non-binding) proposal to approve the compensation of the Company’s named executive officers. |
You may revoke or change your proxy at any time before it is exercised by (1) delivering to us a signed proxy card with a date later than your previously delivered proxy, (2) voting in person at the Annual Meeting, or (3) sending a written revocation to the Company’s Secretary, Devon Porter,Cheryl Wood, prior to the Annual
The Board of Directors knows of no other matters to be presented at the Annual Meeting. If any other matter should be presented at the Annual Meeting upon which a vote may be properly taken, shares represented by an executed and unrevoked proxy will be voted with respect thereto in accordance with the judgment of the persons designated in the proxy. The proxy also confers on the proxies the discretionary authority to vote with respect to any matter presented at the Annual Meeting for which advance notice was not timely received by the Company in accordance with the Company’s Amended and Restated Bylaws.
Solicitation of Proxies
This proxy solicitation is made by the Board of Directors of the Company and the cost of this solicitation is being borne by the Company. Proxies will be solicited through the mail and, if deemed advisable, directors, officers and regular employees of the Company may solicit proxies personally or by telephone or other means of communication, without being paid additional compensation for such services. The Company will reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for their reasonable expense in forwarding the proxy materials to beneficial owners of the Company’s Common Stock.
Annual Report
The Company’s Annual Report on Form 10-K, including consolidated financial statements and related notes, for the fiscal year ended December 31, 2016,2019, as filed with the SEC, accompanies but does not constitute part of this Proxy Statement.
VOTING SHARES AND VOTING RIGHTS
Only holders of record of Common Stock at the close of business on April 24, 20173, 2020 (the “Record Date”), are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. On that date there were 12,330,04324,297,703 shares of Common Stock outstanding, which is the only outstanding class of voting securities of the Company. The holders of at least a majority of the outstanding shares of Common Stock must be represented at the Annual Meeting, in person or by proxy, in order to constitute a quorum for the transaction of business. Abstentions and shares held of record by a broker or nominee that are voted on any matter will be included in determining whether a quorum exists. Each holder of Common Stock shall have one vote for each share of Common Stock registered, on the Record Date, in such holder’s name on the books of the Company.
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A broker non-vote occurs when a broker does not have discretionary authority to vote the shares and has not received voting instructions from the beneficial owner of the shares. Brokers, as holders of record, are permitted to vote on certain routine matters, but not on non-routine matters. The ratification of the appointment of the independent registered public accounting firm is the only matter to be presented at the Annual Meeting that is considered routine under applicable rules. The election of the director,directors and the advisory (non-binding) vote to approve the compensation of the Company’s named executive officers the advisory (non-binding) vote on the frequency of future advisory votes regarding the compensation of the Company’s named executive officers and approval of the Southern National Bancorp of Virginia, Inc. 2017 Equity Compensation Plan are not deemed to be routine matters, so a broker is not permitted to vote on these matters without instructions from the beneficial owner of the shares. If a stockholder holds shares in street name and does not provide voting instructions to its broker, those shares will be counted as broker non-votes in the election of a director,the directors and the advisory (non-binding) vote to approve the compensation of the Company’s named executive officers, the advisory (non-binding) vote on the frequency of future advisory votes regarding the compensation of the Company’s named executive officers and approval of the Southern National Bancorp of Virginia, Inc. 2017 Equity Compensation Plan.
Director nominees are elected by a plurality of the votes castof the shares of Common Stock present in person or by proxy.proxy at the Annual Meeting and entitled to vote on the election of directors. This means that the director nominee with the most votes for a particular board seat is elected for that seat regardless of
The affirmative vote of the majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote is required to ratify the appointment of the independent registered public accounting firm. Since the ratification of the appointment of the independent registered public accounting firm is considered a routine matter under applicable rules and a broker or other nominee may generally vote on routine matters, no broker non-votes are expected to exist in connection with this proposal. Abstentions will have the effect of a vote against the ratification of the appointment of the independent registered public accounting firm.
The affirmative vote of the majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve the advisory (non-binding) proposal to approve the compensation of the Company’s named executive officers. Broker non-votes will be deemed shares not entitled to vote on such matter and will not have any effect on the outcome of such matter. Abstentions will have the effect of a vote against the advisory (non-binding) proposal to approve the compensation of the Company’s named executive officers.
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Proposal 1.
ELECTION OF DIRECTOR
Election Procedures; Term of Office
The Board of Directors currently consists of eight directors. In connection with the Company’s proposed merger with Eastern Virginia Bankshares, Inc. (“EVBS”), the Company has agreed to increase the size of the Board to 11ten directors and to appoint five individuals designated by EVBSone observer to the Board immediately followingof Directors, John Eggemeyer. Following the closingdate of the proposed merger. The proposed merger is anticipated to close at some time after the Annual Meeting. To accommodate the addition of these individuals to the Board upon closing of the merger, the Board has elected not to re-nominate two Class II directors whose terms expire at the Annual Meeting. Accordingly, John J. Forch and Frederick L. Bollerer have not been nominated for re-election to the Board at the Annual Meeting. Messrs. Forch and Bollerer service as directors will end at the Annual Meeting. Immediately following the Annual Meeting and assuming Neil J. Call is re-elected to the Board at the Annual Meeting, the Board of Directors will consist of sixeight directors and there will be two vacancies.
The termBoard of officeDirectors has approved the nomination of the currentW. Rand Cook, Eric A. Johnson and Dennis J. Zember, Jr. to serve as Class II directors expires at the Annual Meeting.directors. The terms of the Class I and Class IIIII directors expire at the annual meeting of stockholders in 2019 and 2018, respectively.
If the nominee becomesnominees become unavailable to serve as a director for any reason before the election, the shares represented by proxy will be voted for such other person, if any, as may be designated by the Board of Directors. The Board of Directors has no reason to believe that the nomineenominees will be unavailable to serve as a director. Mr. Call hasMessrs. Cook, Johnson and Zember have consented to being named herein and to serve if elected.
Any director vacancy occurring after the election may be filled only by a majority vote of the remaining directors, even if there is less than a quorum of the Board of Directors. A director appointed to fill a vacancy will be appointed to serve until the next annual meeting held for the election of directors, regardless of whether the class of director in which he or she serves is to be elected at such annual meeting.
The biographies of the nomineenominees and continuing directors and executive officers below contains information regarding the person’s service as a director and/or executive officer, business experience, director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the NominatingCorporate Governance Committee and the Board of Directors to determine that the person should serve as a director and/or executive officer.
Daniel H. Burch retired from the Board in April of 2020, and Georgia S. Derrico and R. Roderick Porter will retire from the Board following the Annual Meeting. The Company thanks these directors for their loyal and outstanding service to the Board, the Company and the Bank.
Nominee for Election
The following table sets forth the name, age and position with the Company and Sonabank (the “Bank”) for the nomineenominees for re-electionelection as a directordirectors of the Company:
Name | Positions with the Company and Bank | ||||||
Class II Director of the Company; Director of the Bank | |||||||
Eric A. Johnson | 66 | Class II Director of the Company; Director of the Bank | |||||
Dennis J. Zember, Jr. | 50 | Class II Director of the Company; Director of the Bank; President and Chief Executive Officer of each of the Company and the Bank |
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W. Rand Cook serves as Chairman of the Board of each the Company and the Bank. Mr. Cook has served as a director of the Company and the Bank since April 2005.the closing of the Company’s merger with Eastern Virginia Bankshares, Inc. (“EVBS”) in June 2017. Mr. Call, now retired,Cook served as Chairman of the Board of Directors of EVBS and served as a director of EVB and a predecessor of EVB from 2000 until June 2017. Mr. Cook is a Partner in the law firm of McCaul, Martin, Evans and Cook, P.C., where he has been practicing law since 1985, and is the Commissioner of Accounts for Hanover County Circuit Court. Mr. Cook holds both MBA and JD degrees, and maintains an active law practice that focuses on corporate law and debtor and creditor rights. Mr. Cook brings experience in corporate governance, strategic planning and financial planning to the Board of Directors, and his legal background gives Mr. Cook valuable insight into various legal risks that the Company may encounter. Previously, Mr. Cook worked with the Virginia General Assembly, which gave Mr. Cook a unique perspective on state legislative and regulatory environments.
Eric A. Johnsonhas served as a director of the Company and the Bank since the closing of the Company’s merger with EVBS in June 2017. Mr. Johnson has served as a real estate broker with Mason Realty in Middlesex, Virginia since 1976 and served as a director of EVB and a predecessor of EVB from 1988 until June 2017. In addition, Mr. Johnson previously owned Urbanna Market and Urbanna Builders Supply, both of which generated multi-million dollar annual sales. Mr. Johnson brings experience in local real estate markets to the Board of Directors, as well as entrepreneurial spirit, business judgment and knowledge of local business markets that he has developed through his business ventures.
Dennis J. Zember, Jr.has served as a director of the Company and the Bank since February 2020. Mr. Zember was anappointed President and Chief Executive Vice PresidentOfficer of MacKenzie Partners, Inc., a New York City financial consulting company, beginning in 1990.both the Company and the Bank on February 19, 2020. Mr. CallZember was formerly thepreviously Executive Vice President and co-founderChief Operating Officer of the Proxy/M&A Group at Dewe Rogerson, Inc., the predecessor firm to MacKenzie Partners. In addition, Mr. Call was a directorAmeris Bancorp from June 2016 through June 2018 and Chief Financial Officer of Southern FinancialAmeris Bancorp Inc. and Southern Financial Bank from 1986 until April 2004 and was chairman of that board’s Audit Committee. From 1986 to 1989, he served as Executive Vice President of D.F. King and Co. Prior to that he was with Gulf + Western Industries (now Paramount Communications), most recently as Executive Vice President/Finance, and previously as Director of Corporate Communications and Investor Relations. He also spent six years with Ford Motor Company’s Finance Division. Mr. Call is a Certified Public Accountant in the State of Michigan.February 2005 through December 2017. The Company believes Mr. Call’sZember’s qualifications to sit on the Board of Directors include his manyextensive banking experience from years of servicespent as a board member of financial institutions and his financial expertise.
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR THE RE-ELECTIONELECTION OF THE NOMINEENOMINEES LISTED ABOVE FOR ELECTION TO THE BOARD OF DIRECTORS.
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CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the Company’s Class I and Class III directors whose terms of office do not expire at the Annual Meeting, and the executive officers of the Company and the Bank who are not also directors:
Name | Positions with the Company and Bank | ||||||
Directors: | |||||||
Class I Director of the Company; Director of the Bank | |||||||
79 | Class III Director of the Company; Director of the Bank | ||||||
W. Bruce Jennings | 70 | Class I Director of the Company; Director of the Bank | |||||
Charles A. Kabbash | 82 | Class III Director of the Company; Director of the Bank | |||||
Executive Officers: | |||||||
John F. Biagas has served as the Vice Chairman of the Board, President and Chief Operating Officer of eachbeen a director of the Company and the Bank since July 2004. Priorthe closing of the Company’s merger with EVBS in June 2017. Mr. Biagas served as a director of EVBS and EVB from 2014 until 2017, and has been the owner, President and CEO of Bay Electric Co., Inc., an electrical and general contractor located in Newport News, Virginia since 1997. Mr. Biagas is a Master Electrician licensed in four states and the District of Columbia. Bay Electric serves a very diverse client base and specializes in general contracting as well as in design/build general and electrical construction, security/technology solutions and services, and solar photovoltaic. Under Mr. Biagas’ direction, Bay Electric has become one of the fastest growing minority-owned electrical and general construction contractors in the Mid-Atlantic region with annual revenues in excess of $70 million. Mr. Biagas is also the Vice Rector for the Old Dominion University Board of Visitors and serves as vice chair of the Student Advancement Committee and as a member of the Administration and Finance Committee. Mr. Biagas provides the Board of Directors essential guidance related to co-foundinghis business development expertise and general business experience through owning and operating a fast-paced contracting company and working on multi-million dollar projects. Mr. Biagas brings to the Board of Directors extensive experience in identifying potential risks and rewards in real estate development and construction. Mr. Biagas also brings to the Board of Directors leadership skills and oversight experience through his service on numerous local, statewide and national boards, including the U.S. Chamber of Commerce Board of Directors, a founding and current member of the Virginia Chapter of the Young Presidents Organization and as a founding member and director of Virginia Company Bank from its inception in 2005 until its acquisition by EVBS in 2014.
Robert Y. Clagetthas served as a director of the Company and the Bank since August 2014. Mr. Clagett has practiced law in July 2004, hethe State of Maryland since 1967, with a primary focus in real estate law. He previously served as a director of Prince George's Federal Savings Bank commencing in 1967 and was theelected President and Chief OperatingExecutive Officer of Southern Financial Bancorp, Inc. from April 1998 until April 2004. Southern Financial Bancorp, Inc. was the Nasdaq National Market System-listed bank holding company for the $1.5 billion (assets) Southern Financial Bank, Warrenton, Virginia, which was acquired by Provident Bankshares, Inc. in April 2004. From 1994 to 1998, he was1968. Mr. Clagett served as President of FX Concepts, Ltd., an international money management firm located in New York City. PriorPrince George’s Federal Savings Bank from 1968 to that, he2005, and served as Chairman of Newmarket Capital Corp., a mortgage banking company, and a Principal of Morgan Stanley. Mr. Porter also spent 15 years at Chemical Bank, including as a Senior Vice President in Chemical Bank’s treasury department where he was responsible for asset/liability management, the U.S. government and municipal securities portfolio, all U.S. dollar-denominated funding for the bank and the holding company, money market trading and the discount brokerage operation. Prior experience at Chemical Bank included tours as Vice President and General Manager for Northern Europe, based in London, and for Chemical Japan, based in Tokyo. Mr. Porter is the husband of Ms. Georgia S. Derrico.Chief Executive Officer from 1968 to 2014. The Company believes Mr. Porter’sClagett’s qualifications to sit on the Board of Directors include his extensive banking experience and servelegal expertise.
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F.L. Garrett, III has served as a director of the Company and the Bank since the closing of the Company’s merger with EVBS in June 2017. Mr. Garrett served as Vice Chairman of the Board of Directors of EVBS and President and Chief Operating Officerpreviously served as Chairman of the Company include his many yearsBoard of banking experienceDirectors of a predecessor of EVB. Mr. Garrett served as a director of the Bank and proven leadershipa predecessor of the Bank from 1982 until June 2017. Mr. Garrett has owned Harborside Storage since 1994, a boat storage company and has been an active realtor with Long & Foster Real Estate in Essex County, Virginia and neighboring areas since 1989. As a local business owner and a successful realtor, Mr. Garrett contributes to the Board of Directors a strong sense of changing economic and market conditions in the successCompany’s market areas. Mr. Garrett has also developed extensive knowledge of our business during his extended service to the Company, the Bank and one of the Company.
W. Bruce Jennings
has served as a director of the Company and the Bank since November 2011. Mr. JenningsCharles A. Kabbash
has served as a director of the Company and the Bank since April 2005. Mr. Kabbash is the owner of 414 Associates, a real estate investment and holding company, operating primarily in the Charlottesville, Virginia area since 1984. Mr. KabbashExecutive Officers of the Company
Jeffrey L. Karafa has served as the SeniorExecutive Vice President and Chief Financial Officer of the Company and the Bank since November 2004. From September 1986 until April 2004,2018. Mr. Lagos was the Senior Vice President and Controller of Southern Financial Bank, the operating subsidiary of Southern Financial Bancorp, Inc., which was acquired by Provident Bankshares, Inc. in April 2004. Mr. Lagos participated in the Company’s organization commencing in November 2004.
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G. Cody Sheflett, Jr. has served as Chief Operating Officer of the Company and the Bank since February 2010. Between April 2005 and February 2010, he was the2019. Mr. Sheflett has served as Executive Vice President of Credit Administrationand Chief Information Officer of the Company and the Bank. From 1999 untilBank since April, 2004, Mr. Stevens was the Executive Vice President of Credit Administration for Southern Financial Bank, the operating subsidiary of Southern Financial Bancorp, Inc., which was acquired by Provident Bankshares, Inc. in April 2004. He resigned2017, and served as a Senior Vice President of Credit Administration from Provident Bankshares, Inc. in April 2005 when he joined the Company. From 1991 to 1999, Mr. Stevens served as a Senior Analyst in the OfficeInformation Technology of the Inspector General of the Federal Deposit Insurance Corporation. Prior to that, he was an ExecutiveBank from September 2014 until April 2017, and Vice President at Riggs Bank, N.A.Information Systems from December 2010 until September 2014. During his 24-year banking career, Mr. Sheflett served in Washington, D.C. where he managedprogressively senior roles with previous financial institutions since joining Sonabank in 2010. Mr. Sheflett has a Bachelor’s Degree in Computer Science, and serves on the bank’s commercial real estateVirginia Bankers Association’s Operations and single family lending activities. He served for three years as President and COO of Anchor Mortgage Services. His background also includes 18 years at Chemical Bank, where he was a Senior Vice President, Real Estate.
Each executive officer of the Company is elected by the Board of Directors of the Company and holds office until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal.
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CORPORATE GOVERNANCE
Meetings of the Board of Directors
The Board of Directors held twelve (12)seventeen (17) meetings during 2016.2019. There was no director who attended less than 75% of the aggregate of the (1) total number of meetings of the Board and (2) total number of meetings held by committees on which he or she served. Each director is expected to dedicate sufficient time, energy and attention to company matters to ensure the diligent performance of his or her duties, including by attending annual and special meetings of the stockholders of the Company, the Board and committees of which he or she is a member.
Board Leadership Structure
Ms. Derrico has served as theboth Chairman of the Board and Chief Executive Officer of the Company since Januaryand the Bank from 2005 anduntil the closing of the Bank since it commenced operationsCompany’s merger with EVBS in April 2005.
Oversight of Risk Management
The Board, as a whole and also at the committee level, plays an active role in overseeing management of the Company’s risks. The Board regularly reviews information regarding the Company’s asset quality, securities portfolio, capital, liquidity, cybersecurity and operations, as well as the risks associated with each. The Company’s Compensation Committee is responsible for overseeing the management of risks relating to the Company’s executive compensation plans and arrangements as well as overseeing succession planning. The Audit Committee oversees management of financial and regulatory risks. The NominatingCorporate Governance Committee manages risks associated with members of the Board of Directors, including the independence and competence of the directors. The Asset-Liability Management Committee of the Bank’s Board of Directors is responsible for overseeing the management of risks regarding the Bank’s policies and procedures related to investments in securities, liquidity and interest sensitivity. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about such risks. We also have an enterprise risk manager who is responsible for implementing an enterprise risk management system. She reports to the Chief Executive Officer and Chief Operating OfficerOffice of the Chairman and provides presentations and updates to the Audit Committee at each committee meeting.
Oversight of Cybersecurity Risk
Information security is a significant operational risk for financial institutions, and includes the risk of losses resulting from cyber-attacks. The Board recognizes the importance of maintaining the trust and confidence of our customers, clients, and employees, and devotes significant time and attention to oversight of cybersecurity and information security risk as a result. In light of these risks, the Board devotes attention to oversight of cybersecurity and assesses the risks and changes in the cyber environment through presentations and reports provided to our Board on a quarterly basis. The Board has primary responsibility for this oversight. In this capacity, the Board oversees the Company’s processes for identifying, assessing, monitoring and managing cybersecurity risk.
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Committees of the Board of Directors
The Board of Directors of the Company has fourthree committees, the Audit Committee, the Compensation Committee, the Asset-Liability ManagementCorporate Governance Committee and the NominatingCompensation Committee, each of which is described below.
Audit Committee.
As set forth in the Audit Committee’s charter, the functions of the Audit Committee are to assist the Board in its oversight of:
· | the integrity of the Company’s financial statements; |
· | the adequacy of the Company’s system of internal controls; |
· | the Company’s compliance with regulatory requirements; |
· | the qualifications and independence of the Company’s independent registered public accountants; and |
· | the performance of the Company’s independent registered public accountants and of the Bank’s internal audit function. |
In carrying out these responsibilities, the Audit Committee, among other things:
· | monitors the preparation of quarterly and annual financial reports by the Company’s management; |
· | supervises the relationship between the Company and its independent registered public accountants, including: having direct responsibility for their appointment, compensation and retention; reviewing the scope of their audit services; approving audit and non-audit services; and confirming the independence of the independent registered public accountants; and |
· | oversees management’s implementation and maintenance of effective systems of internal and disclosure controls, including review of the Company’s policies relating to legal and regulatory compliance, ethics and conflicts of interests and review of the Bank’s internal auditing program. |
The Audit Committee’s meetings include, whenever appropriate, executive sessions with the Company’s independent registered public accountants and with the Bank’s internal auditors, in each case without the presence of the Company’s or the Bank’s management. The Audit Committee met six times and the independent directors of the Audit Committee met in executive session foureight (8) times during 2016.
As part of its oversight of the Company’s financial statements, the Audit Committee reviews and discusses with both management and the independent registered public accountants all annual and quarterly financial statements prior to their issuance. During 2016,2019, management of the Company advised the Audit Committee that each set of financial statements reviewed had been prepared in accordance with generally accepted accounting principles, and reviewed significant accounting and disclosure issues with the Audit Committee.
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Corporate Governance Committee. The Corporate Governance Committee is responsible for making recommendations to the Board regarding the membership of the Board, including:
· | recommending to the Board the slate of director nominees for election at the annual meeting of stockholders; |
· | considering, recommending and recruiting candidates to fill any vacancies or new positions on the Board, including candidates that may be recommended by stockholders; |
· | establishing criteria for selecting new directors; and |
· | reviewing the backgrounds and qualifications of possible candidates for director positions. |
The Corporate Governance Committee operates pursuant to a written charter, a copy of which is available electronically in the corporate governance section of the Investor Relations page of the Company’s website atwww.sonabank.com.
The members of the Corporate Governance Committee are currently W. Rand Cook (Chairman), Charles A. Kabbash, and Eric A. Johnson, all of whom the Board has determined to be “independent directors” as defined under the NASDAQ Stock Market listing standards. The Corporate Governance Committee met one (1) time in 2019.
Compensation Committee.Committee. The members of the Compensation Committee are currently John J. ForchF. Biagas (Chairman), Neil J. Call, Frederick L. BollererRobert Y. Clagett, F.L. Garrett, III and Charles A. Kabbash,W. Bruce Jennings, all of whom the Board has determined to be “independent directors” as defined under the NASDAQ Stock Market listing standards. The Compensation Committee is responsible for overseeing the development and implementation of the Company’s compensation programs, reviewing and approving corporate goals and objectives relevant to the
Committees of the Board of Directors of the Bank
The Board of Directors of the Bank (the “Bank Board”) has one committee, the Asset-Liability Management Committee.
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Asset-Liability Management Committee. The members of the Asset-Liability Management Committee are R. Roderick Porter (Chairman), Georgia S. Derrico,currently W. Rand Cook, F.L. Garrett, III, W. Bruce Jennings, Charles A. Kabbash W. Bruce Jennings and Robert Y. Clagett.Dennis J. Zember, Jr. Four non-director managers also serve as members of the Asset-Liability Management Committee, William H. Lagos, Senior Vice President andthe Bank’s Chief Financial Officer, of the Company and the Bank, William H. Stevens, Executive Vice President and Chief Credit Risk Officer of the Company and the Bank, Tim Armstrong, Vice President and Controller of the Company and the Bank and Robyn Reid, Vice President and Treasurer ofan observer to the CompanyBank Board and the Bank.Asset-Liability Management Committee. The Asset-Liability Management Committee ensures that the Bank’s investment policies and procedures are adequate and that the Bank’s investments in securities are consistent with the guidelines established in the Bank’s policies and comply with applicable laws and regulations. The committee evaluates the performance of the securities portfolio to ensure that the Bank’s objectives with respect to diversification, liquidity, and quality are met. While management is responsible for purchase decisions with respect to investment securities, the Asset-Liability Management Committee is responsible for reviewing and ratifying management’s investment transactions. The Asset-Liability Management Committee is also responsible for reviewing the entire balance sheet to ensure that products and funding sources adhere to the Board’s policies relating to asset-liability and interest rate risk management. The Asset-Liability Management Committee met four (4) times in 2016.
Director Nominations Process
The NominatingCorporate Governance Committee considers nominees to serve as directors of the Company and recommends such persons to the Board of Directors. The NominatingCorporate Governance Committee also considers director candidates recommended by stockholders if such candidates appear to be qualified to serve on the Board of Directors and meet the criteria for nominees considered by the NominatingCorporate Governance Committee. The NominatingCorporate Governance Committee may choose not to consider an unsolicited recommendation if no vacancy exists on the Board of Directors and the NominatingCorporate Governance Committee does not perceive a need to increase the size of the Board. In
Criteria for Director Nominees.
The NominatingCorporate Governance Committee has adopted a set of criteria that it considers when it selects individuals to be nominated for election to the Board of Directors. The NominatingCorporate Governance Committee considers the following criteria in selecting nominees: financial expertise and business experience; familiarity with and participation in the local community and the nominee’s ability to refer business to the Company; integrity, honesty and reputation; dedication to the Company and its stockholders, including the nominee’s ownership of the Common Stock; independence; and any other factors the NominatingCorporate Governance Committee deems relevant, including age, size of the Board of Directors and regulatory disclosure obligations. The NominatingCorporate Governance Committee does not have a formal policy with respect to diversity; however, the Board and the NominatingCorporate Governance Committee believe that it is essential that the Board members represent diverse viewpoints.
The NominatingCorporate Governance Committee may weigh the foregoing criteria differently in different situations, depending on the composition of the Board at the time. The NominatingCorporate Governance Committee will strive to maintainmaintains at least one director who meets the definition of “audit committee financial expert” under the regulations of the SEC.
In addition, prior to nominating an existing director for re-election to the Board of Directors, the NominatingCorporate Governance Committee considers and reviews an existing director’s Board and committee attendance and performance; length of Board service; experience, skills and contributions that the existing director brings to the Board; and independence.
Process for Identifying and Evaluating Director Nominees.
Pursuant to the NominatingCorporate Governance Committee Charter, as approved by the Board of Directors, the NominatingCorporate Governance Committee is responsible for the process relating to director nominations, including identifying, interviewing and selecting individuals who may be nominated for election to the Board of Directors. The process that the NominatingCorporate Governance Committee follows when it identifies and evaluates individuals to be nominated for election to the Board of Directors is set forth below.
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Identification.For purposes of identifying nominees for the Board of Directors, the NominatingCorporate Governance Committee will rely on personal contacts of the members of the Board of Directors as well as their knowledge of members of the Bank’s local communities. The NominatingCorporate Governance Committee will also consider director candidates recommended by stockholders in accordance with the policy and procedures set forth below in the paragraph entitled “Procedures to be Followed by Stockholders.” The NominatingCorporate Governance Committee has not previously used an independent search firm in identifying nominees.
Evaluation. In evaluating potential nominees, the NominatingCorporate Governance Committee determines whether the candidate is eligible and qualified for service on the Board of Directors by evaluating the candidate under the selection criteria set forth above. In addition, for any new director nominee, the NominatingCorporate Governance Committee will conduct a background check of the individual and interview the candidate.
Procedures to be Followed by Stockholders.
Any stockholder of the Company may nominate one or more persons for election as a director of the Company at an annual meeting of stockholders if the stockholder complies with the prior notice and information provisions contained in the Company’s Amended and Restated Bylaws. In order for a director nomination to be timely, a stockholder’s notice to the Company must be received at the Company’s offices not later than March 23, 2018, the 90thday prior to the anniversary date of the immediately preceding annual meeting. To submit a nomination of a director candidate, a stockholder must submit the following information in writing, addressed to the Chairman of the NominatingCorporate Governance Committee, care of the Corporate Secretary, at the Company’s main office:
· | The name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; |
· | A representation that the stockholder is a holder of record of stock of the Company entitled to vote at the annual meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; |
· | If applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; |
· | Such other information regarding each nominee that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act or any successor regulation thereto; and |
· | Such nominee’s consent to serve as a director of the Company if so elected. |
A nomination of any person not made in compliance with the foregoing procedures may not be eligible to be voted upon by the stockholders at the meeting.
If the NominatingCorporate Governance Committee receives a director nomination from a stockholder or group of stockholders who (individually or in the aggregate) beneficially owned greater than 5% of the Company’s outstanding Common Stock for at least one year as of the date of such recommendation, the Company, as required by applicable securities law, will identify the candidate and stockholder or group of stockholders recommending the candidate and will disclose in its Proxy Statement whether the NominatingCorporate Governance Committee chose to nominate the candidate, as well as certain other information.
Stockholder Communications with Directors; Director Attendance at Annual Meeting
The Board of Directors will give appropriate attention to written communications received from stockholders, and will respond if and as appropriate. Stockholders or other interested parties can contact any director or committee of the Board of Directors by writing to them in care of Devon Porter,Cheryl Wood, Corporate Secretary, 550 Broadview Avenue, Warrenton,10900 Nuckols Road, Suite 325, Glen Allen, Virginia 20186.23060. Comments or complaints relating to the Company’s accounting, internal accounting controls or auditing matters will be referred to members of the Audit Committee. Other concerns will also generally be referred to the Audit Committee.
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In addition, the Board of Directors encourages directors to attend the annual meeting of stockholders. All of the Company’s directors attended the Company’s 20162019 Annual Meeting of Stockholders held on April 28, 2016.
Code of Ethics
The Company’s Board of Directors has adopted a Code of Ethics that applies to all directors, officers and employees, including the Company’s Chairman of the Board, the Company’s President and Chief Executive Officer and senior financial officers. The Board designed the Code in an effort to deter wrongdoing and to promote honest and ethical conduct, including the ethical handling of conflicts of interest, full, fair and accurate disclosure in filings and other public communications made by the Company, compliance with applicable laws, prompt internal reporting of violations of the Code of Ethics, and accountability for adherence to the Code. The Code of Ethics is available electronically in the corporate governance section of the Investor Relations page of the Company’s website atwww.sonabank.com.
Director Independence
During the review by the Company’s Board of Directors of director independence, the Board considered transactions and relationships between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates, including those reported under “Certain Relationships and Related Party Transactions” below. The Board also considered whether there were any transactions or relationships between directors or any member of their immediate family (or any entity of which a director or an immediate family member is an executive officer, general partner or significant equity holder) and members of the Company’s senior management or their affiliates. The purpose of this review was to determine whether any such relationships or transactions existed that were inconsistent with a determination that the director is independent.
As a result of this review, the Board affirmatively determined that all of the Company’s current directors, with the exception of Georgia S. Derrico, and R. Roderick Porter and Dennis J. Zember, Jr., are independent directors as defined by the listing standards of the NASDAQ Stock Market. Both Ms. Derrico and Mr. Porter are considered to be “inside” directors because of their employment as senior executives of the Company.Company until the closing of the merger with EVBS in June 2017. Ms. Derrico and Mr. Porter are husband and wife, and their adult son, R. Devon Porter, is the Secretary of each of the Company and the Bank and is employed by the Bank as a Senior Vice President.
DIRECTOR COMPENSATION
In 2019, for SONA board and committee meetings, in the second half of 2016, non-employee members of the board of directors of SONA received an annual retainer of $25,000$28,000 each and the chairman of each board committee received an annual retainer of $27,000,$30,000, in each case payable quarterly. In 2016,2019, directors of the Company did not receive a fee for attending Company Board meetings or Company committee meetings. All of the directors of the Company are also directors of the Bank. Each non-employee director of the Bank received a fee of $1,000 for each Bank Board meeting attended and $500$700 for each Bank Committee meeting attended. Each non-employee director of the Bank also receives reimbursement for any travel, food and lodging expenses. Any non-employee directors who attended either Bank Board or Bank committee meetings by conference telephone received one-half of the fees for such meetings. Directors who are also employees of the Company or the Bank received no additional compensation for their service as a director.
To encourage stock ownership by its directors, the Bank maintains a stock matching program pursuant to which it funds the purchase of additional shares of Company common stock on behalf of a director in an amount equal to 66%70% of the shares of Company common stock otherwise purchased by the director, up to an annual value of $10,000$14,000 per director.
The following table contains information concerning the compensation of the directors of the Company and the Bank for the fiscal year ended December 31, 2016.2019. The named executive officers who also serve as directors did not receive any compensation for their service as directors for the fiscal year ended December 31, 2016.2019.
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2019 Director Compensation
Name | | | Fees Earned or Paid in Cash ($) | | | Option Awards ($)(1) | | | All Other Compensation ($)(2) | | | Total ($) | | ||||||||||||
Frederick L. Bollerer | | | | | 29,500 | | | | | | — | | | | | | 10,000 | | | | | | 39,500 | | |
Neil J. Call | | | | | 30,250 | | | | | | — | | | | | | 10,000 | | | | | | 40,250 | | |
Robert Y. Clagett | | | | | 32,250 | | | | | | — | | | | | | 10,000 | | | | | | 42,250 | | |
John J. Forch | | | | | 36,000 | | | | | | — | | | | | | 10,000 | | | | | | 46,000 | | |
W. Bruce Jennings | | | | | 34,000 | | | | | | — | | | | | | — | | | | | | 34,000 | | |
Charles A. Kabbash | | | | | 34,500 | | | | | | — | | | | | | 10,000 | | | | | | 44,500 | | |
Name | Fees Earned or Paid in Cash ($) | All Other Compensation ($)(2) | Total ($) | |||||||||
John F. Biagas | 49,200 | 14,000 | 63,200 | |||||||||
Daniel H. Burch | 42,700 | - | 42,700 | |||||||||
Robert Y. Clagett | 47,600 | 10,489 | 58,089 | |||||||||
W. Rand Cook | 44,950 | 14,000 | 58,950 | |||||||||
F.L. Garrett, III | 43,300 | 10,543 | 53,843 | |||||||||
W. Bruce Jennings | 43,450 | 13,998 | 57,448 | |||||||||
Eric A. Johnson | 46,750 | 14,000 | 60,750 | |||||||||
Charles A. Kabbash | 43,600 | 14,000 | 57,600 |
(1) | Non-employee directors were not awarded stock options or stock awards in 2019. As of December 31, 2019, our directors did not hold any stock awards. |
(2) | Represents the value of the shares of Company common stock purchased by the director for which the Bank provided funding pursuant to the Company’s stock matching program described above. |
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EXECUTIVE COMPENSATION AND OTHER MATTERS
Compensation Discussion and Analysis
This section discusses the Company’s compensation program, including how it relates to the executive officers named in the compensation tables that follow (who we sometimes refer to below and elsewhere in this Proxy Statement as the “named executive officers”). No executive officer of the Company is paid a salary, bonus or other form of compensation other than options to purchase shares of the Company’s Common Stock for their service to the Company. The executive officers of the Company currently hold the same executive officer positions with the Bank and all executive compensation is paid by the Bank for services performed by executives of the Bank. Accordingly, the following discussion of executive compensation relates to the compensation by the Bank to executives of the Bank.
The primary objective of our executive compensation program is to attract, retain and motivate key employees and enable those persons to participate in the long-term success of the Company while also advancing the interests of our stockholders. As such, the compensation program is designed to provide levels of compensation which are reflective of both the individual’s and the organization’s performance in achieving certain goals and objectives and in helping to build value for our stockholders. Set forth below is an analysis of our compensation program, the material compensation policy decisions we have made under this program and the material factors that we considered in making those decisions. Our named executive officers are:
· | Jeffrey H. Culver(1), former President; |
· | Georgia S. Derrico(2), former Executive Chairman; |
· | Jeffrey L. Karafa, Executive Vice President and Chief Financial Officer; |
· | R. Roderick Porter(2), former Executive Vice Chairman; |
· | Joe A. Shearin(3), former President and Chief Executive Officer; and |
· | G. Cody Sheflett, Jr.(4), Chief Operating Officer. |
(1) | Mr. Culver was appointed President on May 7, 2018 until his separation on June 20, 2019. |
(2) | Ms. Derrico and Mr. Porter retired as Executive Chairman and Executive Vice Chairman, respectively, on March 31, 2020. |
(3) | Mr. Shearin retired as President and Chief Executive Officer on February 19, 2020. |
(4) | Mr. Sheflett was promoted to Chief Operating Officer on February 28, 2019, from Executive Vice President and Chief Information Officer. |
2020 Executive Management Transition
Effective February 19, 2020, Mr. Shearin retired as President and Chief Credit Officer;
Overview of Compensation Program
The Compensation Committee of the Board of Directors is responsible for developing and making recommendations to the Board with respect to the Company’s executive compensation policies. John J. Forch, Neil J. Call, Frederick L. BollererF. Biagas, Robert Y. Clagett, F.L. Garrett III, and Charles A. Kabbash, each of whom the Board of Directors has determined to be an independent director, as defined in the NASDAQ Stock Market listing standards, currentlyW. Bruce Jennings serve on the Compensation Committee. In addition, theCommittee (the “Compensation Committee”). The Compensation Committee, andalong with the Board, havehas reviewed the compensation policies and practices for all employees and concluded that any risks arising from such policies and practices are not reasonably likely to have a material adverse effect on the Company.
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Compensation Philosophy and Objectives
The fundamental objectives of the Bank’s executive compensation policies are to ensure that Bank executives are provided incentives and compensated in a way that advances both the short- and long-term interests of stockholders while also ensuring that the Company and the Bank are able to attract, retain and motivate executive management talent. Accordingly, compensation is based on: (1) the employee’s individual performance and his or her ability to lead the Company and the Bank to achieve their respective financial goals, (2) the Company’s consolidated financial performance and (3) compensation compared to peer institutions’ executive compensation. In making decisions with respect to any element of an executive officer’s compensation, the Compensation Committee considers the total compensation that may be awarded to the executive officer, including salary, annual bonus, long-term equity incentive compensation, accumulated realized and unrealized stock option gains, and the dollar value to the executive and cost to the Company of all perquisites and other personal benefits. The Compensation Committee’s goal is to award compensation that is reasonable when all elements of potential compensation are considered.
Setting Executive Compensation
In reviewing the 20162019 compensation of each of the namedour executive officers, the Compensation Committee reviewed all components of theirhis or her respective compensation, including base salary, annual bonus, long-term equity incentive compensation, accumulated realized and unrealized stock option gains, and the dollar value to the executive and cost to the Company of all perquisites and other personal benefits. In addition, the Compensation Committee reviewed each executive officer’s compensation history and performance information and the market data discussed below.
Role of Compensation Consultant and Market Data
As discussed earlier in this Proxy Statement, in 2019, the Compensation Committee engaged ChaseCompGroup, LLC (“Chase”)the Consultant to provide an executive compensation review for its executive management team to identify appropriate compensation levels in the market and recommend compensation programs for fiscal year 2014 and beyond. In addition, the Compensation Committee separately reviewed the overall compensation of the named executive officers in comparison to the compensation of executive officers at Mid-Atlantic banks with total assets comparable to that of the Company during the prior year. The Compensation Committee reviewed the base salary, bonus, value of stock compensation and value of option compensation of similarly-situated executive officers at Mid-Atlantic bank holding companies included in the ABA Compensation and Benefits Survey report. The survey is prepared annually by the ABA and is administered by enetrix, a Division of Gallup, Inc. The survey invitation was extended to over 5,000 banks of which 386 responded. Respondents provided dataadvice with respect to each institution’s salaryexecutive officer and benefits by position in the organization. director compensation for 2019.
The results were reported by size of the institution and by region.
The Company did not benchmark the compensation of its named executive officers to a certain percentage or range of compensation within the market data provided inby the survey.Consultant. Instead, the Compensation Committee used this information as a point of reference for measurement, but not as the determinative factor in setting the compensation of the Company’s named executive officers. The Compensation Committee did not use the compensation data to “target” a specific compensation level for any given executive. Rather, the Compensation Committee usesused its understanding of peer group compensation as a starting point for its decision making.
Because the comparative compensation information is just one of the analytical tools that are used in setting named executive officer compensation, the Compensation Committee has discretion in determining the nature and extent of its use. Further, given the limitations associated with comparative pay information for setting individual executive compensation, including the difficulty of assessing and comparing wealth accumulation through equity gains and post-employment amounts, the Compensation Committee may elect not to use the comparative compensation information at all in the course of making compensation decisions.
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Role of Executives in Establishing Compensation
The Compensation Committee makesmade all decisions with respect to compensation of the named executive officers,Ms. Derrico and Messrs. Porter and Shearin, subject to review and approval by the full Board of Directors. The Chairman of the BoardMs. Derrico and Chief Executive Officer reviewsMessrs. Porter and Shearin reviewed the performance of the Company’s executive officers (other than herself and the President)themselves) and, based on that review, provides input regarding the performance of the other executive officers and makes recommendationsrecommended to the Compensation Committee for compensation amounts payable to thesuch other executive officers, of the Company, including the other named executive officers. Neither the Chairman of the BoardMs. Derrico nor Messrs. Porter and Chief Executive Officer nor the President isShearin were involved with any aspect of determining her or his own pay.
Consideration of Last Year’s Advisory Stockholder Vote on Executive Compensation
At the 20162019 annual meeting of stockholders, approximately 86%42% of the shares represented and entitled to vote at the annual meeting were voted to approve the compensation of the Company’s named executive officers, as discussed and disclosed in the 20162019 Proxy Statement. In considering
The Board of Directors has taken note of the resultslow level of this advisory vote on executive compensation, the Compensation Committee concluded that the compensation paid to our named executive officers andsupport from the Company’s overall pay practices enjoy strong stockholder support.shareholders for our 2019 Say-on-Pay vote. In light of2020, the strong stockholder supportCompany intends to focus on improving alignment of the compensation paidprogram’s structure and incentives with our long-term business strategy. The Board of Directors has identified certain areas of improvement to our named executive officers evidenced byaddress in the results of this advisory vote,short-term, as summarized in the Board and the Compensation Committee have not made any specific changes to our executive compensation program for 2016.table below.
Identified Areas of Improvement | Response | |
Continued Focus on Integration Efforts – Post-merger integration efforts began immediately following the Company’s merger of equals in 2017, but have continued to occupy a significant amount of the Company’s efforts and resources. | Balanced Approach to Shareholder Value - The Board of Directors has embraced a longer-term strategic mindset that focuses primarily on employee development, growth in new and existing markets, and opportunistic growth through mergers and acquisitions. | |
Unique Management Structure – In connection with the completion of the merger of equals, the Company created the Office of the Chairman, comprised of an Executive Chairman and an Executive Vice Chairman, in addition to the CEO position. This structure positioned the Company for poster-merger integration and management transition. | More Traditional Management Structure – In the first quarter of 2020, the Company announced several important transitions in management. Mr. Zember joined the Company as CEO, and each of the Executive Chairman, the Executive Vice Chairman and the existing CEO retired. We expect this revised management structure to be more efficient and to streamline operational governance. | |
Discretionary Incentive Awards – The Company has historically paid discretionary bonuses to executives, based on a subjective review of a variety of performance metrics. | Quantitative Incentive Plans – In 2020, the Company intends to implement incentive plans that focus on quantitative goals, focusing on the Company’s operating performance. While the Compensation Committee will retain full discretion over amounts paid to the executive officers, the executive officers will earn incentive awards based on defined performance metrics. The proxy statement for the Company’s 2021 annual meeting will provide shareholders enhanced clarity about the Company’s compensation programs, including regarding the process and metrics used to determine incentive compensation payouts. | |
Limited Use of Compensation Consultant – Historically, the scope of the compensation consultant’s work was limited to collection and presentation of data, rather than the consultant collaboratively working with the Compensation Committee to better design and improve pay practices. | Expansion of Role of Compensation Consultant – In 2020, the Compensation Committee intends to further engage with its compensation consultant to seek additional guidance and insight into pay practices, including the amount and form of compensation for the Company’s board of directors and executive officers, that are appropriate for a bank of our size. The Company will work to design an incentive compensation structure that protects shareholders and positions the Company to effectively recruit and retain talented leadership. |
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Components of Executive Compensation
The principal components of the executive compensation program of the Company (through the Bank) are:
· | base salary; |
· | cash incentive award; |
· | long-term equity incentive awards; |
· | perquisites and other personal benefits; |
· | for certain of our named executive officers, participation in a SERP; and |
· | severance protection through employment agreements, change-in-control agreements or participation in the Company’s Executive Severance Plan. |
Base Salary
Salaries provide executive officers with a base level of monthly income and help achieve the objectives outlined above by attracting and retaining strong talent. Generally, base salaries are not based on specific measures of corporate performance, but are determined by tenure of service, scope of the position, including current job responsibilities, relative salaries of the Company’s peers and the officer’s individual performance and contribution to the Company. The Company’s base salaries are adjusted based on factors such as individual experience, individual performance, individual potential, cost of living considerations and
Effective March 1, 2019, the Compensation Committee implemented anapproved a 10.25% increase of 10% in the Chief Executive Officer’s base salary and 6% in the President’s base salary, and increases of approximately 4.5% - 5.0% into the base salaries of Ms. Derrico and Messrs. Porter and Shearin, an 8% increase for Mr. Sheflett, and a 3% increase to Mr. Karafa’s base salary, as follows: Ms. Derrico, $517,708; Mr. Porter, $351,339; Mr. Shearin, $551,250; Mr. Culver, $350,000; Mr. Sheflett, $203,958; and Mr. Karafa, $257,500. Mr. Culver’s base salary remained at the other named executive officers, in each case effective July 2016.same level as 2018 ($350,000).
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Cash Incentive Awards
The purpose of the cash incentive award is to motivate, reward and retain the named executive officers who are critical to the Company’s ongoing success. In determining the cash incentive, the Compensation Committee takes into consideration the Company’s performance compared to its budget, stockholder return over the long term, the operating ratios of return on assets and return on equity and the efficiency ratio. In setting the goals and measuring an executive’s performance against those goals, the Company considers the performance of its competitors and general economic and market conditions. None of the factors included in the Company’s strategic and business goals are assigned a specific weight. Instead, the Compensation Committee recognizesrecognized that the relative importance of these factors may change in order to adapt the Company’s operations to specific business challenges and to reflect changing economic and marketplace conditions. In addition, the Compensation Committee may also performconsidered a subjective evaluation of the extent to which the named executive officers contributed to the enhancement of the Company during an acquisition and/or exhibited team oriented behavior that contributed to the success of the Company. The Compensation Committee considers the Chief Executive Officer’s and President’s participation in the SERP and the benefits to be provided by that plan when determining the cash incentive to be paid to those individuals. As a result of the Compensation Committee’s review of compensation for each named executive officer, as discussed above, as well as a general review of market data for Ms. Derrico and Mr. Porter, the Compensation Committee awarded each of Messrs. Baker, Lagos, Porter and Stevens aour named executive officers the cash incentive award of $6,000, $6,000, $182,100 and $5,000, respectively, and for Ms. Derrico, $268,330, asreflected reported in the “Bonus” column of the Summary Compensation table later in this Proxy Statement.
Long-Term Equity Incentive Awards
The Company maintains an equity compensation program for its named executive officers and other key employees, in order to attract, retain and motivate key employees and enable those persons to participate in the long-term success of the Company. Stock options have been the Company’s only form of long-term incentive compensation, and may be subject to performance-based and/or time-based vesting requirements. Stock options currently outstanding have been granted pursuant to two Company plans: the Company’s 2004 Stock Option Plan (the “2004 Plan”) and the Company’s 2010 Stock Awards and Incentive Plan (the “2010 Plan”). Similar to prior years,In 2019, the Compensation Committee granted restricted stock optionsawards to each of theour named executive officers in 2016,under pursuant to the Company’s 2017 Equity Compensation Plan (the “2017 Plan”) as reported in the Grants of Plan-Based Awards for 2016Fiscal Year 2019 table later in this Proxy Statement.
Perquisites and Employee Benefit Plans
Perquisites represent a small part of the Company’s executive compensation program. The Compensation Committee reviews annually the perquisites provided to the named executive officers, and offers such benefits after consideration of the business need. Currently, the Company provides a car allowance to Mr. Porter and, for Ms. Derrico and Mr. Porter, a part time personal assistant as described in the footnotes to the Summary Compensation Table. The named executive officers are eligible to participate in the same employee benefits plans that are generally available to all Company employees.
Employment Agreements, Change-in-Control Agreements and Executive Severance Plan
During 2019, the Company and the Bank were party to employment agreements and change-in-control agreements with each of our named executive officers. The Compensation Committee and the Bank believe that the employment and change-in-control agreements are a critical tool in retaining our executive team. These agreements also include certain protections for the Company and the Bank in the form of post-employment restrictive covenants. The employment agreements with Ms. Derrico and Messrs. Porter, Culver and Shearin terminated in connection with their separation from the Company and the Bank in March 2020, March 2020, June 2019 and February 2020, respectively.
Employment Agreements with Ms. Derrico and Mr. Porter. During 2019, the Company was party to an amended and restated employment agreement with each of Ms. Derrico and Mr. Porter, pursuant to which each executive served as Executive Chairman and Executive Vice Chairman, respectively. The term of the agreements is October 2, 2019 through December 31, 2020. The employment agreements expired in connection with their resignation on March 31, 2020, except for the restrictive covenants, which survive the expiration. The amended and restated employment agreements provide for (i) a base salary of $517,708 for Ms. Derrico and $351,339 for Mr. Porter; (ii) participation in benefit plans, policies and programs as may be maintained, from time to time, by the Company; (iii) a 2019 annual cash bonus, if any, that is no less than the dollar value of the 2019 annual cash bonus received by the Chief Executive Officer of the Company for that period; (iv) reimbursement for any personal tax and estate planning assistance for calendar year 2019, up to a maximum of $5,000 per executive; (v) a car allowance; and (vi) reimbursement for certain club membership dues.
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The amended and restated employment agreements provided that each executive will be a participant in the Southern National Bancorp of Virginia, Inc. Executive Severance Plan (the “Severance Plan”). If the executive incurred a qualifying termination under the Severance Plan, then, in addition to the severance benefits under the Severance Plan, the executive would be entitled to receive (i) acceleration of vesting of his or her then outstanding stock options and restricted shares; (ii) continued use of a personal assistant provided by the Company for two years, with such personal assistant’s base salary not to exceed $60,000; and (iii) acceleration of vesting of his or her normal retirement benefit under the Supplemental Retirement Plan Agreement, dated as of April 2, 2018.
The amended and restated employment agreements provided that the executive would be deemed to have a qualifying termination under the Severance Plan in the event that, during the term of the agreement, the executive’s duties and responsibilities were assumed by another executive (or if the executive was otherwise replaced). The amended and restated employment agreements contain customary confidentiality covenants, as well as covenants regarding the non-solicitation of customer and employees and non-competition that apply for twelve months following the executive’s termination of employment, which covenants survive expiration of the agreements.
See “Potential Benefits Upon Termination or Change in Control,” below, for additional information regarding Ms. Derrico’s and Mr. Porter’s employment agreements and separation agreements.
Employment Agreement with Mr. Shearin. During 2019, the Company was party to an employment agreement with Mr. Shearin, pursuant to which Mr. Shearin served as President and Chief Executive Officer of the Company and the Bank, effective upon completion of the merger with EVBS. The employment agreement had an initial term that would expire on December 31, 2020, subject to automatic two-year renewals unless either party provided written notice of non-renewal no later than ninety days before any renewal date. Mr. Shearin’s employment agreement provided for an annual base salary and eligibility for equity awards and annual bonuses and certain other benefits, including continued participation in the EVBS SERP, payment of private club dues and use of an automobile at the company’s expense. Mr. Shearin’s employment agreement also provided that any incentive compensation paid to Mr. Shearin, including both equity and cash incentive compensation, is subject to repayment or clawback as further described in the agreement. See “Potential Benefits Upon Termination or Change in Control,” below, for additional information regarding Mr. Shearin’s employment agreement. Mr. Shearin’s employment agreement expired in connection with his retirement on February 19, 2020, except for the restrictive covenants, which survive its expiration.
Employment Agreement with Mr. Culver. Prior to his separation form the Company and the Bank on June 20, 2019, the Company, the Bank and Mr. Culver were party to an employment agreement, pursuant to which Mr. Culver served as President of the Company and the Bank. The employment agreement had a two year term that would expire on October 29, 2020. Mr. Culver’s employment agreement provided for an annual base salary and eligibility for equity awards and annual bonuses and certain other benefits. The employment agreement also provided that any incentive compensation paid to Mr. Culver, including both equity and cash incentive compensation, would be subject to repayment or clawback as further described in the agreement. See “Potential Benefits Upon Termination or Change in Control,” below, for additional information regarding Mr. Culver’s employment agreement.
Change-in-Control Severance Agreements with Messrs. Sheflett and. Karafa. The Company, the Bank and Messrs. Sheflett and Karafa entered into a change-in-control severance agreement that expires either upon termination or the first anniversary after a change-in-control event. See “Potential Benefits Upon Termination or Change in Control,” below, for additional information regarding Messrs. Sheflett and Karafa’s agreements.
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Supplemental Executive Retirement Plan (SERP)
Effective August 1, 2007, the Bank entered into a SERPsupplemental executive retirement plan (the “2007 SERP”) with each of the Chief Executive OfficerMs. Derrico and the PresidentMr. Porter to encourage such officers to remain employees of the Bank and the Company. The Bank also assumed the obligations under the EVBS supplemental executive retirement plan (the “EVBS SERP”), in which Mr. Shearin participates. The normal retirement benefits for each of Ms. Derrico and Messrs. Porter and Shearin became fully vested upon completion of the merger with EVBS in June 2017, although the time of payment was not accelerated. In April 2018, the Bank entered into a new supplemental executive retirement plan (“2018 SERP”) with each of Ms. Derrico and Messrs. Porter and Shearin. The 2007 SERP, isEVBS SERP and 2018 SERPs are designed to provide a certain level of post-retirement income to the two individuals who have a significant impact on the long-term growth and profitability of the Company. See “Pension Benefits,” below, for additional information regarding the SERP.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in Control Agreements
The Compensation Committee believes that these agreements are important retention toolshas reviewed and encouragediscussed the executive’s attentionCompensation Discussion and Analysis with management and, based on such review, has recommended to the Bank during timesBoard of Directors that may create personal uncertainties for the executives. See “Potential Benefits Upon Termination or ChangeCompensation Discussion and Analysis be included in Control,” below, for additional information regarding the change in control agreements.this Proxy Statement.
The Compensation Committee | |
John F. Biagas (Chairman) Robert Y. Clagett F.L. Garrett III W. Bruce Jennings |
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Summary Compensation Table
The following table provides information regarding the compensation paid or accrued by the Company to or on behalf of the Company’s Chief Executive Officer, Chief Financial Officer and the other three most highly compensatednamed executive officers of the Company (determined as of the end of the last fiscal year) (the “named executive officers”) for the fiscal years ended December 31, 2016, 20152019, 2018, and 2014. As of the end of the last fiscal year, in addition to the Chief Executive Officer and the Chief Financial Officer, Thomas P. Baker, R. Roderick Porter and William H. Stevens were the only other executive officers of the Company and the Bank.
Name | | | Year | | | Salary ($) | | | Bonus ($) | | | Option Awards ($)(1) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(2) | | | All Other Compensation ($)(3) | | | Total ($) | | |||||||||||||||||||||
Thomas P. Baker Senior Vice President and Chief Credit Officer | | | | | 2016 | | | | | | 204,500 | | | | | | 6,000 | | | | | | 3,150 | | | | | | — | | | | | | — | | | | | | 213,650 | | |
| | | 2015 | | | | | | 197,062 | | | | | | 5,000 | | | | | | 2,040 | | | | | | — | | | | | | — | | | | | | 204,102 | | | ||
| | | 2014 | | | | | | 191,296 | | | | | | 5,000 | | | | | | 14,400 | | | | | | — | | | | | | — | | | | | | 210,696 | | | ||
Georgia S. Derrico Chairman of the Board and Chief Executive Officer | | | | | 2016 | | | | | | 426,888 | | | | | | 268,330 | | | | | | 15,120 | | | | | | 294,481 | | | | | | 27,780 | | | | | | 1,032,599 | | |
| | | 2015 | | | | | | 388,080 | | | | | | 313,000 | | | | | | 12,240 | | | | | | 240,127 | | | | | | 21,850 | | | | | | 975,297 | | | ||
| | | 2014 | | | | | | 360,800 | | | | | | 62,400 | | | | | | 69,120 | | | | | | 203,435 | | | | | | 24,066 | | | | | | 719,821 | | | ||
William H. Lagos Senior Vice President Chief Financial Officer | | | | | 2016 | | | | | | 173,825 | | | | | | 6,000 | | | | | | 3,780 | | | | | | — | | | | | | — | | | | | | 183,605 | | |
| | | 2015 | | | | | | 166,500 | | | | | | 6,000 | | | | | | 2,805 | | | | | | — | | | | | | — | | | | | | 175,305 | | | ||
| | | 2014 | | | | | | 158,999 | | | | | | 5,000 | | | | | | 14,400 | | | | | | — | | | | | | — | | | | | | 178,399 | | | ||
R. Roderick Porter President and Chief Operating Officer | | | | | 2016 | | | | | | 294,906 | | | | | | 182,100 | | | | | | 15,120 | | | | | | 200,536 | | | | | | 34,980 | | | | | | 727,642 | | |
| | | 2015 | | | | | | 276,324 | | | | | | 193,000 | | | | | | 12,240 | | | | | | 162,432 | | | | | | 29,050 | | | | | | 673,046 | | | ||
| | | 2014 | | | | | | 259,995 | | | | | | 52,400 | | | | | | 69,120 | | | | | | 137,042 | | | | | | 31,267 | | | | | | 549,824 | | | ||
William H. Stevens Executive Vice President and Chief Credit Risk Officer | | | | | 2016 | | | | | | 184,500 | | | | | | 5,000 | | | | | | 2,835 | | | | | | — | | | | | | — | | | | | | 192,335 | | |
| | | 2015 | | | | | | 175,696 | | | | | | 4,500 | | | | | | 2,040 | | | | | | — | | | | | | — | | | | | | 182,236 | | | ||
| | | 2014 | | | | | | 168,896 | | | | | | 3,500 | | | | | | 8,640 | | | | | | — | | | | | | — | | | | | | 181,036 | | |
Change in | ||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||
Deferred | ||||||||||||||||||||||||||
Stock | Compensation | All Other | ||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Awards ($)(6) | Earnings ($)(7) | Compensation ($) | Total ($) | |||||||||||||||||||
Jeffrey H. Culver(1) | 2019 | 222,788 | - | - | - | 362,921 | 585,709 | |||||||||||||||||||
Former President | 2018 | 228,030 | - | - | - | 13,639 | 241,669 | |||||||||||||||||||
Georgia S. Derrico(2) | 2019 | 513,600 | 200,000 | 141,500 | 565,466 | 69,376 | 1,489,942 | |||||||||||||||||||
Former Executive Chairman | 2018 | 507,203 | 185,000 | 157,400 | 476,338 | 58,355 | 1,384,296 | |||||||||||||||||||
2017 | 469,577 | 185,000 | - | 223,539 | 2,250,275 | 3,128,391 | ||||||||||||||||||||
Jeffrey L. Karafa(3) | 2019 | 256,250 | 5,000 | - | - | 18,001 | 279,251 | |||||||||||||||||||
Executive Vice President and | 2018 | 70,833 | - | 61,600 | - | 12,468 | 144,901 | |||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||||
R. Roderick Porter(2) | 2019 | 348,551 | 200,000 | 141,500 | 351,098 | 68,566 | 1,109,715 | |||||||||||||||||||
Former Executive Vice Chairman | 2018 | 344,210 | 185,000 | 157,400 | 303,936 | 62,389 | 1,052,935 | |||||||||||||||||||
2017 | 318,675 | 185,000 | - | 153,717 | 1,045,305 | 1,702,697 | ||||||||||||||||||||
Joe A. Shearin(4) | 2019 | 546,875 | 200,000 | 141,500 | 364,655 | 66,408 | 1,319,438 | |||||||||||||||||||
Former President and Chief | 2018 | 520,833 | 185,000 | 157,400 | 182,044 | 51,635 | 1,096,912 | |||||||||||||||||||
Executive Officer | 2017 | 267,675 | 185,000 | - | 32,214 | 24,792 | 509,681 | |||||||||||||||||||
G. Cody Sheflett(5) | 2019 | 203,958 | 28,000 | 56,600 | - | 3,058 | 291,616 | |||||||||||||||||||
Chief Operating Officer |
(1) | Mr. Culver was hired by the Company on May 7, 2018 and served as President until his separation on June 20, 2019. The amount included in the “All Other Compensation” column for Mr. Culver for 2019 includes a 401(k) matching contribution of $6,684, a car allowance of $3,600, a cell phone reimbursement of $300, restricted stock dividends of $1,440, $897 for imputed income related to group term life insurance, $350,00 received as severance pursuant to his employment agreement. |
(2) | The amount included as “All Other Compensation” for 2019 includes for each of Ms. Derrico and Mr. Porter: (i) $18,992, which is one-quarter of the total 2019 compensation of $75,968 of a bank employee who devotes 25% of her time acting as a personal assistant to Georgia S. Derrico, 25% of her time acting as a personal assistant to R. Roderick Porter and 50% of her time to the Bank; (ii) $14,000 pursuant to the Directors Stock Match Program; and (iii) $6,660 in restricted stock dividends. Additionally, Ms. Derrico received a 401(k) matching contribution of $10,785, $5,000 reimbursement for tax planning, $4,075 in imputed income as a beneficiary of a Bank Owned Life Insurance Policies (BOLI), and $9,864 in imputed income related to group term life insurance. Mr. Porter received a 401(k) matching contribution of $12,600, a car allowance of $7,200, $2,591 in imputed income as a beneficiary of BOLI, and $6,523 in imputed income related to group term life insurance. |
(3) | Mr. Karafa was hired by the Company on September 19, 2018 and was appointed Executive Vice President and Chief Financial Officer. The amount included as “All Other Compensation” for 2019 for Mr. Karafa includes a 401(k) matching contribution of $7,688, a cell phone reimbursement of $600, reimbursement of relocation expenses of $7,069, restricted stock dividends of $1,368, and $1,277 in imputed income related to group term life insurance. |
(4) | Mr. Shearin joined the Company through the merger with EVBS in June 2017 and served as President and Chief Executive Officer until his retirement on February 19, 2020. The amount included as “All Other Compensation” for 2019 for Mr. Shearin includes $14,000 pursuant to the Directors Stock Match Program, a 401(k) matching contribution of $12,600, a housing allowance of $26,099, club dues of $1,575, restricted stock dividends of $6,660, and $5,474 in imputed income as a beneficiary of BOLI. |
(5) | Mr. Sheflett was appointed Chief Operating Officer the Company on February 28, 2019. He was not a named executive officer in 2018 or 2017. The amount included as “All Other Compensation” for 2019 for Mr. Sheflett includes restricted stock dividends of $2,205, $208 in imputed income as a beneficiary of a BOLI, and $644 in imputed income related to group term life insurance. |
(6) | Represents the aggregate grant date fair value of stock awards awarded pursuant to the Company’s 2010 Stock Awards and Incentive Plan (the “2010 Plan”) and the 2017 Plan in the applicable fiscal year, computed in accordance with FASB ASC Topic 718. No options were granted in 2017, 2018 or 2019. The grant date fair value of stock awards granted in 2019 and 2018 was based on the fair market value of the stock on the grant date. |
(7) | Reflects the aggregate change in the actuarial present value of the named executive officer’s accumulated benefit under the SERP. |
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Grants of Plan-Based Awards in Fiscal Year 2016
The following table below sets forth the individual grants of awards made to each ofcontains information about the named executive officersofficers’ grants of restricted stock during 2016. All option grants2019, all of which were madegranted under the 20102017 Plan.
Name | | | Grant Date | | | All Other Option Awards: Number of Securities Underlying Options (#)(1) | | | Exercise or Base Price of Option Awards ($/sh) | | | Grant Date Fair Value of Option Awards ($)(2) | | ||||||||||||
Thomas P. Baker | | | | | 06/17/16 | | | | | | 5,000 | | | | | | 11.99 | | | | | | 3,150 | | |
Georgia S. Derrico | | | | | 06/17/16 | | | | | | 24,000 | | | | | | 11.99 | | | | | | 15,120 | | |
William H. Lagos | | | | | 06/17/16 | | | | | | 6,000 | | | | | | 11.99 | | | | | | 3,780 | | |
R. Roderick Porter | | | | | 06/17/16 | | | | | | 24,000 | | | | | | 11.99 | | | | | | 15,120 | | |
William H. Stevens | | | | | 06/17/16 | | | | | | 4,500 | | | | | | 11.99 | | | | | | 2,835 | | |
All Other Stock | ||||||||||||
Stock Awards: | Grant Date Fair | |||||||||||
Number of | Value of Stock | |||||||||||
Shares of | ||||||||||||
Name | Grant Date | Stock or Units (#)(1) | Awards ($)(2) | |||||||||
Jeffrey J. Culver | - | - | - | |||||||||
Georgia S. Derrico | 1/24/2019 | 10,000 | 141,500 | |||||||||
Jeffrey L. Karafa | - | - | - | |||||||||
R. Roderick Porter | 1/24/2019 | 10,000 | 141,500 | |||||||||
Joe A. Shearin | 1/24/2019 | 10,000 | 141,500 | |||||||||
G. Cody Sheflett, Jr. | 1/24/2019 | 4,000 | 56,600 |
(1) | Reflects restricted stock awards granted to the executive officer, which awards vest in five approximately equal annual installments, subject to the executive’s continued employment with the Company on each vesting date. |
(2) | Reflects the grant date fair value of the stock awards computed in accordance with FASB ASC Topic 718. |
Outstanding Equity Awards at 20162019 Fiscal Year-End
The following table contains information concerning the named executive officers’ outstanding stock options and stock awards as of December 31, 2016.2019. As of December 31, 2016, the named executive officers did not hold2019, none of Messrs. Culver, Karafa, or Shearin or held any stockoption awards.
Name | | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | | ||||||||||||
Thomas P. Baker | | | | | 2,000 | | | | | | — | | | | | | 9.20 | | | | | | 01/23/2018 | | |
| | | 2,000 | | | | | | — | | | | | | 5.50 | | | | | | 01/27/2019 | | | ||
| | | 2,000 | | | | | | — | | | | | | 8.02 | | | | | | 07/29/2019 | | | ||
| | | 3,000 | | | | | | — | | | | | | 7.04 | | | | | | 07/27/2020 | | | ||
| | | 15,000 | | | | | | — | | | | | | 7.20 | | | | | | 03/21/2021 | | | ||
| | | 4,000 | | | | | | 1,000(1) | | | | | | 7.92 | | | | | | 12/05/2022 | | | ||
| | | 3,000 | | | | | | 2,000(2) | | | | | | 9.14 | | | | | | 06/21/2023 | | | ||
| | | 2,000 | | | | | | 3,000(3) | | | | | | 10.47 | | | | | | 07/22/2024 | | | ||
| | | 1,000 | | | | | | 3,000(4) | | | | | | 11.43 | | | | | | 06/19/2025 | | | ||
| | | — | | | | | | 5,000(5) | | | | | | 11.99 | | | | | | 06/17/2026 | | | ||
Georgia S. Derrico | | | | | 10,000 | | | | | | — | | | | | | 9.20 | | | | | | 01/23/2018 | | |
| | | 11,000 | | | | | | — | | | | | | 5.50 | | | | | | 01/27/2019 | | | ||
| | | 5,000 | | | | | | — | | | | | | 8.02 | | | | | | 07/29/2019 | | | ||
| | | 5,000 | | | | | | — | | | | | | 7.04 | | | | | | 07/27/2020 | | | ||
| | | 20,000 | | | | | | — | | | | | | 7.20 | | | | | | 03/21/2021 | | | ||
| | | 16,000 | | | | | | 4,000(1) | | | | | | 7.92 | | | | | | 12/05/2022 | | | ||
| | | 12,000 | | | | | | 8,000(2) | | | | | | 9.14 | | | | | | 06/21/2023 | | | ||
| | | 9,600 | | | | | | 14,400(3) | | | | | | 10.47 | | | | | | 07/22/2024 | | | ||
| | | 4,800 | | | | | | 19,200(4) | | | | | | 11.43 | | | | | | 06/19/2025 | | | ||
| | | — | | | | | | 24,000(5) | | | | | | 11.99 | | | | | | 06/17/2026 | | | ||
William H. Lagos | | | | | 3,500 | | | | | | — | | | | | | 9.20 | | | | | | 01/23/2018 | | |
| | | 2,000 | | | | | | — | | | | | | 5.50 | | | | | | 01/27/2019 | | | ||
| | | 2,000 | | | | | | — | | | | | | 8.02 | | | | | | 07/29/2019 | | | ||
| | | 2,500 | | | | | | — | | | | | | 7.04 | | | | | | 07/27/2020 | | | ||
| | | 4,000 | | | | | | — | | | | | | 7.20 | | | | | | 03/21/2021 | | | ||
| | | 3,200 | | | | | | 800(1) | | | | | | 7.92 | | | | | | 12/05/2022 | | | ||
| | | 2,400 | | | | | | 1,600(2) | | | | | | 9.14 | | | | | | 06/21/2023 | | | ||
| | | 2,000 | | | | | | 3,000(3) | | | | | | 10.47 | | | | | | 07/22/2024 | | | ||
| | | 1,100 | | | | | | 4,400(4) | | | | | | 11.43 | | | | | | 06/19/2025 | | | ||
| | | — | | | | | | 6,000(5) | | | | | | 11.99 | | | | | | 06/17/2026 | | | ||
R. Roderick Porter | | | | | 10,000 | | | | | | — | | | | | | 9.20 | | | | | | 01/23/2018 | | |
| | | 11,000 | | | | | | — | | | | | | 5.50 | | | | | | 01/27/2019 | | | ||
| | | 5,000 | | | | | | — | | | | | | 8.02 | | | | | | 07/29/2019 | | | ||
| | | 5,000 | | | | | | — | | | | | | 7.04 | | | | | | 07/27/2020 | | | ||
| | | 20,000 | | | | | | — | | | | | | 7.20 | | | | | | 03/21/2021 | | | ||
| | | 16,000 | | | | | | 4,000(1) | | | | | | 7.92 | | | | | | 12/05/2022 | | | ||
| | | 12,000 | | | | | | 8,000(2) | | | | | | 9.14 | | | | | | 06/21/2023 | | | ||
| | | 9,600 | | | | | | 14,400(3) | | | | | | 10.47 | | | | | | 07/22/2024 | | | ||
| | | 4,800 | | | | | | 19,200(4) | | | | | | 11.43 | | | | | | 06/19/2025 | | | ||
| | | — | | | | | | 24,000(5) | | | | | | 11.99 | | | | | | 06/17/2026 | | | ||
William H. Stevens | | | | | 1,500 | | | | | | — | | | | | | 9.20 | | | | | | 01/23/2018 | | |
| | | 1,500 | | | | | | — | | | | | | 5.50 | | | | | | 01/27/2019 | | | ||
| | | 1,500 | | | | | | — | | | | | | 7.04 | | | | | | 07/27/2020 | | | ||
| | | 2,000 | | | | | | 500(1) | | | | | | 7.92 | | | | | | 12/05/2022 | | | ||
| | | 1,500 | | | | | | 1,000(2) | | | | | | 9.14 | | | | | | 06/21/2023 | | | ||
| | | 1,200 | | | | | | 1,800(3) | | | | | | 10.47 | | | | | | 07/22/2024 | | | ||
| | | 800 | | | | | | 3,200(4) | | | | | | 11.43 | | | | | | 06/19/2025 | | | ||
| | | — | | | | | | 4,500(5) | | | | | | 11.99 | | | | | | 06/17/2026 | | |
Option Awards | Stock Awards | |||||||||||||||||||||
Number of | Number of | Number of | Market Value | |||||||||||||||||||
Securities | Securities | Shares of | of Shares | |||||||||||||||||||
Underlying | Underlying | Stock | of Stock | |||||||||||||||||||
Unexercised | Unexercised | Option | That Have | That Have | ||||||||||||||||||
Options (#) | Options (#) | Exercise Price | Option | Not Vested | Not Vested | |||||||||||||||||
Name | Exercisable | Unexercisable | ($) | Expiration Date | (#) | ($)(6) | ||||||||||||||||
Jeffrey H. Culver | - | - | - | - | - | - | ||||||||||||||||
Georgia S. Derrico | 20,000 | - | 7.20 | 3/21/2021 | ||||||||||||||||||
20,000 | - | 7.92 | 12/5/2022 | |||||||||||||||||||
20,000 | - | 9.14 | 6/21/2023 | |||||||||||||||||||
24,000 | - | 10.47 | 7/22/2024 | |||||||||||||||||||
19,200 | 4,800 | (1) | 11.43 | 6/19/2025 | ||||||||||||||||||
14,400 | 9,600 | (2) | 11.99 | 6/17/2026 | ||||||||||||||||||
8,000 | (3) | 130,800 | ||||||||||||||||||||
10,000 | (4) | 163,500 | ||||||||||||||||||||
Jeffrey L. Karafa | 3,200 | (5) | 52,320 | |||||||||||||||||||
R. Roderick Porter | 20,000 | - | 7.20 | 3/21/2021 | ||||||||||||||||||
20,000 | - | 7.92 | 12/5/2022 | |||||||||||||||||||
20,000 | - | 9.14 | 6/21/2023 | |||||||||||||||||||
24,000 | - | 10.47 | 7/22/2024 | |||||||||||||||||||
19,200 | 4,800 | (1) | 11.43 | 6/19/2025 | ||||||||||||||||||
14,400 | 9,600 | (2) | 11.99 | 6/17/2026 | ||||||||||||||||||
8,000 | (3) | 130,800 | ||||||||||||||||||||
10,000 | (4) | 163,500 | ||||||||||||||||||||
Joe A. Shearin | 8,000 | (3) | 130,800 | |||||||||||||||||||
10,000 | (4) | 163,500 | ||||||||||||||||||||
G. Cody Sheflett, Jr. | 1,000 | - | 7.04 | 7/27/2020 | ||||||||||||||||||
1,000 | - | 7.20 | 3/21/2021 | |||||||||||||||||||
2,500 | - | 7.92 | 12/5/2022 | |||||||||||||||||||
2,500 | - | 9.14 | 6/21/2023 | |||||||||||||||||||
2,500 | - | 10.47 | 7/22/2024 | |||||||||||||||||||
3,200 | 800 | (1) | 11.43 | 6/19/2025 | ||||||||||||||||||
2,700 | 1,800 | (2) | 11.99 | 6/17/2026 | ||||||||||||||||||
2,000 | (3) | 32,700 | ||||||||||||||||||||
4,000 | (4) | 65,400 |
(1) | The options vest on July 19, 2020. |
(2) | The options vest in two equal installments on each of June 17, 2020 and 2021. |
(3) | The restricted shares vest in four approximately equal installments on each of March 31, 2020, 2021, 2022 and 2023. |
(4) | The restricted shares vest in five approximately equal installments on each of January 24, 2021, 2022, 2023, 2024 and 2025. |
(5) | The restricted shares vest in four approximately equal installments on each of October 23, 2020, 2021, 2022 and 2023. |
(6) | Market value is calculated based on $16.35, the closing price of the Company’s Common Stock on the NASDAQ Global Market on December 31, 2019, the last trading day of 2019. |
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2019 Option Exercises and 2018.
Option Exercises | Stock Vested | |||||||||||||||
Number of | Number of | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
Acquired on | Realized on | Acquired on | Realized on | |||||||||||||
Exercise | Exercise | Vesting | Vesting | |||||||||||||
Name | (#) | ($)(1) | ($) | ($)(2) | ||||||||||||
Jeffrey H. Culver | - | - | 8,000 | 116,304 | ||||||||||||
Georgia S. Derrico | 5,000 | 42,800 | 2,000 | 29,700 | ||||||||||||
Jeffrey L. Karafa | - | - | 800 | 12,408 | ||||||||||||
R. Roderick Porter | 5,000 | 42,800 | 2,000 | 29,700 | ||||||||||||
Joe A. Shearin | - | - | 2,000 | 29,700 | ||||||||||||
G. Cody Sheflett, Jr. | - | - | 500 | 7,425 |
(1) | Reflects the difference between the price per share of Company common stock on the exercise date and the exercise price of the options. |
(2) | Reflects the number of shares of stock vesting multiplied by the price per share of Company common stock on the vesting date. |
Pension Benefits
The table below shows the present value of accumulated benefits payable to each of Ms. Derrico and Mr.Messrs. Porter and Shearin, and the number of years of service credited to each such named executive officer under his or her supplemental executive retirement agreement (“agreements (the “2007 SERP”), with respect to Ms. Derrico and Mr. Porter, the “EVBS SERP”, with respect to Mr. Shearin, and the 2018 SERP, with respect to Ms. Derrico and Messrs. Porter and Shearin). SONA assumed the EVBS SERP in connection with the merger with EVBS in June 2017. Messrs. Baker, LagosCulver, Karafa and StevensSheflett do not participate in a SERP.
Name | | | Plan Name | | | Number of Years of Credited Service (#) | | | Present Value of Accumulated Benefit ($)(1) | | | Payments During Last Fiscal Year ($) | | ||||||||||||
Thomas P. Baker | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
Georgia S. Derrico | | | | | SERP | | | | | | 9.42 | | | | | | 1,462,400 | | | | | | — | | |
William H. Lagos | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
R. Roderick Porter | | | | | SERP | | | | | | 9.42 | | | | | | 1,060,765 | | | | | | — | | |
William H. Stevens | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
Number of | Present Value | |||||||||
Years Credited | of Accumulated | |||||||||
Name | Plan Name | Service (#)(1) | Benefit ($) | |||||||
Georgia S. Derrico | 2007 SERP | 12.42 | 1,773,160 | (2)(3) | ||||||
2018 SERP | 1.75 | 954,632 | (5) | |||||||
R. Roderick Porter | 2007 SERP | 12.42 | 1,277,525 | (2)(3) | ||||||
2018 SERP | 1.75 | 591,991 | (5) | |||||||
Joe A. Shearin | EVBS SERP | 10.00 | 1,750,111 | (2)(4) | ||||||
2018 SERP | 1.75 | 582,485 | (6) |
(1) | Actual years of service is 13 years for Ms. Derrico, 13 years for Mr. Porter and 17 years for Mr. Shearin (including his prior service with EVBS). |
(2) | Fully vested as of June 23, 2017, the closing of the merger with EVBS in June 2017. |
(3) | Reflects the amounts accrued by the Company for the named executive officer’s accumulated benefit under the 2007 SERP, for the period from August 1, 2007, the effective date of the 2007 SERP, through December 31, 2019. The vested benefit accruals for the 2007 SERP are based upon a schedule that will not vary due to any changes with general interest rate or discount rates used in the marketplace. |
(4) | The present value of the accumulated benefit was determined using a discount rate of 3%. |
(5) | Reflects the amounts accrued by the Company for the named executive officer’s accumulated benefit under the 2018 SERP, for the period from April 2, 2018, the effective date of the 2018 SERP, through December 31, 2019. The vested benefit accruals for Ms. Derrico’s and Mr. Porter’s 2018 SERP are based upon a schedule that will not vary due to any changes with general interest rate or discount rates used in the marketplace. |
(6) | Calculated using a 6% discount rate. |
2007 SERP. Ms. Derrico’s and Mr. Porter’s individual2007 SERPs are unfunded nonqualified deferred compensation plans for purposes of Title I of ERISA. The 2007 SERPs were originally effective August 1, 2007 and provide that if the executive remains in employment through August 1, 2017, the executive will be entitled to ten annual payments beginning on the first day of the seventh month following the executive’s separation from service in an annual amount equal to $137,357 for Ms. Derrico and $106,330 for Mr. Porter. The 2007 SERPs were amended effective April, 2010 to increase the amounts to $159,701 for Ms. Derrico and to $123,627 for Mr. Porter. In 2014, the 2007 SERPs were amended to increase the amounts to $203,742 for Ms. Derrico and to $146,816 for Mr. Porter. The 2007 SERPs were further amended effective September 1, 2015 to increase the amounts to $213,582 for Ms. Derrico and to $153,964 for Mr. Porter. The annual benefit is designed to replace 50% of each executive’s estimated salary as of retirement.
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The 2007 SERPs also provide that in the event of the executive’s death prior to August 1, 2017, the executive’s beneficiary will receive a lump sum payment of the executive’s accrued benefit under the 2007 SERP as of the executive’s death. If the executive dies subsequent to the commencement of his or her ten annual payments, the remainder of the payments will be made to the executive’s beneficiary. If the executive becomes disabled prior to August 1, 2017, the executive will receive a lump sum payment of his or her accrued benefit as of the date of disability payable when the executive reaches age 65 or, if later, the first day of the month following the executive’s disability. If the executive has a separation from service prior to August 1, 2017, the executive will receive his or her accrued benefit payable in ten annual installments and beginning the first day of the seventh month following the executive’s separation from service. If the separation from service follows a change in control, the executive will receive the full normal retirement benefit payable in ten annual installments and beginning the first day of the seventh month following the executive’s separation from service. The executives are alwaysnormal retirement benefit for each of Ms. Derrico and Mr. Porter became fully vested upon completion of the merger with EVBS in June 2017, although the time of payment was not accelerated.
EVBS SERP. Under the EVBS SERP, the normal retirement benefit for Mr. Shearin consists of an annual benefit of $155,000, payable monthly for 15 years. The normal retirement benefit for Mr. Shearin became fully vested upon completion of the merger with EVBS in June 2017, although the time of payment was not accelerated. If Mr. Shearin’s employment terminates on or after the date he attains the normal retirement age of 67, the payments described above will begin on the first day of the month following termination of employment. If Mr. Shearin’s employment terminates before the date he attains the normal retirement age of 67, the payments described above will begin on the first day of the month following the later of termination of employment or the date he attains the age of 62.
2018 SERP. Pursuant to the 2018 SERPs, the normal retirement date is July 3, 2022, in the case of Mr. Shearin, and April 1, 2020, in the case of Ms. Derrico and Mr. Porter (in each case, the “Normal Retirement Date”). The normal retirement benefit is (i) in the case of Mr. Shearin, an annual benefit payment of $134,406 payable for 15 years beginning on the 1st day of the 7th month following the later of the Normal Retirement Date or his separation from service; (ii) in the case of Ms. Derrico (A) an annual benefit payment of $55,112 payable for 15 years beginning on the 1st day of the 7th month following the Normal Retirement Date, plus (B) an annual benefit payment of $213,582 payable for 5 years beginning on April 1, 2030; and (iii) in the case of Mr. Porter (A) an annual benefit payment of $28,854 beginning on the 1st day of the 7th month following the Normal Retirement Date plus (B) an annual benefit payment of $153,964 payable for 5 years beginning on April 1, 2030 (in each case, the “Normal Retirement Benefit”).
If the executive separates from service, dies or becomes disabled prior to the Normal Retirement Date, then the executive (or his or her beneficiaries, as applicable) will be entitled to receive the accrued benefit under the 2018 SERP. If a change in control occurs prior to the Normal Retirement Date and prior to the executive’s death, disability or separation from service, then the executive will become 100% vested in their accrued benefits under the SERPs.
Potential Payments Upon Termination or Change in Control
Employment Agreements with Ms. Derrico and Mr. Porter. During 2019, the Company was party to an employment agreement with each of Ms. Derrico and Mr. Porter, effective October 2, 2019. If the executive is terminated by the Company without “cause” prior to the expiration of the term (December 31, 2020), then he or she will receive the severance benefits pursuant to the terms and conditions of the Executive Severance Plan, the terms of which are described below. Additionally, they will be provided with a personal assistant having a salary not to exceed $60,000, in each case for two years following termination of employment, his or her outstanding options and restricted stock will become fully-vested and exercisable as of the date of such termination, and shall become fully vested in Executive’s “Normal Retirement Benefit” under the Supplemental Retirement Plan Agreement entered into effective as of the 2nd day of April 2018.
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The employment agreements contain customary confidentiality covenants, as well as covenants regarding the non-solicitation of customer and employees and non-competition that apply for twelve months following the executive’s termination of employment. For purposes of the employment agreements, “cause” generally means the executive’s willful violation of any laws, rules or regulations applicable to banks or the banking industry generally, the executive’s material failure to comply with the Company’s policies or guidelines of employment or corporate governance policies or guidelines, any act of fraud, misappropriation or embezzlement by the executive, the executive’s material breach of the employment agreement, or the executive’s conviction of, or pleading guilty or nolo contendere to, a felony or a crime involving moral turpitude.
As described above, Ms. Derrico and Mr. Porter retired as of March 31, 2020. In August 2006,connection with their retirement, their employment agreements expired, except for the restrictive covenants, which survive the expiration of the employment agreements. The material terms of Ms. Derrico’s and Mr. Porter’s separation agreements are summarized below.
Employment Agreement with Mr. Shearin. During 2019, the Company and the Bank entered into change in control agreementswere party to an employment agreement with Ms. Derrico, Mr. Porter andShearin, effective June 23, 2017. Pursuant to his employment agreement, Mr. Baker. These agreements provide such officers certain lump sum cash payments inShearin’s employment may be terminated by the eventCompany or the officer’sBank with or without cause. If Mr. Shearin resigns for good reason or his employment is terminated without cause (including termination of employment upon the expiration or non-renewal of the term), he is entitled to receive any accrued obligations under the employment agreement and, subject to his execution, delivery and non-revocation of a release of claims:
· | a monthly payment equal to one-twelfth his rate of annual base salary in effect immediately preceding such termination for thirty-six months (the “Shearin Severance Benefit”), |
· | continuing health insurance benefits for himself and his covered spouse and dependents, with such premiums paid by the company, for thirty-six months (the “Shearin Health Insurance Continuation Benefit”), |
· | out-placement services for up to two years, including job search services, paid for by the company up to a total of $10,000 (the “Shearin Out-Placement Benefit”), |
· | and an additional amount equal to the average of the annual bonus compensation earned for the three immediately preceding years (or such fewer number of years for which he may have been employed), payable in a lump sum on the date of termination. |
These payments and benefits will cease in the event Mr. Shearin violates any applicable covenants not to compete and not to solicit customers or employees set forth under the agreement.
If Mr. Shearin resigns for good reason or his employment is terminated without cause within one year after a change in control, he is entitled to receive any accrued obligations under the employment agreement and, subject to his execution, delivery and non-revocation of a release of claims:
· | the Shearin Severance Benefit, |
· | the Shearin Health Insurance Continuation Benefit, |
· | the Shearin Out-Placement Benefit, and |
· | an additional amount equal to three times the highest annual bonus compensation earned for the three immediately preceding years (or such fewer number of years for which he may have been employed), payable in a lump sum on the date of termination. |
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The employment agreement with Mr. Shearin contains a confidentiality provision that is in effect during his employment and for at least five years after the termination of his employment and covenants not to compete and not to solicit customers or employees that are in effect for twelve months after the termination of his employment, provided that the covenants not to compete and not to solicit customers or employees do not apply for one year following the effective date of the employment agreement and do not apply following a change in control that occurs after the effective date of the employment agreement.
Under the employment agreement with Mr. Shearin, if the payments and benefits under the employment agreement, together with other payments and benefits Mr. Shearin may have the right to receive, on account of a change in control would exceed the maximum limit imposed on the total of such payments and benefits by Section 280G of the Code (without triggering the excise tax imposed under Section 4999 of the Code), the agreement provides for a comparison of two alternative scenarios for addressing Section 280G and Section 4999 of the Code, and the application of the scenario that leaves Mr. Shearin in the more favorable net after-tax position (a “modified Section 280G cutback”). Specifically, Mr. Shearin will receive whichever of the following is more favorable to him on a net after-tax basis: (i) the payments and benefits reduced to the extent necessary so that none of the payments or benefits is subject to the excise tax or (ii) the full amount of the payments and benefits, which is subject to the excise tax, with Mr. Shearin being responsible for paying any excise tax imposed.
For purposes of his employment agreement, Mr. Shearin will generally have “good reason” to terminate his employment if the company negatively changes certain important aspects of his employment, including reducing his authority, responsibility or salary, removes him from his position or fails to nominate him for election to the Company’s board of directors, moves his principal office outside of the Commonwealth of Virginia, reduces his fringe benefits, fails to comply with any material term of the agreement, fails to require any successor to expressly assume and agree to perform the obligations under the agreement, or provides written notice of non-renewal of the initial term or any renewal term of the agreement. Good reason to terminate employment would not exist unless Mr. Shearin has notified the company of the condition giving rise to good reason and the company has failed to remedy the condition and Mr. Shearin terminates employment within ninety days after the initial occurrence of the condition giving rise to good reason.
For purposes of his employment agreement, termination for “cause” generally includes Mr. Shearin’s willful misconduct, misappropriation or embezzlement of funds or property, fraud or dishonesty, failure to perform material duties or responsibilities or failure to follow reasonable instructions or policies, conviction of, indictment for or entry of a guilty plea or plea of no contest with respect to a felony or misdemeanor involving moral turpitude, breach of a material term of the agreement or material violation of applicable policies, codes and standards of behavior, willful violation of any final cease-and-desist order, breach of a fiduciary duty or conduct likely to result in material injury to the Company or the Bank. The company would not have cause to terminate his employment for failure to perform material duties or responsibilities, failure to follow reasonable instructions or policies, breach of a material term of the agreement or material violation of applicable policies, codes and standards of behavior unless the company has notified Mr. Shearin of the existence of such condition and Mr. Shearin has failed to remedy the condition.
As described above, Mr. Shearin retired as of February 19, 2020. In connection with his retirement, his employment agreement expired, except for the restrictive covenants, which survive the expiration of the employment agreement. The material terms of Mr. Shearin’s separation agreement are summarized below.
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Change-in-Control Agreement with Mr. Sheflett. On March 24, 2019, the Company entered into a change-in-control agreement with Mr. Sheflett. The change-in-control agreement will terminate on the earliest of (i) the satisfaction of the Company’s severance obligations to Mr. Sheflett following his termination of employment due to a qualifying termination (a termination without cause or resignation for good reason within 60 days before, or one-year following, a change in control, as such terms are defined in the change-in-control agreement), (ii) the date of Mr. Sheflett’s termination of employment for any reason other than a qualifying termination or (iii) the first anniversary of a change in control. In the event of a qualifying termination, (i) Mr. Sheflett will receive an amount equal to 1½ times his base salary in effect immediately prior to the qualifying termination, payable during the 18-month period immediately following the date of termination in approximately equal installments, and (ii) for 12 months following his termination of employment, or such earlier time that he becomes eligible to receive group health benefits under a program of a subsequent employer or otherwise, the Company will pay to Mr. Sheflett an amount in cash equal to the excess of (x) the COBRA cost of continued coverage in the group health plan over (y) the amount that he would have had to pay for such coverage if he had remained employed during such 12-month period and paid the active employee rate for such coverage. In addition, Mr. Sheflett’s outstanding options and restricted stock will become fully-vested and exercisable as of the date of such termination. The severance benefits are conditioned upon Mr. Sheflett’s execution and non-revocation of a separation and full release of claims/covenant not to sue agreement. The change-in-control agreement also contains customary confidentiality covenants, as well as covenants regarding the non-solicitation of customer and employees and non-competition that apply for twelve months following the executive’s termination of employment.
Change-in-Control Agreement with Mr. Karafa. On October 29, 2018, the Company entered into a change-in-control agreement with Mr. Karafa. The change-in-control agreement will terminate on the earliest of (i) the satisfaction of the Company’s severance obligations to Mr. Karafa following his termination of employment due to a qualifying termination (a termination without cause or resignation for good reason within 60 days before, or one-year following, a change in control, as such terms are defined in the change-in-control agreement), (ii) the date of Mr. Karafa’s termination of employment for any reason other than a qualifying termination or (iii) the first anniversary of a change in control. In the event of a qualifying termination, (i) Mr. Karafa will receive an amount equal to 1¼ times his base salary in effect immediately prior to the qualifying termination, payable during the 15-month period immediately following the date of termination in approximately equal installments, and (ii) for 12 months following his termination of employment, or such earlier time that he becomes eligible to receive group health benefits under a program of a subsequent employer or otherwise, the Company will pay to Mr. Karafa an amount in cash equal to the excess of (x) the COBRA cost of continued coverage in the group health plan over (y) the amount that he would have had to pay for such coverage if he had remained employed during such 12-month period and paid the active employee rate for such coverage. In addition, Mr. Karafa’s outstanding restricted stock will become fully-vested as of the date of such termination. The severance benefits are conditioned upon Mr. Karafa’s execution and non-revocation of a separation and full release of claims/covenant not to sue agreement. The change-in-control agreement also contains customary confidentiality covenants, as well as covenants regarding the non-solicitation of customer and employees and non-competition that apply for twelve months following the executive’s termination of employment.
Executive Severance Plan. The Company maintains an Executive Severance Plan, which it assumed from EVBS in connection with the merger in June 2017 and continues to maintain.
The Executive Severance Plan provides severance pay and benefits following certain termination events. Subject to execution, delivery and non-revocation of a release of claims, if a participant is terminated by the Company other than for “cause,” or if following a change in control, suchthe participant experiences a “constructive discharge”, then he or she will receive base salary continuation at the rate in effect on the date of termination and continued payment of an amount equal to the employer-paid portion of the monthly medical premium for the participant and his or her covered spouse and dependents on the date of termination, if the participant elects and receives medical insurance coverage under COBRA following termination of employment, is terminated byin each case for six (6) months, if the executive for “good reason” and the officer signs the form of mutual general release.
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Under the officer’s commission ofExecutive Severance Plan, a willful act (including, without limitation, a dishonest or fraudulent act which dishonest or fraudulent act results in personal gain to the officer) or a grossly negligent act, or the willful or grossly negligent omission to act by the officer, which causes material financial or reputational harm to“constructive discharge” would generally occur if the Company or an affiliate ofmaterially reduces the Company;
Summary of health insurance for a period ending on the earlier of (x) the date of receipt of comparable benefits from a new employer or (y) 24 months.Potential Benefits. The agreement also provides that the executive’s equity awards will become fully-vested. The
Name | | | Salary and Bonus ($)(1) | | | Health Insurance Benefits ($)(2) | | | Value of Unvested Equity Awards ($)(3) | | | 280G Gross- Up Payment ($)(4) | | | Sum of Termination Benefits under Change in Control Agreement ($) | | |||||||||||||||
Georgia Derrico | | | | | 2,280,648 | | | | | | 16,541 | | | | | | 374,480 | | | | | | 1,273,207 | | | | | | 3,944,876 | | |
R. Roderick Porter | | | | | 993,000 | | | | | | 16,541 | | | | | | 374,480 | | | | | | 489,354 | | | | | | 1,873,375 | | |
Thomas P. Baker | | | | | 321,000 | | | | | | 16,541 | | | | | | 76,910 | | | | | | — | | | | | | 414,451 | | |
Qualifying Termination of Employment – No Change in Control
Health | Value of | |||||||||||||||||||
Cash | Insurance | Unvested | ||||||||||||||||||
Severance | Benefits | Equity Awards | Other | Total | ||||||||||||||||
Name | ($) | ($) | ($) | ($) | ($) | |||||||||||||||
Georgia S. Derrico | 258,854 | (1) | 4,665 | (3) | 359,772 | 120,000 | (5) | 743,291 | ||||||||||||
Jeffrey L. Karafa | - | - | - | - | - | |||||||||||||||
R. Roderick Porter | 175,670 | (1) | 4,350 | (3) | 359,772 | 120,000 | (5) | 659,792 | ||||||||||||
Joe A. Shearin | 1,843,750 | (2) | 8,822 | (4) | - | 10,000 | (6) | 1,862,572 | ||||||||||||
G. Cody Sheflett, Jr. | - | - | - | - | - |
(1) | Reflects an amount equal to six (6) months of the executive’s base salary. |
(2) | Reflects an amount equal to executive’s base salary for 36 months, plus an additional amount equal to the average of the highest annual bonus compensation earned for the three immediately preceding years (or such fewer number of years for which he may have been employed). |
(3) | Reflects the cost of continued payment of an amount equal to the employer-paid portion of the monthly medical premium for the participant and his or her covered spouse and dependents on the date of termination for six (6) months. |
(4) | Reflects the cost of continued payment of an amount equal to the employer-paid portion of the monthly medical premium for the participant and his or her covered spouse and dependents on the date of termination for thirty-six (36) months. |
(5) | Reflects the cost of providing the executive with a personal assistant having a salary not to exceed $60,000 for two years. |
(6) | Reflects the cost of outplacement services. |
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Qualifying Termination of Employment – In Connection with a Change in Control
Health | Value of | |||||||||||||||||||
Cash | Insurance | Unvested | ||||||||||||||||||
Severance | Benefits | Equity Awards | Other | Total | ||||||||||||||||
Name | ($) | ($) | ($)(11) | ($) | ($) | |||||||||||||||
Georgia S. Derrico | 517,708 | (1) | 9,330 | (5) | 359,772 | 120,000 | (9) | 1,006,810 | ||||||||||||
Jeffrey L. Karafa | 321,875 | (2) | 10,944 | (6) | 52,320 | - | 385,139 | |||||||||||||
R. Roderick Porter | 351,339 | (1) | 8,699 | (5) | 359,772 | 120,000 | (9) | 839,810 | ||||||||||||
Joe A. Shearin | 2,253,750 | (4) | 26,467 | (7) | 294,300 | 10,000 | (10) | 2,584,517 | ||||||||||||
G. Cody Sheflett, Jr. | 312,000 | (3) | - | 109,884 | - | 421,884 |
(1) | Reflects an amount equal to fifteen (12) months of the executive’s base salary. |
(2) | Reflects an amount equal to twelve (15) months of the executive’s base salary. |
(3) | Reflects an amount equal to eighteen (18) months of the executive’s base salary. |
(4) | Reflects an amount equal to executive’s base salary for 36 months, plus an additional amount equal to three times the highest annual bonus compensation earned for the three immediately preceding years (or such fewer number of years for which he may have been employed). |
(5) | Reflects the cost of continued payment of an amount equal to the employer-paid portion of the monthly medical premium for the participant and his or her covered spouse and dependents on the date of termination for twelve (12) months. |
(6) | Reflects the cost of continued payment of an amount equal to the employer-paid portion of the monthly medical premium for the participant and his or her covered spouse and dependents on the date of termination for fifteen (15) months. |
(7) | Reflects the cost of continued payment of an amount equal to the employer-paid portion of the monthly medical premium for the participant and his or her covered spouse and dependents on the date of termination for eighteen (18) months |
(8) | Reflects the cost of continued payment of an amount equal to the employer-paid portion of the monthly medical premium for the participant and his or her covered spouse and dependents on the date of termination for thirty-six (36) months. |
(9) | Reflects the cost of providing the executive with a personal assistant having a salary not to exceed $60,000 for two years. |
(10) | Reflects the cost of outplacement services. |
(11) | For each of the named executive officers, reflects the value of unvested restricted stock based on $16.35 per share and, with respect to Ms. Derrico and Messrs. Porter and Sheflett, unvested options at the spread between the exercise price and $16.35, the closing price of the Company’s Common Stock on the NASDAQ Global Market on December 31, 2019, the last trading day of 2019. |
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2007 SERP
Pursuant to the 2007 SERP, in the event of the executive’s termination of employment following a change in control of the Company, the executive would be entitled to receive his or her full normal retirement benefit under the SERP, regardless of the time of the change in control, payable in ten annual installments and beginning the first day of the seventh month following the executive’s separation
EVBS SERP
Under the EVBS SERP, the normal retirement benefit for Mr. Shearin consists of an annual benefit of $155,000, payable monthly for 15 years. Under the EVBS SERP, the normal retirement benefit for Mr. Shearin became fully vested upon completion of the merger with EVBS. However, the completion of the merger did not accelerate the time of payment. If Mr. Shearin’s employment terminates on or after the date he attains the normal retirement age of 67, the payments described above will begin on the first day of the month following termination of employment. If Mr. Shearin’s employment terminates before the date he attains the normal retirement age of 67, the payments described above will begin on the first day of the month following the later of termination of employment or the date he attains the age of 62.
2018 SERP
Pursuant to the 2018 SERP, if the executive separates from service, dies or becomes disabled prior to the Normal Retirement Date, then the executive (or his or her beneficiaries, as applicable) will be entitled to receive the accrued benefit under the 2018 SERP. The accrued benefit for each of Ms. Derrico and Messrs. Porter and Shearin is reflected in the Pension Benefits Table earlier in this Proxy Statement. If a change in control had occurred on December 31, 2019, then the executive would have become 100% vested in the Normal Retirement Benefit as described in the narrative to the Pension Benefits Table earlier in this Proxy Statement.
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Treatment of Stock OptionsAwards upon a Change in Control
For all stock options granted under the 2010 Plan, the individual award agreements between the Company and the executive provide that if any of the following change of control events occurs, all outstanding options will immediately vest and become exercisable: (i) the Company is not the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company), (ii) the Company’s subsidiary bank is merged or consolidated into, or otherwise acquired by, an entity other than a wholly-owned subsidiary of the Company, (iii) the Company sells, leases or exchanges all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary of the Company), (iv) the Company is to be dissolved and liquidated, (v) any person or entity, including a “group” as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company’s voting stock (based upon voting power), or (vi) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election cease to constitute a majority of the Board.
For stock options based on the spread between the exercise price and $16.34, the closing price of the Company’s Common Stock on the NASDAQ Global Market on December 30, 2016, the last trading day of the 2016 fiscal year.
| | | 2016 | | | 2015 | | ||||||
Audit fees(1) | | | | $ | 252,000 | | | | | $ | 242,500 | | |
Audit related fees(2) | | | | | 22,500 | | | | | | 20,000 | | |
Tax fees | | | | | — | | | | | | — | | |
All other fees | | | | | — | | | | | | — | | |
Name | | | Position With the Company and the Bank | | | Number of Shares of Common Stock Owned | | | Percentage Beneficially Owned(1) | | ||||||
5% or Greater Holders: | | | | | ||||||||||||
E.S. Barr & Company 1999 Richmond Road, Suite 1B Lexington, Kentucky 40502 | | | Investor | | | | | 650,739(2) | | | | | | 5.3% | | |
Corbyn Investment Management, Inc., et al Suite 108 2330 W. Joppa Road Lutherville, Maryland 21093 | | | Investor | | | | | 613,394(3) | | | | | | 5.0% | | |
Directors and Executive Officers: | | | | | ||||||||||||
Georgia S. Derrico(4) | | | Chairman of the Board and Chief Executive Officer of the Company and the Bank | | | | | 726,143(5) | | | | | | 5.9% | | |
R. Roderick Porter(4) | | | Vice Chairman of the Board and President and Chief Operating Officer of the Company and the Bank | | | | | 726,143(6) | | | | | | 5.9% | | |
Neil J. Call | | | Director of the Company and the Bank | | | | | 126,598(7) | | | | | | 1.0% | | |
Charles A. Kabbash | | | Director of the Company and the Bank | | | | | 107,070(8) | | | | | | * | | |
John J. Forch | | | Director of the Company and the Bank | | | | | 57,311(9) | | | | | | * | | |
Frederick L. Bollerer | | | Director of the Company and the Bank | | | | | 27,746(10) | | | | | | * | | |
W. Bruce Jennings | | | Director of the Company and the Bank | | | | | 39,833(11) | | | | | | * | | |
Robert Y. Clagett | | | Director of the Company and the Bank | | | | | 23,795 | | | | | | * | | |
William H. Lagos | | | Senior Vice President and Chief Financial Officer of the Company and the Bank | | | | | 58,652(12) | | | | | | * | | |
William H. Stevens | | | Executive Vice President and Chief Credit Risk Officer of the Bank | | | | | 24,017(13) | | | | | | * | | |
Thomas P. Baker | | | Senior Vice President and Chief Credit Officer of the Bank | | | | | 61,139(14) | | | | | | * | | |
Directors, Director Nominees and Named Executive Officers as a Group (11 persons) | | | | | | | | 1,252,304 | | | | | | 10.2% | | |
Assuming such an event occurred on December 31, 2019, the named executive officers would have received the follow value with respect to their stock awards: Ms. Derrico, $359,772; Mr. Karafa, $52,320; Mr. Porter, $359,772; Mr. Shearin, $294,300; and Similar Changes.
Treatment of Stock Options upon Termination of Employment Without a Change in Control, Death or Disability
Pursuant to the 2010 Plan, if the executive ceases to be a director or employee of the Company for any reason other than death or disability, he may, at any time within three months after his date of any stock dividend, stock splittermination, or combination, spin-off, recapitalization, merger, or similar transaction or change in the Company’s capital stock, the aggregate number and kind of shares reserved under 2017 Plan, the exercise price of options and/or SARs, annual limits, and other relevant provisions willsuch longer period as may be proportionately, equitably and appropriately adjusteddetermined by the Compensation Committee, in its discretion. For instance, a two-for-one stock split would generally double the number of shares reserved under the 2017 Plan. Similarly, a two-for-one stock split would generally double the number of shares covered by each outstanding stockexercise any option and reduce the corresponding exercise price by one-half.
Pursuant to the 2017 Plan, if the executive’s employment or service is terminated due to death or disability, any remaining period of restriction applicable to the unvested portion of each award of restricted stock held by the executive that is solely based on a period of time will automatically lapse.
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Mr. Culver’s Separation Arrangement
Pursuant to the terms of Mr. Culver’s employment agreement, upon his termination without cause, he would be entitled to receive, subject to his execution, delivery and non-revocation of a release of claims, (i) a lump sum payment equal to one times his base salary; (ii) continuing health insurance benefits for himself and his covered spouse and dependents, with the employer portion of such premiums paid by the Company for twelve months; and (iii) acceleration of vesting of his restricted stock. Mr. Culver separated from the Company on June 20, 2019 and, pursuant to the terms of his employment agreement, received a lump-sum cash severance payment of $350,000 and acceleration of restricted stock ($116,304).
Separation Agreement with Mr. Shearin
In connection with his retirement, the Company entered into a separation agreement with Mr. Shearin, pursuant to which he will receive the benefits that he would be entitled to receive under Section 162(m)the terms of his existing employment agreement, as if he resigned for good reason, contingent upon entry into a release of claims. Specifically, Mr. Shearin will receive: (i) an amount equal to three times his base salary, payable in installments over 36 months; (ii) payment of health insurance premiums for himself, his spouse and his dependents for 36 months; (iii) outplacement services for up to two years; and (iv) an additional amount equal to the average of his annual bonus compensation earned for the three immediately preceding years, payable in lump sum. The Company agreed that Mr. Shearin also would receive: (i) acceleration of vesting as of the retirement date of 26,000 shares of restricted stock; (ii) acceleration of vesting as of the retirement date of his “normal retirement benefit” under the 2018 SERP; (iii) title to his current Company-provided vehicle; and (iv) reimbursement for financial planning services (up to $10,000).
SeparationAgreements with Ms. Derrico and Mr. Porter
In connection with their retirement, the Company entered into separation agreements with each of Ms. Derrico and Mr. Porter, pursuant to which each of Ms. Derrico and Mr. Porter will receive the separation benefits provided under the terms of their existing employment agreements, as if they had a qualifying termination under the Company’s Executive Severance Plan, with certain modifications. Specifically, Ms. Derrico and Mr. Porter will receive base salary continuation for twelve months (instead of six months as originallycontemplated by their existing agreements) and continued payment of an amount equal to the employer-paid portion of the monthly COBRA premium for six months. In addition, each of Ms. Derrico and Mr. Porter will be entitled to: (i) acceleration of vesting of her or his then-outstanding stock options and restricted shares; (ii) Company-provided access to a personal assistant in a manner consistent with past practice for three (3) years (instead of two (2) years) following their date of separation, provided that the dollar value attributed to the services provided by such personal assistant to Ms. Derrico and Mr. Porter may not exceed $60,000 for each and provided, further, that if the Company determines in its sole discretion that it is unable to provide Ms. Derrico and Mr. Porter with such access to a personal assistant at any time during the three years, then the Company will pay to each of them a lump sum cash payment equal to $60,000 per year for the remainder of the three-year period, pro-rated for partial calendar years; and (iii) acceleration of vesting of the normal retirement benefit under his or her supplemental executive retirement plan, dated as of April 2, 2018. In addition, the Company agreed to amend certain of Ms. Derrico’s and Mr. Porter’s stock options, as follows: (i) the lapse period with respect to options having an exercise price greater than $9.70 per share will be extended until the third anniversary of their date of separation; and (ii) the lapse period with respect to options with an exercise price equal to $9.14 per share will be extended until the second anniversary of their date of separation; provided that in each case, the option will not be extended beyond the original 10-year expiration date of the option.
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CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection 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 employees and the annual total compensation of our CEO. The pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported below should not be used as a basis for comparison between companies.
For 2019, our last completed fiscal year, the median of the annual total compensation of all employees of the Company (other than our CEO) was $42,141.67 and the annual total compensation of our CEO, as reported in the Summary Compensation Table included in this Proxy Statement, was $1,319,438. Based on this information, for 2019, the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 31 to 1.
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of the “median employee,” the methodology and the material assumptions, adjustment and estimates that we used were as follows:
· | We selected December 31, 2019 as the date upon which we would identify the “median employee.” As of December 31, 2019, we had 347 employees working at the Company and its consolidated subsidiaries. |
· | We used taxable income as reported on Form W-2 as our consistently applied compensation measure, with the measurement period being calendar year 2019. |
· | We determined that the “median employee” was a full-time, salaried employee located in the United States, with total compensation for the 12-month period ending December 31, 2019 in the amount of $42,141.67 |
· | With respect to the annual total compensation of the “median employee,” we identified and calculated the elements of such employee’s compensation for 2019 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. |
· | With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column (column (j)) of our 2019 Summary Compensation Table included in this Proxy Statement. |
Compensation Committee Interlocks and Insider Participation
During 2019, no executive officer of the Company served as (1) a member of a compensation committee (or other Board committee performing equivalent functions or, in the absence of any such committee, the entire Board of Directors) of another entity, one of whose executive officers served on the Company’s Compensation Committee, (2) a director of another entity, one of whose executive officers served on the Company’s Compensation Committee or (3) a member of the compensation committee (or other Board committee performing equivalent functions or, in the absence of any such committee, the entire Board of Directors) of another entity, one of whose executive officers served as a director of the Company. In addition, none of the members of the Compensation Committee may also use other performance goals(a) was an officer or employee of the Company or any of its subsidiaries in 2019; (b) was formerly an officer or employee of the Company or any of its subsidiaries or (c) had any relationship that required disclosure under “Certain Relationships and Related Party Transactions.”
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Prohibitions on Hedging
The Company prohibits all directors, officers and employees from engaging in speculative trading and hedging shares of Company securities. This includes prohibitions against short-selling Company securities and transactions in any derivative of Company securities, including buying and writing options. Directors, officers and employees are restricted from buying Company securities on margin or using Company securities as collateral for awardsa loan. Additionally, the Company’s Insider Trading Policy prohibits trading for directors, officers and certain employees during designated blackout periods and requires approval by the Company’s Compliance Officer prior to any trade.
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AUDIT COMMITTEE REPORT
Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that aremight incorporate this Proxy Statement or future filings with the Securities and Exchange Commission, in whole or in part, the following report of the Audit Committee shall not intendedbe deemed to qualify as performance-based compensation under Section 162(m).
In accordance with its written charter adopted by the Company’s Board of Directors, the Company’s Audit Committee assists the Board in fulfilling its responsibility to oversee the quality and Amendment.
In discharging its oversight responsibility as to the audit process, the Audit Committee (1) obtained from the independent registered public accounting firm a formal written statement describing all relationships between the independent registered public accounting firm and the Company that might bear on the independent registered public accounting firm’s independence consistent with the applicable requirements of the Public Company Accounting Oversight Board, (2) discussed with the independent registered public accounting firm any relationships that may impact their objectivity and independence and (3) satisfied itself as to the independent registered public accounting firm’s independence. The Audit Committee also discussed with management, the internal auditors and the independent registered public accounting firm the quality and adequacy of the Company’s internal controls. The Audit Committee reviewed with both the independent registered public accounting firm and the internal auditors their audit plans, audit scope and identification of audit risks.
The Audit Committee discussed and reviewed with the independent registered public accounting firm all communications required by generally accepted auditing standards and the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the Securities Exchange Commission.. With and without management present, the Audit Committee discussed and reviewed the results of the internal and external audit examinations. The Audit Committee reviewed with management and the independent registered public accounting firm the audited financial statements of the Company as of and for the fiscal year ended December 31, 2019. Management has the responsibility for the preparation of the Company’s financial statements and the independent registered public accounting firm has the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the independent registered public accounting firm, the Audit Committee recommended to the Board that the Company’s audited financial statements be included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for filing with the Securities and Exchange Commission.
The Audit Committee | ||
Robert Y. Clagett (Chairman) | ||
John F. Biagas | ||
Daniel H. Burch | ||
Eric A. Johnson |
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FEES AND SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table sets forth the fees billed to the Company for the fiscal years ending December 31, 2019 and 2018 by Dixon Hughes Goodman LLP:
2019 | 2018 | |||||||
Audit fees(1) | $ | 426,310 | $ | 381,500 | ||||
Audit related fees(2) | 31,344 | 34,070 | ||||||
Tax fees | — | — | ||||||
All other fees | — | — |
(1) | Includes fees billed for professional services rendered in connection with the audits of the Company’s annual consolidated financial statements, audit of internal control over financial reporting and quarterly reviews of the Company’s consolidated financial statements. |
(2) | Includes fees billed for professional services rendered in connection with the audit of the Company’s employee benefit plan and various accounting consultations, in addition to certain tax consultations specific to 2019. |
The Audit Committee will consider, on a case-by-case basis, and approve, if appropriate, all audit and permissible non-audit services to be provided by the Company’s independent registered public accounting firm. Pre-approval of such services is required unless a “de minimis” exception is met. To qualify for the “de minimis”exception, the aggregate amount of all such services provided to the Company must constitute not more than five percent of the total amount of revenues paid by the Company to its independent registered public accounting firm during the fiscal year in which the Company’s common stock is then listed,non-audit services are provided; such services were not recognized by any regulatory body having jurisdiction with respect thereto, or pursuant to any other applicable laws, rules, or regulations. No termination, amendment, or modification of the 2017 Plan, other than in connection with a change of control or capital adjustment pursuant to the 2017 Plan or as required by applicable law, may adversely affect any awards previously granted under the 2017 Plan without the participant’s written consent.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Employees
R. Devon Porter, the son of both Georgia Derrico, the former Executive Chairman of the Board of the Company and the Bank, and R. Roderick Porter, the former Executive Vice Chairman of the Board of the Company and the Bank, is employed as a Senior Vice President of the Bank, and received a salary, bonus and stock awards totaling approximately $152,803 in 2019, as well as benefits consistent with those provided to other employees with equivalent qualifications and responsibilities.
Relationships in the Ordinary Course
Many of the directors and executive officers of the Company and the Bank and their associates, which include corporations, partnerships and other organizations in which they are officers or exercise of an incentive stock option. If the optionee holds the acquired option shares for the required holding period ofpartners or in which they and their immediate families have at least two years aftera 5% interest, are customers of the dateBank. Loans to directors and executive officers and certain significant stockholders of the option was granted and one year after exercise, the difference between the exercise priceCompany and the amount realized upon sale or dispositionBank are subject to limitations contained in the Federal Reserve Act, the principal effect of which is to require that extensions of credit by the Bank to executive officers, directors and certain significant stockholders of the option shares will be long-term capital gain or loss,Company and we will not be entitled to a federal income tax deduction. If the optionee disposesBank satisfy the following standards: the loans (i) are made in the ordinary course of business on substantially the option shares in a sale, exchange or other disqualifying disposition before the required holding period ends, he or she will recognize taxable ordinary income in an amount equal to the excess of the fair market value of the option sharessame terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons unaffiliated with the Company and (ii) do not involve more than the normal risk of exercise overcollectability or present other unfavorable features. As of December 31, 2019, there were 26 such loans outstanding totaling $14.5 million in the exercise price,aggregate. The Company expects the Bank to have such transactions or transactions on a similar basis with the directors, executive officers and we will be allowed a federal income tax deduction equal to such amount. While the exercise of an incentive stock option does not result in current taxable income, the excesscertain significant stockholders of the fair market valueCompany and the Bank and their associates in the future.
Policy Concerning Related Party Transactions
Pursuant to the Company’s policy, the Board of Directors is required to review all related party transactions for potential conflicts of interest. For purposes of this policy, a “related person transaction” generally means a transaction where the amount involved exceeds $120,000 and in which a related person has a direct or indirect material interest. A “related person” under the policy generally means (1) a director, director nominee or executive officer of the option shares atCompany; (2) a person who is known to be the timebeneficial owner of exercise over the exercise price will be an item of adjustment for purposes of determining the optionee’s alternative minimum taxable income.
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BENEFICIAL OWNERSHIP OF COMMON STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial ownership of the Company Common Stock as of April 3, 2020, by (1) each director, director nominee and named executive officer of the Company, (2) each person who is known by the Company to own beneficially 5% or more of the Common Stock and (3) all directors, director nominees and named executive officers as a group. Unless otherwise indicated, based on information furnished by such stockholders, management of the Company believes that date (less any amount he or she paideach person has sole voting and dispositive power over the shares indicated as owned by such person and the address of each stockholder is the same as the address of the Company.
Name | Position With the Company and the Bank | Number of Shares of Common Stock Owned | Percentage Beneficially Owned(1) | |||||||
5% or Greater Holders: | ||||||||||
Banc Fund VIII L.P. 20 North Wacker Drive, Suite 3300 Chicago, IL 60606 | Investor | 1,340,319 | (2) | 5.4 | % | |||||
Castle Creek Capital Partners IV, LP 6051 El Tordo PO Box 1329 Rancho Santa Fe, CA 92067 | Investor | 3,225,876 | (3) | 13.0 | % | |||||
Directors and Executive Officers: | ||||||||||
Georgia S. Derrico(4) | Former Executive Chairman of the Board of the Company and the Bank | 951,008 | (5) | 3.8 | % | |||||
R. Roderick Porter(4) | Former Executive Vice Chairman of the Board of the Company and the Bank | 951,008 | (6) | 3.8 | % | |||||
Dennis J. Zember, Jr | Chief Executive Officer of the Company and the Bank | 40,000 | (7) | * | ||||||
John F. Biagas | Director of the Company and the Bank | 48,999 | (8) | * | ||||||
Daniel H. Burch | Former Director of the Company and the Bank | 1,500 | * | |||||||
Robert Y. Clagett | Director of the Company and the Bank | 28,708 | * | |||||||
W. Rand Cook | Director of the Company and the Bank | 19,306 | (9) | * | ||||||
F.L. Garrett, III | Director of the Company and the Bank | 26,959 | (10) | * | ||||||
W. Bruce Jennings | Director of the Company and the Bank | 44,188 | (11) | * | ||||||
Eric A. Johnson | Director of the Company and the Bank | 27,899 | (12) | * | ||||||
Charles A. Kabbash | Director of the Company and the Bank | 130,580 | (13) | * | ||||||
* | ||||||||||
G. Cody Sheflett, Jr. | Chief Operating Officer of the Company and the Bank | 24,900 | (14) | * | ||||||
Jeffrey L. Karafa | Executive Vice President and Chief Financial Officer of the Company and the Bank | 6,414 | (15) |
* | ||||||
Directors, Director Nominees and Executive Officers as a Group (14 persons) | 1,447,358 | 5.9 | % |
* | Indicates ownership which does not exceed 1.0%. |
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(1) | The percentage beneficially owned was calculated based on 24,297,703 shares of Company Common Stock outstanding as of April 3, 2020 and assumes the exercise by the stockholder or group named in each row of all options or warrants for the purchase of Company Common Stock held by such stockholder or group and exercisable within 60 days of April 3, 2020. |
(2) | The information regarding beneficial ownership is included in reliance on a Schedule 13G/A filed with the SEC on December 31, 2019 jointly by Banc Fund VIII L.P. ("BF VIII"), an Illinois Limited Partnership, Banc Fund IX L.P. ("BF IX"), an Illinois Limited Partnership, and Banc Fund X L.P. ("BF X"), an Illinois Limited Partnership, (collectively, the "Reporting Persons"). The general partner of BF VIIII is MidBanc VIII L.P. ("MidBanc VIII"), whose principal business is to be a general partner of BF VIII. The general partner of BF IX is MidBan IX L.P. ("MidBan IX"), whose principal business is to be a general partner of BF IX. The general partner of BF X is MidBan X L.P. ("MidBan X"), whose principal business is to be a general partner of BF X. The general partner of MidBanc VIII, MidBan IX, and MidBan X is The Banc Funds Company, L.L.C., ("TBFC"), whose principal business is to be a general partner of MidBanc VIII, MidBan IX, and MidBan X. TBFC is an Illinois corporation whose principal shareholder is Charles J. Moore. Mr. Moore has been the manager of BF VIII, BF IX, and BF X, since their respective inceptions. As manager, Mr. Moore has voting and dispositive power over the securities of the issuer held by each of those entities. As the controlling member of TBFC, Mr. Moore will control TBFC, and therefore each of the Partnership entities directly and indirectly controlled by TBFC. |
(3) | The information regarding beneficial ownership is included in reliance on a Schedule 13D filed with the SEC on June 27, 2017 jointly by Castle Creek Capital Partners IV, LP (“Fund IV”), Castle Creek Capital IV LLC (“CCC IV”), John M. Eggemeyer, J. Mikesell Thomas, Mark G. Merlo and John T. Pietrzak, each a managing principal of CCC IV. Each of CCC IV, Mr. Eggemeyer, Mr. Thomas, Mr. Merlo and Mr. Pietrzak disclaims beneficial ownership of the SONA Common Stock owned by Fund IV, except to the extent of its or his pecuniary interest therein. |
(4) | Ms. Derrico and Mr. Porter are married. Ms. Derrico and Mr. Porter together beneficially own 3.8% of the outstanding shares of Common Stock. |
(5) | Includes (a) 719,585 shares of Common Stock held jointly by Ms. Derrico and Mr. Porter, (b) 750 shares owned individually by Ms. Derrico, (c) 105,375 shares of Common Stock held of record by an IRA account for the benefit of Ms. Derrico, (d) 45,235 shares of Common Stock held of record by an IRA account for the benefit of Mr. Porter, (e) 8,199 shares of Common Stock held of record by the Company’s 401(k) Plan as custodian for Ms. Derrico, (f) 8,074 shares of Common Stock held of record by the Company’s 401(k) Plan as custodian for Mr. Porter, (g) 97,600 shares of Common Stock which may be acquired upon the exercise of stock options granted to Ms. Derrico under the 2004 ---, the 2010 Plan and the 2017 (collectively, the “Stock Plan”)s, (h) 97,600 shares of Common Stock which may be acquired upon the exercise of stock options granted to Mr. Porter under the Stock Plans and (i) 24,000 restricted shares of Common Stock held by Ms. Derrico and 24,000 restricted shares of Common Stock held by Mr. Porter granted under the 2017 Equity Compensation Plan, which shares vest ratably over five years. |
(6) | Includes (a) 719,585 shares of Common Stock held jointly by Ms. Derrico and Mr. Porter, (b) 750 shares owned individually by Ms. Derrico, (c) 105,375 shares of Common Stock held of record by an IRA account for the benefit of Ms. Derrico, (d) 45,235 shares of Common Stock held of record by an IRA account for the benefit of Mr. Porter, (e) 8,199 shares of Common Stock held of record by the Company’s 401(k) Plan as custodian for Ms. Derrico, (f) 8,074 shares of Common Stock held of record by the Company’s 401(k) Plan as custodian for Mr. Porter, (g) 97,600 shares of Common Stock which may be acquired upon the exercise of stock options granted to Ms. Derrico under the Stock Plans, (h) 97,600 shares of Common Stock which may be acquired upon the exercise of stock options granted to Mr. Porter under the Stock Plans and (i) 24,000 restricted shares of Common Stock held by Ms. Derrico and 24,000 restricted shares of Common Stock held by Mr. Porter granted under the 2017 Equity Compensation Plan, which shares vest ratably over five years. |
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(7) | Includes (a) 20,000 restricted shares of Common Stock granted under the 2017 Equity Compensation Plan, which vest ratably over five years. |
(8) | Includes 10,233 shares of Common Stock held of record by an IRA account for the benefit of Mr. Biagas. |
(9) | Includes 19,306 shares of Common Stock held jointly by Mr. Cook and his spouse. |
(10) | Includes 6,693 shares of Common Stock held jointly by Mr. Garrett and his spouse. |
(11) | Includes (a) 11,000 shares of Common Stock held in the W. Bruce Jennings Revocable Living Trust, of which Mr. Jennings is the trustee, (b) 18,533 shares of Common Stock held in the WBJ Irrevocable Trust, of which Mr. Jennings is the trustee, (c) 5,500 shares of Common Stock held of record by an IRA account for the benefit of Mr. Jennings and (d) 5,500 shares of Common Stock which may be acquired upon the exercise of stock options granted to Mr. Jennings under the Stock Plans. |
(12) | Includes (a) 9,622 shares of Common Stock held of record by an IRA account for the benefit of Mr. Johnson and (b) 297 shares held by Mr. Johnson’s spouse. |
(13) | Includes (a) 42,418 shares of Common Stock held jointly by Mr. Kabbash and his spouse, (b) 11,940 shares of Common Stock held of record by an IRA account for the benefit of Mr. Kabbash, (c) 7,487 shares of Common Stock held of record by an IRA account for the benefit of Mr. Kabbash’s spouse, and (d) 26,150 shares of Common Stock held in The Charles A. Kabbash Revocable Trust. |
(14) | Includes (a) 14,400 shares of Common Stock which may be acquired upon the exercise of stock options granted to Mr. Sheflett under the Stock Plans, (b) 8,700 restricted shares of Common Stock held by Mr. Sheflett granted under the 2017 Equity Compensation Plan, which shares vest ratably over five years. |
(15) | Includes (a) 656 shares of Common Stock held of record by the Company’s 401(k) Plan as custodian for Mr. Karafa, and (b) 5,200 restricted shares of Common Stock granted under the 2017 Equity Compensation Plan, which vest ratably over five years. |
Proposal 2.
PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Based on the Audit Committee’s approval and recommendation, the Board of Directors has selected Dixon Hughes Goodman LLP (“Dixon Hughes Goodman”) as the Company’s independent registered public accounting firm for the stock),fiscal year ending December 31, 2020 and wehas further directed that management submit the selection of the independent registered public accounting firm for ratification by the stockholders at the Annual Meeting.
At the Annual Meeting, the stockholders will be allowedasked to consider and act upon a corresponding federal income tax deductionproposal to ratify the appointment of Dixon Hughes Goodman. The ratification of such appointment will require the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote and present in person or represented by proxy at that time, subjectthe Annual Meeting. Representatives of Dixon Hughes Goodman will be present at the Annual Meeting, will be given an opportunity to any applicable limitations under Section 162(m).make a statement (if they desire to do so) and will be available to respond to appropriate questions from stockholders.
Stockholder ratification of the selection of Dixon Hughes Goodman as the Company’s independent registered public accounting firm for the 2020 fiscal year is not required by the Company’s Amended and Restated Bylaws, state law or otherwise. However, the Board of Directors is submitting the selection of Dixon Hughes Goodman to the Company’s stockholders for ratification as a matter of good corporate practice. If the participant files an election under Section 83(b)stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain Dixon Hughes Goodman. Even if the selection of Dixon Hughes Goodman is ratified, the Audit Committee may, in their discretion, direct the appointment of a different independent registered public accounting firm at any time during the 2020 fiscal year if they determine that such a change would be in the best interests of the tax code within 30 days after the date of grant of the restricted stock, he or she will recognize ordinary income as of the date of grant equal to the fair market value of the stock as of that date (less any amount paid for the stock),Company and we will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Section 162(m). Any future appreciation in the stock will be taxable to the participant at capital gains rates. However, if the stock is later forfeited, the participant will not be able to recover the tax previously paid pursuant to the Section 83(b) election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF DIXON HUGHES GOODMAN LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2020 FISCAL YEAR.
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Proposal 3.
ADVISORY VOTE ON EXECUTIVE COMPENSATION
In accordance with the requirements of Section 409A are not met, the taxable events as described above could apply earlier than described, and could result in the imposition of additional taxes and penalties. Restricted stock awards, and stock options and SARs that comply with the terms14A of the 2017 Plan are generally exempt fromExchange Act (which was added by the application of Section 409ADodd-Frank Wall Street Reform and Consumer Protection Act) and the related rules of the tax code. Stock units, other stock-based awardsSEC, the Company is providing stockholders the opportunity to vote on a non-binding, advisory resolution to approve the compensation of its named executive officers.
The Company urges stockholders to read the section entitled “EXECUTIVE COMPENSATION AND OTHER MATTERS — Compensation Discussion and cash-based awards that are grantedAnalysis” beginning on page 19 of this Proxy Statement, which describes in one yearmore detail how its executive compensation policies and payable in a later year generally are subject to Section 409A unless theyprocedures operate and are designed to satisfyachieve its compensation objectives, as well as the short-term deferral exemption from such law. If not exempt, such awards must be specially designedSummary Compensation Table and other related compensation tables and narrative, appearing on pages 26 through 37, which provide detailed information on the compensation of the Company’s named executive officers. The Compensation Committee and the Board of Directors believe that the policies and procedures articulated in the Compensation Discussion and Analysis are effective in advancing both the short- and long-term interests of stockholders while also ensuring that the Company and the Bank are able to meetattract, retain and motivate executive management talent, and that the requirementscompensation of Section 409Aits named executive officers reported in orderthis Proxy Statement has contributed to avoid early taxationthe Company’s recent and penalties.
The Company and anyis asking for stockholder approval of the compensation of its affiliates havenamed executive officers as disclosed in this Proxy Statement in accordance with the rightSEC rules, which disclosures include the information contained in the Compensation Discussion and Analysis, the compensation tables and the narrative discussion following the compensation tables. This vote is not intended to deduct or withhold, or require a participantaddress any specific item of compensation, but rather the overall compensation of the Company’s named executive officers and the policies and practices described in this Proxy Statement.
Accordingly, the Company is asking its stockholders to remitvote on the following resolution at the Annual Meeting:
“Resolved, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2020 Annual Meeting of Stockholders pursuant to us, an amount sufficientthe compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2019 Summary Compensation Table and the other related tables and disclosure.”
This advisory vote, commonly referred to satisfy federal, state and local taxes (including employment taxes) required by law to be withheld with respect to any exercise, lapse of restriction or other taxable event arising as a result of“say-on-pay” vote, is non-binding on the 2017 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR THE NON-BINDING PROPOSAL TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
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Plan category | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights A | | | Weighted average exercise price of outstanding options, warrants and rights B | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A) C | | |||||||||
Equity compensation plans approved by security holders | | | | | 782,200 | | | | | $ | 9.56 | | | | | | 27,650 | | |
Equity compensation plans not approved by security holders | | | | | — | | | | | | — | | | | | | — | | |
Total | | | | | 782,200 | | | | | $ | 9.56 | | | | | | 27,650 | | |
|
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR 20182021 ANNUAL MEETING
Proposals for Inclusion in the Company’s Proxy Statement
In order for stockholder proposals submitted pursuant to Rule 14a-8 of the Exchange Act to be presented at the Company’s 20182021 Annual Meeting of Stockholders and included in the Company’s Proxy Statement and form of proxy relating to such meeting, such proposals must be submitted to the Secretary of the Company at the Company’s principal executive offices no later than January 15, 2018,December 14, 2020, which is 120 days prior to the one-year anniversary of the mailing of this Proxy Statement. Stockholder proposals should be submitted to Southern National Bancorp of Virginia, Inc., 550 Broadview Avenue, Warrenton,10900 Nuckols Road, Suite 325, Glen Allen, Virginia 20186,23060, Attention: Corporate Secretary. If a
Proposals to be Introduced at the SONA Annual Meeting
For any stockholder is permitted to presentsubmit a proposal to be presented at the 2018 Annual Meeting,Company’s 2021 annual meeting of stockholders but the proposal was not includedwithout inclusion in the 2018its proxy materials for such meeting, the stockholder must provide timely notice thereof in writing to the Corporate Secretary. To be timely, a stockholder’s notice must be delivered to or mailed and received by the Company believes that its proxy holder would have the discretionary authority granted by the proxy card (and as permitted under SEC rules) to vote on the proposal if the proposal was received after March 31, 2018,no later than February 20, 2021, which is 4590 days prior to the one-year anniversary of the mailing2020 Annual Meeting of this Proxy Statement.
ANNUAL REPORT ON FORM 10-K
The Company will furnish, without charge, a copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2019, as filed with the SEC, to any stockholder upon written request to Southern National Bancorp of Virginia, Inc., 550 Broadview Avenue, Warrenton,10900 Nuckols Road, Suite 325, Glen Allen, Virginia 20186,23060, Attention: Corporate Secretary.
ATTENDANCE AT THE ANNUAL MEETING
All stockholders as of the Record Date, or their duly appointed proxies, may attend the Annual Meeting, and each may be accompanied by a guest. Registration of attendees of the Annual Meeting will begin at 2:00 p.m. If you attend, please note that you may be asked to present valid picture identification, such as a driver’s license. Cameras (including cell phones with photographic capabilities), recording devices and other electronic devices will not be permitted at the Annual Meeting. Please also note that if you hold your shares in “street name” (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the Annual Meeting.
OTHER MATTERS
The Board of Directors does not intend to bring any other matter before the Annual Meeting and does not know of any other matters that are to be presented for action at the Annual Meeting. However, if any other matter does properly come before the Annual Meeting or any adjournment thereof, the proxies will be voted in accordance with the discretion of the person or persons voting the proxies.
You are cordially invited to attend the Annual Meeting. Regardless of whether you plan to attend the Annual Meeting, you are urged to complete, date, sign and return the enclosed proxy in the accompanying envelope at your earliest convenience.
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Appendix A
The 2020 Annual Meeting of Shareholders of Southern National Bancorp of Virginia, Inc. will be held on May 21, 2020 at 2:30 p.m., Eastern Time, at Sonabank Headquarters, 10900 Nuckols Road, Suite 325, Glen Allen, Virginia 23060 We intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) outbreak; we are sensitive to the public health and travel concerns our stockholders may have and the protocols and restrictions that federal, state, and local governments have imposed. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. Please monitor our annual meeting website at www.meetingcenter.io/232532568 for updated information. If you are planning to attend our meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the Annual Meeting.Important notice regarding the Internet availability of proxy materials for the 2020 Annual Meeting of Stockholders. The material is available at: www.envisionreports.com/SONA IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q Electronic Voting Instructions Available 24 hours a day, 7 days a week! InsteadENVELOPE.Small steps make an impact. Help the environment by consenting to receive electronic delivery, sign up at www.envisionreports.com/SONA Notice of mailing your proxy, you may choose one2020 Annual Meeting of Stockholders Proxy Solicited by Board of Directors for Annual Meeting — May 21, 2020 John F. Biagas and Robert Y. Clagett, or any of them, each with the power of substitution, are hereby authorized to represent and vote the shares of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted byundersigned, with all the Internet or telephone must be received by 11:59 p.m., EST, on June 20, 2017. Vote by Internet • Go to www.investorvote.com/SONA • Or scanpowers which the QR code with your smartphone • Followundersigned would possess if personally present, at the steps outlined on the secure website Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone • Follow the instructions provided by the recorded message
Easy Online Access — View your proxy materials and vote. When you go online, you can also help the environment by consenting to receive electronic delivery of future materials.MMMMMMMMMMMM MMMMMMMMM MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 ENDORSEMENT_LINE SACKPACK 1234 5678 9012 345 C 1234567890 C O Y 000004 MMMMMMM Important Notice Regarding the Availability of Proxy Materials for the Southern National Bancorp of Virginia, Inc. Stockholder Meeting to be Held on May 21, 2020 Under Securities and Exchange Commission rules, you are receiving this notice that the proxy materials for the annual stockholders’ meeting are available on the Internet. Follow the instructions below to view the materials and vote online or request a copy. The items to be voted on and location of the annual meeting are on the reverse side. Your vote is important! This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting. The 2020 proxy statement and annual report to stockholders are available at:Step 1: Go to www.envisionreports.com/SONA. Step 2: Click on Cast Your Vote or Request Materials. Step 3: Follow the instructions on the screen to log in. Step 4: Make your selections as instructed on each screen for your delivery preferences. Step 5: Vote your shares. www.envisionreports.com/SONA Online Go to www.envisionreports.com/SONA or scan the QR code — login details are located in the shaded bar below. 2020 Stockholder Meeting Notice 038Y1C Obtaining a Copy of the Proxy Materials – If you want to receive a copy of the proxy materials, you must request one. There is no charge to you for requesting a copy. Please make your request as instructed on the reverse side on or before May 11, 2020 to facilitate timely delivery. 2 N O T
2020 Stockholder Meeting Notice The 2020 Annual Meeting of Stockholders of Southern National Bancorp of Virginia, Inc. will be held on May 21, 2020 at 2:30 p.m., Eastern Time, at Sonabank Headquarters, 10900 Nuckols Road, Suite 325, Glen Allen, Virginia 23060. We intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) outbreak; we are sensitive to the public health and travel concerns our stockholders may have and the protocols and restrictions that federal, state, and local governments have imposed. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. Please monitor our annual meeting website at www.meetingcenter.io/232532568 for updated information. If you are planning to attend our meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the Annual Meeting. Proposals to be voted on at the meeting are listed below along with the Board of Directors’ recommendations.The Board of Directors recommend a vote FOR all the nominees listed and FOR Proposals 2 and 3: 1. ELECTION OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELDDIRECTORS. To re-elect: three (3) Directors of Class II to serve on the Board of Directors of the Company until the Company's 2023 Annual Meeting of Stockholders, and each director of each class until his successor is duly elected and qualified, or until his earlier resignation or removal; 01 - W. Rand Cook 02 - Eric A. Johnson 03 - Dennis J. Zember, Jr. 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS. To ratify the appointment of Dixon Hughes Goodman LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2020; 3. ADVISORY VOTE ON JUNE 21, 2017EXECUTIVE COMPENSATION. To conduct an advisory (non-binding) vote to approve the compensation of the Company's named executive officers; and 4. OTHER BUSINESS. To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.PLEASE NOTE – YOU CANNOT VOTE BY RETURNING THIS PROXY STATEMENT AND THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2016 ARE AVAILABLE AT: WWW.EDOCUMENTVIEWER.COM/SONA qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.qNOTICE. To vote your shares you must go online or request a paper copy of the proxy materials to receive a proxy card.Here’s how to order a copy of the proxy materials and select delivery preferences: Current and future delivery requests can be submitted using the options below. If you request an email copy, you will receive an email with a link to the current meeting materials. PLEASE NOTE: You must use the number in the shaded bar on the reverse side when requesting a copy of the proxy materials. — Internet – Go to www.envisionreports.com/SONA. Click Cast Your Vote or Request Materials. — Phone – Call us free of charge at 1-866-641-4276. — Email – Send an email to investorvote@computershare.com with “Proxy Materials Southern National Bancorp of Virginia, Inc.” in the subject line. Include your full name and address, plus the number located in the shaded bar on the reverse side, and state that you want a paper copy of the meeting materials. To facilitate timely delivery, all requests for a paper copy of proxy materials must be received by May 11, 2020.