Peoples Bancorp of North Carolina, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):
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Notice of 2020 Annual Meeting,

Proxy Statement and

Annual Report

 

 

PEOPLES BANCORP OF NORTH CAROLINA, INC.

 PROXY STATEMENT

Table of Contents

 

Notice of 2020 Annual Meeting of Shareholders	iii
Proxy Statement	1
Information About The Annual Meeting	1
Security Ownership Of Certain Beneficial Owners and Management	4
Section 16(a) Beneficial Ownership Reporting Compliance	6
Proposal 1 - Election of Directors	6
Director Nominees	7
Executive Officers of the Company	9
How often did our Board of Directors meet during 2019?	9
What is our policy for director attendance at Annual Meetings?	9
How can you communicate with the Board or its members?	9
Board Leadership Structure and Risk Oversight	9
Code of Business Conduct and Ethics	10
Diversity of the Board of Directors	10
How can a shareholder nominate someone for election to the Board of Directors?	10
Who serves on the Board of Directors of the Bank?	11
Board Committees	11
Executive Committee	11
Governance Committee	11
Audit and Enterprise Risk Committee	11
Compensation Discussion and Analysis	13
Summary Compensation Table	17
Grants of Plan-Based Awards	18
Outstanding Equity Awards at Fiscal Year End	18
Option Exercises and Stock Vested	19
Pension Benefits	19
Nonqualified Deferred Compensation	20
Employment Agreements	20
Potential Payments upon Termination or Change in Control	21
2009 Omnibus Stock Option and Long Term Incentive Plan	21
Director Compensation	22
Indebtedness of and Transactions with Management and Directors	24
Equity Compensation Plan Information	26
Stock Performance Graph	27
Proposal 2 - Approval of the Company’s 2020 Omnibus Stock Option and Long Term Incentive Plan	28
Proposal 3 - Ratification of Selection of Independent Registered Public Accounting Firm	32
Audit Fees Paid to Independent Auditors	32
Date for Receipt of Shareholder Proposals	33
Other Matters	33
Miscellaneous	33

  

Appendices

Appendix A – Annual Report

 

Appendix B – 2020 Omnibus Plan

 

 

 

PEOPLES BANCORP OF NORTH CAROLINA, INC.

 Post Office Box 467

 518 West C Street

 Newton, North Carolina 28658-0467

 (828) 464-5620

 

NOTICE OF 2020 ANNUAL MEETING OF SHAREHOLDERS

 

NOTICE IS HEREBY GIVEN that the 2020 Annual Meeting of Shareholders of Peoples Bancorp of North Carolina, Inc. (the “Company”) will be held as follows:

Place:	Catawba Country Club 1154 Country Club Road Newton, North Carolina
Date:	May 7, 2020
Time:	11:00 a.m., Eastern Time

The purposes of the Annual Meeting are to consider and vote upon the following matters:

The Board of Directors has established March 6, 2020, as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. If an insufficient number of shares is present in person or by proxy to constitute a quorum at the time of the Annual Meeting, the Annual Meeting may be adjourned in order to permit further solicitation of proxies by the Company.

 

Your vote is important. We urge you to vote as soon as possible so that your votes will be properly recorded. You may vote by executing and returning your proxy card in the accompanying envelope, or by voting electronically over the Internet or by telephone. Please refer to the proxy card enclosed for information on voting electronically and by phone. If you attend the Annual Meeting, you may vote in person and the proxy will not be used.

 

We are actively monitoring the public health and travel concerns relating to the coronavirus (COVID-19) and the protocols that federal, state, and local governments may impose. In the event it is not possible or advisable to hold the annual meeting in person, we will announce alternative arrangements for the meeting, which may include holding the meeting by means of remote participation. Please monitor the Company’s website at www.peoplesbanknc.com under the heading “About Us—Investor Relations” for updated information. If you are planning to attend the meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the annual meeting.

 

By Order of the Board of Directors,

Lance A. Sellers 

President and Chief Executive Officer

Newton, North Carolina

March 25, 2020

PEOPLES BANCORP OF NORTH CAROLINA, INC.

______________________________________

PROXY STATEMENT

______________________________________

Annual Meeting of Shareholders

To Be Held On May 7, 2020

_____________________________________

This Proxy Statement is being mailed to our shareholders on or about March 25, 2020, for solicitation of proxies by the Board of Directors of Peoples Bancorp of North Carolina, Inc. Our principal executive offices are located at 518 West C Street, Newton, North Carolina 28658. Our telephone number is (828) 464-5620.

In this Proxy Statement, the terms “we,” “us,” “our” and the “Company” refer to Peoples Bancorp of North Carolina, Inc. The term “Bank” means Peoples Bank, our wholly-owned, North Carolina-chartered bank subsidiary. The terms “you” and “your” refer to the shareholders of the Company.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 7, 2020. The Notice, Proxy Statement and the Annual Report to Shareholders for the year ended December 31, 2019 are also available at https://www.snl.com/IRWebLinkX/GenPage.aspx?IID=4050385&GKP=202713. You may also access the above off-site website by going to www.peoplesbanknc.com and click on the link.

INFORMATION ABOUT THE ANNUAL MEETING

Your vote is very important. For this reason, our Board of Directors is requesting that you allow your common stock to be represented at the 2020 Annual Meeting of Shareholders by the proxies named on the enclosed proxy card.

What items will be voted on at the

 

 

 

 

How many votes are required to approve

 

Any other matters properly coming before the Annual Meeting for a vote will require the affirmative vote of the holders of a majority of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on that matter.

 

In the event there are insufficient votes present at the Annual Meeting for a quorum or to approve or ratify any proposal, the Annual Meeting may be adjourned in order to permit the further solicitation of proxies.

 

What constitutes a “quorum” for

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The Exchange Act requires that any person who acquires the beneficial ownership of more than five percent (5%) of the Company’s common stock notify the Securities and Exchange Commission (the “SEC”) and the Company. Following is certain information, as of the Record Date, regarding those persons or groups who held of record, or who are known to the Company to own beneficially, more than five percent (5%) of the Company’s outstanding common stock.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership1	Percent of Class2
Christine S. Abernethy P.O. Box 386 Newton, NC 28658	725,3383	12.26%
Tontine Financial Partners, LP 55 Railroad Avenue, 3rd Floor Greenwich, CT 06830-6378	347,6514	5.88%
Tontine Management, LLC 55 Railroad Avenue Greenwich, CT 06830	347,6515	5.88%
Tontine Asset Associates, LLC 55 Railroad Avenue Greenwich, CT 06830	142,5806	2.41%
Jeffrey L. Gendell 55 Railroad Avenue Greenwich, CT 06830	490,2317	8.29%

    ________________________________

5 Based on the 2020 Schedule 13G/A, Tontine Management, LLC is the general partner of Tontine Financial Partners, L.P. Represents the number of shares of common stock owned by Tontine Financial Partners, L.P.

6 Based on the 2020 Schedule 13G/A, Tontine Asset Associates, LLC is the general partner of Tontine Capital Overseas Master Fund II, LP. Represents the number of shares of common stock owned by Tontine Capital Overseas Master Fund II, LP.

7 Represents the number of shares of common stock owned directly by Tontine Financial Partners, L.P. and Tontine Capital Overseas Master Fund II, LP.

 

Set forth below is certain information, as of the Record Date (unless otherwise indicated), regarding those shares of common stock owned beneficially by each of the persons who currently serves as a member of the Board of Directors, is a nominee for election to the Board of Directors at the Annual Meeting, or is a named executive officer of the Company. Also shown is the number of shares of common stock owned by the directors and executive officers of the Company as a group.

 

Name and Address	Amount and Nature of Beneficial Ownership1	Percentage of  Class2
James S. Abernethy Post Office Box 327 Newton, NC 28658	137,2403	2.32%
Robert C. Abernethy Post Office Box 366 Newton, NC 28658	172,7104	2.92%
William D. Cable, Sr. Post Office Box 467 Newton, NC 28658	23,606	*
Douglas S. Howard Post Office Box 587 Denver, NC 28037	19,9405	*
A. Joseph Lampron, Jr. Post Office Box 467 Newton, NC 28658	16,934	*
John W. Lineberger, Jr. Post Office Box 481 Lincolnton, NC 28092	4,610	*
Gary E. Matthews 210 First Avenue South Conover, NC 28613	26,738	*
Billy L. Price, Jr., M.D. 540 11th Ave. Place NW Hickory, NC 28601	10,091	*
Larry E. Robinson Post Office Box 723 Newton, NC 28658	66,8746	1.13%
Lance A. Sellers Post Office Box 467 Newton, NC 28658	25,750	*
William Gregory Terry Post Office Box 610 Newton, NC 28658	20,234	*
Dan Ray Timmerman, Sr. Post Office Box 1148 Conover, NC 28613	100,9087	1.71%
Benjamin I. Zachary Post Office Box 277 Taylorsville, NC 28681	110,6168	1.87%

 

 

All current directors and nominees and executive officers as a group (13 people) 665,8109 11.26%

 

*Does not exceed one percent of the common stock outstanding.

______________________________________________

 

 

 

 

 

 

 

 

 

Directors James S. Abernethy and Robert C. Abernethy are brothers and are sons of Christine S. Abernethy, who owns in excess of ten percent (10%) of the common stock of the Company.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who own more than ten percent (10%) of the common stock, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than ten percent (10%) beneficial owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

 

Based solely on a review of the copies of such forms furnished to the Company and written representations from the Company’s executive officers and directors, the Company believes that during the fiscal year ended December 31, 2019, its executive officers and directors and greater than ten percent (10%) beneficial owners complied with all applicable Section 16(a) filing requirements.

 

PROPOSAL 1

 

ELECTION OF DIRECTORS

 

Our Board of Directors has set its number at ten members. Our current Bylaws provide that in order to be eligible for consideration at the Annual Meeting of Shareholders, all nominations of directors, other than those made by the Governance Committee or the Board of Directors, must be in writing and must be delivered to the Secretary of the Company not less than 50 days nor more than 90 days prior to the meeting at which such nominations will be made; provided, however, that if less than 60 days’ notice of the meeting is given to the shareholders, such nominations must be delivered to the Secretary of the Company not later than the close of business on the tenth day following the day on which the notice of meeting was mailed.

 

Information about the nominees for election to the Board of Directors for a one-year term until the 2021 Annual Meeting of Shareholders appears below. All of the nominees are currently serving on the Board of Directors.

Director Nominees

James S. Abernethy, age 65 (as of February 1, 2020), is employed by Carolina Glove Company, Inc., a glove manufacturing company as its Vice President. Mr. Abernethy continues to serve as President and Assistant Secretary of Midstate Contractors, Inc., a paving company and also as Vice President, Secretary and Chairman of the Board of Directors of Alexander Railroad Company. He has served as a director of the Company since 1992. Mr. Abernethy has a total of 27 years of banking experience and is a graduate of the North Carolina Bank Directors’ College and attended the initial Advanced Directors’ Training session offered by the North Carolina Bank Directors’ College in association with the College of Management at North Carolina State University. Mr. Abernethy earned a business administration degree from Gardner Webb University in North Carolina. Over his 26 years of service on the Board of Directors, Mr. Abernethy has served on all the Bank’s and the Company’s committees.

 

Robert C. Abernethy, age 69 (as of February 1, 2020), is employed by Carolina Glove Company, Inc., a glove manufacturing company, as its President, Secretary and Treasurer. Mr. Abernethy continues to serve as Secretary and Assistant Treasurer of Midstate Contractors, Inc., a paving company. He has served as a director of the Company since 1976 and as Chairman since 1991. Mr. Abernethy has a total of 43 years of banking experience and is a graduate of the North Carolina Bank Directors’ College and attended the initial Advanced Directors’ Training session offered by the North Carolina Bank Directors’ College in association with the College of Management at North Carolina State University. Mr. Abernethy earned a B.S. degree from Gardner Webb University in North Carolina. He serves on the Finance Committee and Investment Committee of Grace United Church of Christ. Mr. Abernethy also serves on the board of directors of Carolina Glove Company, Inc. and Midstate Contractors, Inc. both privately held companies.

 

Douglas S. Howard, age 61 (as of February 1, 2020), is employed by Denver Equipment Company of Charlotte, Inc. as Vice President and Treasurer. Mr. Howard is also an owner of Howard, Helderman, Howard, LLC. He has served as a director of the Company since 2004. Mr. Howard has a total of 21 years of banking experience and is a graduate of the North Carolina Bank Directors’ College and attended the initial Advanced Directors’ Training session offered by the NC Bank Directors’ College in association with the College of Management at North Carolina State University. Mr. Howard also serves as the Chairman of the Board of Trustees of Catawba Valley Medical Center and as a director of the Board of Directors of Catawba Valley Medical Group.

 

John W. Lineberger, Jr., age 69 (as of February 1, 2020), is employed by Lincoln Bonded Warehouse Company, a commercial warehousing facility, as President. He has served as a director of the Company since 2004. Mr. Lineberger has a total of 15 years of banking experience and is a graduate of the North Carolina Bank Directors’ College and attended the initial Advanced Directors’ Training session offered by the NC Bank Directors’ College in association with the College of Management at North Carolina State University. Mr. Lineberger earned a B.S. degree in business administration from Western Carolina University.

 

Gary E. Matthews, age 64 (as of February 1, 2020), is employed by Matthews Construction Company, Inc. as its President and a Director. He has served as a director of the Company since 2001. Mr. Matthews has a total of 18 years of banking experience, is a graduate of the North Carolina Bank Directors’ College, and attended the initial Advanced Directors’ Training session offered by the NC Bank Directors’ College in association with the College of Management at North Carolina State University. Mr. Matthews is also a director of Conover Metal Products, a privately held company. Mr. Matthews earned a B.S. degree in civil engineering/construction from North Carolina State University.

 

Billy L. Price, Jr., M.D., age 63 (as of February 1, 2020), is a Practitioner of Internal Medicine at BL Price Jr Medical Consultants, PLLC. Dr. Price served on the Board of Trustees of Catawba Valley Medical Center through 2018. He has served as a director of the Company since 2004. Dr. Price has a total of 15 years of banking experience and is a graduate of the North Carolina Bank Directors’ College and attended the initial Advanced Directors’ Training session offered by the NC Bank Directors’ College in association with the College of Management at North Carolina State University. Dr. Price was previously the owner/pharmacist of Conover Drug Company. He is also a Medical Director of Healthgram Medical, a private company. Dr. Price earned a B.S. degree in pharmacy from the University of North Carolina at Chapel Hill and his MD from East Carolina University School of Medicine. He serves as Medical Director and Assistant Professor to Lenoir Rhyne University Physician Assistants Master of Science Program.

 

Larry E. Robinson, age 74 (as of February 1, 2020, is a shareholder, director and Chief Executive Officer of The Blue Ridge Distributing Company, Inc., a beer and wine distributor. He is also a director and member of the Board of Directors of United Beverages of North Carolina, LLC, a malt beverage beer distributor. He has served as a director of the Company since 1993. Mr. Robinson has a total of 26 years of banking experience and is a graduate of the North Carolina Bank Directors’ College. Mr. Robinson attended Western Carolina University and received an Associate Degree in Business and Accounting from Catawba Valley Community College in North Carolina.

 

William Gregory Terry, age 52 (as of February 1, 2020), is President of DFH Holdings and Operator/General Manager of Drum & Willis-Reynolds Funeral Homes and Crematory and President of Hole-in-One Advantage, LLC. He has served as a director of the Company since 2004. Mr. Terry has a total of 15 years of banking experience and is a graduate of the North Carolina Bank Directors’ College and attended the initial Advanced Directors’ Training session offered by the NC Bank Directors’ College in association with the College of Management at North Carolina State University. Mr. Terry graduated with a B.S. degree in business management from Clemson University in South Carolina. Mr. Terry serves on numerous civic and community boards.

 

Dan Ray Timmerman, Sr., age 72 (as of February 1, 2020), is a shareholder, director, Chairman of the Board of Directors and the Chief Executive Officer of Timmerman Manufacturing, Inc., a wrought iron furniture, railings and gates manufacturer. He has served as a director of the Company since 1995. Mr. Timmerman has a total of 24 years of banking experience and is a graduate of the North Carolina Bank Directors’ College and attended the initial Advanced Directors’ Training session offered by the NC Bank Directors’ College in association with the College of Management at North Carolina State University. Mr. Timmerman earned a B.S. degree in business administration with a concentration in accounting from Lenoir-Rhyne University in North Carolina.

 

Benjamin I. Zachary, age 63 (as of February 1, 2020), is employed by Alexander Railroad Company as its President, Treasurer, General Manager and Director. He has served as a director of the Company since 1995. Mr. Zachary has a total of 24 years of banking experience and is a graduate of the North Carolina Bank Directors’ College. Mr. Zachary earned a B.S. degree in business administration with a concentration in accounting from the University of North Carolina at Chapel Hill. He worked as a CPA for a national accounting firm for eight years following graduation where his assignments included financial statement audits of several banks.  Mr. Zachary is a member of the Taylorsville Rotary Club and serves as Treasurer for the Taylorsville Rotary Club and its Foundation.

 

We have no reason to believe that any of the nominees for election will be unable or will decline to serve if elected. In the event of death or disqualification of any nominee or the refusal or inability of any nominee to serve as a director, however, the proxies will vote for the election of another person as they determine in their discretion or may allow the vacancy to remain open until filled by the Board of Directors. In no circumstance will any proxy be voted for more than two nominees who are not named in this Proxy Statement. Properly executed and returned proxies, unless revoked, will be voted as directed by you or, in the absence of direction, will be voted in favor of the election of the recommended nominees. An affirmative vote of a plurality of votes cast at the Annual Meeting is necessary to elect a nominee as a director.

 

THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE “FOR” ALL OF THE NOMINEES NAMED ABOVE AS DIRECTORS

 

Executive Officers of the Company

 

During 2019, our executive officers were:

 

Lance A. Sellers, age 57 (as of February 1, 2020), serves as the President and Chief Executive Officer of the Company and the Bank. Prior to becoming the President and Chief Executive Officer of the Company and the Bank, Mr. Sellers served as Executive Vice President and Assistant Corporate Secretary of the Company and Executive Vice President and Chief Credit Officer of the Bank. He has been employed by the Company and the Bank since 1998. Mr. Sellers has a total of 35 years of banking experience. He is a graduate of the University of North Carolina at Chapel Hill and served as a senior credit officer at a regional bank headquartered in North Carolina.

 

William D. Cable, Sr., age 51 (as of February 1, 2020), serves as Executive Vice President, Assistant Corporate Treasurer and Corporate Secretary of the Company and Executive Vice President and Chief Operating Officer of the Bank. He has been employed by the Company and the Bank since 1995, where he has served as Senior Vice President-Information Services. Mr. Cable has a total of 28 years of banking experience. Prior to joining the Company, Mr. Cable was a regulatory examiner with the Federal Deposit Insurance Corporation. He is a graduate of Western Carolina University and the School of Banking of the South at Louisiana State University.

 

A. Joseph Lampron, Jr., age 65 (as of February 1, 2020), serves as Executive Vice President, Chief Financial Officer, Corporate Treasurer and Assistant Corporate Secretary of the Company and Executive Vice President and Chief Financial Officer of the Bank. He has been employed by the Company and the Bank since 2001. Mr. Lampron is a graduate of the University of North Carolina at Chapel Hill and upon graduation worked as a certified public accountant with a national accounting firm. His work with the firm included audits of banks and thrift institutions. Mr. Lampron has also served as Chief Financial Officer of a thrift institution and as a senior change manager in the finance group of a large North Carolina bank. Mr. Lampron has a total of 40 years of banking experience.

 

How often did our Board of Directors meet during 2019?

 

Our Board of Directors held 15 meetings during 2019. All incumbent directors attended more than 75% of the total number of meetings of the Board of Directors and its committees on which they served during the year.

 

What is our policy for director attendance at Annual Meetings?

 

Although it is customary for all of our directors to attend Annual Meetings of Shareholders, we have no formal policy in place requiring attendance. All members of the Board of Directors attended our 2019 Annual Meeting of Shareholders held on May 2, 2019.

 

How can you communicate with the Board or its members?

 

We do not have formal procedures for shareholder communication with our Board of Directors. In general, our directors and officers are easily accessible by telephone, postal mail or e-mail. Any matter intended for your Board of Directors, or any individual director, can be directed to Lance Sellers, our President and Chief Executive Officer, or Joe Lampron, our Chief Financial Officer, at our principal executive offices at 518 West C Street, Newton, North Carolina 28658. You also may direct correspondence to our Board of Directors, or any of its members, in care of the Company at the foregoing address. Your communication will be forwarded to the intended recipient unopened.

 

Board Leadership Structure and Risk Oversight

 

Our Company and the Bank have traditionally operated with separate Chief Executive Officer and Chairman of the Board of Directors positions. We believe it is our Chief Executive Officer’s responsibility to manage the Company and the Chairman’s responsibility to lead the Board of Directors. Robert Abernethy is currently serving as Chairman of the Board of Directors, and James Abernethy is currently serving as the Vice

 

Chairman of the Board of Directors. Other than Directors Lineberger and Matthews, all of the members of the Board of Directors are independent under applicable NASDAQ listing requirements. The Company has five standing committees: Executive, Loan Sub-Committee, Governance, Audit and Enterprise Risk and Compensation. The Chief Executive Officer serves on the Executive Committee. The Bank, in addition to the above-named committees, has a Loan Committee and a Loan Sub-Committee. The duties of the Company’s committees are described below. Each of the Company’s and the Bank’s committees considers risk within its area of responsibility. The Audit and Enterprise Risk Committee and the full Board of Directors focus on the Company’s most significant risks in the areas of liquidity, credit, interest rate and general risk management strategy. The Board of Directors sets policy guidelines in the areas of loans and asset/liability management which are reviewed on an on-going basis. While the Board of Directors oversees the Company’s risk management, the Company’s and the Bank’s management are responsible for day-to-day risk management following the dictates of the policy decisions set by the Board of Directors.

 

The Governance Committee, as part of its annual review, evaluates the Board of Directors leadership structure and performance and reports its findings to the whole Board of Directors. The Board of Directors believes that having separate persons serving as Chief Executive Officer and Chairman provides the optimal board leadership structure for the Company and its shareholders.

 

Code of Business Conduct and Ethics

 

The Company and the Bank have a Code of Business Conduct and Ethics for its directors, officers and employees. The Code of Business Conduct and Ethics requires that individuals avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in the best interests of the Company and the Bank. The Code of Business Conduct and Ethics is a guide to help ensure that all employees live up to the highest ethical standards of behavior.

 

A copy of the Code of Business Conduct and Ethics is available on the Bank’s website (www.peoplesbanknc.com) under Investor Relations.

 

As is permitted by SEC rules, the Company intends to post on its website any amendment to or waiver from any provision in the Code of Business Conduct and Ethics that applies to the Chief Executive Officer, the Chief Financial Officer, the Controller, or persons performing similar functions, and that relates to any element of the standards enumerated in the rules of the SEC.

 

Diversity of the Board of Directors

 

The Bank has adopted written diversity policy in its employee handbook, and such diversity policy was approved by the Board of Directors of the Bank.  The Company and the Bank value diversity in society, and believe that the virtues and pursuit of diversity are just as important within the Company and the Bank.  The Company and the Bank adhere to a policy prohibiting discrimination and harassment on the basis of legally protected characteristics, including sex, pregnancy, race, color, religion, national origin, veteran status, age, and disability. While there are currently no women or minorities serving on the Board of Directors, any qualified candidate receives equal consideration.

 

How can a shareholder nominate someone for election to the Board of Directors?

 

Our Bylaws provide that in order to be eligible for consideration at the Annual Meeting of Shareholders, all nominations of directors, other than those made by the Governance Committee or the Board of Directors, must be in writing and must be delivered to the Secretary of the Company not less than 50 days nor more than 90 days prior to the meeting at which such nominations will be made. However, if less than 60 days’ notice of the meeting is given to the shareholders, such nominations must be delivered to the Secretary of the Company not later than the close of business on the tenth day following the day on which the notice of meeting was mailed.

 

The Board of Directors may disregard any nominations that do not comply with these requirements. Upon the instruction of the Board of Directors, the inspector of voting for the Annual Meeting may disregard all votes cast

 

 

for a nominee if the nomination does not comply with these requirements. Written notice of nominations should be directed to the Secretary of the Company.

Who serves on the Board of Directors of the Bank?

The Bank has ten directors currently serving on its Board of Directors, who are the same people who are currently directors of the Company.

 

Board Committees

 

During 2019, our Board of Directors had five standing committees, the Audit and Enterprise Risk Committee, the Governance Committee, the Compensation Committee, the Executive Committee and the Loan Sub-Committee. The voting members of these Committees are appointed by the Board of Directors annually from among its members. Certain of our executive officers also serve as non-voting, advisory members of these committees.

 

Executive Committee. The Executive Committee performs duties as assigned by the full Board of Directors. Actions taken by the Executive Committee must be approved by the full Board of Directors. The following persons currently serve on the Executive Committee: Directors R. Abernethy, J. Abernethy, Lineberger, Robinson and Terry, as well as the President and Chief Executive Officer of the Company in a non-voting capacity. It meets on an “as needed” basis and did not meet during 2019.

 

Governance Committee. The Governance Committee is responsible for developing and maintaining the corporate governance policy, as well as acting as the nominating committee for the Board of Directors. The following persons currently serve on the Governance Committee: Directors R. Abernethy, J. Abernethy, Howard, Terry, and Timmerman. All of the members of the Governance Committee are independent as defined in the applicable NASDAQ listing standards. The Board of Directors determines on an annual basis each director’s independence.

 

The Governance Committee, serving as the nominating committee of the Board of Directors, interviews candidates for membership to the Board of Directors, recommends candidates to the full Board of Directors, slates candidates for shareholder votes, and fills any vacancies on the Board of Directors which occur between shareholder meetings. The Governance Committee’s identification of candidates for director typically results from the business interactions of the members of the Governance Committee or from recommendations received from other directors or from the Company’s management.

 

If a shareholder recommends a director candidate to the Governance Committee in accordance with the Company’s Bylaws, the Governance Committee will consider the candidate and apply the same considerations that it would to its own candidates. The recommendation of a candidate by a shareholder should be made in writing, addressed to the attention of the Governance Committee at the Company’s corporate headquarters. The recommendation should include a description of the candidate’s background, his or her contact information, and any other information the shareholder considers useful and appropriate for the Governance Committee’s consideration of the candidate. The criteria which have been established by the Governance Committee as bearing on the consideration of a candidate’s qualification to serve as a director include the following: the candidate’s ethics, integrity, involvement in the community, success in business, relationship with the Bank, investment in the Company, place of residence (i.e., proximity to the Bank’s market area), and financial expertise.

 

The Governance Committee met twice during the year ended December 31, 2019.

 

The Governance Committee has a written charter which is reviewed annually, and amended as needed, by the Governance Committee. A copy of the Governance Committee Charter is available on the Bank’s website (www.peoplesbanknc.com) under Investor Relations.

 

Audit and Enterprise Risk Committee. The Company has a separately designated standing Audit and Risk Enterprise Committee (the “Audit Committee”) which was established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee’s responsibilities include oversight of enterprise risk. The Audit Committee

 

has a written charter which is reviewed annually, and amended as needed, by the Audit Committee. A copy of the Audit Committee Charter is available on the Bank’s website (www.peoplesbanknc.com) under Investor Relations. The following persons currently serve on the Audit Committee: Directors R. Abernethy, J. Abernethy, Howard, Price, Timmerman and Zachary.

 

The Audit Committee meets at least quarterly and, among other responsibilities, oversees (i) the independent auditing of the Company; (ii) the system of internal controls that management has established; and (iii) the quarterly and annual financial information to be provided to shareholders and the SEC. The Audit Committee met eight times during the year ended December 31, 2019.

Audit Committee Report. The Audit Committee has reviewed and discussed the audited financial statements with management of the Company and has discussed with the independent auditors the matters required to be discussed by Auditing Standards No. 16 as amended (AICPA, Professional Standards, Vol. 1 AU section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the Audit Committee has received the written disclosures and the letter from the independent accountants required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence. Based upon 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 fiscal year ended December 31, 2019 for filing with the SEC.

 

	Robert C. Abernethy	Dan R. Timmerman, Sr.
	Benjamin I. Zachary Douglas S. Howard	James S. Abernethy Billy L Price, Jr. MD, Committee Chair

Compensation Committee. The Company’s Compensation Committee is responsible for developing, reviewing, implementing and maintaining the Bank’s salary, bonus, and incentive award programs and for making recommendations to the Company’s and the Bank’s Board of Directors regarding compensation of the executive officers. Upon recommendation from the Compensation Committee, the Company’s Board of Directors ultimately determines such compensation.

 

All of the members of the Compensation Committee are independent as defined in the applicable NASDAQ’s listing standards. The Board of Directors determines on an annual basis each director’s independence. The following persons currently serve on the Compensation Committee: Directors R. Abernethy, J. Abernethy, Howard, Terry and Timmerman. The Compensation Committee met three times during the year ended December 31, 2019.

The Compensation Committee has a written charter which is reviewed annually, and amended as needed, by the Compensation Committee. A copy of the Compensation Committee’s Charter is available on the Bank’s website (www.peoplesbanknc.com) under Investor Relations.

Compensation Committee Interlocks and Insider Participation. No member of the Compensation Committee is now, or formerly was, an officer or employee of the Company or the Bank. None of the named executive officers serve as a member of the board of directors of another entity whose executive officers or directors serve on the Company’s Board of Directors.

 

Compensation Committee Report. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis in this Proxy Statement with management and has recommended that it be included in this Proxy Statement and our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2019.

 

 

Compensation Committee

Robert C. Abernethy

James S. Abernethy

Douglas S. Howard

William Gregory Terry

Dan R. Timmerman, Sr., Committee Chair

 

Compensation Discussion and Analysis

 

The following Compensation Discussion and Analysis provides information with respect to the compensation paid during the year ended December 31, 2019 to our President and Chief Executive Officer, Lance A. Sellers, our Chief Financial Officer, A. Joseph Lampron, Jr. and William D. Cable, Sr. (together, our “named executive officers”).

Compensation Committee Processes and Procedures. The Compensation Committee assists the Board of Directors in determining appropriate compensation levels for the members of the Board of Directors and our named executive officers. It also has strategic and administrative responsibility for a broad range of compensation issues. It seeks to ensure that we compensate key management employees effectively and in a manner consistent with the Compensation Committee’s stated compensation strategy and relevant requirements of various regulatory entities. A part of these responsibilities is overseeing the administration of executive compensation and employee benefit plans, including the design, selection of participants, establishment of performance measures, and evaluation of awards pursuant to our annual and long-term incentive programs.

Compensation Philosophy. The overall objective of our executive compensation program is to align total compensation so that the individual executive believes it is fair and equitable and provides the highest perceived value to our shareholders and to that individual. In order to accomplish this overall objective, our executive compensation program is designed to: (i) attract qualified executives necessary to meet our needs as defined by the Company’s strategic plans, and (ii) retain and motivate executives whose performance supports the achievement of our long-term plans and short-term goals. The executive compensation program is founded upon the idea that a strong, performance-oriented compensation program, which is generally consistent with the practices of our peers, is a key ingredient in becoming a leading performer among financial institutions of similar size, and is, therefore, in the best interests of our shareholders.

 

The Compensation Committee considers a number of factors specific to each executive’s role when determining the amount and mix of compensation to be paid. These factors are:

 

 

Elements of the Executive Compensation Program. The Company’s and the Bank’s compensation program consists of the following elements:

 

Base Salary. The salaries of our named executive officers are designed to provide a reasonable level of compensation that is affordable to the Company and fair to the executive. Salaries are reviewed annually, and adjustments, if any, are made based on the review of competitive salaries in our peer group, as well as an evaluation of the individual officer’s responsibilities, job scope, and individual performance. For example, we

 

assess each officer’s success in achieving budgeted earnings and return ratios, business conduct and integrity, and leadership and team building skills.

 

Annual Cash Incentive Awards. We believe that annual cash incentive awards encourage our named executive officers to achieve short-term targets that are critical to achievement of our long-term strategic plan. The Bank has a Management Incentive Plan for officers of the Bank. Participants in the Management Incentive Plan are recommended annually by the President and Chief Executive Officer to the Bank’s Board of Directors. Each individual’s incentive pool is determined by a formula which links attainment of corporate budget with attainment of individual goals and objectives. Incentives under the Management Incentive Plan are paid annually. No named executive officer earned or was paid a cash incentive under the Management Incentive Plan during the fiscal year ended December 31, 2019.

 

Discretionary Bonus and Service Awards. From time to time the Compensation Committee may recommend to the Board of Directors that additional bonuses be paid based on accomplishments that significantly exceed expectations during the fiscal year. These bonuses are totally discretionary as to who will receive a bonus and the amount of any such bonus. In 2019, the Compensation Committee recommended, and the Board of Directors approved, discretionary bonuses as follows: $115,000 for Mr. Sellers; $150,000 for Mr. Lampron; and $55,000 for Mr. Cable. These discretionary bonuses were paid in January of 2020. Under the Service Recognition Program, the Bank gives service awards to each employee and director for every five years of service with the Bank to promote longevity of service for both directors and employees. Service awards are made in the form of shares of the Company’s common stock plus cash in the amount necessary to pay taxes on the award. The number of shares awarded increases with the number of years of service to the Bank.

 

Long-Term Equity Incentive Awards. During part of the fiscal year ended December 31, 2009, the Company maintained the 2009 Omnibus Stock Ownership and Long Term Incentive Plan (“2009 Omnibus Plan”), under which it was permitted to grant incentive stock options, restricted stock, restricted stock units, stock appreciation rights, book value shares, and performance units. The purpose of the 2009 Omnibus Plan was to promote the interests of the Company by attracting and retaining directors and employees of outstanding ability and to provide executives of the Company greater incentive to make material contributions to the success of the Company by providing them with stock-based compensation which would increase in value based upon the market performance of the common stock and/or the corporate achievement of financial and other performance objectives. The 2009 Omnibus Plan expired on May 7, 2019.

 

In making its decision to grant awards to the Company’s named executive officers under the 2009 Omnibus Plan, the Compensation Committee considered all elements of such named executive officer’s compensation. In considering the number of awards to grant to the Company’s named executive officers, the Compensation Committee considered each named executive officer’s contribution to the Company’s performance.

 

See “Grants of Plan-Based Awards” on page 19 of this Proxy Statement, “Outstanding Equity Awards at Fiscal Year-End” on page 19 of this Proxy Statement and “Option Exercises and Stock Vested” on page 20 of this Proxy Statement for information on grants and vesting of restricted stock units to the named executed officers under the 2009 Omnibus Plan. See “2009 Omnibus Plan and Long Term Incentive Plan” starting on page 22 of this Proxy Statement for additional information on the 2009 Omnibus Plan.

 

Supplemental Executive Retirement Agreements. The Bank provides a non-qualified supplemental executive retirement benefit in the form of Amended and Restated Executive Salary Continuation Agreements with Messrs. Sellers, Lampron and Cable. The Committee’s goal is to provide competitive retirement benefits given the restrictions on executives within tax-qualified plans. In prior years, the Compensation Committee worked with a compensation consultant in analyzing the possible benefits of using supplemental retirement benefits to address the issues of internal and external equity in terms of retirement benefits offered to all employees at the Company as a percentage of final average pay and executives in our peer group. In connection with the non-qualified supplemental executive retirement benefits, the Bank purchased life insurance contracts on the lives of the named executive officers. The increase in cash surrender value of the life insurance contracts constitutes the Bank’s contribution to the plan each year. The Bank will pay benefits to participating officers for a period between 13 years and the life of the officer. The Bank is the sole owner of all of the insurance contracts.

 

Profit Sharing Plan and 401(k) Plan. The Bank has a Profit Sharing Plan and 401(k) Plan for all eligible employees. The Bank made no contribution to the Profit Sharing Plan for the year ended December 31, 2019. No investments in Bank stock have been made by the plan. Under the Bank’s 401(k) Plan, the Bank matches employee contributions to a maximum of 4.00% of annual compensation. The Bank’s 2019 contribution to the 401(k) Plan pursuant to this formula was approximately $691,000. All contributions to the 401(k) Plan are tax deferred. The Profit Sharing Plan and 401(k) Plan permit participants to choose from investment funds which are selected by a committee comprised of senior management. Employees are eligible to participate in both the 401(k) Plan and Profit Sharing Plan beginning in the second month of employment. Both plans are now “safe harbor” plans, and all participants are immediately 100% vested in all employer contributions.

 

Deferred Compensation Plan. The Bank maintains a non-qualified deferred compensation plan for directors and certain officers. Eligible officers selected by the Bank’s Board of Directors may elect to contribute a percentage of their compensation to the plan. Participating officers may elect to invest their deferred compensation in a restricted list of investment funds. The Bank may make matching or other contributions to the plan as well, in amounts determined at the discretion of the Bank. Participants are fully vested in all amounts contributed to the plan by them or on their behalf. The Bank has established a Rabbi Trust to hold the accrued benefits of the participants under the plan. There are no “above-market” returns provided for in this plan. The Bank made no contributions to the plan in 2019. Benefits under the plan are payable in the event of the participant’s retirement, death, termination, or as a result of hardship. Benefit payments may be made in a lump sum or in installments, as selected by the participant.

 

Employment Agreements. The Company has employment agreements with each named executive officer, which the Board of Directors believes serve a number of functions, including (i) retention of the executive team; (ii) mitigation of any uncertainty about future employment and continuity of management in the event of a change in control; and (iii) protection of the Company and customers through non-compete and non-solicitation covenants. Additional information regarding the employment agreements, including a description of key terms may be found under the heading “Employment Agreements” starting on page 21 of this Proxy Statement.

 

Other Benefits. Executive officers are entitled to participate in fringe benefit plans offered to employees including health and dental insurance plans and life, accidental death and dismemberment and long-term disability plans. In addition, the Bank has paid country club dues for each named executive officer and provides a car allowance to Mr. Sellers.

 

The above elements of each named executive officer’s compensation are not inter-related. For example, if vesting standards on restricted stock awards are not achieved, the executive’s base salary is not increased to make up the difference. Similarly, the value of previously granted options is not considered by the Compensation Committee in recommending the other elements of the compensation package.

 

The Compensation Committee did not engage a compensation consultant during the year ended December 31, 2019. The President and Chief Executive Officer of the Company and the Bank makes recommendations to the Committee regarding the compensation of the executive officers other than his own. The President and Chief Executive Officer participates in the deliberations, but not in the decisions, of the Compensation Committee regarding compensation of executive officers. He does not participate in the Compensation Committee’s discussion or decisions regarding his own compensation. The Compensation Committee reports its actions to the Board of Directors and keeps written minutes of its meetings, which minutes are maintained with the books and records of the Company.

 

The Compensation Committee also considers the results of the shareholders’ non-binding vote on executive compensation. At the 2019 Annual Meeting of Shareholders, 57.78% of the shareholders who voted at the 2019 Annual Meeting of Shareholders elected to review the executive compensation of the Company’s named executive officers once every three years. As such, The Company will submit a vote to the shareholders on the compensation of its named executive officers at the 2022 Annual Meeting of Shareholders. At the 2019 Annual Meeting of Shareholders, 85.40% of the Shareholders who voted at the 2019 Annual Meeting of Shareholders approved the executive compensation of the Company’s named executive officers as presented in the 2019 proxy statement.

 

2019 Compensation Disclosure Ratio of the Median Annual Total Compensation of All Company Employees to the Annual Total Compensation of the Company’s Chief Executive Officer

 

We believe our executive compensation program must be consistent and internally equitable to motivate our employees to perform in ways that enhance shareholder value. We are committed to internal pay equity, and the Compensation Committee monitors the relationship between the pay of our executive officers and the pay of our non-executive employees.  The Compensation Committee reviewed a comparison of our Chief Executive Officer’s annual total compensation in fiscal year 2019 to that of all other Company employees (including all employees of the Bank) for the same period.  The calculation of annual total compensation of all employees was determined in the same manner as the “Total Compensation” shown for our Chief Executive Officer in the “Summary Compensation Table” on page 18 of this Proxy Statement. 

 

The calculation below includes all employees as of October 31, 2019.

 

The 2019 compensation disclosure ratio of the median annual total compensation of all Company employees to the annual total compensation of the Company’s chief executive officer is as follows:

 

Median Annual Total Compensation of All Employees (excluding Lance A. Sellers, Chief Executive Officer)	$43,950
Annual Total Compensation of Lance A. Sellers, Chief Executive Officer	$552,257
Ratio of the Median Annual Total Compensation of All Employees to the Annual Total Compensation of Lance A. Sellers, Chief Executive Officer	12.57

 

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position	Year	Salary($)	Bonus($)	Stock Awards($)1	Change in Pension Value and Nonqualified Deferred Compensation Earnings($)	All Other Compensation($)2	Total($)
Lance A. Sellers	2019	336,980	115,000	-	74,098	26,179	552,257
President and Chief Executive	2018	328,760	90,000	-	68,064	30,454	517,278
Officer	2017	319,185	55,000	-	62,493	29,080	465,758
A. Joseph Lampron, Jr.	2019	216,309	150,000	-	25,658	24,802	416,769
Executive Vice President,	2018	210,009	55,000	-	120,772	22,224	408,005
Chief Financial Officer	2017	203,892	45,000	-	112,658	23,020	384,570
William D. Cable, Sr.	2019	228,174	55,000	40,086	29,227	25,081	377,568
Executive Vice President,	2018	216,125	50,000	-	26,837	24,365	317,327
Chief Operating Officer	2017	209,830	45,000	-	24,608	24,506	303,944

________________

1 Amount represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. See Note 1 in the Notes to the Company’s Consolidated Financial Statements included in the Company’s Annual Report, which Annual Report is attached here to as Appendix A.

2 All other compensation is comprised of the following:

 

Name and Principal Position	Year	Employer Match($)	Car Allowance($)	Country Club Dues($)	Split Dollar Death Benefit($)	Group Term Life($)(a)	Disability and LTC Premiums($)(b)	Dividends Accrued on Restricted Stock Units($)	Other($)
Lance A. Sellers President and Chief Executive Officer	2019	11,200	1,872	3,825	570	1,548	5,894	1,270	0
	2018	11,000	2,888	3,730	539	2,899	5,628	1,270	2,500(c)
	2017	10,800	2,888	3,636	501	3,456	5,628	2,171	0
A. Joseph Lampron, Jr. Executive Vice President, Chief Financial Officer	2019	11,200	0	3,660	1,464	5,626	1,900	952	0
	2018	10,610	0	3,630	1,359	3,688	1,984	953	0
	2017	10,800	0	3,460	1,234	3,951	1,984	1,591	0
William D. Cable, Sr. Executive Vice President, Chief Operating Officer	2019	11,118	0	3,780	496	1,047	7,688	952	0
	2018	10,795	0	3,730	463	2.050	6,375	952	0
	2017	10,675	0	3,636	433	1,796	6,375	1,591	0

_________

(a)Represents amounts paid by the Bank for premiums on group term life insurance in excess of $50,000 for each named executive officer.

(b)Represents amounts paid by the Bank for premiums on disability and long-term care insurance for each named executive officer.

(c)In 2018, Mr. Sellers received 68 shares for 20 years of service with the Bank and $528 in cash to pay taxes associated with the award under the Bank’s Service Recognition Program.

 

 

Grants of Plan-Based Awards

The Company did not grant any plan-based awards to Messrs. Sellers and Lampron during the fiscal year ended December 31, 2019. The following table shows certain information for those grants of plan-based awards that we made to Mr. Cable during the fiscal year ended December 31, 2019.

 

GRANTS OF PLAN-BASED AWARDS TABLE

		Estimated Future Payouts Under Equity Incentive Plan Awards
Name	Grant DateThreshold (#)	Target (#)	Maximum (#)	All Other Stock Awards:Numberof Sharesof Stockor Units (#)	All Other Option Awards: Number of Securities Under- lying Options (#)	Exercise or Base Price of Option Awards ($/Sh)	Grant Date Fair Value of Stock and Option Awards ($)
William D. Cable, Sr.	February 21, 2019	--	--	1,400(1)	--	--	28.43

____________________________________

(1) Restricted stock units vest in full on February 21, 2023.

 

Outstanding Equity Awards at Fiscal Year End

Messrs. Sellers and Lampron did not have any outstanding equity awards at December 31, 2019. The following table shows certain information for those outstanding equity awards at December 31, 2019.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

	Stock Awards
Name	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(2) ($)
William D. Cable, Sr.	--	--	1,410(1)	46,319

______________________________________

Option Exercises and Stock Vested

 

The following tables shows, for the fiscal year ended December 31, 2019, those stock options and restricted stock units that vested for each Messrs. Sellers, Lampron and Cable.

 

OPTION EXERCISES AND STOCK VESTED TABLE

 

	Option Awards		Stock Awards
Name	Number of shares acquired on exercise (#)	Value realized on exercise (#)	Number of shares acquired on vesting (#)	Value realized on vesting ($)
Lance A. Sellers	--	--	2,442	$68,5471
A. Joseph Lampron, Jr.	--	--	1,832	$51,4102
William D. Cable, Sr.	--	--	1,832	$51,4102

_________________________________________________________________

1 Represents 2,442 Restricted Stock Units that vested on February 19, 2019 at a fair market value on the date of vesting of $68,547.

2 Represents 1,832 Restricted Stock Units that vested on February 19, 2019 at a fair market value on the date of vesting of $51,410.

 

Pension Benefits

 

The following table shows, for the fiscal year ended December 31, 2019, the pension benefits paid or earned by Messrs. Sellers, Lampron and Cable.

PENSION BENEFITS TABLE
Name	Plan Name	Number of Years Credited Service	Present Value of Accumulated Benefit($)	Payments During Last Fiscal Year($)
Lance A. Sellers	Amended and Restated Executive Salary Continuation Agreement1	18	575,269	--
A. Joseph Lampron, Jr.	Amended and Restated Executive Salary Continuation Agreement1,2	18	784,162	--
William D. Cable, Sr.	Amended and Restated Executive Salary Continuation Agreement1	18	217,817	--

_______________________

1 The Bank entered into Amended and Restated Executive Salary Continuation Agreement with Messrs. Sellers, Lampron and Cable effective on December 18, 2008. The Amended and Restated Executive Salary Continuation Agreements for Messrs. Sellers, Lampron and Cable were further amended on December 10, 2014, and such amendments were memorialized in a First Amendment to the Amended and Restated Executive Salary Continuation Agreements effective February 16, 2018. Unless a separation from service or a change in control (as defined in the Amended and Restated Executive Salary Continuation Agreements) occurs before the retirement age set forth in each Amended and Restated Executive Salary Continuation Agreement, the Amended and Restated Executive Salary Continuation Agreements provide for an annual supplemental retirement benefit to be paid to each of the named executive officers in 12 equal monthly installments payable on the first day of each month, beginning with the month immediately after the month in which the named executive officer attains the normal retirement age and for the named executive officer’s lifetime, or if longer, a 13-year term. Under the terms of the Amended and Restated Executive Salary Continuation Agreements, Mr. Sellers will receive an annual supplemental retirement benefit of $130,495, Mr. Lampron will receive an annual supplemental retirement benefit of $76,554 and Mr. Cable will receive an annual supplemental retirement benefit of $93,872.  

 

2 As of December 31, 2019, Mr. Lampron was the only named executive officer eligible to withdraw funds from the plan. Mr. Lampron, if he elected, could withdrawal 100% of the annual benefit of $76,554.

 

 

 

 

  Nonqualified Deferred Compensation

 

The below table shows the compensation deferred by Messrs. Lampron and Cable during the year ended December 31, 2019. Mr. Sellers elected not to defer any portion of his compensation during the year ended December 31, 2019.

 

                    NONQUALIFIED DEFERRED COMPENSATION TABLE

 

Name	Executive Contributions in the Last FY ($)(1)	Registrant Contributions In Last FY ($)	Aggregate Earnings in Last FY ($)(2)	Aggregate Withdrawals/ Distributions ($)	Aggregate Balance at Last FYE ($)(3)
A. Joseph Lampron, Jr.	$6,489	--	$79,333	0	$298,595
William D. Cable, Sr.	$17,809	--	$153,549	0	$660,347

___________________

 

Employment Agreements

 

On January 22, 2015, the Company, the Bank and each of (i) Lance A. Sellers, the President and Chief Executive Officer of the Company and the Bank, (ii) A. Joseph Lampron, Jr., Executive Vice President and Chief Financial Officer of the Bank and Executive Vice President, Chief Financial Officer and Corporate Treasurer of the Company and (iii) William D. Cable, Sr., Executive Vice President and Chief Operating Officer of the Bank and Executive Vice President, Assistant Corporate Treasurer and Assistant Corporate Secretary of the Company executed an Employment Agreement which replaced and superseded such executive’s prior employment agreement (collectively, the “Employment Agreements”).

 

Each Employment Agreement provides for an initial term of 36 months beginning on January 22, 2015 (the “Effective Date”). On the first anniversary of the Effective Date and on each anniversary thereafter (the “Renewal Date”), each Employment Agreement shall be extended automatically for one additional year unless the Board of Directors of the Company or the executive determines, and prior to the Renewal Date sends to the other party written notice, that the term shall not be extended. If the Board of Directors of the Company decides not to extend the term, the Employment Agreement shall nevertheless remain in force until its existing term expires. Under the Employment Agreements, the Bank will pay Mr. Sellers a base salary at the rate of at least $311,400 per year, Mr. Lampron a base salary at the rate of at least $193,125 per year and Mr. Cable a base salary at the rate of at least $198,750 per year. The Bank will review each executive’s total compensation at least annually and in its sole discretion may adjust an executive’s total compensation from year to year, but during the term of the Employment Agreement, Mr. Sellers’s base salary may not decrease below $311,400, Mr. Lampron’s base salary may not decrease below $193,125 and Mr. Cable’s base salary may not decrease below $198,750; provided, however, that periodic increases in base salary, once granted, may not be subject to revocation. In addition, the Employment Agreements provide for discretionary bonuses and participation in other management incentive, pension, profit-sharing, medical and retirement plans maintained by the Bank, as well as fringe benefits normally associated with such executive’s office.

 

Under the Employment Agreements, each executive’s employment will terminate automatically upon death. Otherwise, the Company and the Bank may terminate each executive’s employment for “cause”, “without cause” or in the event of a “disability” (each as defined in the Employment Agreements). In addition, each executive may voluntarily terminate his employment upon 60 days prior written notice to the

 

Company and the Bank or for “good reason” (as defined in the Employment Agreement). Under the Employment Agreements, if the Company and the Bank terminate an executive’s employment “without cause”, or an executive terminates his employment for “good reason”, in each case, other than in connection with a change of control, then in each case, the executive would be entitled to receive certain severance payments and access to welfare benefit plans as more particularly set forth in the Employment Agreements. Under the Employment Agreements, in the event that the Company and the Bank terminate an executive’s employment “without cause”, or an executive terminates his employment for “good reason”, in any such case at the time of or within one year after a Change of Control, then the executive will be entitled to receive certain change in control payments as more particularly set forth in the Employment Agreements.

 

In addition, each Employment Agreement contains certain restrictive covenants prohibiting the executive from competing against the Company and the Bank or soliciting the Company’s or the Bank’s customers for a period of time following termination of employment, all as more particularly set forth in the Employment Agreements.

 

  Potential Payments upon Termination or Change in Control

 

Each of the Employment Agreements provide that in the event the Company terminates the employment of a named executive officers “without cause” (as defined in the Employment Agreements), or the officer terminates his or her employment for “good reason” (as defined in the Employment Agreements), in any such case during the employment and at the time of or within one year after a “change of control” (as defined in the Employment Agreements), the officer will be entitled to receive the following payments and benefits: (1) the Company will pay the officer the aggregate of the following amounts: (a) the sum of his accrued obligations; (b) the greater of his base salary, divided by 365 and multiplied by the number of days remaining in the employment period, or an amount equal to 2.99 times his base salary; and (c) the product of his aggregate cash bonus for the last completed fiscal year, and a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination, and the denominator of which is 365; (2) all restricted stock or restricted stock unit awards previously granted to the executive and which have not already become vested and released from restrictions on transfer, repurchase and forfeiture rights, either as a result of the change of control or otherwise, shall immediately vest and be released from such restrictions as of the change of control termination date; and (3) all options previously granted to the officer that are unvested as of the change of control termination date will be deemed vested, fully exercisable and non-forfeitable as of the change of control termination date (other than transfer restrictions applicable to incentive stock options) and all previously granted options that are vested, but unexercised, on the change of control termination date will remain exercisable, in each case for the period during which they would have been exercisable absent the termination of his employment, except as otherwise specifically provided by the Internal Revenue Code; and (4) his benefits under all benefit plans that are non-qualified plans will be 100% vested, regardless of his age or years of service, as of the change of control termination date.

 

If the named executive officers were terminated on December 31, 2019, “without cause” or for “good reason” at the time of or within one year after a “change of control”, Mr. Sellers, Mr. Lampron and Mr. Cable would have been entitled to receive compensation of approximately $1,355,938, $1,098,927 and $849,523, respectively, pursuant to their Employment Agreements. These amounts are calculated based on each officer’s 2019 “Salary” and “Bonus” as shown in the “Summary Compensation Table” on page 18 of this Proxy Statement. In addition, if a “change in control” (as defined in the 2009 Omnibus Plan) had occurred on December 31, 2019, all unvested restricted stock units previously granted to each of Mr. Sellers, Mr. Lampron and Mr. Cable would have vested immediately. On December 31, 2019, these unvested restricted stock units had a fair market value of $46,319 for Mr. Cable. Neither Mr. Sellers nor Mr. Lampron had outstanding restricted stock units at December 31, 2019.

 

2009 Omnibus Stock Option and Long Term Incentive Plan

 

The purpose of the 2009 Omnibus Plan was to promote the interests of the Company by attracting and retaining directors and employees of outstanding ability and to provide executive and other key employees of the Company and its subsidiaries greater incentive to make material contributions to the success of the Company by providing them with stock-based compensation which would increase in value based upon the market performance of the common stock and/or the corporate achievement of financial and other performance objectives.

 

Rights Which May Be Granted. Under the 2009 Omnibus Plan, the Committee had the right to grant or award eligible participants stock options, rights to receive restricted shares of common stock, restricted stock units, performance units (each equivalent to one share of common stock), SARs, and/or book value shares. All stock options, rights to receive restricted shares of common stock, restricted stock units, performance units (each equivalent to one share of common stock), SARs, and/or book value shares under the 2009 Omnibus Plan had to be granted or awarded by May 7, 2019. The Board of Directors had provided for 360,000 shares of the Company’s common stock to be included in the 2009 Omnibus Plan to underlie stock options, rights to receive restricted shares of common stock, restricted stock units, performance units (each equivalent to one share of common stock), SARs, and/or book value shares which may have been granted thereunder. The 2009 Omnibus Plan expired on May 7, 2019. See “Proposal 2 –Approval of the Company’s 2020 Omnibus Stock Option and Long Term Incentive Plan” beginning on page 29 of this Proxy Statement for a description of the types of rights that could have been awarded under the 2009 Omnibus Plan and that may be awarded under the 2020 Omnibus Plan if approved by the shareholders at the Annual Meeting.

 

Director Compensation

Directors’ Fees. Members of the Company’s Board of Directors receive no fees or compensation for their service. However, all members of the Board of Directors are also directors of the Bank and are compensated for that service.

 

During the year ended December 31, 2019, each director received a fee of $1,200 for each Bank Board of Directors meeting attended, an additional fee of $750 for each committee meeting attended and a retainer of $15,000. In addition, the Chairman of the Bank’s Board of Directors received an additional $250 per meeting attended and the chairpersons of each committee received an additional $150 per meeting attended. Directors receive $500 for special meetings held via conference call in lieu of the Board of Director and committee meeting fees set forth above.

 

Directors who are members of the Board of Directors of Real Estate Advisory Services, Inc., Peoples Investment Services, Inc. and PB Real Estate Holdings, LLC, and Community Bank Real Estate Solutions, LLC, subsidiaries of the Bank, receive $750 per meeting.

 

The Bank maintains a Service Recognition Program, under which directors, officers and employees are eligible for awards. Under the Service Recognition Program, directors, officers and employees are awarded a combination of common stock of the Company and cash in the amount necessary to pay taxes on the award, with the amount of the award based upon the length of service to the Bank. Any common stock awarded under the Service Recognition Program is purchased by the Bank on the open market, and no new shares are issued by the Company under the Service Recognition Program.

 

Directors’ Stock Benefits Plan. Members of the Board of Directors were eligible to participate in the 2009 Omnibus Plan. On March 22, 2012, the Company granted 891 Restricted Stock Units, each Restricted Stock Unit being comprised of the right to receive one share of the Company’s common stock, to each director. The Restricted Stock Units awarded to directors on March 22, 2012 vested in full on March 22, 2017, and upon vesting, each Restricted Stock Unit had a market value of $25.91 for a total value of $23,085, which was distributed to each director in a combination of stock or cash, as chosen by each director. On May 23, 2013, the Company granted 891 Restricted Stock Units, each Restricted Stock Unit being comprised of the right to receive one share of the Company’s common stock, to each director. The Restricted Stock Units awarded to directors on May 23, 2013 vested in full on May 23, 2017, and upon vesting, each Restricted Stock Unit had a market value of $24.94 for a total value of $22,218, which was distributed to each director in a combination of stock or cash, as chosen by each director. On February 20, 2014, the Company granted 715 Restricted Stock Units, each Restricted Stock Unit being comprised of the right to receive one share of the Company’s common stock, to each director. The Restricted Stock Units awarded to directors on February 20, 2014 vested in full on February 20, 2017, and upon vesting, each Restricted Stock Unit had a market value of $24.78 for a total value of $17,719, which was distributed to each director in a combination of stock or cash, as chosen by each director. On February 19, 2015, the Company granted 413 Restricted Stock Units, each unit being comprised of the right to receive one share of the Company’s common stock, to each director. The Restricted Stock Units awarded to directors on February 19, 2015 vested in full on February 19, 2019, and upon vesting, each Restricted Stock Unit had a market value of $28.07 for a total value of

 

$11,593, which was distributed to each director in a combination of stock or cash, as chosen by each director. The number of Restricted Stock Units described above have been restated to reflect the 10% stock dividend issued in December, 2017. The Company did not grant any plan-based awards to directors during the fiscal year ended December 31, 2019.

 

 Directors’ Deferred Compensation Plan. The Bank maintains a non-qualified deferred compensation plan for all of its directors. The Bank’s directors are also directors of the Company. Under the deferred compensation plan, each director may defer all or a portion of his fees to the plan each year. The director may elect to invest the deferred compensation in a restricted list of investment funds. The Bank may make matching contributions to the plan for the benefit of the director from time to time at the discretion of the Bank. Directors are fully vested in all amounts they contribute to the plan and in any amounts contributed by the Bank. The Bank has established a Rabbi Trust to hold the directors’ accrued benefits under the plan. There are no “above-market” returns provided for in the deferred compensation plan. The Bank made no contributions to this plan in 2019.

 

Benefits under the plan are payable in the event of the director’s death, resignation, removal, failure to be re-elected, retirement or in cases of hardship. Directors may elect to receive deferred compensation payments in one lump sum or in installments.

 

Directors’ Supplemental Retirement Plan. The Bank maintains a non-qualified supplemental retirement benefits plan for all its directors. The supplemental retirement benefits plan is designed to provide a retirement benefit to the directors while at the same time minimizing the financial impact on the Bank’s earnings. Under the supplemental retirement benefits plan, the Company purchased life insurance contracts on the lives of each director. The increase in cash surrender value of the contracts constitutes the Company’s contribution to the supplemental retirement benefits plan each year. The Bank will pay annual benefits to each director for 15 years beginning upon retirement from the Board of Directors. The Bank is the sole owner of all of the insurance contracts.

 

DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash ($)	Stock Awards1 ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings2 ($)	All Other Compensation ($)3	Total ($)
James S. Abernethy	40,600	--	--	--	8,795	--	49,395
Robert C. Abernethy	48,850	--	--	--	13,317	--	62,167
Douglas S. Howard	42,800	--	--	--	5,459	1,275	49,534
John W. Lineberger, Jr.	34,050	--	--	--	12,622	1,275	47,947
Gary E. Matthews	32,100	--	--	--	7,974	--	40,074
Billy L. Price, Jr., M.D.	40,750	--	--	--	7,212	1,275	49,237
Larry E. Robinson	34,800	--	--	--	6,279	--	41,079
William Gregory Terry	36,300	--	--	--	2,672	1,275	40,247
Dan Ray Timmerman, Sr.	44,350	--	--	--	6,279	--	50,629
Benjamin I. Zachary	39,550	--	--	--	7,243	--	46,793

_________________________

 

Indebtedness of and Transactions with Management and Directors

 

The Company is a “listed issuer” under the rules and regulations of the Exchange Act whose common stock is listed on NASDAQ. The Company uses the definition of independence contained in NASDAQ’s listing standards to determine the independence of its directors and that the Board of Directors and each standing committee of the Board of Directors is in compliance with NASDAQ listing standards for independence.

 

Certain directors and executive officers of the Bank and their immediate families and associates were customers of and had transactions with the Bank in the ordinary course of business during 2019. All outstanding loans, extensions of credit or overdrafts, endorsements and guarantees outstanding at any time during 2019 to the Bank’s executive officers and directors and their family members were made in the ordinary course of its business. These loans are currently made on substantially the same terms, including interest rates and collateral, as those then prevailing for comparable transactions with persons not related to the lender, and did not involve more than the normal risk of collectability or present any other unfavorable features.

 

 

 

The Bank leases two of its facilities from Shortgrass Associates, L.L.C. (“Shortgrass”). Director John W. Lineberger, Jr. owns 25% of the membership interests in Shortgrass. Each of the facilities is subject to a 20-year lease between the Bank and Shortgrass. Pursuant to the terms of the leases for the two facilities leased by the Bank, during 2019 the Bank paid a total of $230,926 to Shortgrass in lease payments for these facilities, and the dollar value of Director John W. Lineberger, Jr.’s interest in such lease payments was approximately $57,731 (or 25% x $230,926). The total aggregate dollar value of all lease payments due by the Bank to Shortgrass starting on January 1, 2020 and continuing until the end of each lease, is $444,979, and the total aggregate dollar value of Director John W. Lineberger, Jr.’s interest in all such lease payments is approximately $111,245 (or 25% x $444,979).

 

The Board of Directors also evaluates the influence family relationships may have on the independence of directors who are related by blood or marriage. Christine S. Abernethy, a greater than ten percent (10%) shareholder of the Company, has two sons, Robert C. Abernethy and James S. Abernethy, who serve on the Board of Directors. All of the non-related directors have determined that the family relationships among Christine S. Abernethy, James S. Abernethy and Robert C. Abernethy do not affect the brothers’ independence as directors.

 

Equity Compensation Plan Information

 

 

Plan Category	Number of securities to be issued upon exercise of outstanding option, warrants and rights (1), (2), (3) and (4)	Weighted-average exercise price of outstanding options, warrants and rights (3)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (5) (6)
	(a)	(b)	(c)
Equity compensation plans approved by security holders	18,233	$32.85	-
Equity compensation plans not approved by security holders	-	-	-
Total	18,233	$32.85	-

(1) Includes 5,104 restricted stock units (adjusted for the 10% stock dividend granted in December of 2017) granted on February 18, 2016 under the 2009 Omnibus Plan. These restricted stock grants vested on February 20, 2020
(2) Includes 4,114 restricted stock units (adjusted for the 10% stock dividend granted in December, 2017) granted on March 1, 2017 under the 2009 Omnibus Plan. The restricted stock grants vest on March 1, 2021.
(3) Includes 3,725 restricted stock units granted on January 24, 2018 under the 2009 Omnibus Plan. These restricted stock units vest on January 24, 2022.
(4) Includes 5,290 restricted stock units granted on February 21, 2019 under the 2009 Omnibus Plan. These restricted stock units vest on February 21, 2023.
(5) The exercise price used for the grants of restricted stock units under the 2009 Omnibus Plan is $32.85, the closing price for the Company’s stock on December 31, 2019.
(6) Reflects shares currently reserved for possible issuance under the 2009 Omnibus Plan. The 2009 Omnibus Plan expired on May 7, 2019.

 

 

 

STOCK PERFORMANCE GRAPH

 

 

 

PROPOSAL 2

APPROVAL OF THE COMPANY’S 2020 OMNIBUS STOCK OPTION

AND LONG TERM INCENTIVE PLAN

 

The 2009 Omnibus Plan was approved by shareholders in May of 2009.  The 2009 Omnibus Plan expired under its own terms on May 7, 2019.  The Board of Directors has determined that it is in the best interests of the Company and its shareholders to propose shareholder approval of the 2020 Omnibus Plan.

General. The purpose of the 2020 Omnibus Plan is to promote the interests of the Company by attracting and retaining directors and employees of outstanding ability and to provide executive and other key employees of the Company and its subsidiaries greater incentive to make material contributions to the success of the Company by providing them with stock-based compensation which will increase in value based upon the market performance of the common stock and/or the corporate achievement of financial and other performance objectives.  A copy of the 2020 Omnibus Plan is attached hereto as Appendix B.

 

The 2020 Omnibus Plan will be administered by the Governance Committee of the Board of Directors (the “Committee”).  Subject to the terms of the 2020 Omnibus Plan, the Committee and the Board of Directors have authority to construe and interpret, for eligible employees and eligible directors, respectively, the 2020 Omnibus Plan, to determine the terms and provisions of Rights (as defined below) to be granted under the 2020 Omnibus Plan, to define the terms used in the 2020 Omnibus Plan and in the Rights granted thereunder, to prescribe, amend and rescind rules and regulations relating to the 2020 Omnibus Plan, to determine the individuals to whom and the times at which Rights shall be granted and the number of shares to be subject to, or to underlie, each Right awarded, and to make all other determinations necessary or advisable for the administration of the 2020 Omnibus Plan.

 

Rights Which May Be Granted.  Under the 2020 Omnibus Plan, the Committee may grant or award eligible participants Options, rights to receive restricted shares of common stock, long term incentive units (each equivalent to one share of common stock), and/or stock appreciation rights. These grants and awards are referred to herein as the “Rights.”  If approved by the shareholders at the Annual Meeting, all Rights must be granted or awarded by May 7, 2029, the tenth anniversary of the date the shareholders approve the 2020 Omnibus Plan.  The Board of Directors has provided for 300,000 shares of the Company’s common stock be included in the 2020 Omnibus Plan to underlie Rights which may be granted thereunder.

 

Options.  Options granted under the 2020 Omnibus Plan to eligible directors and employees may be either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”).  The exercise price of an Option may not be less than 100% of the last-transaction price for the common stock quoted by the Nasdaq Market on the date of grant.

 

The Committee shall determine the expiration date of each Option granted, up to a maximum of ten years from the date of grant.  In the Committee’s discretion, it may specify the period or periods of time within which each Option will first become exercisable, which period or periods may be accelerated or shortened by the Committee.

 

Each Option granted will terminate upon the expiration date established by the Committee or if earlier, immediately as of the date the holder is no longer an eligible employee or director for any reason other than death or disability. In the event the holder ceases to be an eligible employee or director by reason of death or disability, each Option granted will terminate upon the earlier of (i) twelve months after the holder ceases to be an eligible employee or director by reason of death or disability, and (ii) the expiration date established by the Committee.

 

Restricted Stock and Restricted Stock Units.  The Committee may award Rights to acquire shares of common stock or restricted stock units, subject to certain transfer restrictions (“Restricted Stock” or “Restricted Stock Unit”) to eligible participants under the 2020 Omnibus Plan for such purchase price per share, if any, as the Committee, in its discretion, may determine appropriate.  The Committee shall determine the expiration date for each Restricted Stock or Restricted Stock Unit award, up to a maximum of ten years from the date of grant.  In the Committee’s discretion, it may specify the period or periods of time within which each Restricted Stock or Restricted Stock Unit award will first become exercisable, which period or periods may be accelerated or shortened

 

by the Committee.  Under the terms of the 2020 Omnibus Plan, the Committee also has the discretion to pay out awards of Restricted Stock Units in the Company’s common stock, cash or a combination of stock and cash.

 

Awards of Restricted Stock and Restricted Stock Units shall terminate in the same manner as described above in connection with the termination of Options.

 

Performance Units.  Under the 2020 Omnibus Plan, the Committee may grant to eligible directors and employees awards of long term incentive performance units, each equivalent in value to one share of common stock (“Units”).  Except as otherwise provided, Units awarded may be distributed only after the end of a performance period of two or more years, as determined by the Committee, beginning with the year in which the awards are granted.

 

The percentage of the Units awarded that are to be distributed will depend on the level of financial and other performance goals achieved by the Company during the performance period.  The Committee may adopt one or more performance categories in addition to, or in substitution for, a performance category or may eliminate all performance categories other than financial performance.  All performance categories other than financial performance may not be applied in the aggregate as a factor of more than one against financial performance.

 

As soon as practicable after each performance period, the percentage of Units awarded that are to be distributed, based on the levels of performance achieved, will be determined and distributed to the recipients of such awards in the form of a combination of shares of common stock and cash.  No distribution of Units, based on financial and other performance, will be made if a minimum average percentage of the applicable measurement of performance, as established by the Committee, is not achieved for the performance period. Units awarded, but which the recipients are not entitled to receive, will be cancelled.

 

In the event of the death or disability of a Unit recipient prior to the end of any performance period, the number of Units awarded for such performance period will be reduced in proportion to the number of months remaining in the performance period after the date of death or disability; and the remaining portion of the award, if any, may, in the discretion of the Committee, be adjusted based upon the levels of performance achieved prior to the date of death or disability, and distributed within a reasonable time after death or disability.  In the event a recipient of Units ceases to be an eligible director or employee for any reason other than death or disability, all Units awarded, but not yet distributed, will be cancelled.

 

If the recipient’s award agreement so provides, an amount equal to the dividend payable on one share of common stock (a “dividend equivalent credit”) will be determined and credited on the payment date to each Unit recipient’s account for each Unit awarded and not yet distributed or cancelled.  Such amount will be converted within the account to an additional number of Units equal to the number of shares of common stock which could be purchased at the last-transaction price of the common stock on the Nasdaq Market on the dividend payment date.

 

No dividend equivalent credits may be credited or distribution of Units made if, at the time of crediting or distribution, (i)  the regular quarterly dividend on the common stock has been omitted and not subsequently paid or there exists any default in payment of dividends on any such outstanding shares of common stock; (ii)  the rate of dividends on the common stock is lower than at the time the Units to which the dividend equivalent credit relates were awarded, adjusted for certain changes; (iii)  estimated consolidated net income of the Company for the twelve-month period preceding the month the dividend equivalent credit or distribution would otherwise have been made is less than the sum of the amount of the dividend equivalent credits and Units eligible for distribution under the 2020 Omnibus Plan in that month plus all dividends applicable to such period on an accrual basis, either paid, declared or accrued at the most recently paid rate, on all outstanding shares of common stock; or (iv)  the dividend equivalent credit or distribution would result in a default in any agreement by which the Company is bound.

 

If an extraordinary event occurs during a performance period which significantly alters the basis upon which the performance levels were established, the Committee may make adjustments which it deems appropriate in the performance levels.  Such events may include changes in accounting practices, tax, financial institution laws or regulations or other laws or regulations, economic changes not in the ordinary course of business cycles, or compliance with judicial decrees or other legal requirements.

 

Stock Appreciation Rights.  The 2020 Omnibus Plan provides that the Committee may award to eligible directors and employees rights to receive cash based upon increases in the market price of common stock over the last transaction price of the common stock on the Nasdaq Market (the “Base Price”) on the date of the award (“SAR’s”).  The expiration date of a SAR may be no more than ten years from the date of award.

 

Each SAR awarded by the Committee may be exercisable immediately or may become vested over such period or periods as the Committee may establish, which periods may be accelerated or shortened in the Committee's discretion. 

 

Each SAR awarded will terminate upon the expiration date established by the Committee, or upon termination of the employment or directorship of the SAR recipient as described above in connection with the termination of Options.

 

Adjustments.  In the event the outstanding shares of the common stock are increased, decreased, changed into or exchanged for a different number or kind of securities as a result of a stock split, reverse stock split, stock dividend, recapitalization, merger, share exchange acquisition, or reclassification, appropriate proportionate adjustments will be made in (i) the aggregate number or kind of shares which may be issued pursuant to exercise of, or which underlie, Rights; (ii) the exercise or other purchase price, or Base Price, and the number and/or kind of shares acquirable under, or underlying, Rights; (iii) and rights and matters determined on a per share basis under the 2020 Omnibus Plan.  Any such adjustment will be made by the Committee, subject to ratification by the Board of Directors.   Except with regard to Units awarded under the 2020 Omnibus Plan, no adjustment in the Rights will be required by reason of the issuance of common stock, or securities convertible into common stock, by the Company for cash or the issuance of shares of common stock by the Company in exchange for shares of the capital stock of any corporation, financial institution or other organization acquired by the Company or a subsidiary thereof in connection therewith.

 

Any shares of common stock allocated to Rights granted under the 2020 Omnibus Plan, which Rights are subsequently cancelled or forfeited, will be available for further allocation upon such cancellation or forfeiture.

 

Options granted to directors under the 2020 Omnibus must be “NSOs.”  In general, the holder of an NSO will recognize at the time of exercise of the NSO, compensation income equal to the amount by which the fair market value of the common stock received on the date of exercise exceeds the sum of the exercise price and any amount paid for the NSO.

 

If an optionee exercises an ISO or NSO and delivers shares of common stock as payment for part or all of the exercise price of the stock purchased (the “Payment Stock”), no gain or loss generally will be recognized with respect to the Payment Stock; provided, however, if the Payment Stock was acquired pursuant to the exercise of an ISO, the optionee will be subject to recognizing as compensation income the Bargain Element on the Payment Stock as an Early Disposition if the exchange for the new shares occurs prior to the expiration of the holding periods for the Payment Stock. 

 

The Company generally would not recognize gain or loss or be entitled to a deduction upon either the grant of an ISO or NSO or the optionee’s exercise of an ISO. The Company generally will recognize gain or loss or be entitled to a deduction upon the exercise of an NSO. If there is an Early Disposition, the Company generally would be entitled to deduct the Bargain Element as compensation paid to the optionee.

 

Restricted Stock and Restricted Stock Units.  Pursuant to Section 83 of the Code, recipients of Restricted Stock awards under the 2020 Omnibus Plan will recognize ordinary income in an amount equal to the fair market value of the shares of common stock granted to them at the time that the shares vest and become transferable unless a timely election to be taxed upon grant is made by the recipient under Section 83(b) of the Code. Recipients of Restricted Stock Unit awards will recognize ordinary income in an amount equal to the fair market value of the shares of common stock granted to them at the time the shares vest and are distributed to them. The Company will be entitled to deduct as a compensation expense for tax purposes the same amounts recognized as income by recipients of Restricted Stock and Restricted Stock Unit awards in the year in which such amounts are included in income.

 

Performance Units.  The Company expects that participants generally will not be taxed on the award of Units.  Instead, any cash and the then fair market value of any common stock received by the participants upon the distribution of a Unit generally will be taxable to the participants as compensation income upon such distribution.  At that time, the Company generally will be entitled to claim a deduction in an amount equal to the compensation income.

  

PROPOSAL 3

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Elliott Davis, our registered independent public accounting firm for the fiscal year ended December 31, 2019, has been appointed by the Audit Committee as our registered independent public accounting firm for the fiscal year ending December 31, 2020, and you are being asked to ratify this appointment. Fees charged by this firm are at rates and upon terms that are customarily charged by other registered independent public accounting firms. A representative of the firm will be present at the Annual Meeting and will have an opportunity to make a statement if he or she desires to do so and to respond to appropriate questions.

 

Audit Fees Paid to Independent Auditors

 

The following table represents the approximate fees for professional services rendered by Elliott Davis for the audit of our annual financial statements and review of our financial statements included in our Forms 10-Q for the fiscal years ended December 31, 2019 and 2018 and fees billed for audit-related services, tax services and all other services rendered, for each of such years.

 

	Year Ended December 31
	2019	2018
Audit Fees1	$202,445	$194,626
Audit-Related Fees2	$12,660	$10,593
Tax Fees3	$25,750	$38,500
All Other Fees	--	--

__________________________

1 Includes amounts for the testing of management’s assertions regarding internal controls in accordance with the Federal Deposit Insurance Corporation Improvement Act. Audit Fees include amounts for the integrated audit of the consolidated financial statements and internal control over financial reporting (Sarbanes-Oxley Section 404).

2 Represents amounts for the audit of the Company’s Profit Sharing and 401(k) Plan.

3 Represents amounts for assistance in the preparation of our various federal, state and local tax returns.

 

All audit related services, tax services and other services giving rise to the fees listed under “Audit-Related Fees”, “Tax Fees” and “All Other Fees” in the table above were pre-approved by the Audit Committee, which concluded that the provision of such services was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. The Audit Committee’s Charter provides for pre-approval of all audit and non-audit services to be provided by our independent auditors. The Charter authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted services, provided that any such approvals are presented to the Audit Committee at its next scheduled meeting.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR RATIFICATION OF THE APPOINTMENT OF ELLIOTT DAVIS AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.

 

 

DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS

 

It is presently anticipated that the 2021 Annual Meeting of Shareholders of the Company will be held on May 6, 2021. In order for shareholder proposals to be included in the Company’s proxy materials for that meeting, such proposals must be received by the Secretary of the Company at the Company’s principal executive office no later than November 24, 2020 and meet all other applicable requirements for inclusion in the Proxy Statement.

 

In the alternative, a shareholder may commence his or her own proxy solicitation and present a proposal from the floor at the 2021 Annual Meeting of Shareholders of the Company. In order to do so, the shareholder must notify the Secretary of the Company in writing, at the Company’s principal executive office no later than February 8, 2021, of his or her proposal. If the Secretary of the Company is not notified of the shareholder’s proposal by February 8, 2021, the Board of Directors may vote on the proposal pursuant to the discretionary authority granted by the proxies solicited by the Board of Directors for the 2021 Annual Meeting of Shareholders.

 

OTHER MATTERS

 

Management knows of no other matters to be presented for consideration at the Annual Meeting or any adjournments thereof. If any other matters shall properly come before the Annual Meeting, it is intended that the proxyholders named in the enclosed form of proxy will vote the shares represented thereby in accordance with their judgment, pursuant to the discretionary authority granted therein.

 

MISCELLANEOUS

 

The Annual Report of the Company for the year ended December 31, 2019, which includes financial statements audited and reported upon by the Company’s registered independent public accounting firm, is being mailed as Appendix A to this Proxy Statement; however, it is not intended that the Annual Report be deemed a part of this Proxy Statement or a solicitation of proxies.

 

THE FORM 10-K FILED BY THE COMPANY WITH THE SEC, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE PROVIDED FREE OF CHARGE UPON WRITTEN REQUEST DIRECTED TO: PEOPLES BANCORP OF NORTH CAROLINA, INC., POST OFFICE BOX 467, 518 WEST C STREET, NEWTON, NORTH CAROLINA 28658-0467, ATTENTION: A. JOSEPH LAMPRON, JR.

 

By Order of the Board of Directors,

Lance A. Sellers

President and Chief Executive Officer

Newton, North Carolina

March 25, 2020

 

APPENDIX A

 

ANNUAL REPORT

OF

PEOPLES BANCORP OF NORTH CAROLINA, INC.

 

 

of the Company, and for general purposes. The debentures represent the sole asset of PEBK Trust II. PEBK Trust II is not included in the consolidated financial statements. The Company redeemed $5.0 million of outstanding trust preferred securities in December 2019.

 

 

SELECTED FINANCIAL DATA
Dollars in Thousands Except Per Share Amounts
	2019	2018	2017	2016	2015
Summary of Operations
Interest income	$49,601	45,350	41,949	39,809	38,666
Interest expense	3,757	2,146	2,377	3,271	3,484
Net interest income	45,844	43,204	39,572	36,538	35,182
Provision for (reduction of) loan losses	863	790	(507)	(1,206)	(17)
Net interest income after provision
for loan losses	44,981	42,414	40,079	37,744	35,199
Non-interest income (1)	17,739	16,166	15,364	16,236	15,256
Non-interest expense (1)	45,517	42,574	41,228	42,242	37,722
Earnings before income taxes	17,203	16,006	14,215	11,738	12,733
Income tax expense	3,136	2,624	3,947	2,561	3,100
Net earnings	$14,067	13,382	10,268	9,177	9,633
Selected Year-End Balances
Assets	$1,154,882	1,093,251	1,092,166	1,087,991	1,038,481
Investment securities available for sale	195,746	194,578	229,321	249,946	268,530
Net loans	843,194	797,578	753,398	716,261	679,502
Mortgage loans held for sale	4,417	680	857	5,709	4,149
Interest-earning assets	1,058,937	1,007,078	996,509	999,201	977,079
Deposits	966,517	877,213	906,952	892,918	832,175
Interest-bearing liabilities	668,353	657,110	679,922	698,120	679,937
Shareholders' equity	$134,120	123,617	115,975	107,428	104,864
Shares outstanding	5,912,300	5,995,256	5,995,256	5,417,800	5,510,538
Selected Average Balances
Assets	$1,143,338	1,094,707	1,098,992	1,076,604	1,038,594
Investment securities available for sale	185,302	209,742	234,278	252,725	266,830
Loans	834,517	777,098	741,655	703,484	669,628
Interest-earning assets	1,055,730	1,007,484	998,821	985,236	952,251
Deposits	932,647	903,120	895,129	856,313	816,628
Interest-bearing liabilities	675,992	665,165	700,559	705,291	707,611
Shareholders' equity	$134,670	123,797	116,883	113,196	106,644
Shares outstanding (2)	5,941,873	5,995,256	5,988,183	6,024,970	6,115,159
Profitability Ratios
Return on average total assets	1.23%	1.22%	0.93%	0.85%	0.93%
Return on average shareholders' equity	10.45%	10.81%	8.78%	8.11%	9.03%
Dividend payout ratio	28.00%	23.41%	25.67%	22.95%	16.34%
Liquidity and Capital Ratios (averages)
Loan to deposit	89.48%	86.05%	82.85%	82.15%	82.00%
Shareholders' equity to total assets	11.78%	11.31%	10.64%	10.51%	10.27%
Per share of Common Stock (2)
Basic net earnings	$2.37	2.23	1.71	1.53	1.57
Diluted net earnings	$2.36	2.22	1.69	1.50	1.56
Cash dividends	$0.66	0.52	0.44	0.35	0.25
Book value	$22.68	20.62	19.34	18.03	17.30