2007 Proxy Statement
PEOPLES
FINANCIAL SERVICES CORP.
50
MAIN
STREET
HALLSTEAD,
PA 18822
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO
BE
HELD ON APRIL 28, 2007
The
2007
Annual Meeting of Shareholders of Peoples Financial Services Corp. will be
held
at The Summit Tea Room, Route 11, New Milford, Pennsylvania, on Saturday, April
28, 2007, beginning at 8:30 a.m.
ITEMS
OF
BUSINESS:
1) |
Election
of two Class III Directors to hold office for three years from the
date of
election and until their successors shall have been elected and qualified;
and
|
2) |
Any
other matters that properly come before the
meeting.
|
All
holders of common shares of record at the close of business on February 28,
2007, are entitled to vote at the Meeting and any postponements or adjournments
of the Meeting.
The
Company’s 2006 Annual Report, which is not a part of the proxy soliciting
material, is enclosed.
It
is
important that your shares be represented and voted at the Meeting. Mark, sign,
date and promptly return the enclosed proxy card in the postage-paid envelope
furnished for that purpose. Any proxy may be revoked in the manner described
in
the accompanying Proxy Statement at any time prior to its exercise at the
Meeting.
By
order
of the Board of Directors
Richard
S. Lochen, Jr.
President/CEO
March
29,
2007
Hallstead,
Pennsylvania
TABLE
OF CONTENTS
PROXY
STATEMENT
|
3
|
Proxies
|
3
|
Required
Vote
|
3
|
Cost
of Proxy Solicitation
|
3
|
Advance
Notice Procedures
|
3
|
Shareholder
Communications
|
4
|
GOVERNANCE
OF THE COMPANY
|
4
|
Committees
of the Board of Directors
|
4
|
Compensation
of Directors
|
5
|
Relationship
with Independent Public Accountants
|
6
|
Section
16(a) Beneficial Ownership Reporting Compliance
|
6
|
SHARE
OWNERSHIP OF MANAGEMENT AND DIRECTORS
|
6
|
ELECTION
OF DIRECTORS
|
7
|
Nominees
for Terms Expiring in 2010
|
8
|
Directors
Whose Terms Will Expire in 2008
|
8
|
Directors
Whose Terms Will Expire in 2009
|
8
|
COMPENSATION
DISCUSSION AND ANALYSIS
|
9
|
Compensation
Committee Interlocks and Insider Participation
|
13
|
Summary
Compensation Table
|
13
|
Grants
of Plan-Based Awards Table
|
14
|
Outstanding
Equity Awards Table
|
14
|
Option
Exercises and Stock Vested Table
|
15
|
Non-Qualified
Deferred Compensation Table
|
15
|
Relationships
and Other Related Transactions
|
15
|
REPORT
OF THE AUDIT COMMITTEE
|
15
|
DIRECTORS
AND EXECUTIVE OFFICERS
|
16
|
OTHER
MATTERS
|
17
|
EXHIBIT
A NOMINATING AND GOVERNANCE COMMITTEE CHARTER
|
18
|
EXHIBIT
B COMPENSATION COMMITTEE CHARTER
|
20
|
EXHIBIT
C AUDIT COMMITTEE CHARTER
|
22
|
PROXY
STATEMENT
This
Proxy Statement is furnished in connection with the solicitation of proxies
by
the Board of Directors of Peoples Financial Services Corp., parent company
of
Peoples National Bank and Peoples Advisors, LLC, for use at the Company’s Annual
Meeting of Shareholders to be held on April 28, 2007, (the “Meeting”) at 8:30
a.m. E.S.T. at The Summit Tea Room, Route 11, New Milford, Pennsylvania. The
Proxy Statement and the accompanying proxy are first being mailed to
Shareholders of the Company on or about March 29, 2007.
PROXIES
The
execution and return of the enclosed proxy will not affect a shareholder’s right
to attend the Meeting and vote in person. Any Shareholder giving a proxy may
revoke it at any time before it is exercised by submitting written notice of
its
revocation or a subsequently executed proxy to the Secretary of the Company,
Debra E. Dissinger, 50 Main Street, PO Box A, Hallstead, Pennsylvania, 18822,
or
by attending the Meeting and electing to vote in person after giving written
notice thereof to the Secretary of the Company. Shareholders of record at the
close of business on February 28, 2007 are entitled to notice of, and to vote
at, the Meeting. On that date, the Company had 3,135,399 shares of common stock
outstanding (the “Common Stock”), par value $2 per share, each of which will be
entitled to one vote at the meeting.
If
the
enclosed proxy is appropriately marked, signed, and returned in time to be
voted
at the Meeting, the shares represented by the proxy will be voted in accordance
with the instructions marked thereon. Any proxy not specifying to the contrary
will be voted FOR the election of the nominees for Class III
Directors.
Shares
represented by properly executed proxies on the accompanying form will be voted
FOR the nominees of the Board of Directors named unless otherwise specified
on
the proxy by the Shareholder. Any Shareholder who wishes to withhold authority
from the proxyholder to vote for the election of Directors or to withhold
authority to vote for any individual nominee may do so by marking his or her
proxy to that effect. No proxy may be voted for a greater number of persons
than
the number of nominees named. If any nominee should become unable to serve,
the
person named in the proxy may vote for another nominee. The Company’s Board of
Directors and Management, however, have no present reason to believe that any
nominee listed will be unable to serve as a Director, if elected.
REQUIRED
VOTE
The
presence, in person or by proxy, of the holders of a majority of the Shares
entitled to vote generally for the election of Directors is necessary to
constitute a quorum at the Meeting. Abstentions and broker “non-votes” are
counted as present and entitled to vote for purposes of determining a quorum.
A
broker “non-vote” occurs when a nominee holding Shares for a beneficial owner
does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner.
Directors
are elected by a plurality of the votes cast at the Meeting. Abstentions and
broker “non-votes” will not be considered as votes cast for purposes of the
Meeting.
COST
OF
PROXY SOLICITATION
The
expense of soliciting proxies will be borne by the Company. It is expected
that
the solicitation of proxies will be primarily by mail. The Company’s Directors,
Officers and Employees may also, but without compensation other than their
regular compensation, solicit proxies by further mailings or personal
conversations, or by telephone, fax, or other electronic means. This expense
for
2006 was $6,000.
ADVANCE
NOTICE PROCEDURES
The
By-laws of the Company permit nominations for election to the Board of Directors
to be made by the Board of Directors or by any Shareholder of the Company.
All
nominations are referred to the Board of Directors for consideration. In 2006,
there were no nominations by Shareholders submitted to the Board for
consideration.
The
By-laws require that any nomination for Director by a Shareholder (other than
by
the Board of Directors) must be made by notice, in writing, delivered to the
Secretary of the Company not less than 60 days prior to the date of a
Shareholders’ Meeting. Any Shareholder proposal for consideration at the
Company’s Annual Meeting of Shareholders to be held in 2008 must be received by
the Company at its principal office not later than December 31, 2007. A copy
of
the full text of the By-law provisions discussed above may be obtained by
writing to the Corporate Secretary, PO Box A, Hallstead, Pennsylvania,
18822.
SHAREHOLDER
COMMUNICATIONS
Shareholders
and other parties interested in communicating directly with the Chairman of
the
Board or with the non-management Directors as a group may do so by writing
to
the Chairman of the Board, Peoples Financial Services Corp., 50 Main Street,
Hallstead, Pennsylvania 18822. The Corporate Secretary of the Company reviews
all such correspondence and forwards to the Board a summary and/or copies of
any
such correspondence that, in the opinion of the Corporate Secretary, deals
with
the functions of the Board or Committees thereof or that she otherwise
determines requires their attention. Directors may at any time review a log
of
all correspondence received by the Company that is addressed to members of
the
Board and request copies of any such correspondence. Concerns relating to
accounting, internal controls or auditing matters are immediately brought to
the
attention of the Company’s internal auditors and handled in accordance with
procedures established by the Audit Committee with respect to such
matters.
GOVERNANCE
OF THE COMPANY
Pursuant
to the Pennsylvania General Corporate Law and the Company’s By-laws, the
business property and affairs of the Company are managed under the direction
of
the Board of Directors. Members of the Board are kept informed of the Company’s
business through discussions with the CEO and Officers, by reviewing materials
provided to them, and by participation in meetings of the Board and its
committees.
During
2006, all of the Directors of the Company attended at least 75% of the aggregate
of all meetings of the Company’s and the Bank’s Boards of Directors and Board
committees on which they served. Each Director is expected to attend the
Company’s Annual Meetings. All six Directors were present for the 2006 Annual
Meeting.
COMMITTEES
OF THE BOARD OF DIRECTORS
The
Company’s Board of Directors met five times during 2006 and the Bank’s Board of
Directors met 12 times during 2006.
Committees
are concurrent committees of Peoples Financial Services Corp. and Peoples
National Bank.
The
Executive Committee consists of the Board Chairman, if any, the Vice Chairman,
if any, and the President plus not less than one, but no more than three other
Directors. The Executive Committee meets on an as-necessary basis and may
exercise the authority of the Board to the extent permitted by law during
intervals between meetings of the Board. This committee may also be assigned
other duties by the Bank’s Board.
The
Compensation Committee met one time during 2006. This committee consists of
three members of the Board. It reviews and recommends compensation policies
and
plans.
The
Audit/Compliance Committee met four times during 2006. This committee supervises
the compliance and internal audit program of the Bank and recommends the
appointment of, and serves as the principal liaison between, the Board and
the
Company’s independent accountants. It also reports to the Board on the general
financial condition of the Bank. During the year, the Board examined the
composition of the Audit Committee and confirmed that the members are
“independent” as defined in the NASDAQ listing standards. Director Aubrey was
determined to qualify, and agreed to serve, as the Audit Committee’s “financial
expert” as defined by SEC regulations.
The
Nominating and Governance Committee met one time during 2006. This committee
is
comprised of three members of the Board. It identifies individuals qualified
to
become Board members, consistent with criteria approved by the Board, oversees
the organization of the Board to discharge the Board’s duties and
responsibilities properly and effectively, and ensures that proper attention
is
given, and effective responses are made to shareowner concerns regarding
corporate governance. The members of this committee are “independent directors”
as defined in the NASDAQ listing standards. The Nominating Committee Charter
is
included in this Proxy Statement.
The
Asset/Liability Committee met 12 times in 2006. The primary objectives of the
Asset/Liability management process include: optimize earnings and return on
assets and equity within acceptable and controllable levels; provide for growth
that is sound, profitable and balanced without sacrificing the quality of
service; and manage and maintain policy and procedures that are consistent
with
the short - and long -term strategic goals of the Board of Directors. To this
end, the Asset/Liability Committee is responsible for risk management within
the
following key areas: interest rate; price; liquidity; investment/credit; and
budget. The committee meets monthly and consists of the Board of Directors
and
key Bank Officers.
The
Human
Resources and Marketing Committee met four times during 2006. This committee
is
responsible for sound human resources management and training e.g., in
employment, compensation, and performance appraisals. This committee is also
responsible for evaluation, planning and supervision of the marketing and
advertising of the Bank’s products and services, and also oversees community
involvement and other public relations activities. The Human Resources and
Marketing Committee meets on a quarterly basis with the Human Resources Manager,
the Chief Sales Officer and other Executive Officers.
The
Loan
Administration Committee met four times during 2006. This committee assists
the
Bank’s Board of Directors in discharging its responsibility for the lending
activities of the Bank by reviewing loans, lines of credits, floor plans,
customers’ financial statements, and by monitoring loan review and compliance.
The Loan Administration Committee recommends lending authorizations and is
responsible for assuring that the Bank’s loan activities are carried out in
accordance with loan policies. This committee is also responsible for insuring
the adequacy of the Bank’s loan loss reserve. The Loan Administration Committee
meets with the Chief Credit Officer and other Executive Officers on a quarterly
basis.
The
Branch Committees each met 10 times during 2006. These committees consist of
the
Directors assigned to or representing a particular community office. These
committees meet with the branch manager, Executive Officers and Associate
Directors of that office on a monthly basis to discuss the progress and/or
problems of the particular office they represent. The Committee may make
recommendations on unlimited matters concerning that office for consideration
at
the monthly Board of Director’s Meeting.
COMPENSATION
OF DIRECTORS
Each
member of the Board of Directors receives $500 for each Bank Board meeting.
Each
member receives $200 for each committee meeting they attend and $200 for each
branch meeting they attend. Mr. Ord and Mr. Lochen, while serving as Bank
Officers, were not compensated for committee meetings. All Outside Directors
receive a retainer of $12,000 per year. The Lead Director receives an additional
$250 per month. The Audit Committee Chairman receives an additional $200 per
month.
DIRECTORS’
STOCK OPTIONS
No
stock
options were granted in 2006.
DIRECTORS’
RETIREMENT
The
Company provides a retirement benefit to its non-employee Directors. The plan
requires a minimum of ten years of service. After the tenth year, the Director
is granted an annual retirement distribution of $150 times the Director’s number
of years of service on the Board. This benefit is payable to the Director or
beneficiary for a ten-year period following retirement. The Company has a
mandatory retirement age of 70. During 2006, the Company charged $9,450 to
expenses for this benefit.
DIRECTOR
COMPENSATION TABLE
Name
|
|
Fees
Earned
or
Paid
in
Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
All
Other
Compensation
($)
(1)
|
|
Total
($)
|
|
William
E. Aubrey, II
|
|
|
23,200
|
|
|
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
23,200
|
|
Thomas
F. Chamberlain
|
|
|
22,300
|
|
|
|
|
|
0
|
|
|
0
|
|
|
|
|
|
1,117
|
|
|
23,417
|
|
Richard
S. Lochen, Jr.
|
|
|
11,900
|
|
|
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
11,900
|
|
John
W. Ord
|
|
|
6,000
|
|
|
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
6,000
|
|
Russell
D. Shurtleff
|
|
|
25,300
|
|
|
|
|
|
0
|
|
|
0
|
|
|
|
|
|
418
|
|
|
25,718
|
|
George
H. Stover, Jr.
|
|
|
22,300
|
|
|
|
|
|
0
|
|
|
0
|
|
|
|
|
|
1,401
|
|
|
23,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Peoples
National Bank maintains a Supplemental Excess Retirement Plan for its Directors.
Under these plans, which are non-qualified plans, they will receive a
supplemental payment in order to provide them with an annual retirement benefit.
The amount listed reflects compensation expense recorded in 2006.
RELATIONSHIP
WITH INDEPENDENT PUBLIC ACCOUNTANTS
Representatives
of Beard Miller Company LLP, the accounting firm which examined the financial
statements, are expected to be present at the Annual Meeting and will be
afforded an opportunity to make a statement if they desire to do so. The
representatives of Beard Miller Company LLP will be available to respond to
appropriate questions concerning the Annual Report presented by the Shareholders
at the Annual Meeting.
Beard
Miller Company LLP, has been selected by the Board of Directors for the 2007
term.
SECTION
16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16 (a) of the Securities Exchange Act of 1934 requires the Company’s Directors
and Executive Officers to file reports of holdings and transactions in Shares
with the Securities and Exchange Commission. Based on Company records and other
information, the Company believes that all Securities and Exchange Commission
filing requirements applicable to its Directors and Executive Officers with
respect to the Company’s 2006 fiscal year were met.
SHARE
OWNERSHIP OF MANAGEMENT AND DIRECTORS
The
following table sets forth information concerning the beneficial ownership
of
the Company’s Common Shares as of 12/31/06, for: (a) each incumbent Director and
each of the nominees for Director; (b) each named Executive Officer of the
Company identified in the Summary Compensation Table; and (c) the Directors
and
Executive Officers as a group. Except as otherwise noted, the named individuals
or family members had sole voting and investment power with respect to such
securities.
Directors
and Executive Officers
|
|
Amount
and Nature of
*Beneficial
Ownership
|
|
Percent
of Common Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
H. Stover, Jr.
|
|
|
77,599
|
|
|
2.48
|
%
|
|
(1
|
)
|
John
W. Ord
|
|
|
72,974
|
|
|
2.33
|
%
|
|
(2
|
)
|
Russell
D. Shurtleff
|
|
|
16,937
|
|
|
.54
|
%
|
|
(3
|
)
|
Debra
E. Dissinger
|
|
|
13,083
|
|
|
.42
|
%
|
|
(4
|
)
|
Thomas
F. Chamberlain
|
|
|
12,723
|
|
|
.41
|
%
|
|
(5
|
)
|
Richard
S. Lochen, Jr.
|
|
|
3,734
|
|
|
.12
|
%
|
|
(6
|
)
|
Stephen
N. Lawrenson
|
|
|
3,256
|
|
|
.10
|
%
|
|
(7
|
)
|
William
E. Aubrey II
|
|
|
2,300
|
|
|
.07
|
%
|
|
|
|
Joseph
M. Ferretti
|
|
|
2,272
|
|
|
.07
|
%
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
All
Directors and Executive Officers as a Group
|
|
|
204,878
|
|
|
6.54
|
%
|
|
|
|
*The
securities “beneficially owned” by an individual are determined in accordance
with the definitions of “beneficial ownership” set forth in the general rules
and regulations of the Securities and Exchange Commission and may include
securities owned by or for the individual’s spouse, minor children and any other
relative who has the same home, as well as securities that the individual has
or
shares voting or investment power, or has the right to acquire beneficial
ownership within sixty (60) days after February 28, 2007. Beneficial ownership
may be disclaimed as to certain of the securities. All numbers have been rounded
to the nearest whole number.
(1) |
Includes
option grants of 3,750 shares. All other shares are held jointly
with
spouse.
|
(2) |
Includes
15,747 shares under the Company’s Employee Stock Ownership Plan (“ESOP”)
which have been allocated to Mr. Ord’s account, option grants of 5,625
shares and 40,000 shares held by
spouse.
|
(3) |
Includes
454 shares held jointly with spouse, 531 shares held jointly with
child
and options grants of 3,300 shares.
|
(4) |
Includes
11,752 shares under the Company’s Employee Stock Ownership Plan (“ESOP”)
which have been allocated to Ms. Dissinger’s account and options grants of
450 shares. All other shares are held jointly with
spouse.
|
(5) |
Includes
1,212 shares held jointly with spouse and option grants of 3,750
shares.
|
(6) |
Includes
option grants of 1,275 shares. All other shares are held jointly
with
spouse.
|
(7) |
Includes
881 shares under the Company’s Employee Stock Ownership Plan (“ESOP”)
which have been allocated to Mr. Lawrenson’s account and option grants of
1,920 shares. All other shares are held jointly with
spouse.
|
(8) |
Includes
1,027 shares under the Company’s Employee Stock Ownership Plan (“ESOP”)
which have been allocated to Mr. Ferretti’s account and option grants of
1,200 shares.
|
ELECTION
OF DIRECTORS
The
By-laws of the Company provide that the Company’s business shall be managed by a
Board of Directors of not less than five, and not more than twenty-five persons.
The Board of Directors of the Company, as provided in the Company’s By-laws, is
divided into three Classes: Class I, Class II, and Class III, with each class
being as nearly equal in number as possible. The Board of Directors of the
Company presently consists of six members. The term of office of the Class
III
Directors elected at the Meeting will expire on the date of the Company’s Annual
Meeting of Shareholders in 2010. The term of each of the continuing Directors
in
Class I and Class II will expire on the date of the Company’s Annual Meeting of
Shareholders in 2008 and 2009, respectively.
The
person named in the enclosed proxy intends to vote such proxy FOR the election
of each of the two nominees named below, unless you indicate that your vote
should be withheld from any or all of them. Each nominee elected as a Director
will continue in office until his or her successor has been duly elected and
qualified, or until the earliest of his or her death, resignation or
retirement.
The
Board
of Directors has proposed the following nominees for election as Directors
at
the Annual Meeting.
NOMINEES
FOR TERMS EXPIRING AT THE ANNUAL MEETING TO BE HELD IN THE YEAR
2010:
THOMAS
F.
CHAMBERLAIN
WILLIAM
E. AUBREY II
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE-NAMED
NOMINEES FOR ELECTION AS DIRECTORS.
The
Company expects each nominee for election as a Director at the Annual Meeting
to
be able to serve if elected. If any nominee is unable to serve if elected,
proxies may be voted for a substitute nominee selected by the Board of
Directors. The principal occupation and certain other information, as of the
Annual Meeting record date, are set forth regarding such nominees and other
Directors whose terms of office will continue after the Annual Meeting.
Information about the share ownership of the nominees and other Directors can
be
found on page 7.
THOMAS
F. CHAMBERLAIN, Director of Peoples Financial Services Corp. and
Peoples
National Bank since 1994. Nationwide Insurance Agent since 1972.
Member of
the Following Committees: Hallstead Branch; Asset/Liability; Loan;
Human
Resources/Marketing; Audit/Compliance; Compensation; and Nominating.
Age:
58
|
WILLIAM
E. AUBREY II, Director of Peoples Financial Services Corp. and Peoples
National Bank since 2006. President and CEO of Gertrude Hawk Chocolates
since 2003. Member of the Following Committees: Hop Bottom/Nicholson
Branch; Asset/Liability; Loan; Human Resources/Marketing;
Audit/Compliance; Compensation; and Nominating. Age:
44
|
CLASS
I DIRECTORS TERMS EXPIRING IN 2008
|
GEORGE
H. STOVER, JR., Director of Peoples Financial Services Corp. and
Peoples
National Bank since 1992. Real Estate Appraiser since 1972. Member
of the
Following Committees: Montrose Branch; Executive; Asset/Liability;
Loan;
and Human Resources/Marketing. Age: 60
|
RICHARD
S. LOCHEN, JR., Director of Peoples Financial Services Corp. and
Peoples
National Bank since 2003. President/CPO of the Company and the Bank
since
2006. President/CEO of the Company and the Bank since 2007. Certified
Public Accountant since 1995. Member of the Following Committees:
Executive; Asset/Liability; Loan; and Human Resources/Marketing.
Age:
43
|
CLASS
III DIRECTORS TERMS EXPIRING IN 2009
|
JOHN
W. ORD, Director of Peoples Financial Services Corp. since 1986 and
of
Peoples National Bank since 1969. Retired President/CEO of the Company
and
of the Bank since 2007. Chairman of the Board since 2005. Member
of the
following Committees: Susquehanna Branch; Executive; Asset/Liability;
Human Resources/Marketing; and Loan. Age: 66
|
RUSSELL
D. SHURTLEFF, Director of Peoples Financial Services Corp. and Peoples
National Bank since 2000. Attorney at Law since 1988. Lead Director
as of
2005. Member of the Following Committees: Tunkhannock/Meshoppen Branch;
Executive; Asset/Liability; Loan; Human Resources/Marketing;
Audit/Compliance; Compensation; and Nominating. Age:
44
|
COMPENSATION
DISCUSSION AND ANALYSIS
OVERVIEW
OF OBJECTIVES
The
executive compensation program of Peoples Financial Services Corp. has a
pay-for-performance philosophy. The Compensation Committee believes this
approach best aligns interests of executives with those of our shareholders.
The
program is designed to support annual and long-term company goals that create
consistent profitable growth while providing long-term value to our
shareholders. The objectives of the Company’s executive compensation plan are to
(1) attract, motivate and retain highly qualified executives; (2) link total
compensation to both individual performance and the performance of the business
segment the individual manages; (3) appropriately balance short-term and
long-term financial objectives, build shareholder value and reward individual,
team and Company performances, and (4) align executive and shareholder interests
by including equity as part of total compensation.
COMPONENTS
OF THE COMPENSATION PROGRAM
The
Company’s executive compensation includes three key elements: base salary,
annual incentives and long-term incentives.
BASE
SALARY
Base
salary is the basic element of the executive compensation program and the
foundation for setting incentive compensation target awards. The Company
furnishes peer group reports to the Compensation Committee. The reports contain
survey data compiled by an outside consultant to ensure that the program is
competitive. Data is gathered from 86 institutions, which include 68 commercial
banks or bank-holding companies as well as 18 thrifts and credit unions. The
Committee determines the base salary range for a particular position by
evaluating (1) the duties, complexities and responsibilities of the position;
(2) the level of experience required, and (3) the compensation for positions
having similar scope and accountability within and outside the
Company.
In
most
cases, base salary for an executive is set between 70 and 85 percent of the
median salary as furnished in the survey data. Factors utilized to set actual
salary include individual performance, length and nature of experience and
competency, salary levels of comparable positions both within and outside the
Company and potential for advancement.
With
the
other independent Directors, the Compensation Committee evaluates and approves
the base salary of the Corporation’s Chief Executive Officer, the President and
Chief Principal Officer, the Chief Operations and Chief Risk Officer, the Chief
Credit Officer, and the Chief Sales Officer. These Officers will be referred
to
collectively as the “Named Executive Officers”.
ANNUAL
INCENTIVES
For
the
2006 reporting year, the annual bonus component incentive compensation was
discretionary. The annual bonus opportunity was based on the goals and
objectives set forth in the strategic plan. Based on the Company’s performance
in 2006, the Board of Directors declined to award bonuses to the CEO, CPO,
CRO,
and CCO; however, a discretionary bonus of $5,000 was awarded to the CSO to
better align his salary with his peers.
In
January 2007, the Compensation Committee recommended to the Board of Directors
an Incentive Compensation Plan which was approved by the Company’s Directors.
Incentive Compensation represents the “at risk” portion of an executive’s pay.
The Company believes financial goals create a strong and objective link between
executive compensation and shareholder value creation. The Corporation uses
economic profit as the measurement for financial goal achievement because it
promotes the simultaneous optimization of growth, earnings and capital
efficiency. The Company believes economic profit is the best indicator of
long-term shareholder value creation and correlates well with long-term stock
price appreciation.
The
Compensation Committee has set corporate goals for the Named Executive Officers
to achieve in order to qualify for a cash bonus. Measurements and weighting
are
as follows: Net Income weighted at 50% of maximum bonus, Total Average Assets
at
5%, Return on Average Assets at 5%, Return on Average Equity at 5%, Efficiency
Ratio at 10%, and execution of the Company’s Strategic Plan weighted at
25%.
The
Board
also sets separate goals to align executives’ interests with the financial
performance of either the Company or their individual area of responsibility.
The President/Chief Executive Officer and Chief Operations Officer/Chief Risk
Officer are measured on the overall economic profit of the Company as well
as
implementation of the strategic plan. The other Named Executive Officers are
measured on the economic profit of the Company as well as certain departmental
goals.
The
Compensation Committee recommends and the Board approves the payment of Bonus
Plan awards. The awards will be paid in the first quarter following the fiscal
year for which an award is earned. The awards will be paid in cash.
LONG-TERM
INCENTIVES
The
Company designs long-term incentives to focus executives on long-term value
creation and to provide balance to the annual incentives. The Bank has an
employee stock ownership program covering substantially all employees who have
attained the age of 21 and have completed one year of service. Contributions
to
the plan are at the discretion of the Board of Directors. Employer contributions
are allocated to participant accounts based on their percentage of total base
and short-term incentive compensation for the plan year. The amounts contributed
to the plan are the same percentage of compensation for the Named Executive
Officers as for all employees. In 2006, $7,739 was contributed to Mr. Ord’s
account, $4,546 was contributed to Ms. Dissinger account, $4,080 was contributed
to Mr. Ferretti’s account and $2,506 was contributed to Mr. Lawrenson’s account.
Mr. Lochen was not yet eligible for this contribution. During 2006,
contributions to the plan charged as an expense to operations were $131,121.
Under the terms of the ESOP, the trustees must invest assets primarily in common
stock of the Company. Under the ESOP, employee participants are entitled to
voting rights attributable to stock allocated to their accounts.
The
Bank
also maintains a profit sharing plan under the provisions of Section 401(K)
of
the Internal Revenue Code. The plan covers substantially all employees who
have
completed one year of service. Contributions to the plan by the Bank equal
50%
of the employee contribution up to a maximum of 6% of annual salary. Mr. Ord
received $5,803, Ms. Dissinger received $3,410, Mr. Ferretti received $3,060,
and Mr. Lawrenson received $1,879 in employer contributions in 2006. Mr. Lochen
was not yet eligible for this contribution. During 2006, employer contributions
to the plan charged as an expense to operations were $79,164.
On
May 1,
1998, the Company made a grant of stock options to substantially all employees.
These options have an exercise price of $14.80 (price adjusted to reflect the
Company’s five-for-two split in September 1998 and three-for-two split in May
2003). The options vested after five years of service and will expire 10 years
from the date of grant. Discretionary, non-performance-based stock option grants
were made to key Officers and managers in 1999 through 2005 at exercise prices
ranging from $17.00 to $34.10. The options have an expiration date of 10 years
from the date of grant with the 2003 options vesting after five years. Recent
philosophy of the Board of Directors has been to eliminate issuance of stock
options as a segment of executive compensation.
OTHER
COMPENSATION ELEMENTS
The
Company has supplemental employee retirement plans available to certain Named
Executive Officers. Awarding of supplemental employee retirement plans to Named
Executive Officers is a discretionary decision addressed annually by the
Compensation Committee. As of December 31, 2006, certain Named Executive
Officers have SERPs. Mr. Ord’s plan provides for a benefit of $84,520 per year
paid to the executive beginning on the first day of each month, beginning six
months after the month in which Mr. Ord terminates employment by reaching normal
retirement age. In the event of his death, Mr. Ord’s spouse is entitled to a
payment of 50% of the executive’s monthly benefit. Ms. Dissinger’s plan, funded
through life insurance, provides a benefit of $20,000 per year for 15 years
commencing with the month following the month in which she terminates employment
after reaching normal retirement age. If the executive’s employment is
terminated before normal retirement age, absent a change in control and
executive’s voluntary termination of employment for good reason, non-renewal of
an employment agreement, disability, or termination by the Bank for reasons
other than for cause, the benefit accrued to date will be paid on the date
of
termination. Upon death of the executive while actively employed by the Bank,
the executive’s beneficiary will be paid a lump sum amount which is determined
by the number of years the plan was in effect. In exchange for their
supplemental retirement benefits, the executives have signed restrictive
covenants which prohibit them from entering into business relationships which
infringe on the operation of the Bank. Participation in the SERP is provided
to
assure the overall competiveness of the Corporation’s executive compensation
program.
The
Corporation has entered into an employment agreement with Mr. Lochen, newly
appointed CEO as of January 1, 2007. The Corporation also had an employment
agreement with Mr. Ord, who retired on January 2, 2007. The Corporation also
has
entered into change in control agreements with the other named Executive
Officers, Ms. Dissinger, and Messrs. Ferretti and Lawrenson. The CEO employment
agreement and change-in-control agreements are designed to (1) assure the
continuity of executive management during a threatened takeover; and (2) ensure
executive management is able to objectively evaluate any change in control
proposal and act in the best interests of shareholders during a possible
acquisition, merger or combination. The Corporation designed the agreement
to be
part of a competitive compensation package, thereby aiding in attracting and
retaining top quality executives.
The
agreements define a change in control as having occurred (1) when a third person
or entity becomes the beneficial owner of more than 19.99% of the combined
voting power of People’s securities then outstanding; (2) there occurs a merger,
consolidation of reorganization to which the Bank is a party in which the
members of the Board of Directors of the Corporation do not constitute a
majority of the members of the Board of resulting entity; (3) there occurs
a
sale, exchange or deposition of substantially all of the assets of the Bank
to
another entity; (4) there occurs a contested proxy solicitation that results
in
a contesting party obtaining the ability to elect candidates to a majority
of
the Bank’s Board; or (5) there occurs a tender offer for the shares of voting
securities of the Bank and the offer obtains securities representing more than
19.99% of the combined voting power of People’s outstanding securities. The
executive is entitled to certain benefits if, at any time within two years
after
the change in control, any of the following triggering events occurs: (1)
employment is terminated by the Corporation for any reason other than cause
or
disability of the executive; or (2) employment is terminated by the executive
for “good reason.” “Good reason” is defined as (1) assignment to the executive
of duties substantially inconsistent with the executive’s position, authority or
responsibilities, or any other substantial adverse changes in the executive’s
position (including title), authority or responsibilities; (2) the Corporation’s
failure to comply with any of the provisions of the agreement; (3) a required
change of more than 50 miles in the executive’s principal place of work, except
for travel reasonably required in performing the executive’s responsibilities;
(4) a purported termination of the executive’s employment by the Corporation
which is not permitted by the agreement; (5) the Corporation’s failure to
require a successor company to assume the agreement; or (6) the executive’s good
faith determination that the change in control resulted in the executive being
substantially unable to carry out authorities or responsibilities attached
to
his or her position due to the change in control.
When
a
triggering event occurs following a change in control, the executive is entitled
to two times (2.99 times for the CEO) the sum of the executive’s annual base
salary. In the event the CEO’s employment is voluntarily terminated by Peoples
without cause or the executive resigns from employment for good reason and
no
change in control shall have occurred at the date of such termination or
resignation, Peoples must pay to the executive in cash within twenty days
following termination or resignation, an amount equal to 2.0 times (2.99 times
for the CEO) the highest sum of (1) their taxable federal compensation reported
on Form W-2 during each of the immediately preceding three calendar years;
and
(2) all amounts excluded from such compensation during the relevant calendar
year under the Internal Revenue Code. In exchange for receipt of the severance
payment where no change in control has occurred, the CEO is prohibited for
a
period of one year from the date of termination, from entering into any
relationship with any enterprise which is engaged in a business which competes
with the Corporation.
The
CEO
and other Executive Officers are entitled to receive reimbursement for any
legal
fees and expenses, plus interest there on, that may be incurred in enforcing
or
defending his or her agreement. The CEO’s employment agreement is automatically
renewed, on an annual basis, for a period of three years and the change in
control agreements of the other Named Executive Officers are automatically
renewed, on an annual basis, for a period of two years.
AMOUNTS
OWED IF A TRIGGERING EVENT HAD TAKEN PLACE
If
a
triggering event had occurred on December 31, 2006, the benefits payable in
2006
for Mr. Ord’s SERP contract would have been $42,410 and for Ms. Dissinger’s SERP
contract, $92,227. If a triggering event had occurred on December 31, 2006,
the
benefits payable in 2006 for Mr. Ord’s employment agreement would have been
$400,128 and for Ms. Dissinger’s change in control agreement,
$197,308.
PERQUISITES
The
Compensation Committee annually reviews the perquisites that senior management
receives. For 2006, Mr. Ord was provided with a company-owned vehicle for the
first six months of the calendar year and spousal travel expenses for
conventions.
Beginning
in 2007, the Board agreed to provide Mr. Lochen with a $1,000 per month vehicle
allowance and spousal travel expenses for conventions.
The
Committee believes that country clubs can serve as appropriate forums for
building client relationships and for community interaction. The Bank reimburses
monthly membership expenses for select members of management based on
demonstrable business requirements, which are reviewed annually.
The
Compensation Committee regularly reviews People’s perquisites and believes they
are appropriate and modest when compared to peer companies and are necessary
to
attract and retain high-caliber talent.
IMPACT
OF
PRIOR COMPENSATION IN SETTING ELEMENTS OF COMPENSATION
Prior
compensation of the Named Executive Officers does not impact how the Corporation
sets elements of current compensation. The Compensation Committee believes
the
competitive environment mandates that current total compensation be sufficient
to attract, motivate and retain top management. The Compensation Committee
analyzes outstanding option grants, outstanding plan awards and overall
Corporation stock ownership for each of the Named Executive Officers to ensure
that future stock option grants, change-in-control agreements and other benefits
provide appropriate and relevant incentives to the executives. Based on the
current analysis, the Compensation Committee believes that prior compensation
will not impact the ongoing effectiveness of the Corporation’s compensation
objectives.
THE
ROLE
OF THE COMPENSATION COMMITTEE AND INDEPENDENT CONSULTANT
The
Compensation Committee evaluates management’s executive compensation
recommendations and provides independent review of the Corporation’s executive
compensation program. The Compensation Committee is comprised solely of
Directors who are not current or former employees of the Corporation and each
is
independent as defined by the NASDAQ director independence standards and the
Categorical Standards. The Compensation Committee is responsible for
recommending compensation policies to the Board for approval, as well as
developing and implementing the compensation programs for the Named Executive
Officers and other key members. Key items pertaining to executive compensation
such as base salary increases, cash performance plan awards and stock option
grants are submitted to the Board for approval following the review and
recommendation of the Compensation Committee. In the case of the CEO, only
the
independent Directors of the Board approve the Compensation Committee’s
recommendation.
Operating
within the framework of duties and responsibilities established by the Board,
the Compensation Committee’s role is to assure the Corporation’s (1)
compensation strategy is aligned with the long-term interests of the
shareholders and members; (2) compensation structure is fair and reasonable;
and
(3) compensation reflects both corporate and individual performance. In
discharging its responsibilities, the Compensation Committee utilizes
broad-based, comparative compensation surveys developed by independent
professional organizations.
The
Compensation Committee’s Charter provides that any outside compensation
consultants who offer advice on compensation levels and benefits for the CEO
or
other senior executives will be retained by the Compensation Committee, report
to the Chair of the Compensation Committee and submit fee statements for
approval to the Chair of the Compensation Committee. The consultant’s findings
are reported directly to the Compensation Committee. Any other consulting
services by such compensation consultants for the Corporation must be approved
in advance by the Compensation Committee Chair.
OTHER
MATTERS
While
we
believe that it is important that our Executive Officers and Directors own
shares of the Company’s common stock and all the Executive Officers and
Directors own common stock and/or options to purchase common stock pursuant
to
our stock option plan, we do not have equity or security ownership requirements
for Executive Officers or Directors. While we expect that our Officers and
Directors will retain the risk relating to their ownership as an expression
of
their confidence in the Company and the alignment of their interests with those
of the public shareholders, we have no policies regarding hedging the economic
risk of any ownership of our common stock.
The
Bank
has in effect a Directors’ and Officers’ liability insurance policy from the
Fidelity and Deposit Company of Maryland to cover certain liabilities, losses,
damages, and expenses that the Bank’s Directors and Officers may incur in such
capacities. $10,605 was charged to expenses in 2006 for this
insurance.
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed the CD&A, which begins on
page 9 of this Proxy Statement, with management and based on such review and
discussion, the Compensation Committee recommended to the Board that the
CD&A be included in this Proxy Statement.
COMPENSATION
COMMITTEE
Russell
D. Shurtleff, Esquire, Chairman
Thomas
F.
Chamberlain
William
E. Aubrey, II
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During
Fiscal 2006, the Compensation Committee was comprised of Mr. Shurtleff,
Chamberlain, and Aubrey, none of whom is a current or former Officer of the
Corporation. There are no interlocking Board memberships between Officers of
the
Corporation and any member of the Compensation Committee.
SUMMARY
COMPENSATION TABLE
The
table
below sets forth the compensation awarded to, earned by, or paid to each of
the
CEO and the Principal Financial Officer for the year ended December 31, 2006.
While employed, executives are entitled to base salary, participation in the
executive compensation programs identified in the tables below and discussed
in
the CD&A and other benefits common to all members. The performance-based
conditions associated with the incentive plan awards, as well as salary and
bonus in proportion to total compensation, are discussed in detail throughout
the CD&A.
NAME
AND PRINCIPAL POSITION
|
YEAR
|
SALARY
($)
|
BONUS
($)
|
STOCK
AWARDS ($)
|
OPTION
AWARDS
($)
|
NON-EQUITY
INCENTIIVE
PLAN
COMPENSATION
($)
|
CHANGE
IN
PENSION
VALUE
AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
($)
|
ALL
OTHER
COMPEN-
SATION
($)
|
TOTAL
($)
|
|
|
|
|
|
|
|
|
|
|
John
W. Ord, President/Chief Executive Officer/
Chairman
|
2006
|
175,064
|
N/A
|
N/A
|
0
|
0
|
N/A
|
184,100
(1)
|
359,164
|
|
|
|
|
|
|
|
|
|
|
Debra
E. Dissinger, Executive Vice President
Chief
Operations Officer
Principal
Financial Officer
|
2006
|
98,654
|
N/A
|
N/A
|
0
|
0
|
N/A
|
15,299
(2)
|
113,953
|
(1) |
Includes
ESOP contributions of $7,739, 401(k) plan contributions of $5,803,
supplemental employee retirement plan contributions of $169,241,
automobile allowance of $405 and spouse convention expenses of
$912.
|
(2) |
Includes
ESOP contributions of $4,546, 401(k) plan contributions of $3,410,
and
supplemental employee retirement plan contributions of $7,343.
|
The
aggregate cash compensation paid to the two Executive Officers of the Company
and the Bank for services performed during 2006 was $273,718.
GRANTS
OF
PLAN-BASED AWARDS TABLE
Name
|
Grant
Date
|
Estimated
Future Payouts Under Non-
Equity
Incentive Plan Awards
|
Estimated
Future Payouts Under
Equity
Incentive Plan Awards
|
All
Other Stock
Awards:
Number
of
Shares
of
Stock
or
Units
(#)
|
All
Other
Option
Awards:
Number
of Shares of
Stock
or
Units
(#)
|
Exercise
or
Base
Price
Of
Option
Awards
($/Sh)
|
|
|
NONE
|
|
|
|
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END DECEMBER 31, 2006
|
Option
Awards
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
John
W. Ord
|
1,875
|
|
|
14.80
|
5/1/2008
|
|
750
|
|
|
17.00
|
5/1/2009
|
|
750
|
|
|
18.33
|
5/1/2010
|
|
750
|
|
|
16.50
|
5/1/2011
|
|
750
|
|
|
18.00
|
5/1/2012
|
|
|
250
(1)
|
|
27.50
|
6/1/2013
|
|
250
|
|
|
34.10
|
11/12/2014
|
|
250
|
|
|
30.75
|
10/3/2015
|
Debra
E. Dissinger
|
|
150
(1)
|
|
27.50
|
6/1/2013
|
|
150
|
|
|
34.10
|
11/12/2014
|
|
150
|
|
|
30.75
|
10/3/2015
|
Joseph
M. Ferretti
|
750
|
|
|
18.33
|
5/1/2010
|
|
|
150
(1)
|
|
27.50
|
6/1/2013
|
|
150
|
|
|
34.10
|
11/12/2014
|
|
150
|
|
|
30.75
|
10/3/2015
|
Richard
S. Lochen, Jr.
|
375
|
|
|
16.50
|
5/1/2011
|
|
300
|
|
|
18.00
|
5/1/2012
|
|
|
100
(1)
|
|
27.50
|
6/1/2013
|
|
250
|
|
|
34.10
|
11/12/2014
|
|
250
|
|
|
30.75
|
10/3/2015
|
Stephen
N. Lawrenson
|
195
|
|
|
14.80
|
5/1/2008
|
|
375
|
|
|
17.00
|
5/1/2009
|
|
375
|
|
|
18.33
|
5/1/2010
|
|
375
|
|
|
16.50
|
5/1/2011
|
|
300
|
|
|
18.00
|
5/1/2012
|
|
|
100
(1)
|
|
27.50
|
6/1/2013
|
|
100
|
|
|
34.10
|
11/12/2014
|
|
100
|
|
|
30.75
|
10/3/2015
|
Mr.
Ord
has an aggregate amount of stock option grants of 5,625 shares that have a
grant
date present value of *$15,578. Ms. Dissinger has an aggregate amount of stock
options of 450 shares that have a grant date present value of *$2,522. Mr.
Ferretti has an aggregate amount of stock options of 1,200 shares that have
a
grant date present value of *$6,851. Mr. Lochen has an aggregate amount of
stock
options of 1,275 shares that have a grant date present value of *$5,779. Mr.
Lawrenson has an aggregate amount of stock options of 1,920 shares that have
a
grant date present value of *$8,002.
*Black-Scholes
Option Pricing Method
OPTION
EXERCISES AND STOCK VESTED TABLE
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of
Shares
Acquired
on
Exercise
(#)
|
Value
Realized on Exercise
($)
|
Number
of
Shares
Acquired
on
Vesting
(#)
|
Value
Realized
on
Vesting
($)
|
John
W. Ord
|
|
|
|
|
Debra
E. Dissinger
|
|
|
|
|
Joseph
M. Ferretti
|
375
|
4,594
|
|
|
Richard
S. Lochen, Jr.
|
|
|
|
|
Stephen
N. Lawrenson
|
|
|
|
|
NON-QUALIFIED
DEFERRED COMPENSATION TABLE
Name
|
|
Executive
Contributions
in
Last FY
($)
|
|
Registrant
Contributions
in
Last FY
($)
(1)
|
|
Aggregate
Earnings
in
Last
FY
($)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance
at
Last
FYE
($)
|
|
John
W. Ord
|
|
|
0
|
|
|
121,717
|
|
|
47,525
|
|
|
0
|
|
|
169,242
|
|
Debra
E. Dissinger
|
|
|
0
|
|
|
6,008
|
|
|
1,335
|
|
|
0
|
|
|
7,343
|
|
Joseph
M. Ferretti
|
|
|
0
|
|
|
0
|
|
|
|
|
|
0
|
|
|
|
|
Richard
S. Lochen, Jr.
|
|
|
0
|
|
|
0
|
|
|
|
|
|
0
|
|
|
|
|
Stephen
N. Lawrenson
|
|
|
0
|
|
|
0
|
|
|
|
|
|
0
|
|
|
|
|
(1) |
The
above deferred compensation represents amounts contributed in 2006
to the
executive supplemental retirement plans as discussed on page
10.
|
RELATIONSHIPS
AND OTHER RELATED TRANSACTIONS
Several
of the Directors and Officers of the Company, and the companies with which
they
are associated, are customers of, and during 2006 had banking transactions
with,
the Bank in the ordinary course of the Bank’s business, and intend to do so in
the future. All loans and commitments to loan included in such transactions
were
made under substantially the same terms, including interest rates, collateral,
and repayment terms, as those prevailing at the time for comparable transactions
with other persons and, in the opinion of the Bank’s Management, do not involve
more than the normal risk of collection or present other unfavorable
features.
REPORT
OF THE AUDIT COMMITTEE
The
following report of the Audit Committee does not constitute soliciting material
and should not be deemed filed or incorporated by reference into any other
Company filing under the Securities Act of 1933 or the Securities Exchange
Act
of 1934, except to the extent the Company specifically incorporates the report
by reference therein.
The
members of the Bank’s Audit Committee are William E. Aubrey II, Russell D.
Shurtleff, Esquire, and Thomas F. Chamberlain. The Committee met four times
during fiscal 2006. The Committee schedules its meetings with a view to ensuring
that it devotes appropriate attention to all of its tasks. The Committee’s
meetings include, whenever appropriate, executive sessions with the Company’s
independent auditors and with the Company’s internal auditors, in each case
without the presence of the Company’s management. In addition, the Committee
reviewed major initiatives and programs aimed at strengthening the effectiveness
of the Company’s internal control structure. As part of this process, the
Committee continued to monitor the scope and adequacy of the Company’s internal
auditing program, reviewing staffing levels and steps taken to implement
recommended improvements in internal procedures and controls. A copy of the
Audit Committee Charter is included as an exhibit to this Proxy Statement.
Independent
Auditor Fees
The
Sarbanes-Oxley Act of 2002 and the auditor independence rules of the United
States Securities and Exchange Commission require all public accounting firms
who audit issuers to obtain pre-approval from their respective Audit Committees
in order to provide professional services without impairing independence. Beard
Miller Company LLC has previously issued engagement letters to or obtained
formal approval from the Audit Committee for certain services. These services
are summarized below.
The
following fees were incurred for 2006 and 2005:
|
|
2006
|
|
2005
|
|
Audit
Fees (1)
|
|
|
80,394
|
|
|
74,816
|
|
Audit-Related
Fees (2)
|
|
|
400
|
|
|
255
|
|
Tax
Fees (3)
|
|
|
7,853
|
|
|
6,942
|
|
All
Other Fees(4)
|
|
|
-
|
|
|
-
|
|
|
|
|
88,647
|
|
|
82,013
|
|
(1) |
Includes
professional services rendered for the audit of the Corporation’s annual
financial statements and review of financial statements included
in Forms
10-Q, or services normally provided in connection with statutory
and
regulatory filings (i.e., attest services required by Section 404
of the
Sarbanes-Oxley Act), including out-of-pocket
expenses.
|
(2) |
Assurance
and related services reasonably related to the performance of the
audit or
review of financial statements include the following: 2006 - consultation
and research regarding flooding of bank branches and related accounting
and reporting implications; 2005 - research for accounting for prepayment
penalties.
|
(3) |
Tax
fees included the following: preparation of state and federal tax
returns,
assistance with calculating estimated tax payments, and tax
planning.
|
(4) |
Other
fees include evaluation of a proposed transaction or other permitted,
nonrecurring non-attest special
projects.
|
The
fees
were approved in accordance with the Audit Committee’s policy.
Financial
Information Systems Design and Implementation Fees
The
Company did not engage Beard Miller Company LLP to provide advice to the Company
regarding financial information systems design and implementation during fiscal
years ended December 31, 2006 and 2005.
The
Audit
Committee of the Bank has reviewed the audited financial statements of the
Company for the fiscal year ended December 31, 2006, and discussed them with
management and the Company’s independent accountants, Beard Miller Company LLP.
The Audit Committee also has discussed with the independent accountants the
matters required to be discussed by the US Statements of Auditing Standards
No.
89 and 90. The Bank’s Audit Committee has received from the independent
accountants the written disclosures and letter required by the US Independence
Standards Board Standard No. 1, and the Audit Committee has discussed the
accountants’ independence from the Company and management with the accountants.
Based on the review and discussions, the Bank’s Audit Committee recommended to
the Board of Directors that the Company’s audited financial statements for the
fiscal year ended December 31, 2006, be included in the Company’s Annual Report
and Form 10K for that fiscal year.
Members
of the Audit Committee
William
E. Aubrey II
Russell
D. Shurtleff, Esquire
Thomas
F.
Chamberlain
DIRECTORS
AND EXECUTIVE OFFICERS
The
Company’s Board of Directors presently consists of six members. The Company’s
Board of Directors is divided into three classes, one-third (as nearly equal
in
number as possible) of who are elected annually to serve for a term of three
years.
The
following information is set forth in the table entitled “Company’s Board of
Directors”:
· |
the
principal occupation of such individuals during the past five
years.
|
The
Executive Officers are appointed to their respective offices annually. All
Directors of the Company also serve as Directors of Peoples National Bank.
Unless otherwise indicated, the principal occupation listed for a person has
been the person’s occupation for at least the past five years. The table
indicates the earliest year a person became an Officer or Director for Peoples
National Bank or the Company.
NAME
|
AGE
|
POSITION
ON BOARD
|
YEAR
ELECTED OR APPOINTED OFFICE
|
YEAR
TERM EXPIRES
|
OCCUPATION
|
John
W. Ord
|
66
|
Chairman
|
1969
|
2009
|
Retired
President/
CEO
of Bank and Company
|
Thomas
F. Chamberlain
|
58
|
Director
|
1994
|
2007
|
Nationwide
Insurance Agent
|
George
H. Stover, Jr.
|
60
|
Director
|
1992
|
2008
|
Real
Estate Appraiser
|
Russell
D. Shurtleff
|
44
|
Director
|
2000
|
2009
|
Attorney
At Law
|
Richard
S. Lochen, Jr.
|
43
|
Director
|
2003
|
2008
|
President/CEO
of Bank and Company/
Certified
Public Accountant (1995-present)
|
William
E. Aubrey II
|
44
|
Director
|
Appointed
in 2006
|
2007
|
President/CEO
of Gertrude Hawk Chocolates (2003-present), President of Churny Company
(1991-2003)
|
Debra
E. Dissinger
|
52
|
Secretary
|
1990
|
N/A
|
Executive
Vice President/Chief Operations Officer of the Bank
|
Joseph
M. Ferretti
|
37
|
N/A
|
1997
|
N/A
|
Vice
President/Chief Credit Officer of the Bank
|
Stephen
N. Lawrenson
|
43
|
N/A
|
2000
|
N/A
|
Vice
President/Chief
Sales
Officer of the Bank
|
There
are
no family relationships among any of the Executive Officers or Directors of
the
Company. Executive Officers of Peoples National Bank are elected by the Board
of
Directors on an annual basis and serve at the discretion of the Board of
Directors.
OTHER
MATTERS
Management
knows of no business other than as described previously that is planned to
be
brought before the Meeting. Should any other matters arise, however, the person
named on the enclosed proxy will vote in accordance with the recommendation
of
the Board of Directors, or in the absence of such a recommendation, in
accordance with his/her best judgment.
EXHIBIT
A
NOMINATING
AND GOVERNANCE COMMITTEE CHARTER
The
purpose of the Nominating and Governance Committee (the “Committee”) of the
Board of Directors (the “Board”) of Peoples National Bank (“PNB”)
is:
1. |
To
identify individuals qualified to become Board members, consistent
with
criteria approved by the Board;
|
2. |
To
oversee the organization of the Board to discharge the Board’s duties and
responsibilities properly and
effectively;
|
3. |
To
ensure that proper attention is given, and effective responses are
made,
to shareowner concerns regarding corporate governance;
and
|
4. |
To
perform such other duties and responsibilities as are enumerated
in and
consistent with this charter.
|
II. |
Membership
and Procedures
|
1. |
Membership
and Appointment.
The
Committee shall consist of such members of the Board as shall be
determined from time to time by the Board based on recommendations
from
the Committee, if any. The members of the Committee shall be appointed
by
the Board upon the recommendation of the
Committee.
|
2. |
Removal.
The entire Committee or any individual Committee member may be removed
from office with or without cause by the affirmative vote of a majority
of
the Board. Any Committee member may resign upon giving oral or written
notice to the Chairman of the Board or the Corporate Secretary of
the
Board, which resignation shall be effective at the time such notice
is
given (unless the notice specifies a later time for the effectiveness
of
such resignation). If the resignation of a Committee member is effective
at a future time, the Board may elect a successor to take office
when the
resignation becomes effective.
|
3. |
Chairperson.
A
chairperson of the Committee (the “Chairperson”) may be designated by the
Board based upon recommendations by the Committee, if any. In the
absence
of such designation, the members of the Committee may designate the
Chairperson by majority vote of the full Committee membership. The
Chairperson shall determine the agenda, the frequency and the length
of
meetings and shall have unlimited access to management and information.
Such Chairperson shall establish such other rules as may from time
to time
be necessary and proper for the conduct of the business of the Committee.
The Chairperson shall preside over any executive sessions of
non-management or independent
directors.
|
4. |
Secretary.
The Committee may appoint a Secretary whose duties and responsibilities
shall be to keep full and complete records of the proceedings of
the
Committee for the purposes of reporting Committee activities to the
Board
and to perform all other duties as may from time to time be assigned
to
him or her by the Committee, or otherwise at the direction of a Committee
member. The Secretary need not be a
director.
|
5. |
Independence.
Each member shall be independent within the meaning of any applicable
law
or stock exchange listing standard or rule, as determined by the
Board.
|
6. |
Authority
to Retain Advisers.
In
the course of its duties, the Committee shall have sole authority,
at
PNB’s expense, to engage and terminate consultants or search firms, as
the
Committee deems advisable, to identify Director candidates, including
the
sole authority to approve the consultant or search firm’s fees and other
retention terms.
|
7. |
Evaluation.
The Committee shall undertake an annual evaluation assessing its
performance with respect to its purpose and its duties and tasks
set forth
in the charter, which evaluation shall be reported to the Board.
In
addition, the Committee shall lead the Board in an annual self-evaluation
process, including the self-evaluation of each Board committee, and
report
its conclusions and any further recommendations to the
Board.
|
III. |
Meeting
and Procedures
|
The
Committee shall convene at least one time each year. A majority of the Committee
members shall be present to constitute a quorum for the transaction of the
Committee’s business. The Committee shall report regularly to the full Board
with respect to its activities.
IV. |
Roles
and Responsibilities
|
The
following shall be the common recurring duties and responsibilities of the
Committee in carrying out its oversight functions. These duties and
responsibilities are set forth below as a guide to the Committee with the
understanding that the Committee may alter or supplement them as appropriate
under the circumstances to the extent permitted by applicable law or stock
exchange listing standard.
1. |
Board
of Directors and Board Committee
Composition
|
a) |
Annually,
the Committee shall assess the size and composition of the Board
in light
of the operating requirements of PNB and existing attitudes and
trends.
|
b) |
The
Committee shall develop membership qualifications for the Board of
Directors and all Board committees.
|
c) |
The
Committee shall monitor compliance with Board and Board committee
membership criteria.
|
d) |
Annually,
the Committee shall review and recommend Directors for continued
service
as required based on evolving needs of PNB and existing attitudes
and
trends.
|
e) |
The
Committee shall coordinate and assist management and the Board of
Directors in recruiting new members to the
Board.
|
f) |
Annually,
the Committee and the Board shall evaluate the performance of the
Chairman
of the Board and CEO. To conduct this review, the chairpersons of
this
Committee and of the HR and Compensation Committee shall gather and
consolidate input from all Directors in executive session and then,
based
on the factors set forth in PNB’s Corporate Governance Guidelines as well
as such other factors as are deemed appropriate, such chairpersons
shall
present the results of the review to the Board and to the Chairman
and CEO
in a private feedback session.
|
g) |
The
Committee shall investigate suggestions for candidates for membership
on
the Board, including shareowner nomination, and shall recommend
prospective directors, as required, to provide an appropriate balance
of
knowledge, experience and capability on the
Board.
|
2. |
The
Committee shall identify best practices and develop and recommend
corporate governance principles applicable to
PNB.
|
3. |
The
Committee shall review proposed changes to PNB’s charter or by-laws, or
Board committee charters, and make recommendation to the
Board.
|
4. |
The
Committee shall assess periodically and recommend action with respect
to
shareowner rights, plans, or other shareowner
protections.
|
5. |
The
Committee shall recommend Board committee
assignments.
|
6. |
The
Committee shall review and approve any employee director standing
for
election for outside for-profit boards of
directors.
|
7. |
The
Committee shall review governance-related shareowner proposals and
recommend Board responses.
|
8. |
The
Chairperson of the Committee shall receive communications directed
to
non-management directors.
|
9. |
The
Committee shall oversee the evaluation of the Board and
management.
|
The
Committee shall conduct a preliminary review of director independence and the
financial literacy and expertise of Audit Committee members in order to assist
the Board in its determinations relating to such matters.
EXHIBIT
B
COMPENSATION
COMMITTEE CHARTER
I.
Purpose
The
purpose of the Compensation Committee (the "Committee") of the Board of
Directors (the "Board") of Peoples National Bank ("PNB") is to discharge the
responsibilities of the Board relating to compensation of PNB's executives
and
directors, to produce an annual report on executive compensation for inclusion
in PNB's proxy statement (in accordance with applicable rules and regulations),
to provide general oversight of PNB's compensation structure including equity
compensation plans and benefits programs, to review and provide guidance on
PNB's Human Resource programs such as its talent review and leadership
development and best place to work initiatives, and to perform specific duties
and responsibilities set forth herein.
II.
Membership
The
Committee shall consist of at least three members, consisting entirely of
independent directors, and shall designate one member as chairperson. For
purposes hereof, an "independent" director is a director who is independent,
as
determined by the Board, within the meaning of applicable stock exchange listing
standards. Additionally, members of the Committee must qualify as "non-employee
directors" for purposes of Rule 16b-3 under the Securities and Exchange Act
of
1934, as amended, and as "outside directors" for purposes of Section 162(m)
of
the Internal Revenue Code.
III.
Meetings
and Procedures
The
Committee will meet as often as may be deemed necessary or appropriate, in
its
judgment. The majority of the members of the Committee shall be present to
constitute a quorum for the transaction of PNB's business. The Committee shall
report regularly to the full Board with respect to its activities.
IV.
Outside
Advisors
The
Committee will have the authority to retain at the expense of PNB such outside
compensation consultants, counsel, and other experts and advisors as it
determines is appropriate to assist it in the full performance of its functions,
including sole authority to retain and terminate any compensation consultant
used to assist the Committee in the evaluation of director, CEO or senior
executive compensation, and to approve the consultant's fees and other retention
terms.
V. |
Duties
and Responsibilities
|
1. |
Evaluate
Human Resources and Compensation Strategies.
The
Committee will oversee and evaluate PNB's overall human resources
and
compensation structure, policies and programs, and assess whether
these
establish appropriate incentives and leadership development for management
and other employees. The Committee will oversee the Company's total
rewards program in order to attract and retain key talent and promote
PNB's best place to work initiative.
|
2. |
Monitor
Leadership Development.
The
Committee will review the leadership development process for senior
management positions and ensure that appropriate compensation, incentive
and other programs are in place in order to promote such development.
|
3. |
Set
Executive Compensation.
The
Committee will review and approve corporate goals and objectives
relevant
to the compensation of the Chief Executive Officer (the "CEO") and
other
executive officers of PNB, evaluate the performance of the CEO and
other
executive officers in light of those goals and objectives and approve
their annual compensation levels including salaries, bonuses, stock
options, other stock incentive awards and long--term cash incentive
awards
based on this evaluation. In addition, the Committee may, in its
discretion, review and act upon management proposals to designate
key
employees to receive stock options and stock or other bonuses.
|
4. |
Approve
Employment Agreements.
The
Committee will review and approve employment agreements and severance
arrangements for the CEO and other executive officers, including
change-in-control provision plans or agreements.
|
5. |
External
Reporting of Compensation Matters.
The
Committee will make an annual report on executive compensation in
PNB's'
proxy statement as required by the rules of the U.S. Securities and
Exchange Commission ("SEC").
|
6. |
Oversight
of Equity-Based and Incentive Compensation Plans.
The
committee will supervise and administer PNB's incentive compensation,
stock option, stock appreciation rights, and service award programs
and
may approve, amend, modify, interpret or ratify the terms of, or
terminate, any such plan to the extent that such action does not
require
stockholder approval; make recommendations to the Board with respect
to
incentive--compensation plans and equity-based plans as appropriate;
provide for accelerated vesting of options, SARs and restricted stock,
and
determine the post-termination exercise periods for options and SARS,
in
connection with divestitures or otherwise; and delegate certain of
such
functions to the extent set forth in section VI below.
|
7. |
Oversight
of Employee Benefit Plans.
The
Committee will monitor the effectiveness of non-equity based benefit
plan
offerings, in particular benefit plan offerings and perquisites pertaining
to executives, and will review and approve any new material employee
benefit plan or change to an existing plan that creates a material
financial commitment by PNB. In its discretion, the Committee may
otherwise approve, amend, modify, ratify or interpret the terms of,
or
terminate, any non-equity based benefit plan or delegate such authority
to
the extent set forth in section VI below.
|
8. |
Set
Director Compensation.
The
Committee will review the compensation of directors for service on
the
Board and its committees and recommend to the Board the annual retainer
and Chair fees and Board and Committee meeting fees.
|
9. |
Perform
Annual Evaluation. The
Committee will annually evaluate the performance of the Committee
and the
adequacy of the Committee's charter.
|
10. |
General.
The
Committee will perform such other duties and responsibilities as
are
consistent with the purpose of the Committee and as the Board or
the
Committee deems appropriate.
|
VI.
Delegations
The
Committee may delegate any of the foregoing duties and responsibilities to
a
subcommittee of the Committee consisting of not less than two members of the
Committee. In addition, the Committee may delegate to one or more individuals
the administration of equity incentive or employee benefit plans, unless
otherwise prohibited by law or applicable stock exchange rules. Any such
delegation may be revoked by the Committee at any time.
EXHIBIT
C
AUDIT
COMMITTEE CHARTER
The
responsibilities of the Board of Directors of Peoples Financial Services Corp.
include oversight of the Company’s systems of internal control, preparation and
presentation of financial reports and compliance with applicable laws,
regulations and Company policies. Through this Charter, the Board delegates
certain responsibilities to the Audit Committee to assist the Board in
fulfilling their duties to the Company and the shareholders. The purpose of
the
Committee is to assist the Board in its oversight of:
· |
the
integrity of the Company's financial
statements
|
· |
the
adequacy of the Company's system of internal
controls
|
· |
the
Company's compliance with legal and regulatory
requirements
|
· |
the
performance of the Company's independent auditors and of the Company's
internal audit function
|
· |
the
qualifications and independence of the Company's independent
auditors
|
The
Committee shall be given the resources and assistance necessary to carry out
its
responsibilities, including unrestricted access to Company personnel and
documents and the Company’s independent auditors. The Committee shall also have
authority, with notice to the Chairman of the Board, to engage outside legal,
accounting and other advisors as it deems necessary.
The
Committee shall consist of three or more Directors, who will be appointed
annually and will be subject to removal at any time by the Board of Directors.
All members shall meet the independence requirements as defined in the Nasdaq
listing standards. All members shall be financially literate, having a basic
understanding of financial controls and reporting. William Aubrey II qualifies
as an audit committee financial expert by means of having held a position in
a
firm where he had experience preparing, auditing, analyzing and evaluating
financial statements that present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and complexity
of
issues that can reasonably be expected to be raised by the Bank’s financial
statements. He has an understanding of internal controls over financial
reporting, an understanding of Audit Committee functions, and has experience
as
a public accountant and auditor. Designating Mr. Aubrey as Audit Committee
financial expert pursuant to Item 401 does not impose any duties, obligations,
or liabilities that are greater than the duties, obligations and liability
imposed on other members of the Audit Committee or members of the Board of
Directors. No member of the Audit Committee shall receive any compensation
from
the Company other than his or her Directors’ fees and benefits.
The
Committee shall meet at least four times a year and may call special meetings
as
required. The Chair of the Committee or the Chairman of the Board may call
meetings. The presence in person or by telephone of three members shall
constitute a quorum. The results of the meetings will be reported regularly
to
the full board.
The
Committee shall monitor the actions of management as follows:
· |
the
Committee shall monitor the preparation of the Company’s quarterly and
annual financial reports;
|
· |
the
Committee shall bear primary responsibility for overseeing the Company’s
relationship with its independent auditors;
and
|
· |
the
Committee shall have the responsibility for determining that the
Management Audit and Compliance Department is effectively discharging
its
responsibilities.
|