UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
CARROLLTON BANCORP
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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REVISED PRELIMINARY PROXY STATEMENT EXPLANATORY NOTE
The only change to the Preliminary Proxy Statement of Carrollton Bancorp, which
was originally filed with the Securities and Exchange Commission on March 10,
2009, that is reflected in this Revised Preliminary Proxy Statement (Amendment
No. 1 to the Preliminary Proxy Statement), is the inclusion of the form of the
proxy card.
CARROLLTON BANCORP
7151 Columbia Gateway Drive, Suite A
Columbia, Maryland 21046
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 12, 2009
To the Shareholders of Carrollton Bancorp:
The Annual Meeting (the "Annual Meeting") of Shareholders of Carrollton Bancorp,
a Maryland corporation (the "Company"), will be held at 7151 Columbia Gateway
Drive, Suite A, Columbia, Maryland 21046, on May 12, 2009 at 10:00 a.m.,
prevailing local time, for the purpose of considering and acting upon:
1. The election of four directors for three-year terms ending in 2012 and
one director for a one year term ending in 2010 and in each case until
their respective successors are duly elected and qualified.
2. The ratification of the appointment of Rowles & Company, LLP as the
independent registered public accounting firm to serve for the fiscal
year ending December 31, 2009.
3. The approval of the following advisory (non-binding) proposal:
RESOLVED: that the shareholders of the Company approve the compensation
of the Company's executives as described in the Summary Compensation
Table as well as in the Compensation Discussion and Analysis and the
other executive compensation tables and related discussions contained
in the Proxy Statement for the 2009 Annual Meeting of Shareholders.
4. Any other matters that may properly come before the Annual Meeting
or any adjournment thereof.
The close of business on March 25, 2009 has been fixed by the Board of Directors
of the Company as the record date for determining shareholders entitled to
receive notice of and to vote at the Annual Meeting or any adjournment thereof.
Your attention is directed to the enclosed Proxy Statement and annual report of
the Company for the fiscal year ended December 31, 2008.
Whether or not you plan to attend the meeting in person all shareholders are
urged to promptly vote your shares either via the Internet, or by telephone, or
if you have received a copy of the proxy card by mail, by signing, dating and
mailing the enclosed proxy. The enclosed envelope requires no postage if mailed
in the U.S.A. or Canada. Shareholders attending the meeting may revoke their
proxies and personally vote on all matters that are considered. It is important
that your shares be voted.
By Order of the Board of Directors
/s/ Allyson Cwiek
Allyson Cwiek
Secretary
Columbia, Maryland
March 27, 2009
Carrollton Bancorp
Proxy Statement
Table of Contents
SOLICITATION, VOTING, AND REVOCATION OF PROXIES................................1
PROPOSAL 1: ELECTION OF DIRECTORS..............................................3
CORPORATE GOVERNANCE...........................................................6
DIRECTOR COMPENSATION..........................................................7
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS........................11
CERTAIN BENEFICIAL OWNERS.....................................................13
COMPENSATION DISCUSSION AND ANALYSIS..........................................14
COMPENSATION COMMITTEE REPORT.................................................23
EXECUTIVE COMPENSATION........................................................24
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...................29
CERTAIN TRANSACTIONS AND RELATIONSHIPS........................................29
AUDIT COMMITTEE REPORT........................................................31
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.......................31
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM........................................................32
PROPOSAL 3: ADVISORY VOTE ON EXECUTIVE COMPENSATION...........................33
SHAREHOLDER PROPOSALS FOR THE 2009 ANNUAL MEETING.............................34
OTHER MATTERS.................................................................35
CARROLLTON BANCORP
7151 Columbia Gateway Drive, Suite A
Columbia, Maryland 21046
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 12, 2009
SOLICITATION, VOTING AND REVOCATION OF PROXIES
This Proxy Statement (the "Proxy Statement") and the enclosed proxy
will be furnished on or about March 27, 2009 to the shareholders of Carrollton
Bancorp (the "Company") as of the close of business on March 25, 2009, in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board" or "Board of Directors") to be voted at the Annual Meeting
of Shareholders to be held on May 12, 2009 at 10:00 a.m., prevailing local time
(the "Annual Meeting"), and any adjournments thereof. The Annual Meeting of
Shareholders will be held at our principal executive offices which are located
at 7151 Columbia Gateway Drive, Suite A, Columbia, Maryland 21046.
The Board of Directors has selected Steven K. Breeden, Harold I.
Hackerman and Howard S. Klein and each of them, to act as proxies with full
power of substitution. A proxy may be revoked at any time prior to its exercise
by (i) giving written notice of revocation to the Company, (ii) executing and
delivering a substitute proxy to the Company, or (iii) attending the Annual
Meeting and voting in person. Executed but unmarked proxies will be voted on all
business matters as recommended by the Board of Directors.
Information About Proxy Materials and Voting
Pursuant to new rules recently adopted by the Securities and Exchange
Commission (the "SEC") the Company has elected to provide shareholders access to
proxy materials over the Internet. Accordingly, the Company has sent a Notice of
Internet Availability of Proxy Materials (the "Notice") to shareholders of
record and beneficial owners. All shareholders will have the ability to access
the proxy materials on a website referred to in the Notice or request to receive
a printed set of the proxy materials. Instructions on how to access the proxy
material over the Internet or to request a printed copy may be found on the
Notice. In addition, shareholders may request to receive proxy materials in
printed form by mail on an ongoing basis.
Shareholders of record may vote in one of four ways: (i) by internet at
https://secure.amstock.com/voteproxy/login2.asp, (ii) by toll-free telephone by
following instructions on the proxy card, (iii) by completing and mailing your
proxy card, or (iv) by written ballot at the Annual Meeting. A Company
representative will give shareholders of record a ballot when they arrive.
Beneficial owners may vote by following the voting instructions sent by their
broker, trustee or nominee.
The cost of soliciting proxies will be borne by the Company. In
addition to the solicitation of proxies by mail, the Company also may solicit
proxies personally or by telephone or telegraph through its directors, officers,
and regular employees. The Company also will request persons, firms, and
corporations holding shares in their names or in the name of nominees that are
beneficially owned by others to send proxy materials to and obtain proxies from
those beneficial owners and will reimburse the holders for their reasonable
expenses in doing so.
We plan to take advantage of the householding rules of the SEC that
permit us to deliver one set of the proxy materials, one annual report and one
Notice to shareholders who have the same address, unless they request otherwise.
Doing so will allow us to reduce the expenses of delivering duplicate materials.
We will continue to send a separate proxy card for each shareholder residing in
a shared address.
Quorum Requirement
Consistent with state law and the Company's Bylaws, a majority of the
shares entitled to vote on a particular matter, present in person or represented
by proxy, constitutes a quorum as to such matter. Persons appointed by the
Company to act as election inspectors for the meeting will count votes cast by
proxy or in person at the Annual Meeting. Generally, abstentions and broker
non-votes will not be counted as votes cast for proposals submitted to the
Company's shareholders and will have no effect on the result of the vote,
although they will count toward the presence of a quorum.
If a quorum is present, the affirmative vote of the holders of a
plurality of the votes properly cast for the election of directors at the Annual
Meeting is required to elect the four nominees for election for three-year terms
expiring in 2012 and one nominee for election to complete the remainder of the
term of a director who retired, which expires in 2010. Abstentions will not be
treated as votes cast and will therefore have no effect on the outcome of the
vote.
Approval of each of the other proposals requires the affirmative vote
of a majority of the votes cast at the annual meeting. Abstentions from voting,
as well as broker non-votes, if any, are not treated as votes cast and,
therefore, will have no effect on the outcome of the vote on any such proposal.
Voting Procedures
A copy of the Annual Report on Form 10-K for the year ended December
31, 2008, as filed with the SEC, but excluding exhibits, is provided with this
Proxy Statement. Shareholders may obtain a copy of the exhibits to the Annual
Report on Form 10-K, free of charge, upon writing Allyson Cwiek, Secretary, at
Carrollton Bancorp, 7151 Columbia Gateway Drive, Suite A, Columbia, Maryland
21046. Shareholders also may access a copy of the Form 10-K including exhibits
on the SEC Website at www.sec.gov or through the Company's Website at
www.carrolltonbank.com. Click on "About Us" - "SEC Filings".
Shareholders who share the same address may receive only one Annual
Report on Form 10-K and Proxy Statement, unless the shareholder has provided the
Company with contrary instructions. Shareholders who wish to receive separate
copies of the Annual Report on Form 10-K and Proxy Statement, and shareholders
sharing an address who received multiple copies of these documents but wish to
request delivery of single copies of them should follow the instructions
provided by the shareholder's brokerage firms or banks or contact Allyson Cwiek
at the above address or by phone at 410.536.7332 or 800.222.6656.
Submission of Matters to a Vote of Shareholders
There have been no matters submitted to a vote of the Company's
shareholders since the Company's 2008 Annual Shareholders' Meeting held on May
13, 2008.
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Voting Securities
The close of business on March 25, 2009 has been fixed by the Board of
Directors as the record date for determining the shareholders entitled to
receive notice of and to vote at the Annual Meeting.
There were 2,564,988 shares of Common Stock, $1.00 par value per share,
outstanding as of March 9, 2009, each entitled to one vote.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors has set the total number of directors at 12, in
accordance with the Company's Charter and Bylaws. The Company's Board of
Directors is divided into three classes, as nearly equal as possible. Each year
the directors in one class are elected to serve for a term of three years, or
until their respective successors are duly elected and qualified. The
shareholders will vote at this Annual Meeting for the election of four directors
for the three year term expiring at the Annual Meeting of Shareholders in 2012
and one director to serve for a remaining one year term expiring at the Annual
Meeting of Shareholders in 2010.
The directors nominated to be elected to serve for three-year terms
expiring at the Annual Meeting of Shareholders in 2012 and until their
successors are duly elected and qualified are Messrs. Counselman, Hessler and
Ryan and Ms. Phipps, and the director nominated to be elected to serve for a
one-year term expiring at the Annual Meeting of Shareholders in 2010 and until
his successor is duly elected and qualified is Mr. Rogers, III.
The proxies solicited hereby, unless directed to the contrary, will be
voted "FOR" the election as directors of all five nominees listed in the
following tables. A plurality of the shares voted at the Annual Meeting at which
a quorum is present is sufficient to elect a nominee as a director.
The Board of Directors unanimously recommends a vote "FOR" the election
of each of the nominees named below as directors of the Company.
In the event that any of the nominees should be unable to serve on the
Board of Directors, the persons named in the proxy will vote for such substitute
nominee or nominees as they, in their sole discretion, shall determine. The
Board of Directors has no reason to believe that any nominee named herein will
be unable to serve. Alternatively, the Board of Directors may elect to reduce
the size of the Board of Directors.
The following material shows, as of December 31, 2008, the names and
ages of all nominees, the principal occupation and business experience of each
nominee during the last five years and the year in which each nominee was first
elected to the Board of Directors. The material also contains information on
those directors whose terms continue beyond the date of the Annual Meeting.
3
Nominees for Director Whose Terms Expire in 2009
Albert R. Counselman - Mr. Counselman, age 60, has served as a director
of Carrollton Bank ("the Bank"), the principal subsidiary of the Company, since
April 1985 and of the Company since its inception in 1990. Mr. Counselman was
elected Chairman of the Board of the Company in January 2002. He has been
President and Chief Executive Officer of Riggs, Counselman, Michaels & Downes,
Inc., an insurance brokerage firm, since September 1987, and served in various
executive positions with that firm from 1972 to September 1987.
David P. Hessler - Mr. Hessler, age 52, has served as a director of
the Bank since March 1999, and the Company since May 1999. He has been President
and CEO of Eastern Sales & Engineering, an electrical contracting and service
maintenance firm, since 1987 and was Vice President from 1986 to 1987. Mr.
Hessler has been Vice President of Advanced Petroleum Equipment, a
distributorship, since its inception in 1998. (1)(3)(4)
Bonnie L. Phipps - Ms. Phipps, age 60, has served as a director of the
Bank and of the Company since January 2, 2009. She has been President and CEO of
St. Agnes Healthcare since December 2005. Prior to that, Ms. Phipps was
President and CEO of St. Joseph's Health System in Atlanta, Georgia. She has
held various positions in the healthcare field since 1974. (1)(2)(4) Effective
January 2, 2009
Francis X. Ryan - Mr. Ryan, age 57, has served as a director of the
Bank and of the Company since January 25, 2007. Since 1991, Mr. Ryan has served
as President of F.X. Ryan & Associates, Ltd., a management consulting firm. (4)
William C. Rogers, III. - Mr. Rogers, age 53, has served as a director
of the Bank and of the Company since September 2008. He has been a partner in
the law firm of Rogers, Moore and Rogers and counsel to the Bank, since 1992. He
has been a director of The Security Title Guarantee Corporation of Baltimore
since 1983, and was President from 1993 until 2003. Mr. Rogers has been a
director of Maryland Mortgage Company since 1983. Also, he has been Corporate
Secretary and a director of Moreland Memorial Park Cemetery, Inc. since 1986.
Directors Continuing In Office
Directors Whose Terms Expire in 2010
Robert J. Aumiller - Mr. Aumiller, age 60, currently is serving as a
director of the Bank and the Company beginning with his appointment in 2001. He
has been the Executive Vice President and General Counsel of MacKenzie
Commercial Real Estate Services, LLC involved in brokerage and real estate
development of various commercial real estate projects, since 1983.
Charles E. Moore, Jr. - Mr. Moore, age 59, currently is serving as a
director of the Bank and the Company beginning with his appointment in 2001. He
is retired from being the Co-Founder, Director, President and CFO of
TelAtlantic, a consolidation of rural telephone companies across the United
States, from 1999 through 2007. (1)(2)(3)(4)
John Paul Rogers - Mr. Rogers, age 73, has served as director of the
Bank since 1970 and of the Company since its inception in 1990. Mr. Rogers has
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been Chairman of the Board of the Bank since February 1994. He was a partner of
the law firm of Rogers, Moore and Rogers, counsel of the Bank, from 1970 until
1992. Mr. Rogers was senior title officer of The Security Title Guarantee
Corporation of Baltimore from May 1991 until December 1992, having served as
President from March 1989 until May 1991, and as Executive Vice President from
March 1970 until March 1989.
Directors Whose Terms Expire in 2011
Steven K. Breeden - Mr. Breeden, age 50, has served as a director
of the Bank since June 1994 and of the Company since October 1995. Mr. Breeden
is currently a managing member of Security Development LLC and related real
estate and development companies, a position he has held since 1980. (2)(3)(4)
Harold I. Hackerman - Mr. Hackerman, age 57, has served as a director
of the Bank and the Company since February 2002. Since 1984, Mr. Hackerman has
been Vice President of Ellin & Tucker, a certified public accounting firm, and
has provided audit, accounting and consulting services since 1973. (1)(2)(4)(5)
William L. Hermann - Mr. Hermann, age 67, has served as a director
of the Bank and the Company since April, 2006. Mr. Herman is a retired certified
public accountant; and, since 1981, the founder and Chief Executive Officer of
William L. Hermann, Inc., a financial management and consulting company.
(1)(2)(4)
Howard S. Klein - Mr. Klein, age 50, has served as a director of the
Bank since March 1999 and of the Company since April 1999. Mr. Klein has been
Vice President and General Counsel for Klein's Super Markets, a family-operated
chain of seven full service supermarkets and related development and operating
companies since 1987. (1)(4)
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating/Corporate Governance Committee
(4) Independent Director
(5) Financial expert for Audit Committee
Family Relationships
Mr. John Paul Rogers is Mr. William C. Rogers, III uncle. Mr. Howard S.
Klein is married to Mr. John Paul Rogers' niece.
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CORPORATE GOVERNANCE
Committees of the Board of Directors
The Board of Directors has an Audit Committee, Nominating/Corporate
Governance Committee, Compensation Committee, Executive Committee, Loan
Committee, Strategic Plan Committee, Strategic Finance Committee, Facilities
Committee, and an Asset/Liability Committee. The Audit Committee, the
Compensation Committee, and the Nominating/Corporate Governance Committee are
discussed below.
The Audit Committee is composed of Messrs. Moore, Chairman Hackerman,
Hermann, Klein and Ms. Phipps. Effective December 31, 2008, Mr. Hessler was
replaced by Ms. Phipps. The Audit Committee is appointed by the Board to assist
the Board in monitoring the integrity of the financial statements and of
financial reporting, including the proper operation of internal and disclosure
controls and procedures in accordance with the Sarbanes-Oxley Act of 2002,
compliance with legal and regulatory requirements and the independence and
performance of internal and external auditors. The Audit Committee reviews the
Forms 10-K and 10-Q prior to filing. All members of the Audit Committee are
"independent" as defined in applicable law, regulations of the SEC, the Federal
Deposit Insurance Act and related regulations (the "FDIA"), and the Listing
Standards of the NASDAQ Stock Market, Inc., (the "Listing Standards"). Members
of the committee also meet all other applicable requirements of the SEC, FDIA,
and Listing Standards for financial, accounting or related expertise. The Board
of Directors has determined that Mr. Harold I. Hackerman qualifies as an audit
committee financial expert under the Listing Standards and applicable securities
regulations. During 2008, nine meetings of the Audit Committee were held. The
Audit Committee also approves all insider loans. The Audit Committee may also
examine and consider other matters relating to the financial affairs of the
Company as it determines appropriate.
The Compensation Committee is composed of Messrs. Hackerman, Chairman
Hermann, Hessler and Ms. Phipps. Effective December 31, 2008, Messrs Breeden and
Moore were replaced by Mr. Hessler and Ms. Phipps. Mr. Hermann was Chairman
during 2008. All members of the committee are independent directors within the
meaning of the Listing Standards. The purpose of the Compensation Committee is
to review and approve major compensation and benefit policies of the Company and
the Bank. In addition, the Compensation Committee recommends to the Board the
compensation to be paid to all officers, Senior Vice President and above, of the
Company and Bank. The Compensation Committee also administered the Carrollton
Bancorp 2007 Equity Plan (the "2007 Equity Plan") and the Carrollton Bancorp
1998 Long Term Incentive Plan, as amended (the "1998 Plan"). No new grants will
be made under the 1998 Plan. During 2008, four meetings of the Compensation
Committee were held.
The Nominating/Corporate Governance Committee is composed of Messrs.
Hessler, Chairman Breeden, and Moore. Members of the committee are independent
directors within the meaning of the Listing Standards. The purposes of the
Nominating/Corporate Governance Committee are (a) to assist the Board by
identifying individuals qualified to become Board members and to recommend to
the Board nominees for the next annual meeting of shareholders, (b) to recommend
to the Board the corporate governance principles applicable to us, (c) to lead
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the Board in its annual review of its performance, and (d) to recommend to the
Board members the chairpersons of each committee. During 2008, there was one
meeting of the Nominating/Corporate Governance Committee.
Code Of Ethics
The Company has a Code of Ethics that applies to all of its employees
and directors with a specific code applicable to the Chief Executive Officer,
Chief Financial Officer, and the Controller. The code of ethics is posted on the
Company's website at www.carrolltonbank.com.
DIRECTOR COMPENSATION
Directors who are not employees of the Company or Bank received a
monthly retainer fee of $1,000 for Board meetings and an additional $300 for
attending each Board meeting and between $200 and $600 for each committee
meeting attended. The Chairman of the Board of the Company and Bank received a
monthly fee of $1,450. Directors do not receive additional fees for their
service as directors of the Company. In addition, each non-employee director
serving on the Board of Directors on the date of the Annual Meeting receives,
pursuant to the 2007 Equity Plan, a grant of 300 shares of unrestricted stock.
The Directors Deferred Compensation Plan (the "Plan") was frozen as of 1990. No
new participants have entered the Plan since 1990. No new grants will be made
under the 1998 Plan. However, incentive stock options issued under the 1998 Plan
will remain outstanding until exercised or until the tenth anniversary of the
grant date of such options. Options have a maximum term of ten years and an
exercise price that may not be less than 100% of the closing price of the common
stock on the date of the grant. Director's options are included in the
computation of share dilution.
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The following table sets forth the compensation paid to the Company's
directors during the year ended December 31, 2008.
2008 Directors' Compensation
Change in
Pension Value
and
Nonqualified
Fees Earned Deferred
or Option Non-Equity Compensation
Paid in Cash Stock Awards Awards Incentive Plan Earnings All Other
Name (1) (2) (3) Compensation (4) Compensation Total
- ------------------------------------------------------------------------------------------------------------------
Robert J. Aumiller $18,700 $4,200 $158 -- -- -- $23,058
Steven K. Breeden 22,950 4,200 158 -- -- -- 27,308
Albert R. Counselman 17,700 4,200 158 -- -- -- 22,058
Harold I. Hackerman 20,200 4,200 158 -- -- -- 24,558
William L. Hermann 22,350 4,200 158 -- -- -- 27,128
David P. Hessler 22,950 4,200 158 -- -- -- 27,308
Howard S. Klein 21,800 4,200 158 -- -- -- 26,158
Charles E. Moore, Jr. 24,400 4,200 158 -- -- -- 28,758
John P. Rogers 26,600 4,200 158 -- -- -- 30,958
William C. Rogers, Jr. (5) 21,250 4,200 158 -- -- -- 25,608
William C. Rogers, III 4,500 -- -- -- -- -- 4,500
Francis X. Ryan (6) 30,050 4,200 413 -- -- -- 34,663
(1) Please see the description of the directors' fees above.
(2) Stock was awarded pursuant to the 2007 Equity Plan approved at the May
13, 2008 Annual Meeting.
(3) There were no new stock options granted in 2008. The amounts shown
represent the amount of stock-based compensation expense related to
stock options recognized during 2008 in accordance with SFAS 123R. At
December 31, 2008, directors held the unexercised (vested and unvested)
options for the following number of shares: Aumiller - 2,100, Breeden -
5,040, Counselman - 1,260, Hackerman - 3,780, Hermann - 630, Hessler -
5,040, Klein - 1,260, Moore - 630, P. Rogers - 4,410, W. Rogers, Jr. -
2,510, Ryan - 630.
(4) We report earnings on nonqualified deferred compensation in this table
only to the extent such earnings are preferential or "above market."
(5) Mr. William C. Rogers, Jr. retired from the board of the Bank and the
Company effective December 26, 2008 after 53 years of service.
(6) Mr. Ryan received a fee of $12,250 for consulting services to the
Company in 2008.
Attendance at Board Meetings and Annual Meetings
The Board of Directors of the Company met six times and the Board of
Directors of the Bank met twelve times during the year ended December 31, 2008.
The Board of Directors of the Bank meets regularly twelve times each year. No
director attended fewer than 75% of the total number of meetings of both Boards
and each committee to which they were assigned during the year ended December
31, 2008. The Company expects, but does not require, directors to attend the
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annual meeting of shareholders. All of our directors attended last year's annual
meeting of shareholders.
Shareholder Communications with the Board
Shareholders may send communications to the Board by mailing the same
addressed to: Board of Directors, Carrollton Bancorp, 7151 Columbia Gateway
Drive, Suite A, Columbia, Maryland 21046.
Director Nomination Process
The Nominating/Corporate Governance Committee operates pursuant to a
charter adopted by the Board, a copy of which, can be found on the Company's
website at www.carrolltonbank.com.
In recommending director nominees, the Nominating/Corporate Governance
Committee will consider candidates recommended by the Company's shareholders.
Notice of Nominees to the Board recommended by shareholders must be timely,
delivered in writing to the Secretary of the Company prior to the meeting. To be
timely, the notice must be delivered within the time permitted for nomination of
directors in Article I, Section VII of the Bylaws of the Company. The notice
must include:
o information regarding the shareholder making the nomination,
including name, address, and the number of shares of our stock
beneficially owned by the shareholder; and
o the name, age, principal occupation or employment and residence
and business address of the person(s) being nominated and such
other information regarding each nominee that would be required
in a proxy statement filed pursuant to the proxy rules adopted by
the Securities and Exchange Commission if the person had been
nominated for election by or at the direction of the Board of
Directors.
The Nominating/Corporate Governance Committee will evaluate nominees
recommended by shareholders against the same criteria that it uses to evaluate
other nominees. Whether recommended by a shareholder or chosen independently by
the Nominating/Corporate Governance Committee, a candidate will be recommended
for nomination based on his or her talents in relation to the talents of the
existing Board members and the needs of the Board. It is the goal of the
Nominating/Corporate Governance Committee in recommending director nominees to
foster relationships among directors that are complimentary and that will make
the Board most effective.
A candidate, whether recommended by a Company shareholder or otherwise,
will not be considered for nomination unless he or she (i) is of good character,
(ii) is a citizen of the United States, (iii) owns shares of the Company's
common stock, the aggregate value of which is not less than $500, as determined
in accordance with the Financial Institutions Article of the Annotated Code of
Maryland, and (iv) satisfies all other requirements imposed under applicable
law. Additionally, the Nominating/Corporate Governance Committee believes that
it is important for candidates recommended for nomination to have the ability to
9
attract business to the Company, live or work within the communities in which
the Company operates, and possess the skills and expertise necessary to provide
leadership to the Company. Certain Board positions, such as Audit Committee
membership, may require other special skills or expertise. To identify potential
nominees for the Board, the Nominating/Corporate Governance Committee first
evaluates the current members of the Board willing to continue in service.
Current members of the Board are considered for re-nomination, balancing the
value of their continued service with that of obtaining new perspectives and in
view of our developing needs. If necessary, the Nominating/Corporate Governance
Committee then solicits ideas for possible candidates from a number of sources,
which can include other Board members, senior management, individuals personally
known to members of the Board and research. The Nominating/Corporate Governance
Committee may also retain a third party to assist it in identifying potential
nominees; however, the committee has not done so in the past.
The Nominating/Corporate Governance Committee is responsible for
assembling and maintaining a list of qualified candidates to fill vacancies on
the Board. The Nominating/Corporate Governance Committee periodically reviews
this list and researches the talent, skills, expertise, and general background
of these candidates.
10
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of December 31, 2008 certain
information concerning shares of the Common Stock of the Company beneficially
owned by (i) the executive officers of the Company and Bank; (ii) all current
directors and nominees for directors of the Company and the Bank; (iii) all
directors and executive officers of the Company and the Bank as a group; and
(iv) other significant shareholders.
Amount and Nature
Beneficial Owner of Beneficial Ownership Percent of Class
- --------------------------------------------------------------------------------------------------------------------
Executive Officers:
Chief Executive Officer - Bank and Company: Robert A. Altieri 39,698(2) 1.55%
Senior Vice President - Bank and Company: Michael J. Camiel 2,000(3) *
Senior Vice President - Bank and Company: Gary M. Jewell 28,483(4) 1.11%
Senior Vice President - Bank and Company: William D. Sherman 6,000(5) *
Senior Vice President - Bank and Company: Lola B. Stokes 105 *
Senior Vice President - Bank and Company: James M. Uveges 7,500(6) *
DIRECTORS:
Robert J. Aumiller - Bank and Company 8,055(7) *
Steven K. Breeden - Bank and Company 23,718(8) *
Albert R. Counselman - Bank and Company 40,773(9) 1.59%
Harold I. Hackerman - Bank and Company 9,303(10) *
William L. Hermann - Bank and Company 2,120(11) *
David P. Hessler - Bank and Company 11,856(12) *
Howard S. Klein - Bank and Company 16,837(13) *
Charles E. Moore, Jr. - Bank and Company 14,420(14) *
John Paul Rogers - Bank and Company 141,376(15) 5.51%
William C. Rogers, III - Bank and Company 96,135(16) 3.75%
Francis X. Ryan - Bank and Company 11,243(17) *
All Directors and Executive Officers of the Company as a
Group (17 persons) 449,578(18) 17.53%
* Less than 1%
(1) Unless otherwise indicated, the named person has sole voting and investment
power with respect to all shares.
(2) Includes 1,157 shares owned jointly by Mr. Altieri and his wife, 191 shares
Mr. Altieri holds as trustee for minor children under the Maryland Uniform
Gifts to Minors Act, and 38,350 fully vested options to purchase shares at
an exercise price of between $10.94 and $15.41 per share.
(3) Includes 2,000 fully vested options to purchase shares at an exercise price
of $14.50 per share.
(4) Includes 4,050 shares owned by Mr. Jewell and his wife and 24,433 fully
vested options to purchase shares at an exercise price of between $12.67
and $17.16 per share.
(5) Includes 6,000 fully vested options to purchase shares at an exercise price
of between $14.50 and $16.02 per share.
11
(6) Includes 2,500 shares owned by Mr. Uveges and 5,000 fully vested options to
purchase shares at an exercise price of $14.85 per share.
(7) Includes 6,065 shares owned jointly by Mr. Aumiller and his wife and 1,890
fully vested options to purchase shares at an exercise price of between
$14.45 and $16.31 per share.
(8) Includes 13,295 shares owned jointly by Mr. Breeden and his wife and 4,830
fully vested options to purchase shares at an exercise price of between
$9.71 and $16.69 per share.
(9) Includes 1,050 fully vested options to purchase shares at an exercise price
of between $14.45 and $16.31 per share, but excludes 23,944 shares owned by
Mr. Counselman's wife.
(10) Includes 5,299 shares owned jointly by Mr. Hackerman and his wife, and
3,570 fully vested options to purchase shares at an exercise price of
between $12.11 and $16.31 per share.
(11) Includes 420 fully vested options to purchase shares at an exercise price
of $18.03 per share.
(12) Includes 1,470 shares owned jointly by Mr. Hessler and his wife and 4,830
fully vested options to purchase shares at an exercise price of between
$9.71 and $16.31 per share.
(13) Includes 1,680 shares owned by Colgate Investments, LLP, of which Mr. Klein
is partner and 2,079 shares Mr. Klein holds as trustee for minor children
under the Maryland Uniform Gifts to Minors Act. Also includes 1,050 fully
vested options to purchase shares at an exercise price of between $14.45
and $16.31 per share.
(14) Includes 420 fully vested options to purchase at an exercise price of
between $14.45 and $16.31. Excludes 18,000 shares owned by Mr. Moore's wife
and 4,689 shares of which Mrs. Moore has voting control as a personal
representative of an estate.
(15) Includes 4,200 fully vested options to purchase shares at an exercise price
of between $12.11 and $16.31 per share. Also includes 63 shares owned by
The Security Title Guarantee Corporation of Baltimore and 9,981 shares
owned by Maryland Mortgage Company of which Mr. Rogers is a principal
shareholder.
(16) Includes 63 shares owned by The Security Title Guarantee Corporation of
Baltimore of which William C. Rogers, III is a shareholder and Director.
Also includes 1,110 shares Mr. Rogers holds as custodian for his children.
Includes 13,015 shares owned by the Moreland Memorial Park Bronze Perpetual
Care Trust Fund, 47,470 owned by the Moreland Memorial Park Perpetual Care
Fund, 9,981 shares owned by Maryland Mortgage Company of which William C.
Rogers, III is Vice President and Director and 5,506 shares owned by HEWI
Partnership of which Mr. Rogers is an owner/partner. Also includes 7,429
shares of which Mr. Rogers has voting control as a trustee of three trusts.
(17) Includes 4,140 shares owned by Semper Finance, Inc. of Maryland and 4,703
shares owned by Semper Finance, Inc. of Pennsylvania of which Mr. Ryan is
President and principal owner. Also includes 210 fully vested options to
purchase shares at an exercise price of $17.25 per share.
(18) All directors, executive officers and other significant shareholders may be
contacted at the Company's corporate offices by addressing correspondence
to the appropriate person, care of Carrollton Bancorp, 7151 Columbia
Gateway Drive, Suite A, Columbia, Maryland, 21046.
12
CERTAIN BENEFICIAL OWNERS
The table below includes all of the shareholders of the Company known
by the Company to beneficially own more than five percent of its Common Stock as
of December 31, 2008 unless otherwise indicated.
Common
Stock
Beneficially
Owned as a
Percentage
Common of
Stock Investment Power Voting Power Outstanding
Name and address of Beneficially ---------------------------- --------------------------- Common
Beneficial Owner Owned Sole Shared None Sole Shared None Stock
- ----------------------------------------------------------------------------------------------------------------
John Paul Rogers* 141,376 131,332 10,044 131,332 10,044 5.51%
46 C Queen Anne Way
Chester, MD 21619
William C. Rogers, Jr.* 210,372 4,580 205,792 4,580 205,792 8.20%
6 South Calvert Street
Baltimore, MD 21202
Patricia A. Rogers* 108,426 98,382 10,044 98,382 10,044 4.23%
P.O. Box 246
Gibson Island, MD
21056
*The information furnished is based upon information contained in a
respective Schedule 13G filed with the SEC, a copy of which was provided to the
Company.
Executive Officers
Certain information regarding significant employees of the Company and
Bank other than those previously mentioned is set forth below:
Robert A. Altieri - Mr. Altieri, age 47, has been President and Chief Executive
Officer of both the Bank and Company since his appointment in February 2001. Mr.
Altieri previously was the Senior Vice President - Lending of the Bank since
June 1994, and Vice President - Commercial Lending since September 1991.
Michael J. Camiel - Mr. Camiel, age 55, has been Senior Vice President - Chief
Credit Officer since March 2007. He was previously Vice President - Chief Credit
Officer from March 2003 to March 2007. Prior to joining the Bank, Mr. Camiel was
a Relationship Manager with Maryland Department of Business and Economic
Development from June 1999 to March 2003.
Gary M. Jewell - Mr. Jewell, age 62, has been Senior Vice President - Electronic
Banking since July 1998. He was previously Senior Vice President and Retail
Delivery Group Manager from March 1996 to July 1998. Prior to joining the Bank,
Mr. Jewell was Director of Product Management and Point of Sale Services for the
MOST EFT network in Reston, Virginia from March 1995 to March 1996.
13
Deanna L. Lintz - Ms. Lintz, age 40, has been Senior Vice President - Branch
Administration since March 2007. She was previously Relationship
Manager/Business Banking for M&T Bank from February 2006 to March 2007. Ms.
Lintz held a similar position at Provident Bank from September 2004 to February
2006. Prior to September 2004, Ms. Lintz spent 14 years with Bank of America
where she held a variety of positions.
William D. Sherman - Mr. Sherman, age 57, has been Senior Vice President - Chief
Lending Officer since March 23, 2007. He was previously the Team Leader for
Commercial Real Estate Lending from April 2003 through March 2007. Prior to
working at Carrollton Bank, Mr. Sherman was in Commercial Real Estate Lending
with Susquehanna Bank from April 1998 through April 2003.
Lola B. Stokes - Mrs. Stokes, age 51, has been Senior Vice President and
Compliance/CRA Director of the Bank since June 2006. She was previously Senior
Vice President in charge of Bank Secrecy Act at Provident Bank since January
2005. Prior to that, Mrs. Stokes held the position of Vice President of
Compliance at Carrollton Bank from July 2000 to January 2005.
James M. Uveges - Mr. Uveges, age 58, has been Senior Vice President and Chief
Financial Officer of the Company and Bank since June 6, 2005. He was previously
an Interim Executive Consultant from May 2004 to June 2005. Prior to that, Mr.
Uveges held the position of Senior Vice President and Chief Financial Officer at
Spectera, Inc. from March 1999 to April 2004, Susquehanna Bank from January 1998
to February 1999 and American National Bancorp from 1990 to 1997.
COMPENSATION DISCUSSION AND ANALYSIS
Overview of Compensation Philosophy and Program
The Company's executive compensation program is designed to:
o Align the financial interests of the executive officers with the
long-term interests of the Company's shareholders;
o Attract and retain high performing executive officers to lead the
Company to greater levels of profitability; and
o Motivate and incent executive officers to attain the Company's
earnings and performance goals.
The compensation program for the Company's executive officers has four
primary components:
o base salary;
o annual incentive awards;
o long-term equity-based awards; and
14
o employee benefits as well as perquisites.
The Compensation Committee has the authority to obtain the advice and
assistance of legal or independent compensation consulting firms as it deems
desirable or appropriate. In developing the compensation program for 2008, the
Compensation Committee conducted a review of the executive compensation program.
The Compensation Committee operates pursuant to a charter adopted by
the Board, a copy of which, can be found on the Company's website at
www.carrolltonbank.com.
The philosophy is to pay conservatively competitive base salaries based
on company and individual experience, performance, and contributions. Short-term
incentives, generally payable in cash, and long-term incentives, generally
provided through equity based awards, are targeted to be competitive but depend
more heavily upon Company performance than does base pay. Total compensation and
accountability are intended to increase with position and responsibility.
The Company recognizes that executives have significant influence on
the overall financial results of the Company and aligns the financial interests
of the executive officers with the long-term interests of the shareholders by
using equity-based awards that increase in value as shareholder value increases
and by choosing financial measures and goals for cash incentive compensation
that are based on the key measures that drive the financial performance of the
Company.
Effect of the Emergency Economic Stabilization Act of 2008
On October 14, 2008, the United States Department of Treasury (the
"Treasury Department") announced the Troubled Asset Relief Program Capital
Purchase Program (the "Capital Purchase Program" or "CPP") under the Emergency
Economic Stabilization Act of 2008 ("EESA"). Pursuant to the Capital Purchase
Program, the Treasury Department would make preferred stock investments in
participating financial institutions.
We participated in the Capital Purchase Program in 2009 by selling
preferred stock and a common stock purchase warrant to the Treasury Department.
As a result, we became subject to certain executive compensation requirements
under EESA, Treasury Department regulations, and the contract pursuant to which
we sold such preferred stock. Those requirements apply to what the Treasury
Department refers to as our Senior Executive Officers ("SEOs"). Presently, these
are the same officers who are our Named Executive Officers (as defined herein).
Those requirements are:
o Prohibition on Compensation that Provides an Incentive to Take Unnecessary and
Excessive Risks. EESA prohibits us from providing incentive compensation
arrangements that encourage our SEOs to take unnecessary and excessive risks
that threaten the value of the financial institution.
o Risk Review. Treasury Department regulations require the Compensation
Committee to review SEO incentive compensation arrangements with our senior risk
officers to ensure that SEOs are not encouraged to take such risks. The
regulations also require the Compensation Committee to meet at least annually
with our senior risk officers to discuss and review the relationship between our
15
risk management policies and practices and the SEO incentive compensation
arrangements.
o Clawback. EESA requires us to recover any bonus or incentive compensation paid
to an SEO where the payment is later found to have been based on statements of
earnings, gains, or other criteria which prove to be materially inaccurate. We
have made certain amendments to the employment agreements of certain SEOs (the
"SEO Employment Agreements") to conform to the details of EESA. One cash bonus
has been paid to an SEO in 2007 and 2008 based on the Company's Point of Sale
revenue which has been paid to the Company.
o Golden Parachutes. We contractually agreed to abide by a provision of EESA
which limits the amounts that can be paid under change in control and similar
agreements which provide payments upon separation of service. EESA also amended
Section 280G of the Internal Revenue Code by expanding the definition of a
parachute payment to include certain severance payments paid by reason of an
involuntary termination or in connection with bankruptcy, liquidation or
receivership of the employer. Each SEO has contractually agreed to abide by the
limits imposed by EESA for so long as the limit applies to us and to him or her.
The changes to the SEO Employment Agreements as a result of EESA and Section
280G are discussed below under the heading "Employment Agreements", below.
o Limit on Tax Deduction. A provision of EESA and Treasury Department
regulations limits our tax deduction for compensation paid to any SEO to
$500,000 annually. Each of our SEO's annual compensation is less than $500,000.
The provision of EESA amended the Internal Revenue Code by adding 162(m)(5).
Section 162(m)(5) imposes the $500,000 deduction limit. In addition, prior to
the amendment, certain performance based compensation paid under shareholder
approved plans did not count toward such deduction limit. EESA and Section
162(m)(5) eliminate that exclusion for us. We discuss the effect of this
provision in greater detail under the heading, "Tax and Accounting
Implications", below.
o Binding SEO Agreements. Prior to selling our preferred stock to the Treasury
Department, each of our SEOs executed a waiver which voluntarily waived any
claim against the United States or the Company for any change in his or her
compensation and other benefits to the extent necessary to comply with these
EESA requirements. These waivers will remain effective for so long as the
Treasury Department owns any of our CPP debt or equity securities. We publicly
16
filed a form of these waivers with the SEC as Exhibit 10.2 to our Current Report
on Form 8-K on February 17, 2009.
Effect of Treasury Department Guidelines Announced February 4, 2009
On February 4, 2009, the Treasury Department announced executive
compensation guidelines (the "Treasury Guidelines"). The Treasury Guidelines
contain expansive new restrictions on executive compensation for financial
institutions and other companies participating in the CPP. The Treasury
Guidelines generally continue the existing restrictions under EESA and add
substantially to them in several areas. Among other things, the Treasury
Guidelines contemplate an absolute $500,000 annual compensation limit for senior
executives under certain circumstances. The Treasury Guidelines do not define
which executives would be subject to this limit, but do clarify that such limit
would not apply to CPP participants unless they further participated in an
exceptional assistance program or further participated in a generally available
capital access program.
However, the Treasury Guidelines are general in nature and appear to
contemplate new rulemaking by Treasury before they become effective. Further,
many, but not all of the elements of the Treasury Guidelines were incorporated
into ARRA, discussed below.
Effect of the America Reinvestment and Recovery Act of 2009
On February 17, 2009, President Obama signed into law the America
Reinvestment and Recovery Act of 2009 ("ARRA"). ARRA contains expansive new
restrictions on executive compensation for financial institutions and other
companies participating in the CPP. These restrictions apply to us. ARRA amends
the executive compensation and corporate governance provisions of EESA. In doing
so it continues all the same compensation and governance restrictions and adds
substantially to the restrictions in several areas. ARRA implements many, but
not all, of the restrictions in the Treasury Guidelines and in several instances
goes beyond the Treasury Guidelines. We already comply with many of the new
requirements of ARRA, and will comply with all other new requirements of ARRA
promptly after the Treasury Department publishes the regulations contemplated by
ARRA.
Some key features of the new executive compensation restrictions in
ARRA are described below.
o ARRA prohibits bonus and similar payments to top employees. ARRA prohibits the
payment of any "bonus, retention award, or incentive compensation" to our five
Named Executive Officers and the next 20 most highly-compensated employees for
as long as any CPP-related obligations are outstanding. The prohibition does not
apply to bonuses payable pursuant to "employment agreements" in effect prior to
February 11, 2009. ARRA does not explain how to identify the most
highly-compensated employees and does not define "incentive compensation." The
Treasury Guidelines do not contain a similar limit on bonuses. Instead, the
Treasury Guidelines impose a $500,000 annual compensation cap for a company's
senior executive officers, but allow the cap to be waived for all companies
other than those receiving "exceptional" assistance. We have not received
17
"exceptional assistance." Waiver under the Treasury Guidelines is conditioned on
our full disclosure of compensation and allowing shareholders a non-binding "say
on pay" vote.
o Limited amount of restricted stock excluded from bonus prohibition.
"Long-term" restricted stock is excluded from ARRA's bonus prohibition, but only
to the extent the value of the stock does not exceed one-third of the total
amount of annual compensation of the employee receiving the stock, the stock
does not "fully vest" until after all CPP-related obligations have been
satisfied, and any other conditions which the Treasury Department may specify
have been met. The Treasury Guidelines also exempt an unlimited amount of
restricted stock from the $500,000 annual compensation cap described above.
Neither ARRA nor the Treasury Guidelines explain how to value various items,
such as equity compensation, indirect compensation such as benefits and taxes,
when assessing this limit.
o Shareholder "say on pay" vote required. ARRA requires every company receiving
CPP assistance to permit a non-binding shareholder vote to approve the
compensation of executives as disclosed in the company's proxy statement. The
Treasury Guidelines contain a similar requirement but only for companies
receiving "exceptional" assistance. ARRA directs the SEC to adopt regulations
within one year to implement "say on pay." We have included a "say on pay"
proposal as Proposal 3 in this Proxy Statement.
o Stricter restrictions on "golden parachute" payments. EESA generally limited
"golden parachute" payments to senior executives to 2.99 times the executives'
base compensation. ARRA prohibits any payment to a senior executive officer or
any of the next five most highly-compensated employees upon termination of
employment for any reason for as long as any CPP-related obligations remain
outstanding. For all companies other than companies receiving "exceptional"
assistance, the Treasury Guidelines limit golden parachute payments to one time
base compensation and only apply the limit to the senior executive officers.
o Broader bonus clawback requirements. EESA required companies participating in
the CPP to recover any bonus or other incentive payment paid to a senior
executive officer on the basis of materially inaccurate financial or other
performance criteria. ARRA extends this recovery requirement to the next 20 most
highly compensated employees in addition to the senior executive officers. This
extension is consistent with the Treasury Guidelines.
o Prohibition on compensation plans that "encourage" earnings manipulation. ARRA
prohibits CPP participants from implementing any compensation plan that would
encourage manipulation of the reported earnings of the Company in order to
enhance the compensation of any of its employees. The Treasury Guidelines do not
contain a similar requirement.
o Board compensation committee required. ARRA requires CPP participants to
establish a board compensation committee and requires the committee to meet at
least semiannually to discuss and evaluate employee compensation plans in light
of an assessment of any risk to the company posed by such plans. The Treasury
guidelines do not contain a similar requirement.
o New reporting and certification requirements. ARRA requires the CEO and CFO of
any publicly-traded company participating in the CPP to provide a written
certification of compliance with the executive compensation restrictions in ARRA
18
in the Company's annual filings with the SEC (presumably its annual
report on Form 10-K or proxy statement). The Treasury Guidelines require
reporting and certification as well but do not detail how the reporting and
certification are to be accomplished. Recent guidance from the SEC indicates
that the SEC is not currently requiring these certifications.
o Policy on luxury expenditures. ARRA requires each company participating in the
CPP to implement a company-wide policy regarding excessive or luxury
expenditures, including excessive expenditures on entertainment or events,
office and facility renovations, aviation or other transportation services. This
is consistent with the Treasury Guidelines which contain a similar requirement.
o Treasury review of prior payments. ARRA directs the Treasury Department to
review bonuses, retention awards, and other compensation paid to the senior
executive officers and the next 20 most highly-compensated employees of each
company receiving CPP assistance before ARRA was enacted, and to "seek to
negotiate" with the CPP recipient and affected employees for reimbursement if it
finds any such payments were inconsistent with CPP or otherwise in conflict with
the public interest.
In addition to the above requirements, ARRA adopts and continues two
requirements from EESA essentially unchanged:
o $500,000 annual deduction limit. Like EESA, ARRA prohibits CPP participants
from deducting annual compensation paid to senior executive officers in excess
of $500,000. The Treasury Guidelines, in contrast, contain the $500,000 annual
compensation cap for senior executives described above (which may be waived by
all companies other than those receiving "exceptional" assistance) but do not
specifically address the deduction limit.
o No excessive risks. Like EESA, ARRA requires the Treasury Department to
implement limits on compensation that exclude incentives for senior executive
officers of a Company participating in the CPP to take unnecessary and excessive
risks that threaten the value of the company for as long as any CPP-related
obligation remains outstanding. The Treasury Department implemented this
directive under EESA by requiring periodic compensation committee review and
certification of the risk characteristics of a company's incentive compensation
arrangements, and presumably these same review and certification requirements
would apply going forward under ARRA. ARRA requires that the compensation
committee perform such a review at least semi-annually.
ARRA requires both the Treasury Department and the SEC to issue rules
to implement these new executive compensation restrictions.
Many aspects of the foregoing restrictions will not be clear until
Treasury and the SEC publish new rules.
The foregoing restrictions imposed by ARRA implement many, but not all,
of the restrictions of the Treasury Guidelines. At the present time, the
Treasury Department has not announced whether it intends to publish rules to
implement the aspects of the Treasury Guidelines that were not addressed by
ARRA.
19
The Company has already implemented, or is in the process of
implementing the prior requirements of EESA. The Compensation Committee will
consider the new, or is in the process of implementing, limits on executive
compensation of ARRA, the Treasury Guidelines, and any forthcoming regulations.
When such regulations are published, the Compensation Committee promptly will
make appropriate changes to the Company's executive compensation program, if
needed.
Base Salary
The Company believes that competitive base salaries are necessary to
attract and retain high performing executive officers. In determining base
salaries, the Compensation Committee considers the executive's qualifications
and experience, scope of responsibilities and future potential, the goals and
objectives established for the executive, the executive's past performance, as
well as competitive salary practices at other financial institutions.
With respect to the compensation of the Company's Chief Executive
Officer, all of the members of the board of directors provide input and
recommendations through a formal annual performance review process. The
performance review of the Chief Executive Officer is generally based on
objective criteria including performance of the Company, accomplishment of
strategic objectives, development of management, and other measures of
performance.
The Compensation Committee compared the proposed compensation of Mr.
Altieri, the Company's Chief Executive Officer, with independent studies
published reflecting compensation information of the peer group commercial
banking institutions participating in the study and with the compensation of
executive officers of banking institutions, based on proxy information covering
institutions comparable to the Company in terms of criteria including the nature
and quality of operations, or geographic proximity. This group included
financial institutions having high returns on assets, capital significantly in
excess of that required by current federal regulations, and located within a 100
mile radius of Baltimore, Maryland so as to include companies operating in a
comparable economic climate. No target was established in the comparison with
this group of institutions.
The average salary increase for the six Senior Vice Presidents in 2008
was 4.00%. The Chief Executive Officer received an increase of 4.00%. The base
salary earned in 2008 by each of the Named Executive Officers is set forth in
the "Summary Compensation Table."
Annual Incentive Plan
All of the Company's Named Executive Officers participate in the Bonus
Plan ("BP"). The BP encourages executive officers of the Company to work
together as a team to achieve specific annual financial goals. The BP is
designed to motivate executive officers of the Company to achieve strategic
goals, strengthen links between pay and the performance of the Company and align
management's interests more closely with the interests of the shareholders.
The plan is designed to pay out a cash reward based on pre-established
key performance indicators, which also has a minimum net income trigger that
must be met before payouts may be made. The key performance indicators are:
20
o Growth as measured by gross loans, noninterest bearing accounts,
and interest-bearing accounts and repurchase agreements;
o Pricing/profitability as measured through net interest margin,
fee and service charge income;
o Quality as measured through non-performing assets and net charge
offs and
o Productivity as measured through efficiency ratio.
Incentives are calculated based on budget and business plan goals as
measured by the key performance indicators. For 2008, the budgeted amounts were
approved at the December 2007 meeting of the Board of Directors. No payouts were
made in 2008 based on the final Company performance for the year ended December
31, 2008. In 2008, Mr. Jewell received $33,438 in accordance with the terms of
his employment agreement.
2007 Equity Plan
The 2007 Equity Plan was approved at the Company's Annual Meeting of
Shareholders held on May 15, 2007. All of the Company's Named Executive Officers
participate in receiving equity awards under the Company's 2007 Equity Plan. The
purpose of long-term compensation arrangements is to more closely align the
financial interests of the executive officers with the long-term interests of
the Company's shareholders. Vesting schedules for equity based awards also
encourage officer retention. The 2007 Equity Plan provides for a variety of
different types of compensation arrangements, such as stock options, restricted
stock, stock appreciation rights, restricted performance stock, unrestricted
company stock and performance unit awards, all of which increase in value as the
value of the Common Stock increases. The Compensation Committee recommends, in
its discretion, the form and number of equity based awards and the full Board of
Directors approves the awards. The 2007 Equity Plan prescribes that all
outstanding awards automatically become fully vested on such change in control,
all restrictions, if any, with respect to such awards, shall lapse, and all
performance criteria, if any, with respect to such awards, shall be deemed to
have been met in full. The 2007 Equity Plan provides for automatic annual grants
of 300 shares of unrestricted stock of the Company to each non-employee director
serving on the Board of Directors on the date of the Annual Meeting of the
Shareholders.
1998 Plan
No new grants will be made under the 1998 Plan. However, incentive
stock options issued under the plan will remain outstanding until exercised or
until the tenth anniversary of the grant date of such options.
Potential Post-Employment Payments
The Company has entered into certain SEO Employment Agreements and
maintains certain plans that will require it to provide compensation to Named
Executive Officers in the event of a termination of employment. Post-employment
payments are provided for under the SEO Employment Agreements described in the
21
"Executive Compensation - Employment Agreements" section of this Proxy
Statement, the 2007 Equity Plan and the 1998 Plan.
Employment Agreements
Upon termination without cause or upon a change in control, Mr.
Altieri, Mr. Jewell, Mrs. Stokes and Mr. Uveges will be eligible for specific
benefits under their respective SEO Employment Agreements. These benefits are
outlined in the "Executive Compensation - Employment Agreements" section of this
Proxy Statement.
Potential Payments Upon Termination
The table below represents the lump sum maximum amount each Named
Executive Officer would have been eligible to receive under their respective
employment agreement upon a change in control or if their employment was
terminated under one of the various scenarios described below as of December 31,
2008. Benefits payable under the Company's defined benefit/pension plan or
401(K) Plan are not included.
Involuntary
Quit/Termination for Termination Not For
Cause Cause Change in Control
Name ($) ($) ($)
- --------------------------------------------------------------------------------
Robert A. Altieri -- $ 515,736 $ 692,660
Gary M. Jewell -- 346,609 384,086
Lola B. Stokes -- 139,288 131,152
James M. Uveges -- 183,432 289,758
Tax and Accounting Implications
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to publicly held companies for compensation paid to the Chief
Executive Officer and the four most highly compensated executive officers other
than the Chief Executive Officer, to the extent that total compensation exceeds
$1 million per covered officer in any taxable year. As discussed above, a
provision of EESA and Treasury Department regulations now limit the Company's
tax deduction for compensation paid to any SEO to $500,000 annually. The $1
million limitation previously applied only to compensation which was not
considered to be performance-based. Compensation deemed paid by the Company in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-qualified stock options and stock appreciation rights granted
under the 2007 Equity Plan qualifies as performance-based compensation for
purposes of Section 162(m) if the grants were made by a committee of "outside
directors" as defined under Section 162(m). As discussed above, however, a
provision of EESA eliminated the exclusion for performance-based compensation
for purposes of Section 162(m) for the Company.
While we anticipate that any compensation deemed paid by us in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-qualified stock options and stock appreciation rights will
qualify as performance-based compensation for purposes of Section 162(m), based
on the provisions of EESA, such compensation will nevertheless be taken into
22
account for purposes of the $500,000 limitation. Accordingly, all compensation
deemed paid with respect to those stock options should no longer be deductible
by us without limitation under Section 162(m) of the Internal Revenue Code.
Compensation paid by us in connection with restricted stock, restricted
performance stock, unrestricted stock and performance unit awards may be taken
into account for purposes of the $500,000 limitation unless the non-employee
director or key employee is not subject to Section 162(m) at the time the
compensation is taken into account for purposes of Section 162(m).
During 2008, none of the Company's SEOs received total compensation in
excess of $500,000 and accordingly, all compensation paid to the Company's SEOs
should be deductible by the Company without limitation under Section 162(m) of
the Internal Revenue Code.
COMPENSATION COMMITTEE REPORT
We have reviewed and discussed the foregoing Compensation Discussion
and Analysis with management. Based on our review and discussion with
management, we have recommended to the Board of Directors that the Compensation
Discussion and Analysis be included in this proxy statement and in the Company's
Annual Report on Form 10-K for the year ended December 31, 2008.
The Compensation Committee
William L. Hermann, Chairman
Steven K. Breeden
Harold I. Hackerman
Charles E. Moore, Jr.
23
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by or awarded to
the Company's Chief Executive Officer, Chief Financial Officer, and the three
most highly compensated other executive officers for 2008 (the "Named Executive
Officers").
Summary Compensation Table
Changes in
Pension
Value &
Nonqualified
Stock Option Deferred All Other
Named Executive Officer Awards Awards Compensation Compensation
and principal position Year Salary Bonus (1) (2) Earnings(3) (4) Total
- -------------------------------------------------------------------------------------------------------
Robert A. Altieri 2008 $234,000 $-- -- -- $7,774 $20,252 $262,026
President & 2007 225,000 -- -- -- 7,278 18,037 250,315
Chief Executive Officer 2006 215,000 -- -- -- 6,822 18,383 240,205
James M. Uveges 2008 163,800 -- -- -- -- 20,191 183,991
Senior Vice President & 2007 157,500 -- -- -- -- 19,445 176,945
Chief Financial Officer 2006 150,000 -- -- -- -- 9,602 159,602
William D. Sherman 2008 142,800 -- -- -- 968 7,252 151,020
Senior Vice President 2007 131,865 -- -- -- 896 7,150 139,911
2006 109,387 -- -- -- 830 4,816 115,033
Gary M. Jewell 2008 133,750 33,438 -- -- 10,068 9,982 187,237
Senior Vice President 2007 125,000 31,250 -- -- 9,250 10,797 176,297
2006 120,000 30,000 -- 5,000 8,526 11,332 169,858
Lola B. Stokes 2008 122,200 -- -- -- 1,232 6,947 130,380
Senior Vice President(5) 2007 117,500 -- -- -- 1,149 6,787 124,364
2006 57,961 -- -- -- 1,072 3,420 61,453
(1) No stock awards were made in 2008, 2007, or 2006.
(2) All unexercised options to Named Executive Officers were fully vested at
December 31, 2005.
(3) The pension plan was frozen effective December 31, 2004. No new
participants entered the plan after December 2004.
(4) Amount includes 3% of Named Executive Officer's salary as a safe harbor
contribution and 50% of the 401(K) contribution up to 6% of compensation as
a matching contribution to the Bank's 401(K) plan, compensation attributed
to the portion of the premium paid by the Bank for a group term life
insurance policy for coverage in excess of $50,000 and personal use of a
Company vehicle. None of the values of individual benefits and perquisites
exceeded $25,000.
(5) Mrs. Stokes was rehired in June 2006. She was originally hired in July 2000
and resigned January 2005.
24
Outstanding Equity Awards At 2008 Fiscal Year End
The following table shows all outstanding equity awards held by Named
Executive Officers as of December 31, 2008:
Outstanding Equity Awards at Fiscal Year-End
Option Awards
Number of Number of
Securities Securities
Underlying Underlying
Unexercised Unexercised Option Option
Options (#) Options (#) Exercise Expiration
Name Exercisable Unexercisable Price ($) Date
- ------------------------------------------------------------------------------------------
Robert A. Altieri 6,300 -- $15.419 5/13/2009
3,150 -- 13.452 7/27/2010
10,500 -- 10.943 5/24/2011
8,400 -- 12.667 7/25/2012
10,000 -- 14.500 12/15/2015
James M. Uveges 5,000 -- 14.850 6/6/2015
William D. Sherman 3,000 -- 16.020 7/22/2014
3,000 -- 14.500 12/15/2015
Gary M. Jewell 6,300 -- 15.419 5/13/2009
3,150 -- 13.452 7/27/2010
1,650 -- 12.667 7/25/2012
5,000 -- 16.020 7/22/2014
5,000 -- 14.500 12/15/2015
5,000 1,667 17.160 12/31/2016
Lola B. Stokes -- -- --
Grants of Plan-Based Awards
The following table contains information concerning the grant of stock
options under the 2007 Equity Plan and the 1998 Plan during the year ended
December 31, 2008.
Exercise or Base
Number of Securities Price of Option
Name Grant Date Underlying Options Awards ($1/sh)
- --------------------------------------------------------------------------------
Robert A. Altieri -- -- $ --
James M Uveges -- -- --
William D. Sherman -- -- --
Gary M. Jewell -- -- --
Lola B. Stokes -- -- --
A total of 3,600 unrestricted shares without terms and conditions
thereon were granted in 2008 and 2007 under the 2007 Equity Plan to directors.
Stock options for 630 shares were granted to Mr. Francis Ryan in January 2007
under the 1998 Plan.
25
Option Exercises and Stock Vested
The following table shows exercises of stock by the Company's Named
Executive Officers during the year ended December 31, 2008 and the value
realized by them:
Option Awards
Number of Shares
Acquired on Value Realized
Name Exercise on Exercise
- -------------------------------------------------------------------------------
Robert A. Altieri -- $ --
James M. Uveges -- --
William D. Sherman -- --
Gary M. Jewell 2,550 4,776
Lola B. Stokes -- --
Employment Agreements
On February 13, 2009, as part of the CPP, the Company entered into a
Letter Agreement, and the related Securities Purchase Agreement - Standard Terms
(collectively, the "Purchase Agreement"), with the Treasury Department, pursuant
to which the Company issued (i) 9,201 shares of Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, liquidation preference $1,000 per share ("Series A
Preferred Stock"), and (ii) a warrant to purchase 205,379 shares of the
Company's common stock, par value $1.00 per share.
Under the terms of the EESA, in order for the Company to participate in
the CPP each SEO of the Company and the Bank signed a waiver which voluntarily
waived any claim against the United States or the Company for any changes to his
or her compensation or benefits that are required to comply with the regulation
issued by the Treasury Department as published in the Federal Register on
October 20, 2008. Each SEO Employment Agreement was amended to: (a) incorporate
all provisions required for compliance with the executive compensation
provisions and regulations of the EESA (the "EESA Executive Compensation
Provisions"); and (b) modify such provisions of such SEO Employment Agreements
which are inconsistent with or in violation of the EESA Executive Compensation
Provisions and the regulations promulgated thereunder, to the extent necessary
to comply with the EESA Executive Compensation Provisions and the regulations
promulgated thereunder.
Without limiting the generality of the foregoing, the provisions of
Section 6 of each SEO Employment Agreement were modified to provide that
anything contained therein to the contrary notwithstanding, the Company or the
Bank, as applicable, or any "acquiring institution" (as such term is used in
each of the SEO Employment Agreements) would not be required to make any payment
or provide any benefit to the SEO which would constitute a "golden parachute
payment" in violation of Section 111(b)(2)(C) of EESA and the regulations
promulgated thereunder. The amendments to the SEO Employment Agreements will
cease to be of any force or effect if and when the Treasury Department ceases to
hold an equity or debt position in the Company acquired under the CPP and the
Company and the Bank are no longer required to comply with the relevant
provisions of the EESA and the regulations promulgated thereunder.
On August 1, 2007, the Company and the Bank (which for purposes of such
employment agreement are referred to as the "Bank") entered into an employment
26
agreement with Robert A. Altieri, President and Chief Executive Officer. The
term of the agreement began on August 1, 2007 and is effective for three years.
As part of the agreement, the Bank will pay Mr. Altieri a minimum annual base
salary of $234,000. At the end of each calendar year, Mr. Altieri may receive a
cash bonus not to exceed 40% of his base salary. The amount of the bonus will be
determined by the Compensation Committee based on defined goals and objectives
established by the foresaid committee and the Board of Directors. In addition,
Mr. Altieri is entitled to participate in all employee benefit plans and
arrangements as offered by the Bank to all employees and officers and is
entitled to a Bank-owned car. In the event that the Bank terminates Mr. Altieri
without cause, he will be entitled to receive his then current monthly salary
for up to twenty-four months. In the case of termination as a result of any sale
of the Bank, Mr. Altieri will receive a severance package to include: (i) three
years of his current base salary; (ii) continuation for a period of eighteen
months of all medical and long-term disability insurance in amounts and subject
to the provisions in effect as of the date of sale and for a period of six
months thereafter, said insurance, if available at the same cost, will be
provided to Mr. Altieri and, if not available at the same cost, the Bank shall
pay monthly an amount of money equal to the monthly premium paid by the Bank for
the insurance in the eighteen month after Mr. Altieri's termination; and (iii)
at Mr. Altieri's option, he can purchase the Bank-owned car assigned to him at
no cost to him except for transfer costs. Additional provisions include a
non-compete clause which for two years following the termination of Mr.
Altieri's employment without cause, prohibits Mr. Altieri from soliciting
customers of the Bank and within an area of thirty-five miles from the Bank's
then main office, Mr. Altieri will not accept employment with a bank, thrift or
credit union as a President, senior officer or in a managerial capacity. Mr.
Altieri is also required to develop a plan of succession.
On June 13, 2007, the Bank entered into an employment agreement with
Gary M. Jewell, Senior Vice President, Electronic Banking. The term of the
agreement began on June 8, 2007 and is effective for three years. As part of the
agreement, the Bank will pay Mr. Jewell a minimum annual base salary of
$133,750. At the end of each calendar year, Mr. Jewell shall receive a cash
bonus of 25% of his base salary provided the annual Point of Sale revenue
received by the Bank during the calendar year exceeds One Million Dollars
($1,000,000). In addition, Mr. Jewell is entitled to participate in all employee
benefit plans and arrangements as offered by the Bank to all employees and
officers and is entitled to a Bank-owned car. In the event that the Bank
terminates Mr. Jewell without cause, he will be entitled to receive his then
current monthly salary for up to twenty-four months and at the expiration of
said twenty-four months, he shall receive for the next six consecutive months,
65% of the monthly salary being received at the time of his termination. In the
case of termination as a result of any sale of the Bank, Mr. Jewell will receive
a severance package to include: (i) three years of his current base salary (ii)
continuation of all medical and long-term disability insurance in amounts and
subject to the provisions in effect as of the date of sale. After the three year
term, Mr. Jewell is entitled for an additional three years to receive 65% of his
base salary received at the time of sale and medical and long-term disability
insurance in amounts and subject to the provisions in effect as of the date of
sale. Additional provisions include a non-compete clause which for one year
following the termination of employment, prohibits Mr. Jewell from soliciting,
servicing, or assisting in Point of Sale transactions originated by any company
whose Point of Sale transactions were being handled by the Bank at the time his
employment terminated. Mr. Jewell is also required to train other persons
designated by the Bank in all aspects of electronic banking.
27
On October 16, 2007, the Bank entered into an employment agreement with
Lola B. Stokes, Senior Vice President and Compliance Officer. The term of the
agreement began on June 1, 2007 and is effective for two years. As part of the
agreement, the Bank will pay Ms. Stokes a minimum annual base salary of
$122,200. At the end of each calendar year, Ms. Stokes may receive a cash bonus
not to exceed 10% of her base salary. The amount of the bonus will be determined
by the Compensation Committee based on defined goals and objectives established
by the foresaid committee and the Board of Directors. In addition, Ms. Stokes is
entitled to participate in all employee benefit plans and arrangements as
offered by the Bank to all employees and officers. In the event that the Bank
terminates Ms. Stokes without cause, she will be entitled to receive her then
current monthly salary for up to twelve months. In the case of termination as a
result of any sale of the Bank, Ms. Stokes will receive a severance package to
include: (i) one year of her current base salary (ii) continuation for a period
of one year of all medical and long-term disability insurance in amounts and
subject to the provisions in effect as of the date of sale. Additional
provisions include a non-compete clause which for one year following the
termination of employment without cause, prohibits Ms. Stokes from soliciting
customers of the Bank. Ms. Stokes is also required to develop a plan of
succession.
On November 8, 2007, the Company and the Bank (which for purposes of
such employment agreement are referred to as the "Bank") entered into an
employment agreement with James M. Uveges, Senior Vice President and Chief
Financial Officer. The term of the agreement began on November 8, 2007 and is
effective for two years. As part of the agreement, the Bank will pay Mr. Uveges
a minimum annual base salary of $163,800. At the end of each calendar year, Mr.
Uveges may receive a cash bonus not to exceed 25% of his base salary. The amount
of the bonus will be determined by the Compensation Committee based on defined
goals and objectives established by the Compensation Committee and the Board of
Directors. In addition, Mr. Uveges is entitled to participate in all employee
benefit plans and arrangements as offered by the Bank to all employees and
officers and is entitled to a Bank-owned car. In the event that the Bank
terminates Mr. Uveges without cause, he will be entitled to receive his then
current monthly salary for up to twelve months. In the case of termination as a
result of any sale of the Bank, Mr. Uveges will receive a severance package to
include: (i) eighteen months of his current base salary (ii) continuation for a
period of eighteen months of all medical and long-term disability insurance in
amounts and subject to the provisions in effect as of the date of sale (iii) at
Mr. Uveges' option, he can purchase the Bank-owned car assigned to him at no
cost to him except for transfer costs. Additional provisions include a
non-compete clause which for eighteen months following the termination of
employment without cause, prohibits Mr. Uveges from soliciting customers of the
Bank. Mr. Uveges is also required to develop a plan of succession.
The employment agreements with Messrs. Altieri, Jewell, and Uveges and
Ms. Stokes are the SEO Employment Agreements referred to above under the caption
Effect of Emergency Stabilization Act of 2008 and each such SEO Employment
Agreement has been amended as described above.
Pension Benefits and Perquisites
Effective December 31, 2004, the Company froze its defined benefit
plan. Participant benefits stopped accruing as of the date of the freeze. No new
28
participants entered the defined benefit plan after December 31, 2004. Assets of
the plan are held in a trust fund managed by an insurance company.
As of December 31, 2008, the following table shows the present value of
accumulated benefits under the Company's defined benefit plan for each Named
Executive Officer:
Number of Years of Present Value of
Name Plan Name Credited Service Accumulated Benefits
- --------------------------------------------------------------------------------
Robert A. Altieri Pension Plan 13 $ 131,685
James M. Uveges(2) Pension Plan N/A --
William D. Sherman Pension Plan 2 14,971
Gary M. Jewell Pension Plan 9 148,378
Lola B. Stokes Pension Plan 4 20,187
(2) Mr. Uveges was hired subsequent to the Plan freeze.
The Company has a contributory thrift plan ("Thrift Plan") qualifying
under Section 401(K) of the Internal Revenue Code. Employees with three months
of service are eligible for participation in the Thrift Plan. After the
participant has been employed at the Company for one year, the Company
contributes 3% of the employee's salary to the Thrift Plan for the employee's
benefit. Also, the Company matches 50% of the employee's 401(K) contribution up
to 6% of the employee's compensation. All Named Executive Officers participated
in the Thrift Plan in 2008 and received matching funds. Such amounts
attributable to each Named Executive Officer are included in all other
compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2008, Messrs. Herman, Breeden, Hackerman and Moore served as
members of the Compensation Committee. In 2008, the Company and the Bank had
banking and other relationships, in the ordinary course of business, with a
number of its directors and companies associated with its directors. The Company
purchased insurance through its broker, Riggs, Counselman, Michaels & Downes,
Inc., of which Mr. Counselman is President and Chief Executive Officer. The
insurance coverage purchased was made on substantially the same terms, as those
prevailing at the time, for comparable transactions with others. Management
believes the terms of the insurance coverage obtained through Riggs, Counselman,
Michaels & Downes, Inc. were at least as favorable to the Company as could have
been obtained elsewhere.
Outstanding loans exist to Robert J. Aumiller, David P. Hessler,
Charles E. Moore, Jr., John Paul Rogers and William C. Rogers, III and their
related companies which were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with others not considered outsiders, and did not involve more than
the normal risk of collectibility or present other unfavorable features.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
During the past year the Company, through the Bank, has had banking
transactions in the ordinary course of its business with: (i) its directors and
nominees for directors; (ii) its executive officers; (iii) its 5% or greater
shareholders; (iv) members of the immediate family of its directors, nominees
29
for directors or executive officers and 5% shareholders; and (v) the associates
of such persons on substantially the same terms, including interest rates,
collateral, and repayment terms on loans, as those prevailing at the same time
for comparable transactions with others. The extensions of credit by the
Company, through the Bank, to these persons have not had and do not currently
involve more than the normal risk of collectibility or present other unfavorable
features. At December 31, 2008, the balance of loans outstanding to directors,
executive officers, owners of 5% or more of the outstanding Common Stock, and
their associates, including loans guaranteed by such persons, aggregated
$2,788,468 which represented approximately 10.2% of the Company's equity capital
accounts.
William C. Rogers, III, a director of both the Company and the Bank, is
a partner of the law firm of Rogers, Moore and Rogers, which performs legal
services for the Company, the Bank, and Bank subsidiaries (Carrollton Financial
Services, Inc., Carrollton Mortgage Services, Inc., and Carrollton Community
Development Corporation). Management believes that the terms of these
transactions, which totaled approximately $381,000 in 2008, were at least as
favorable to the Company as could have been obtained elsewhere.
Albert R. Counselman, a director of both the Company and the Bank, is
President and Chief Executive Officer of Riggs, Counselman, Michaels & Downes,
Inc., an insurance brokerage firm through which the Company, the Bank, and Bank
subsidiaries place various insurance policies. The Company and the Bank paid
total premiums for insurance policies placed by Riggs, Counselman, Michaels &
Downes, Inc. in 2008 of approximately $214,000. Management believes that the
terms of these transactions were at least as favorable to the Company as could
have been obtained elsewhere.
Robert J. Aumiller, a director of both the Company and the Bank, is
Executive Vice President of MacKenzie Real Estate Services, a brokerage and real
estate development firm, through which the Company and the Bank paid
approximately $2,000 in 2008 for appraisal, construction, brokerage and property
management services provided by MacKenzie Commercial Real Estate Services.
Management believes these terms were as favorable as could have been obtained
elsewhere.
We use the following guidelines to determine the impact of a credit
relationship on a director's independence. We consider extensions of credit
which comply with Federal Reserve Regulation O to be consistent with director
independence. In other words, we do not consider normal, arm's-length credit
relationships entered into in the ordinary course of business to negate a
director's independence.
Regulation O requires such loans to be made on substantially the same
terms, including interest rates and collateral, and following
credit-underwriting procedures that are no less stringent than those prevailing
at the time for comparable transactions by the Company with other persons not
related to the lender. Such loans also may not involve more than the normal risk
of repayment or present other unfavorable features. Additionally, no event of
default may have occurred (that is, such loans are not disclosed as non-accrual,
past due, restructured, or potential problems). The Audit Committee must review
and approve any credit to a director or his or her related interests and submit
such transaction to the full Board of Directors for approval.
30
In addition, we do not consider as independent any director who is also
an executive officer of a company to which we have extended credit unless such
credit meets the substantive requirements of Regulation O. We also do not
consider independent any director who is an executive officer of a company that
makes payments to, or receives payments from, the Company for property or
services in an amount which, in any fiscal year, is greater than 2% of such
director's company's consolidated gross revenues.
AUDIT COMMITTEE REPORT
The Audit Committee has adopted a written charter which was included as
part of the definitive proxy statement delivered to shareholders with respect to
the 2004 Annual Meeting and a copy of which, can be found on the Company's
website at www.carrolltonbank.com. The members of the Audit Committee are
"independent" as such term is defined in Rule 4200(a)(15) of the NASDAQ Stock
Market, Inc. listing standards and applicable SEC rules. The Audit Committee has
(1) reviewed and discussed the Company's audited financial statements with
management and representatives of Rowles & Company, LLP, the Company's
independent registered public accounting firm; (2) discussed with Rowles &
Company, LLP all matters required to be discussed by Statement on Auditing
Standards No. 61, as amended by Statement on Auditing Standards No. 90
(Communication with Audit Committees); and (3) reviewed the written disclosures
required by Independence Standards Board Standard No. 1, which were received
from the Company's independent registered public accounting firm, and has
discussed the Company's independent registered public accounting firm's
independence with them. The Audit Committee has reviewed the fees of the
Independent Registered Accounting Firm for non-audit services and believes that
such fees are compatible with the independence of the Company's independent
registered accounting firm.
Based on these reviews and discussions, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2008.
Audit Committee:
Charles E. Moore, Jr., Chairman
Harold I. Hackerman
William L. Hermann
David P. Hessler
Howard S. Klein
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's
directors, executive officers and any persons holding more than 10% of the
Common Stock of the Company are required to report their ownership of the Common
Stock and any changes in that ownership to the SEC. Specific due dates for these
reports have been established and pursuant to applicable rules, the Company is
required to report in its proxy statement any failure to file by these dates.
Based on the Company's review of copies of such reports that such persons have
31
filed with the SEC, the Company believes that all required reports of its
directors and executive officers have been timely filed with the SEC during
2008.
PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors has ratified and affirmed the Audit Committee's
appointment of the accounting firm of Rowles & Company, LLP, to serve as
independent registered public accounting firm for the Company for 2009 subject
to ratification by the shareholders of the Company. Rowles & Company, LLP has
served as independent auditors for the Company since 1955. No qualified opinions
have been issued during such engagement. A representative of Rowles & Company,
LLP will be present at the 2009 Annual Meeting of Shareholders and will be given
the opportunity to make a statement, if he or she so desires, and to respond to
appropriate questions.
Audit Fees and Services
2008 2007
- --------------------------------------------------------------------------------
Audit Fees $79,215 $94,061
Audit - Related Fees 10,375 10,500
Tax Fees 10,904 11,917
All Other Fees -- 7,780
---------------------
Total $100,494 $124,258
=====================
Audit services of Rowles & Company, LLP for 2008 and 2007 consisted of
professional services rendered for the audit of the Company's annual
consolidated financial statements included in the Company's Form 10-K and the
review of the consolidated financial statements included in the Company's
Quarterly Reports on Forms 10-Q. "Audit- Related Fees" incurred in 2008 and 2007
include charges related to the Company's defined benefit plan audit and the
Company's 401(K) plan audit. "Tax Fees" in 2008 and 2007 represent income tax
return preparation and advice. All other fees in 2007 represented review of
documentation of key controls for compliance with Sarbanes-Oxley Act of 2002.
The Audit Committee's policy is to pre-approve all audit and permitted
non-audit services other than de minimis non-audit services as defined in
Section 10A(i)(1) of the Exchange Act, which will be approved prior to the
completion of the independent auditor's report. The Audit Committee has reviewed
summaries of the services provided and the related fees and has determined that
the provision of non-audit services is compatible with maintaining the
independence of Rowles & Company, LLP.
Financial Information Systems Design and Implementation Fee
During the year ended December 31, 2008, Rowles & Company, LLP did not
render to the Company any professional services with regard to financial
information systems design and implementation described in paragraph (c)(4)(ii)
of Rule 2-01 of Regulation S-X.
A majority of the votes cast at the annual meeting is required for
approval of the ratification of the appointment of Rowles & Company, LLP as the
32
Company's independent registered public accounting firm for 2009 as set
forth in this Proposal 2. Abstentions and broker non-votes, if any, will have no
effect on the vote for this Proposal 2.
The Board of Directors unanimously recommends a vote "FOR" ratification
of Rowles & Company, LLP, as the Company's independent registered public
accounting firm for 2009.
PROPOSAL 3: ADVISORY VOTE ON EXECUTIVE COMPENSATION
RESOLVED, that the shareholders of the Company approve the compensation of the
Company's executives as described in the Summary Compensation Table as well as
in the Compensation Discussion and Analysis and the other executive compensation
tables and related discussions contained in the Proxy Statement for the 2009
Annual Meeting of Shareholders.
We believe that our compensation policies and procedures are
competitive, are focused on pay for performance principles and are strongly
aligned with the long-term interests of our shareholders. We also believe that
both the Company and shareholders benefit from responsive corporate governance
policies and constructive and consistent dialogue. The resolution described
above, commonly known as a "say on pay" proposal, gives you as a shareholder the
opportunity to endorse or not endorse the compensation we pay to our named
executive officers by voting to approve or not approve such compensation as
described in this Proxy Statement.
We encourage you to closely review our Compensation Discussion and
Analysis and the tabular disclosure which follows it. We organized the
Compensation Discussion and Analysis to discuss each element of compensation,
beginning with direct, short-term compensation (base salary) and ending with
indirect, long-term compensation (retirement benefits) and termination benefits.
In that section, we also discuss our policies and other factors, such as
financial and regulatory constraints, which affect our decisions or those of our
Compensation Committee.
Generally, in this Proxy Statement we are required to disclose
information for our 5 most highly-compensated officers for the past 3 years.
Therefore, most of our tabular disclosure is backwards-looking. When possible,
we have discussed our plans for changes to compensation practices for the
current year and beyond. Importantly, recent legislation and new regulations
will greatly affect our compensation practices going forward. We discuss these
in the Compensation Discussion and Analysis Section under the captions, "Effect
of the Emergency Economic Stabilization Act of 2008," "Effect of Treasury
Department Guidelines Announced February 4, 2009," and "Effect of the America
Reinvestment and Recovery Act of 2009" which appear at pages 13 to 18 of this
Proxy Statement. These laws apply to us because we sold preferred stock to the
United States Treasury in the first quarter of 2009 under its Capital Purchase
Program. Unfortunately, key details of these new laws will be determined only
after the Treasury Department and the SEC issue new regulations. As a result, we
cannot reliably predict what changes we will be required to make to our
compensation programs. In the Compensation Discussion and Analysis section, we
have attempted to discuss these as best we could. We will fully comply with all
applicable requirements as soon as the details of such requirements are known by
us.
33
Also, in many cases, we are required to disclose in the executive
compensation tables accounting or other non-cash estimates of future
compensation. Because of this, we encourage you to read the footnotes and
narratives which accompany each table in order to understand any non-cash items.
No cash bonus was paid to our CEO or any of our other SEOs for 2007 or
2008, except for the payment of a cash bonus in 2007 and 2008 to one SEO based
on the Company's Point of Sale revenue which has actually been paid to and
received by the Company.
Currently, each of the Company's SEOs annual compensation is less than
$500,000. The Company has also instituted a six month deferral of salary
increases for all SEOs in 2009.
We use stock options and restricted stock instead as long-term
incentives because we wanted to enhance the alignment between shareholder
interest and executive compensation. There were no grants of stock or options to
our CEO or any of our other SEOs in 2007 or 2008.
As evidence of the greater alignment with shareholders' interest
mentioned above, the value of the incentive stock options previously granted to
our SEOs has declined as our stock price declined.
Under the ARRA, your vote is advisory and will not be binding upon our
Board of Directors. However, the Compensation Committee will take into account
the outcome of the vote when considering future executive compensation
arrangements.
A majority of the votes cast at the annual meeting is required for
approval of this proposal. Abstentions and broker non-votes, if any, will have
no effect on the vote for this Proposal 3.
The Board of Directors unanimously recommends a vote "FOR" the approval
of the compensation of the Company's executives as described in the Summary
Compensation Table as well as in the Compensation Discussion and Analysis and
the other executive compensation tables and related discussions contained in the
Proxy Statement for the 2009 Annual Meeting of Shareholders.
SHAREHOLDER PROPOSALS FOR THE 2010 ANNUAL MEETING OF SHAREHOLDERS
Proposals of shareholders to be presented at the 2010 Annual Meeting of
the Company's shareholders must be received at the Company's principal executive
offices prior to December 11, 2009 in order to be included in the proxy
statement for such meeting. In order to curtail controversy as to compliance
with this requirement, shareholders are urged to submit proposals to the
Secretary of the Company by Certified Mail - Return Receipt Requested.
Delivery of Documents to Shareholders Sharing an Address
The SEC has adopted rules that allow us to deliver a single annual
report, proxy statement, proxy statement combined with a prospectus, or any
information statement to any household at which two or more shareholders reside
who share the same last name or whom we believe to be members of the same
family. This is known as "householding."
If you share the same last name and address with one or more
shareholders, from now on, unless we receive contrary instructions from you (or
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from one of these other shareholders), you and all other shareholders who have
your last name and live at the same home address will receive only one copy of
any of our annual report, proxy statement for our Annual Meeting of
Shareholders, proxy statement we file and deliver in connection with any other
meeting of shareholders, proxy statement combined with a prospectus or
information statement. We will include with the household materials for our
annual meetings, or any other shareholders' meeting, a separate proxy card for
each registered shareholder who shares your last name and lives at your home
address.
If you do not wish to participate in the householding program, please
contact our transfer agent, American Stock Transfer & Trust Company, at
1-800-937-5449 to "opt-out" or revoke your consent. If you "opt-out" or revoke
your consent to householding, each primary account holder residing at your
address will receive individual copies of the Company's proxy statement, annual
report and other future shareholder mailings.
Most banks and brokers are delivering only one copy of the annual
report and proxy statement to consenting street-name stockholders (you own
shares in the name of a bank, broker or other holder of record on the books of
our transfer agent) who share the same address. Those street-name shareholders
who wish to receive separate copies may do so by contacting their bank or broker
or other holder of record.
Electronic Access to Future Documents
If you would like to receive future shareholder communications over the
Internet exclusively, and no longer receive any material by mail please visit
http://amstock.com. Click on Shareholder Account Access to enroll. Please enter
your account number and tax identification number to log in, then select Receive
Company Mailings via E-Mail and provide your email address.
To View the Annual Report and Proxy Materials Online go to:
www.carrolltonbank.com
OTHER MATTERS
The management of the Company knows of no matters to be presented for
action at the meeting other than those mentioned above; however, if any other
matters properly come before the 2009 Annual Meeting of Shareholders, it is
intended that the persons named in the accompanying proxy will vote on such
other matters in accordance with their judgment of the best interest of the
Company.
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ANNUAL MEETING OF SHAREHOLDERS OF
CARROLLTON BANCORP
May 12, 2009
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES NAMED IN
ITEM NO. 1, AND "FOR" ITEMS NO. 2. AND NO. 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. |X|
1. Election of Directors: For each of the following nominees for a three (3)
year term (except as noted below) and until their respective successors are duly
elected and qualified:
NOMINEES:
|_| FOR ALL NOMINEES |_| Albert R. Counselman
|_| David P. Hessler
|_| Bonnie Phipps
|_| Francis S. Ryan
|_| William C. Rogers, III for remaining
one year term
|_| WITHHOLD AUTHORITY FOR ALL NOMINEES
|_| FOR ALL EXCEPT (See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the square next to each nominee you
wish to withhold, as shown here: |X|
2. Ratification of Rowles & Company, LLP: Ratification of the appointment of
Rowles & Company, LLP, as the Independent Registered Public Accounting
Firm, to audit the financial statements of Carrollton Bancorp for 2009.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. To consider and approve the following advisory (non-binding) proposal:
RESOLVED: that the shareholders of Company approve the compensation of the
Company's executives as described in the Summary Compensation Table as
well as the Compensation Discussion and Analysis and the other executive
compensation tables and related discussions contained in the Proxy
Statement for the 2009 Annual Meeting of the Shareholders.
4. To vote and otherwise represent the undersigned on any other matter that
may properly come before the meeting or any adjournment or postponement
thereof in the discretion of the Proxy holder.
MARK "X" HERE IF YOU PLAN TO ATTEND THE MEETING. |_|
Signature of Date: Signature Date:
Shareholder of
Shareholder
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
CARROLLTON BANCORP
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CARROLLTON BANCORP
The undersigned shareholder(s) of Carrollton Bancorp, a Maryland
corporation (the "Company"), hereby appoints Steven K. Breeden, Harold I.
Hackerman and Howard S. Klein, or any of them, as proxies for the undersigned,
with full power of substitution in each of them, to attend the Annual Meeting of
the Shareholders of the Company to be held at 7151 Columbia Gateway Drive, Suite
A., Columbia, Maryland on May 12, 2009, at 10:00 a.m., prevailing local time,
and any adjournment or postponement thereof, to cast on behalf of the
undersigned all votes that the undersigned is entitled to cast at such meeting
and otherwise to represent the undersigned at the meeting with all powers
possessed by the undersigned if personally present at the meeting. The
undersigned hereby acknowledges receipt of the Notice of the Annual Meeting of
Shareholders and of the accompanying Proxy Statement, each dated March 27, 2009
and revokes any proxy heretofore given with respect to such meeting.
The votes entitled to be cast by the undersigned will be cast as
instructed below. If this Proxy is executed but no instruction is given, the
votes entitled to be cast by the undersigned will be cast "for" each of the
nominees for director and "for" each of the other proposals as described in the
Proxy Statement and in the discretion of the Proxy holder on any other matter
that may properly come before the meeting or any adjournment or postponement
thereof.
(Continued and to be signed on the reverse side)