DEF 14A 1 evbn-20180322xdef14a.htm DEF 14A 20170323 Sch14A Proxy Statement

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



SCHEDULE 14A



Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.  )



Filed by the Registrant [×]Filed by a Party other than Registrant  



Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

[×]Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

EVANS BANCORP, 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):

[×]No fee required.



Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.



(1)Title of each class of securities to which transaction applies:

______________________________________________________________________________________________________



(2)Aggregate number of securities to which transaction applies:

______________________________________________________________________________________________________



(3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

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(4)Proposed maximum aggregate value of transaction:

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(5)Total fee paid:

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Fee paid previously with preliminary materials.



Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.



(1)Amount Previously Paid:

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(2)Form, Schedule, or Registration Statement No.:

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O:\Finance Share\Finance\Proxy\2012\HTML Files\proxy_files\72c7d75686af498g1.jpgMarch 22, 2018





To Our Shareholders:



On behalf of the Board of Directors, I cordially invite you to attend the 2018 Annual Meeting of Shareholders of Evans Bancorp, Inc.  The Annual Meeting this year will be held at Evans Bancorp, Inc.,  One Grimsby Drive, Hamburg, NY 14075, on Thursday, April 26,  2018 at 9:00 a.m.  The formal Notice of the Annual Meeting is set forth on the following page.



The enclosed Notice and Proxy Statement contain details concerning the business to come before the 2018 Annual Meeting.  The Board of Directors of Evans Bancorp recommends a vote “FOR” the election of Robert G. Miller, Jr., Kimberley A. Minkel, Christina P. Orsi, Michael J. Rogers, and Oliver H. Sommer for a three year term.  The Board of Directors of Evans Bancorp also recommends a vote “FOR” the approval, on an advisory basis, of the compensation paid to the Company’s named executive officers, and “FOR” ratification of the appointment of KPMG LLP as Evans Bancorp’s independent registered public accounting firm for fiscal year 2018.



To Vote:

Your vote is important, regardless of whether or not you attend the Annual Meeting in person.  I urge you to sign, date, and return the enclosed proxy card in the postage-paid envelope provided as promptly as possible. In this way, you can be sure that your shares will be voted at the meeting.  If you are voting “FOR” the election of the nominated directors, “FOR” the approval, on an advisory basis, of the compensation paid to the Company’s named executive officers, and “FOR” ratification of the appointment of KPMG LLP as Evans Bancorp, Inc.’s independent registered public accounting firm for fiscal year 2018, you need only date, sign and return the proxy card.



Voting is tabulated by an independent firm; therefore, to ensure that your vote is received in a timely manner, please mail the white proxy card in the envelope provided - do not return the proxy card to Evans Bancorp, Inc.





To Attend the Annual Meeting:

To ensure that our reservation count will be accurate, if you plan to attend the meeting, please complete the appropriate section on the white proxy card and return it in the postage-paid envelope provided - do not return the proxy card to Evans Bancorp, Inc.



PLEASE NOTE THAT, DUE TO LIMITED SEATING, WE WILL NOT BE ABLE TO ACCOMMODATE GUESTS OF OUR SHAREHOLDERS AT THE ANNUAL MEETING, AND MUST LIMIT ATTENDANCE TO SHAREHOLDERS ONLY.



Thank you for your confidence and support.



Sincerely,

O:\Finance Share\Finance\Proxy\2012\HTML Files\proxy_files\72c7d75686af498g2.jpg

David J. Nasca

President and Chief Executive Officer




 



















































This page intentionally left blank































 


 

EVANS BANCORP, INC.

One Grimsby Drive

Hamburg, NY 14075



NOTICE OF ANNUAL MEETING OF SHAREHOLDERS



April 26, 2018



The Thirtieth Annual Meeting of Shareholders of Evans Bancorp, Inc., a New York corporation (the "Company"), will be held on Thursday, April 26,  2018 at 9:00 a.m. at Evans Bancorp, Inc.,  One Grimsby Drive, Hamburg, NY, for the following purposes:



(1)To elect the five nominees named in the Proxy Statement as directors of the Company for a three-year term,  each until the election and qualification of his or her successor.

(2)To approve, on an advisory basis, the compensation paid to the Company’s named executive officers.

(3)To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2018.

(4)To act upon such other business as may properly come before the meeting or any adjournment thereof.



IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON APRIL 26, 2018



The Company’s Proxy Statement and 2017 Annual Report, which includes the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, are available on the Company’s website at www.evansbancorp.com.



The Board of Directors has fixed the close of business on March 5, 2018 as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting.



A copy of the Company's Annual Report to Shareholders and Annual Report on Form 10-K for the Company’s 2017 fiscal year are enclosed for your reference.



Please complete and return the enclosed proxy card in the accompanying postage-paid, addressed envelope as soon as you have had an opportunity to review the attached Proxy Statement.





By Order of the Board of Directors



Picture 11



Robert G. Miller, Jr.

Secretary



Hamburg, New York

March 22, 2018

 

 

 


 

EVANS BANCORP, INC.

One Grimsby Drive

Hamburg, NY 14075



PROXY STATEMENT

Dated March 22, 2018



For the Annual Meeting of Shareholders to be held April 26, 2018



GENERAL INFORMATION



This Proxy Statement is furnished to the shareholders of Evans Bancorp, Inc., a New York corporation (the "Company"), in connection with the solicitation of proxies for use at the Thirtieth Annual Meeting of Shareholders (the "Annual Meeting") to be held at Evans Bancorp, Inc.,  One Grimsby Drive, Hamburg, NY, on Thursday, April 26, 2018 at 9:00 a.m. and at any adjournments thereof.  To obtain directions to be able to attend our Annual Meeting and vote in person, please contact Michelle Baumgarden at (716) 926-2000.



Shares of common stock represented by a proxy in the form enclosed, properly executed, will be voted in the manner instructed, or if no instructions are indicated, “FOR” the election of director nominees named therein, “FOR” the approval, on an advisory basis, of the compensation paid to the Company’s named executive officers, and “FOR” ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2018.  The proxy given by the enclosed proxy card may be revoked at any time before it is voted by delivering to the Secretary of the Company a written revocation or a duly executed proxy bearing a later date or by attending the Annual Meeting and voting in person.  Any shareholder of record may vote in person at the Annual Meeting, whether or not he or she has previously given a proxy.  Attendance at the Annual Meeting will not have the effect of revoking a proxy unless you give proper written notice of revocation to the Secretary before the proxy is exercised or you vote by written ballot at the meeting.    If you are a beneficial owner of shares held in street name and you wish to vote in person at the Annual Meeting, you must obtain a legal proxy from the organization that holds your shares.



The enclosed proxy is being solicited by the Board of Directors of the Company.  The total cost of solicitation of proxies in connection with the Annual Meeting will be borne by the Company.



This Proxy Statement and the enclosed proxy are first being mailed to shareholders on or about March 22, 2018.



The following proposals will be considered at the meeting:



Proposal I – To elect the  five nominees named herein as directors of the Company to hold office for the term of three years. 



Proposal II – To approve, on an advisory basis, the compensation paid to the Company’s named executive officers (“Say on Pay”).



Proposal III – To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2018.



The Board of Directors of the Company unanimously recommends that you vote “FOR” election of the directors identified as nominees under Proposal I and “FOR” Proposals II and III.

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Voting Securities



Only holders of shares of common stock of record at the close of business on March 5, 2018 are entitled to notice of and to vote at the Annual Meeting and at all adjournments thereof.  At the close of business on March 5, 2018, the Company had 4,787,550 shares of common stock outstanding.  For all matters to be voted on at the Annual Meeting, holders of common stock are entitled to one vote per share.



A quorum of shareholders is necessary to hold a valid Annual Meeting.  A majority of shares entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at the Annual Meeting.  Broker non-votes and abstentions will be counted as being present or represented at the Annual Meeting for purposes of establishing a quorum.  A broker non-vote occurs on an item when a broker is not permitted to vote on that item without timely instruction from the beneficial owner of the shares and no instruction is given.



Vote Required and Board Recommendations







 

 

 

 

 



 

 

 

 

 



Proposal

 

Vote Required

 

Board Recommendation



 

 

 

 

 

I.

Election of Directors

 

Plurality of the votes cast

 

“FOR” election of the nominated directors



 

 

 

 

 

II.

Advisory “Say-on-Pay” Vote

 

Majority of the votes cast

 

“FOR” the approval, on an advisory basis, of the compensation paid to our named executive officers



 

 

 

 

 

III.

Ratification of Appointment of Independent Public Accounting Firm for 2018

 

Majority of the votes cast

 

“FOR” ratification of the appointment of KMPG LLP



Plurality Vote – Proposal I



Under New York law and the Company's bylaws, directors are elected by the affirmative vote, in person or by proxy, of a plurality of the votes cast at a meeting at which a quorum is present.  Only votes actually cast will be counted for the purpose of determining whether a particular nominee received more votes than the persons, if any, nominated for the same seat on the Board of Directors.  This means that, for Proposal I, the five director nominees identified in this Proxy Statement will be elected if they receive more affirmative votes than any other nominees.  If, as the Company anticipates, the five director nominees identified in this Proxy Statement are unopposed, they each only need to receive a single vote to be elected.  In this instance, withholding authority to vote for a particular candidate will have no effect on the results of Proposal I.



Majority Vote – Proposals II and III



The approval of the Say on Pay advisory vote (Proposal II) and the ratification of the appointment of the Company’s independent registered public accounting firm (Proposal III) require for adoption the affirmative vote of a majority of the votes cast by the holders of shares entitled to vote on the proposal at the Annual Meeting.

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Abstentions and Broker Non-Votes



Abstentions and broker non-votes will be counted as present for purposes of determining the existence of a quorum at the Annual Meeting.  However, abstentions and broker non-votes will not be treated as votes “cast” at the Annual Meeting, and will have no effect on the outcome of any of the proposals to be considered at the Annual Meeting.



If you hold your shares (i.e., they are registered) through a bank, broker or other nominee in “street name” but you do not provide the firm that holds your shares with your specific voting instructions, it will only be allowed to vote your shares on your behalf in its discretion on “routine” matters, but it cannot vote your shares in its discretion on your behalf on any “non-routine” matters.  This result is known as a “broker non-vote”.  Proposal I relating to the election of your Board’s nominees for Directors and Proposal II relating to Say on Pay are considered “non-routine” matters.  Proposal III relating to the appointment of the Company’s independent auditors for fiscal year 2018 is considered a “routine” matter.  While your broker will have discretionary authority to vote your uninstructed shares “for” or “against” or “abstaining” from voting on Proposal III, your broker will have no discretionary authority to vote your shares on Proposals I and II at the Annual Meeting. If you hold your shares in street name, please follow the voting instructions sent to you by your bank, broker or other nominee.





Security Ownership of Management and Certain Beneficial Owners



The following table sets forth information, as of March 5, 2018, concerning:



Each person whom we know beneficially owns more than 5% of our common stock.

Each of our directors and nominees for the Board of Directors.

Each of our Named Executive Officers, as defined below under “Executive Compensation”.

All of our directors and executive officers as a group.



Beneficial ownership is determined under the rules of the Securities and Exchange Commission (the “SEC”) and generally includes voting or investment power with respect to our securities.  Except as indicated in the footnotes to this table, the persons named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned.  The number of shares beneficially owned by each person as of March 5, 2018 includes shares of common stock that such person has the right to acquire on or within 60 days after March  5, 2018 upon the exercise of vested stock options and also includes shares of restricted stock that are subject to forfeiture and transfer restrictions until the vesting date thereof.  For each person or group included in the table below, percentage ownership is calculated by dividing the number of shares beneficially owned by such person, calculated as described in the previous sentence, by the sum of the 4,787,550 shares of common stock outstanding on March 5, 2018 plus the number of shares of common stock that such person or group has the right to acquire on or within 60 days after March 5, 2018. Beneficial ownership representing less than one percent is denoted with an "*".



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Name of Beneficial Owner

Number of Shares Beneficially Owned

 

Percent of Class



 

 

 

Directors, Director Nominees and Officers 

 

 

 

Michael A. Battle

1,048 

 

*

James E. Biddle, Jr. 

20,979 

 

*

John B. Connerton (1)

24,055 

 

0.50%

Jody L. Lomeo

1,074 

 

*

Robert G. Miller, Jr. (2)

104,602 

 

2.17%

Kimberley A. Minkel

-

 

*

David J. Nasca (3)

119,399 

 

2.46%

John R. O’Brien

11,630 

 

*

Christina P. Orsi

-

 

*

David R. Pfalzgraf, Jr.

2,136 

 

*

Michael J. Rogers

4,591 

 

*

Oliver Sommer

924 

 

*

Nora B. Sullivan

2,603 

 

*

Thomas H. Waring, Jr. (4)

12,505 

 

*

Lee C. Wortham

10,334 

 

*

Directors, director nominees and executive officers as a group; 15 persons (5)

315,880 

 

6.43%



 

 

 

 Mr. O’Brien announced his resignation as a director effective March 31, 2018.



 

5% Security Holders

 

 

 

 

RMB Capital Management, LLC (6)
115 S. LaSalle Street, 34th Floor
Chicago, IL 60603

441,862 

 

9.23%

Manulife Financial Corporation (7)

200 Bloor Street East

Toronto, Ontario, Canada M4W 1E5

333,519 

 

6.97%

FJ Capital Management LLC (8)

1313 Dolley Madison Blvd., Suite 306

McLean, VA 22101

254,208 

 

5.31%

Maltese Capital Management LLC (9)

150 East 52nd Street, 30th Floor

New York, NY 10022

 

240,000 

 

5.01%







 

(1)

Includes 18,578 shares that Mr. Connerton may acquire by exercise of options exercisable on March 5, 2018 or within 60 days thereafter and 2,111 shares of restricted stock that are subject to forfeiture and transfer restrictions until the vesting date thereof.

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(2)

Includes 37,008 shares that Mr. Miller may acquire by exercise of options exercisable on March 5, 2018 or within 60 days thereafter and 3,466 shares of restricted stock that are subject to forfeiture and transfer restrictions until the vesting date thereof.

(3)

Includes 2,149 shares owned jointly by Mr. Nasca and his wife, 552 shares owned by Mr. Nasca’s children, 69,528 shares that Mr. Nasca may acquire by exercise of options exercisable on March 5, 2018 or within 60 days thereafter and 6,293 shares of restricted stock that are subject to forfeiture and transfer restrictions until the vesting date thereof.

(4)

Includes 1,076  shares held by Mr. Waring’s wife. 

(5)

Includes 125,114 shares that such persons may acquire by exercise of options exercisable on March 5, 2018 or within 60 days thereafter.

(6)

Based on the most recently available Schedule 13G/A filed with the SEC on February 13, 2018 by RMB Capital Holdings, LLC (reporting shared voting and dispositive power with respect to 441,862 shares), RMB Capital Management, LLC (reporting shared voting and dispositive power with respect to 441,862 shares), Iron Road Capital Partners LLC. (reporting shared voting and dispositive power with respect to 12,821 shares), RMB Mendon Managers, LLC (reporting shared voting and dispositive power with respect to 338,397 shares) and Mendon Capital Advisors Corp. (reporting shared voting and shared dispositive power with respect to 90,644 shares).

(7)

Based on the most recently available Schedule 13G/A filed with the SEC on February 13, 2018 on behalf of Manulife Financial Corporation (“MFC”) and MFC’s indirect, wholly-owned subsidiaries, Manulife Asset Management (US) LLC (“MAM (US)”), Manulife Asset Management (North America) Limited ("MAM (NA)"), and Manulife Asset Management Limited ("MAML").  MAM (US) reported sole voting and dispositive power with respect to 332,511 shares. MAM (NA) reported sole voting and dispositive power with respect to 28 shares. MAML reported sole voting and dispositive power with respect to 980 shares.

(8)

Based on the most recently available Form 13G filed with the SEC on February 23, 2018 by Financial Opportunity Fund LLC of which FJ Capital Management LLC is the managing member (reported shared voting and dispositive power with respect to 254,208 shares) and Martin S. Friedman, the managing member of FJ Capital Management LLC (reported shared voting and dispositive power with respect to 254,208 shares).

(9)

Based on the most recently available Form 13D/A filed with the SEC on March 8, 2017 by Maltese Capital Management LLC (“Maltese”) (reporting shared voting and dispositive power with respect to 240,000 shares) and Terry Maltese (managing member of Maltese) (reporting shared voting and dispositive power with respect to 240,000 shares).



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Equity Compensation Plans.  All equity compensation plans maintained by the company were approved by the Company’s shareholders.  Shown below is certain information as of December 31, 2017 concerning the shares of the Company’s common stock that may be issued under existing equity compensation plans.





 

 

 

 

 

 

 

 

Equity Compensation Plan Information

Equity Compensation Plans Approved by Security Holders

 

Number of securities to be issued upon exercise of outstanding options

 

Weighted-average exercise price of outstanding options

 

Number of securities remaining available for future issuance under equity compensation plans (1)

Evans Bancorp, Inc. 2009 Long-Term Equity Incentive Plan

 

 

228,320 

 

$

20.81 

 

107,824 

Evans Bancorp, Inc. 1999 Employee Stock Option and Long-

 

 

 

 

 

 

 

 

Term Incentive Plan

 

 

12,900 

 

 

15.52 

 

-    

Evans Bancorp, Inc 2013 Employee Stock Purchase Plan

 

 

-    

 

 

-    

 

114,944 

Total

 

 

241,220 

 

$

20.53 

 

222,768 



(1) This column excludes shares reflected under the column “Number of Securities to be issued upon exercise of outstanding options.”



SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE



Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company's officers and directors, and persons who beneficially own more than 10% of the Company's common stock, to file initial reports of ownership and reports of changes in ownership with the SEC.  Officers, directors and greater than 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 officers and directors, the Company believes that during or with respect to fiscal year 2017, all reports required by Section 16(a) of the Exchange Act were timely filed.





 

PROPOSAL I – ELECTION OF DIRECTORS



The Company's bylaws provide for a classified board of directors, with three classes of directors, each nearly as equal in number as possible.  Each class serves for a three-year term, and one class is elected each year.  The Board of Directors is authorized by the Company's bylaws to fix from time to time, the number of directors that constitute the whole Board of Directors.  The Board size has been set at thirteen members.  The nominees for director at the 2018 Annual Meeting are: Robert G. Miller, Jr. Kimberley A. Minkel, Christina P. Orsi, Michael J. Rogers, and Oliver H. Sommer, for terms to expire at the 2021 Annual Meeting and until their successors are duly elected and qualified.



The Board of Directors has no reason to believe that any nominee would be unable or unwilling to serve, if elected. In the event that any nominee for director becomes unavailable and a vacancy exists, it is intended that the Nominating Committee of the Board of Directors will recommend a substitute nominee for approval by the Board of Directors.



Required Vote



Under New York law and the Company’s bylaws, directors are elected by the affirmative vote, in person or by proxy, of a plurality of the votes cast at a meeting at which a quorum is present.  Only votes actually

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cast will be counted for the purpose of determining whether a particular nominee received more votes than the persons, if any, nominated for the same seat on the Board of Directors.  This means that, for Proposal I, the five director nominees identified in this Proxy Statement will be elected if they receive more affirmative votes than any other nominees.  Votes to withhold in an uncontested election and broker non-votes will have no effect on the outcome of this vote.



Unless otherwise directed, the persons named in the proxy card intend to vote shares as to which proxies are received “FOR” the director nominees: Robert G. Miller, Jr. Kimberley A. Minkel, Christina P. Orsi, Michael J. Rogers, and Oliver H. Sommer .



THE COMPANY’S BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS.



INFORMATION REGARDING DIRECTORS, DIRECTOR NOMINEES

AND EXECUTIVE OFFICERS



The following tables set forth the names, ages, and positions of the director nominees, the directors continuing in office, and the executive officers of the Company:



Nominees for Director:



 

 

 

 

 

 

 

 

Name

 

Age

 

Position

 

Term to Expire

 

Independent*

Robert G. Miller, Jr. †

 

61

 

Director

 

2021

 

No



 

 

 

Secretary of the Company

 

 

 

 



 

 

 

President of The Evans Agency, LLC

 

 

 

 



 

 

 

Executive Vice President of Evans Bank, N.A.

 

 

 

 

Kimberley Minkel

 

52

 

Director

 

2021

 

Yes

Christina Orsi

 

46

 

Director

 

2021

 

Yes

Michael J. Rogers

 

60

 

Director

 

2021

 

Yes

Oliver H. Sommer

 

50

 

Director

 

2021

 

Yes



† Executive Officer

* Independence has been determined by the Companys Board of Directors as defined in the listing rules of NYSE American.





Directors Continuing in Office and Executive Officers:





 

 

 

 

 

 

 

 

Name

 

Age

 

Position

 

Term Expires

 

Independent*

Michael A. Battle

 

62

 

Director

 

2020

 

Yes

James E. Biddle, Jr.

 

56

 

Director

 

2020

 

Yes

Jody L. Lomeo

 

49

 

Director

 

2020

 

Yes

David J. Nasca †

 

60

 

Director

 

2019

 

No



 

 

 

President and Chief Executive Officer of the

 

 

 

 



 

 

 

Company

 

 

 

 



 

 

 

President and Chief Executive Officer of

 

 

 

 



 

 

 

Evans Bank, N.A.

 

 

 

 

David R. Pfalzgraf, Jr.

 

48

 

Director

 

2019

 

Yes

Nora B. Sullivan

 

60

 

Director

 

2020

 

Yes

Thomas H. Waring, Jr.

 

60

 

Director

 

2019

 

Yes

Lee C. Wortham

 

60

 

Director

 

2019

 

Yes

John B. Connerton †

 

51

 

Treasurer of the Company

 

---

 

---



 

 

 

Chief Financial Officer of Evans Bank, N.A.

 

 

 

 



† Executive Officer

*  Independence has been determined by the Companys Board of Directors as defined in the listing rules of NYSE American.

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Directors, Director Nominees and Executive Officer Information.



Set forth below are the biographies of (1) each of the nominees and continuing directors containing information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, and the experiences, qualifications, attributes or skills that caused the Board to determine that the person should serve as a director for the Company, and (2) the executive officers of the Company.



Nominees for Director



Mr. Miller has been a director of the Company since 2001 and has served as the Secretary of the Company since April 2010.  He has served as the President of The Evans Agency, LLC (“TEA”), an indirect wholly-owned subsidiary of the Company, since 2000 and as Executive Vice President of Evans Bank, N.A. (the  “Bank”) since December 2009.  He also has served as the President of Evans National Financial Services, LLC, a wholly-owned subsidiary of the Company, since May 2002.  Mr. Miller’s substantial experience in the financial services industry gives him a solid foundation from which to advise the Board with respect to financial service acquisition opportunities, and his experience overseeing a financial sales force provides him with a practical background on matters such as developing strategies to succeed in a highly competitive marketplace.



Ms. Minkel has been President and Executive Director of the Niagara Frontier Transportation Authority (“NFTA”) since 2010.  Ms. Minkel is responsible for managing a transportation system including light rail, bus, paratransit, and two airports within Western New York.  Ms. Minkel manages an annual $225 million operating and capital budget that provides efficient and professional transportation services while engaging with board members, over 1,500 employees, stakeholders, and the general public in a manner consistent with the needs of a diverse community.  Before her role as President and Executive Director of the NFTA, Ms. Minkel served as Director of Risk, Health, Safety, and Environmental Quality for the NFTA.  In this role, she provided functional leadership within the areas of risk management including loss control, environmental, and safety.  We believe Ms. Minkel’s extensive executive experience and community leadership qualify her to serve on our Board of Directors.



Ms. Orsi has been Associate Vice President of the Office of Economic Development for the University at Buffalo (“UB”) since 2015.  In this role, Ms. Orsi leads UB’s Business and Entrepreneur Partnership with a focus on connecting business with UB faculty for collaboration on research and development; enabling business access to programs like START UP NY to help companies grow in New York State; and supporting the commercialization of faculty inventions to move the from idea to market.  From 2007-2015, Ms. Orsi was the Executive Director of the Regional Economic Development Council and Regional Director for Western New York for the Empire State Development Corporation.  In this role, Ms. Orsi provided strategic direction for the Regional Economic Development Council, established collaboration among diverse leaders throughout Buffalo Niagara, and led implementation of the Buffalo Billion Investment Strategy.  We believe that Ms. Orsi’s extensive knowledge of economic development programs, private sector policy issues, and government agencies at the state, regional, and municipal levels qualify her to serve on our Board of Directors.



Mr. Rogers has been a director of the Company since 2011.  He is a certified public accountant in New York State and the managing member of a real estate development company, Oakgrove Development, LLC, a position he has held since 2009.  Mr. Rogers was the Executive Vice President and Chief Financial Officer of Great Lakes Bancorp, Inc., the parent company of Greater Buffalo Savings Bank, from 2006 to 2008.  From 2004 to 2006, Mr. Rogers worked as an independent consultant, principally on Sarbanes-Oxley initiatives and business rationalization reviews.  Mr. Rogers worked at KPMG LLP, a leading accounting firm, from 1984 to 2004, serving as an audit partner from 1995 to 2004.  In his role as an auditor at KPMG LLP, Mr. Rogers worked on several engagements for financial institutions, particularly banks.  His many years of experience have provided Mr. Rogers with a very strong knowledge base on the banking industry.  His previous roles as an audit partner, SEC reviewing partner, and CFO also demonstrate his high level of

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competence in the areas of finance and accounting in general, and SEC reporting in particular, qualify him to be our Audit Committee Chairman and a member of the Board’s Enterprise Risk Committee, and provide the Board an additional expert on these matters in an increasingly complex regulatory environment.





Mr. Sommer has been a director of the Company since April 2017.  He has been a partner with The River Group, a management consulting firm assisting CEOs and senior executive transform their organizations and leaders in order to achieve strategic intent, since July 2013.  His role includes leading the marketing, business development, practice development, client engagement management, infrastructure establishment, and recruiting efforts.  Prior to his role with The River Group, Mr. Sommer was Executive Vice President, Corporate Development, with First Niagara Financial Group, Inc. (now part of KeyCorp.) from 2010 – 2013, providing financial services to individuals, families and businesses across Upstate New York, Pennsylvania, Connecticut and Massachusetts.  Mr. Sommer was the President of Aston Associates / Aston Strategic Capital, a boutique advisory firm for financial institutions and their investors, from 2004 – 2010, and Managing Director from 1996 – 2003.  We believe Mr. Sommer’s extensive experience in the financial services industry in a variety of roles, but in particular in corporate strategy and development, make him well-qualified to serve on our Board of Directors and its Enterprise Risk Committee. 



Directors Continuing in Office and Executive Officers



Mr. Battle has been a director of the Company since August 2016.  He has been a partner of the Washington, DC office of Barnes & Thornburg LLP, specializing in white collar criminal defense, as a member of the firm’s Litigation Department since April 2016.  Mr. Battle’s practice focuses on commercial and civil litigation, white collar criminal matters, and appeals.  Prior to his role with Barnes & Thornburg, Mr. Battle was a senior partner of Schlam, Stone & Dolan LLP from 2010 – April 2016 and was a partner of Fulbright & Jaworski LLP from 2007 – 2010.  He was Director of the Executive Office for United States Attorneys from 2005 – 2007, providing administrative oversight of all 93 United States Attorneys and serving as a liaison between the United States Attorneys and the Justice Department and other federal agencies.  Mr. Battle served as United States Attorney with the United States Attorney’s Office, Western District of New York, from 2002 – 2005.  From 1996 – 2002, he was appointed by Governor George Pataki (and subsequently elected) to serve as Judge for Erie County Family Court, providing rulings in thousands of family-law and matrimonial cases.  Mr. Battle served as Attorney in Charge with the New York State Attorney’s Office, Buffalo Regional Office, from 1995 – 1996.  He was the Assistant Federal Defender with the Federal Defender’s Office, Western New York, from 1992 – 1995 and Assistant United States Attorney with the United States Attorney’s Office, Western District of New York, from 1985 – 1992.  Mr. Battle began his career as an Attorney with the Legal Aid Society of New York, Civil Division, from 1981 – 1985.  We believe that Mr. Battle’s wide-ranging and extensive legal and governance experience make him a valuable member of our Board and its Corporate Governance and Nominating Committee.



Mr. Biddle has been a director of the Company since 2001.  He has served as the Chairman and Treasurer of Mader Construction Co., Inc., since 2001.  Mr. Biddle also has served as the Chief Financial Officer of Bullis Investors, LLC, since 2007.  In addition, Mr. Biddle has served as the Vice President and Treasurer of Arric Corp., an environmental remediation company.  Mr. Biddle has extensive experience in the construction sector, an attribute that enables him to assist the Board in understanding the opportunities and risks of a large component of our loan portfolio.  In addition, his experience as a treasurer provides the Board with skills in assessing risk and exercising diligence, which are functions relevant to his service on the Board’s Enterprise Risk Committee.   We believe that Mr. Biddle’s work in the construction industry, his continuing executive experience, and his proven financial acumen make him a very valuable member of our Board and its Human Resources and Compensation Committee and Enterprise Risk Committee.



Mr.  Lomeo has been a director of the Company since April 2017.  He has been the President and Chief Executive Officer of Kaleida Health, a healthcare provider in Western New York, since April of 2014 and served as interim CEO from January 2014 - February 2014.  In addition to Kaleida Health, since 2014 he has served as the President and Chief Executive Officer of the Great Lakes Health System of Western New York, the parent organization responsible for integrating the clinical activities of Kaleida Health, Erie

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County Medical Center Corporation (ECMC), University at Buffalo and the Center for Hospice & Palliative Care.  Mr. Lomeo served as CEO of ECMC from 2009 - 2014.  We believe Mr. Lomeo’s significant executive experience and community leadership qualify him to serve as an integral member of our Board of Directors and its Corporate Governance and Nominating Committee.



Mr. Nasca has been a director of the Company since 2006.  Mr. Nasca also serves as the President and Chief Executive Officer of the Company and as President and Chief Executive Officer of the Bank.  He has held the position of President of the Company and the Bank since 2006, and Chief Executive Officer of the Company and the Bank since 2007.  Mr. Nasca served as Chief Operating Officer of LifeStage, LLC, a health care services startup company, from October 2005 to August 2006.  From June 2004 to July 2005, Mr. Nasca served as Executive Vice President of Strategic Initiatives of First Niagara Financial Group.  Mr. Nasca held the position of Executive Vice President, Consumer Banking Group, Central New York Regional Executive of First Niagara Financial Group from June 2002 through June 2004.  From October 2000 to June 2002, Mr. Nasca served as President and CEO of Iroquois Financial, Inc. and Cayuga Bank which were wholly owned by First Niagara Financial Group.  Mr. Nasca serves as President and CEO of the Company and the Bank pursuant to an employment agreement with the Company and the Bank.  As President and CEO, Mr. Nasca provides our Board with information gained from hands-on management of our operations, identifying our near-term and long-term challenges and opportunities.  The Board has determined that Mr. Nasca’s significant experience in the banking industry over the past 30 years, including operational, financial, and executive roles, as well as his unique perspective as leader of our management team, qualifies him for service as a member of our Board of Directors.



Mr. Pfalzgraf has been a director of the Company since 2014.  He has been a Managing Partner of Rupp, Baase, Pfalzgraf, Cunningham LLC, a law firm specializing in private business enterprises ranging from closely-held family businesses to multi-national corporations, since April 2000.  Mr. Pfalzgraf leads the firm’s corporate practice group, working primarily with private business enterprises ranging from closely-held family businesses to multi-national corporations.  He assists clients with all corporate needs including business formations, restructurings, mergers and acquisitions, financing and investment, development, labor and employment issues, and commercial transactions.  Mr. Pfalzgraf’s extensive legal and business experience makes him a valuable member of our Board of Directors as well as its Corporate Governance and Nominating Committee and Human Resource and Compensation Committee.



Ms. Sullivan has been a director since 2013.  She is President of Sullivan Capital Partners, LLC, a financial services company providing investment banking and consulting services to closely-held private businesses.  Ms. Sullivan focuses on strategic planning, mergers and acquisitions, and governance matters.  Prior to founding Sullivan Capital Partners in 2004, Ms. Sullivan worked for Citigroup Private Bank from 2000 to 2004, providing wealth management and private equity services to high net worth clients.  From 1995 to 1999, Ms. Sullivan was Executive Vice President of Rand Capital Corporation, a publicly traded closed-end investment management company providing capital and managerial expertise to small and mid-size businesses.  Ms. Sullivan began her career in the legal profession where she held various positions with significant legal responsibility and acquired a solid foundation in corporate related matters and business transactions. In 2015, Ms. Sullivan joined the board of directors of 22nd Century Group, Inc. a publicly traded company that is in the plant biotechnology industry and is a leader in tobacco harm reduction. She is currently and has been a member of the board of directors of several privately held businesses, working closely with fellow board members, management and ownership on strategic planning initiatives, developing exit strategies and implementing sound governance practices.  We believe Ms. Sullivan’s unique combination of legal experience and financial services expertise qualifies her to serve on our Board of Directors, and as a member of the Board’s Audit Committee and Corporate Governance and Nominating Committee.





Mr. Waring has been a director of the Company since 1998.  He has owned and managed Waring Financial Group, a financial planning, insurance and financial services and sales firm since 1996.  Waring Financial Group was renamed GCW Risk and Benefit Solutions LLC in 2016.  Mr. Waring is the majority member of GCW Capital Group, LLC. Additionally, Mr. Waring is the majority member of GCW Capital, LLC, a

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fee only independent registered investment advisory entity formed in August 2014 and registered with the SEC.  GCW Capital, LLC and GCW Risk and Benefit Solutions, LLC market themselves to the public under the brand GCW Capital Group, LLC.  He has also been the managing member of Family & Business Directions, LLC, a fee-based consulting business serving family-held and closely-held business owners, their families, and key executives, since 2010.  In 2015, Mr. Waring became a member of Mallard Advisory Group, LLC.  The firm consists of principals with diverse backgrounds and expertise in serving businesses facing ownership and other major transitions. Mr. Waring’s financial services experience provides the Board with a deeper understanding of the products and services which the Company needs to provide in the marketplace to remain competitive, as well as the delivery of those products and services. He has also been the managing member of Family & Business Directions, LLC, a fee-based consulting business serving family-held and closely-held business owners, their families, and key executives, since 2010.  Mr. Waring frequently advises high net worth individuals, family business owners and closely-held business owners.  He is experienced in providing strategic planning and development advice, including designing and implementing executive and key employee benefits.  We believe that Mr. Waring’s qualifications to serve on our Board of Directors, as Chairman of the Human Resource and Compensation Committee and as a member of the Board’s Corporate Governance and Nominating Committee include his extensive sales and marketing experience with a financial services company, as well as his executive leadership and management experience. 



Mr. Wortham has been a director of the Company since 2011 and has served as Vice Chairman since April 2012.  He has been a Partner in Barrantys LLC, a consultant and service provider to wealthy families and family offices, since 2007.  Prior to his role with Barrantys, Mr. Wortham was an Executive Vice President of First Niagara Financial Group from 2005 to 2007, where his responsibilities included wealth management, risk management, and corporate marketing.  From 1999 to 2005, Mr. Wortham was the Executive Vice President of Global Private Client Services, Product Development, and Central Operations for The Bank of New York.  Mr. Wortham held several positions at Chase Manhattan Bank and Chemical Bank (currently JP Morgan Chase & Co.) from 1985 to 1999, including leading the Global Private Bank’s activities in Europe, the Middle East, and Africa while based in London, England.  He started his career at M&T Bank in retail banking from 1980 to 1985.  Mr. Wortham’s extensive experience in the financial services industry makes him a valuable member of our Board, and its Audit, Human Resource and Compensation, and Enterprise Risk Committees.  His expertise has been valuable in helping the Board evaluate the Company’s strategies to diversify its product offerings and revenue streams as a growing and competitive financial institution.



Mr. Connerton was appointed Treasurer of the Company and Chief Financial Officer of the Bank on November 30, 2015.  Prior to his appointment as Treasurer of the Company he had served as Principal Accounting Officer of the Company between 2002 and 2010 and again between 2013 and 2015. He has also served as Senior Vice President and Treasurer of the Bank since 2010.  Prior to joining the Company, Mr. Connerton was a Senior Auditor specializing in auditing and consulting for banking, healthcare and manufacturing clients at Deloitte & Touche LLP.

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CORPORATE GOVERNANCE



Independence of Directors



A majority of the Board of Directors, and each member of the Audit, Human Resource and Compensation, and Corporate Governance and Nominating Committees, are independent, as affirmatively determined by the Board, consistent with the criteria established by NYSE American and as required by our bylaws.



The Board has conducted an annual review of director independence for all current nominees for election as directors and all continuing directors.  During this review, the Board considered transactions and relationships during the prior year between each director or any member of his or her immediate family and the Company and its subsidiaries, affiliates and principal shareholders, including those of the type described below under “Transactions with Related Persons.”  The Board also examined transactions and relationships between directors or their affiliates and members of senior management or their affiliates.  The purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent.



As a result of this review, the Board affirmatively determined that the nominees Kimberley Minkel, Christina Orsi, Michael J. Rogers, and Oliver H. Sommer meet the Company’s standard of independence, as do the following continuing directors: Michael A. Battle, James E. Biddle, Jr., Jody L. Lomeo, David R. Pfalzgraf, Jr., Nora B. Sullivan, Thomas H. Waring, Jr., and Lee C. Wortham.   David J. Nasca and Robert G. Miller, Jr. were determined not to be independent because they are currently executive officers of the Company. 



Leadership Structure.  John R. O’Brien has served as Chairman of the Company’s Board of Directors since April 2012.  In his capacity as Chairman, Mr. O’Brien chairs meetings of the Board and executive sessions of the Board, coordinates the activities of the other independent directors, and performs such other duties and responsibilities as the Board of Directors may determine.  These duties also include chairing meetings of the Company’s shareholders, overseeing the preparation of agendas for meetings of the Board, keeping directors informed through the timely distribution of information and reports, maintaining contact with the Company’s CEO between meetings to stay current on developments and to determine when it may be appropriate to alert the Board to significant pending developments, serving as a liaison between independent directors and the CEO with respect to sensitive issues, and other matters.



Mr. O’Brien has announced his intention to retire as Chairman of the Board and as a member of the Board of Directors effective March 31, 2018.  The Company has announced that, effective April 1, 2018, Mr. Wortham will succeed Mr. O’Brien as Chairman and Mr. Sommer will succeed Mr. Wortham as Vice Chairman.



We separated the positions of Chairman and CEO in 2001.  While the separation of these positions is not required by our bylaws, we believe that it is the most appropriate leadership structure for us at this time.  We believe that it is advantageous to separate the two positions in order to provide for independent director control over Board agenda and information flow, encourage open and lively communication between the independent directors and management, and to help balance the leadership of the Board.



Board of Directors Stock Ownership. Upon his or her first election or appointment to the Board of Directors, a new director must hold, or must obtain within 60 calendar days after such election or appointment, not less than $10,000 aggregate market value of the Company's common stock, based on the trailing 365-day average price.  A new director has a period of 5 years from the beginning of such director’s term of office to obtain the required $50,000 aggregate market value of the Company’s common stock, discussed below under “Board of Director Committees – Corporate Governance and Nominating Committee”.  The value of a new director’s qualifying shares at the beginning of his or her term in office will be determined as of the date purchased or the date on which the individual becomes a director, whichever value is greater.  As of the date of this Proxy Statement, all directors are in compliance with the Board of Directors stock ownership requirements.

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Oversight of Risk Management.  In 2017, the Board of Directors established an Enterprise Risk Committee (“ERC”), which is responsible for overseeing and approving company-wide risk management practices throughout the Company, overseeing management’s risk assessment process and risk management infrastructure, reviewing management’s risk-management framework in the context of the Company’s size and business activities, and advising on risks that the Company may face. The ERC will review and discuss with management, at least annually, the Company’s risk governance structure and the Company’s risk management and risk assessment guidelines and policies regarding market, credit, operations, liquidity, funding, reputation and franchise risk, and the Company’s risk tolerance. The ERC will review at least quarterly the major risk exposures of the Company and its business units against established risk management methodologies and targets. The Board’s role in the Company’s risk oversight process includes receiving reports, at least quarterly, from members of senior management on areas of material risk to the Company, including operational, financial, credit, liquidity, legal and regulatory, and strategic and reputational risks.  The full Board (or the appropriate committee in the case of risks that are under the purview of a particular committee) receives these reports from the appropriate “risk owner” within the organization to enable it to understand our risk identification, risk management and risk mitigation strategies.  When a committee receives the report, the chairman of the relevant committee reports on the discussion to the full Board during the committee reports portion of the next Board meeting.  This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.  The Board’s role in the Company’s risk oversight process has not directly impacted its leadership structure.



Compensation Risk.    The Human Resource and Compensation Committee considers risk and its influence on the Company's compensation programs. This Committee reviews each compensation element individually and in the aggregate to ensure that the overall compensation program provides a balanced perspective that ultimately aligns pay with performance while also ensuring bonus / incentive programs do not motivate inappropriate risk-taking.  Equity award levels and practices are set to foster shared interests between management and shareholders, but are not considered by the Committee to be at levels that would drive inappropriate behavior. In the Committee's judgment, the compensation policies and practices of the Company do not give rise to material risks.

In addition, the Company is subject to guidance issued by the FDIC, the FRB and the OCC designed to ensure that incentive compensation arrangements at banking organizations appropriately tie rewards to longer-term performance and do not undermine the safety and soundness of the firm or create undue risks to the financial system.  This guidance embodies three core principles, which are: (1) incentive compensation arrangements at a banking organization should provide employees incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risks; (2) these arrangements should be compatible with effective controls and risk management, and (3) these arrangements should be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.  We believe that our incentive compensation programs are in compliance with this guidance.



Policy for Director Attendance at Annual Meeting.  It is the policy of the Company that all directors be present at the Annual Meeting, barring unforeseen or extenuating circumstances.  All directors who were then serving were present at the Company’s 2017 Annual Meeting.    



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Shareholder Communications with the Board of Directors.    Shareholders and other parties interested in communicating directly with the Company’s Board of Directors may do so by writing to the Evans Bancorp, Inc. Board of Directors, One Grimsby Drive, Hamburg, NY 14075.  All correspondence received under this process is compiled and summarized by the Executive Assistant to the President and Chief Executive Officer of the Company and presented to the Board of Directors, in accordance with our Policy for Communication to the Board of Directors.  Concerns relating to accounting, internal controls or auditing matters are handled in accordance with procedures established by the Audit Committee, as set forth in our Employee Complaint Procedure for Accounting and Auditing Matters.  Each of these policies is available in the Governance Documents section of the Company’s website (www.evansbancorp.com), which can be found under the “Corporate Overview” tab.



Code of Ethics for Chief Executive Officer and Principal Financial Officers.  The Company has a "Chief Executive Officer/Treasurer/Controller Code of Ethics," which is applicable to the Company’s principal executive officer, principal financial officer, and principal accounting officer.  The "Chief Executive Officer/Treasurer/Controller Code of Ethics" is available in the Governance Documents section of the Company’s website (www.evansbancorp.com), which can be found under the “Corporate Overview” tab.  The Company intends to post amendments to or waivers from its code of ethics at this location on its website.



Board Meetings and Attendance at Board of Director and Committee Meetings.  The Company’s Board of Directors met eleven times during fiscal 2017,  including one strategic planning meeting.  Each incumbent director attended at least 75% of the aggregate of: (1) all meetings of the Company’s Board of Directors (held during the period for which he or she served as a director) and (2) all meetings held by the committees of the Company’s Board of Directors on which he or she served (during the periods that he or she served).



Availability of Committee Charters and Other Corporate Governance Documents.  Current copies of the written charters for the Audit Committee, the Human Resource and Compensation Committee, and the Corporate Governance and Nominating Committee, copies of the Company's "Chief Executive Officer/Treasurer/Controller Code of Ethics" and the "Code of Conduct," the "Policy for Communication to the Board of Directors," and the “Employee Complaint Procedure for Accounting and Auditing Matters” are available in the Governance Documents section of the Company's website (www.evansbancorp.com), which can be found under the “Corporate Overview” tab.



BOARD OF DIRECTOR COMMITTEES



The Company’s Board of Directors has four outstanding committees: the Audit Committee, the Corporate Governance and Nominating Committee, the Human Resource and Compensation Committee and the Enterprise Risk Committee.  The members of each committee have been nominated by the Chairman of the Board of Directors and approved by the full Board.  The names of the members of the Audit Committee, the Human Resource and Compensation Committee, and the Corporate Governance and Nominating Committee, together with a brief description of their functions, are set forth below.





Audit Committee:





 

Michael J. Rogers, Chairman

Nora B. Sullivan

John R. O'Brien

Lee C. Wortham





The Audit Committee met six times during fiscal 2017.  The Audit Committee is responsible for reviewing the financial information of the Company that will be provided to shareholders and others, overseeing the systems of internal controls which management and the Board of Directors have established, selecting and monitoring the performance of the Company’s independent auditors, and overseeing the Company’s audit and financial reporting processes.  The Board of Directors has determined that John R. O’Brien, Michael J.

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Rogers, Nora B. Sullivan and Lee C. Wortham each qualify as an “audit committee financial expert” as defined in Item 407(d) of Regulation S-K, and that each member of the Audit Committee is an "independent director" in accordance with applicable NYSE American listing requirements, including the heightened independence requirements applicable to Audit Committee members, and Rule 10A-3(b)(1) under the Exchange Act.  The Board of Directors has adopted an Audit Committee Charter, which is available in the Governance Documents section of the Company's website at www.evansbancorp.com, which can be found under the “Corporate Overview” tab.



Human Resource and Compensation Committee: 





 

Thomas H. Waring, Jr., Chairman

John R. O’Brien

James E. Biddle, Jr.

Lee C. Wortham

David R. Pfalzgraf, Jr.

 



The Human Resource and Compensation Committee met six times during fiscal 2017.  The Human Resource and Compensation Committee is responsible for administering the Company’s 2009 Long-Term Equity Incentive Plan and awarding new grants thereunder, for administering the Evans Excels Performance Incentive Plan, the Employee Stock Purchase Plan, the Executive Severance Plan, the SERP Plans (defined below), the Deferred Compensation Plan, and the Executive Incentive Retirement Plan for making such determinations and recommendations as the Human Resource and Compensation Committee deems necessary or appropriate regarding the remuneration and benefits of employees of the Company and its subsidiaries and, in addition, for reviewing with management the Compensation Discussion and Analysis and providing a report recommending to the Board of Directors whether the Compensation Discussion and Analysis should be included in the Proxy Statement.



The Human Resource and Compensation Committee has the authority to act on behalf of the Board of Directors in setting compensation policy, administering Board or shareholder approved compensation plans, approving benefit programs and making decisions for the Board with respect to compensation of senior management.  Except as otherwise required by the applicable rules of the SEC or the NYSE American, the Human Resource and Compensation Committee may delegate any of its responsibilities to a subcommittee comprised of one or more members of the Human Resource and Compensation Committee, the Board or members of management.  As discussed in more detail below under “Compensation Discussion and Analysis,” the Company’s executive officers may attend Human Resource and Compensation Committee meetings to present data and analysis and to make recommendations regarding compensation, benefit plans and promotions for executive officers other than the President and CEO.  The Human Resource and Compensation Committee, on an annual basis, reviews and approves corporate goals and objectives relevant to CEO and other officer compensation, evaluates the performance of the CEO and the other executive officers in light of those goals and objectives, and determines and recommends compensation levels for the CEO and the other executive officers to the full Board of Directors based on this evaluation.



The Human Resource and Compensation Committee also has the authority to review and recommend to the full Board for approval director compensation, including board fees, committee fees and additional compensation, including awards of restricted stock and stock options.



In carrying out its duties, the Human Resource and Compensation Committee has the authority to retain, at the Company’s expense, to oversee the work of, and to terminate, a compensation consultant.  The Human Resource and Compensation Committee also has the authority to retain independent counsel and other advisors at the Company’s expense.  The Committee did not engage an independent compensation consultant or other advisor during 2017.  During 2016, the Human Resource and Compensation Committee engaged Pearl Meyer & Partners, an executive compensation consultant specializing in community bank compensation plans, to provide advisory services regarding executive and director compensation.



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The Committee reviews and re-approves, on an annual basis, its committee charter and the Company’s compensation philosophy, which is described in greater detail below.  The Committee also conducts an annual self-assessment to confirm the Committee’s satisfactory completion of its responsibilities under its committee charter.  As a result of its 2017 self-assessment, the Committee concluded that it was meeting its objectives as set forth in its committee charter.

 

The Board of Directors has determined that each of the members of the Human Resource and Compensation Committee is an “independent director,” in accordance with applicable NYSE American listing requirements, including the heightened independence requirements applicable to compensation committee members.  The Board of Directors has adopted a Human Resource and Compensation Committee Charter, which is available in the Governance Documents section of the Company’s website at www.evansbancorp.com,  which can be found under the “Corporate Overview” tab



Corporate Governance and Nominating Committee:



 

David R. Pfalzgraf, Jr., Chairman

Thomas H. Waring, Jr.

Nora B. Sullivan

Jody L. Lomeo

John R. O’Brien

Michael A. Battle



The Corporate Governance and Nominating Committee met five times during fiscal 2017.  Its purpose is to assist the Board in developing and implementing corporate governance guidelines for the Company, and to provide oversight of the corporate governance affairs of the Company, including strategic planning.  It is also charged with the responsibility of identifying and recommending to the Board candidates for director nominees to be presented to the shareholders for their consideration at the Annual Meetings of Shareholders, and to fill vacancies on the Board of Directors.  The director nominees for the Annual Meeting were selected by a majority of the independent directors of the full Board.  The Board of Directors has determined that each of the members of the Corporate Governance and Nominating Committee is an "independent director," in accordance with applicable NYSE American listing requirements. The Board of Directors has adopted a Corporate Governance and Nominating Committee Charter, which is available in the Governance Documents section of the Company’s website at www.evansbancorp.com, which can be found under the “Corporate Overview” tab.



The Company's bylaws set out the procedure to be followed by shareholders desiring to nominate directors for consideration at an annual meeting of shareholders.  Under the Company's bylaws, shareholder director nominations must be submitted to the Secretary of the Company in writing not less than 14 days nor more than 50 days immediately preceding the date of the annual meeting.  If less than 21 days notice of the annual meeting is given to shareholders, nominations must be mailed or delivered to the Secretary of the Company not later than the close of business on the seventh day following the day on which the notice of meeting was mailed.  Such notification must contain the following information to the extent known by the notifying shareholder: (a) name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of common stock of the Company that will be voted for each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of common stock of the Company owned by the notifying shareholder.  Candidates for nomination to the Board of Directors must meet criteria established from time to time by the Board of Directors or a duly authorized committee of the Board.  Additionally, the Company's bylaws require that, in order to serve as a director of the Company, an individual must be less than 70 years of age.   The Company’s bylaws provide that a Director who obtains the age of seventy (70) years old during his or her term as a Director may remain in office through the expiration of his or her term.  Nominations not made in accordance with the bylaws of the Company may be disregarded by the presiding officer of the meeting, in his or her discretion, and upon his or her instruction, the inspectors of election may disregard all votes cast for each such nominee.  However, in the event that any such nominee is nominated by more than one shareholder, the nomination shall be honored, and all votes cast in favor of such nominee shall be counted if at least one nomination for that person complies with the provisions of the bylaws of the Company.



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The process whereby the Corporate Governance and Nominating Committee identifies director candidates may include identification of individuals well-known in the community in which the Company operates and individuals recommended to the Corporate Governance and Nominating Committee by current directors or officers who know those individuals through business or other professional relationships, as well as recommendations of individuals to the Corporate Governance and Nominating Committee by shareholders and customers.  The Company has not historically received director candidate recommendations from its shareholders.  However, the Corporate Governance and Nominating Committee will consider qualified nominees recommended by shareholders, and there is no difference in the manner in which the Corporate Governance and Nominating Committee will evaluate director candidates recommended by shareholders, as opposed to director candidates presented for consideration to the Corporate Governance and Nominating Committee by directors, officers or otherwise.  The Corporate Governance and Nominating Committee, in conjunction with the CEO, maintain a list of potential director candidates based upon community reputation and contacts, record of accomplishment, and skill set.  Additionally, the Corporate Governance and Nominating Committee reviews committee and Board assessments for competencies and needs and seeks to identify candidates that will assist in the continued development and enhancement of the Board of Directors.  In its evaluation of prospective director candidates, the Corporate Governance and Nominating Committee considers an individual's independence (as defined in the listing rules of the NYSE American), as well as his or her skills and experience relative to the needs of the Company.  Director candidates meet personally with the members of the Corporate Governance and Nominating Committee and are interviewed to determine their satisfaction of the criteria referred to above.  Although the Company has no policy regarding diversity, the charter of the Corporate Governance and Nominating Committee provides that diversity is one of the criteria the Nominating Committee may consider when selecting individuals to recommend for Board membership, together with independence, sound judgment, skill, integrity, willingness to make the required time commitment, understanding of financial statements and knowledge of and experience in the Company’s and its subsidiaries’ businesses, and the interplay of a candidate’s experience with the experience of other members of the Board of DirectorsAfter working with the CEO to meet with and interview Ms.  Minkel  and Ms.  Orsi, the Corporate Governance and Nominating Committee recommended them for nomination to the Board.



DIRECTOR COMPENSATION



Director Compensation Philosophy.    The Company’s Director Compensation Program is designed to provide a compensation amount and structure that will attract and retain highly competent, skilled and engaged individuals for Board service.  Compensation is delivered in both cash and equity.  This split in compensation aligns director compensation with long term shareholder value and provides directors with an appropriate compensation for service.



Director Fees.  Each director of the Company also serves as a member of the Board of Directors of the Bank. Non-employee directors do not receive compensation for attending meetings of the Bank’s Board, but do receive committee meeting fees.  It is the policy of the Board that employee directors are not paid for their service on the Company's or the Bank's Board of Directors in addition to their regular employee compensation.



During fiscal 2017:



Non-employee directors were paid a retainer at the rate of $1,125 in cash, payable on a monthly basis, and $1,125 per month in shares of restricted stock payable as a lump sum grant equal to $13,500 at the February board meeting.  The number of shares of restricted stock awarded is calculated by dividing $13,500 by the closing price for a share of the Company’s common stock on the NYSE American on the date of grant.  In February 2017, each non-employee director, except for Mr. Lomeo, Mr. Sommer, and Ms. Henderson received a grant of 340 shares of restricted stock, at a grant date fair value of $39.70 per share, for service during 2017.   Mr. Lomeo and Mr. Sommer each received a grant of 260 shares of restricted stock, at a grant date fair value of $39.00 per share, equal to $10,140 for his service as a director beginning in April 2017 through December 2017. Ms. Henderson received a grant of 113 shares

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of restricted stock, at a grant date fair value of $39.70 per share equal to $4,486 for her service as a director during 2017 prior to retirement as of March 31, 2017.  Each restricted stock grant vests 100% on the first anniversary of the grant date, subject to full acceleration of vesting upon an individual’s death, disability, retirement or involuntary termination in connection with a change in control of the Company.  Vesting of restricted stock grants is accelerated on a pro-rated basis upon the individual’s resignation. 



Non-employee directors were paid an annual cash retainer fee per committee as follows, with the fee paid over the course of the year in 12 equal monthly installments. In recognition of their heightened responsibilities, each committee chairperson is entitled to an increased annual retainer as described below.  Members of the Enterprise Risk Committee did not receive an annual retainer and instead were paid per meeting attended, as set forth below.



·

Audit Committee: Chairperson $5,800, Member $3,200

·

Human Resources and Compensation Committee: Chairperson $3,800, Member $2,600

·

Corporate Governance and Nominating Committee: Chairperson $2,400, Member $1,600

·

Enterprise Risk Committee: Chairperson $600 per meeting, Member $400 per meeting





Non-employee directors received $400 for attendance at a strategic planning meeting held outside of normal monthly Board meetings and regular committee meetings.



In addition to the annual service fee described above and Board meeting fees, the individual serving as Chairman of the Company’s Board of Directors and the Bank’s Board of Directors is entitled to receive an annual fee of $40,000.  He or she does not receive committee meeting fees while serving as Chairman.



In addition to the annual service fee described above and Board and committee meeting fees, the individual serving as Vice Chairman of the Company’s Board of Directors and the Bank’s Board of Directors is entitled to receive an annual fee of $5,000.



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Director Compensation.  The following table provides information with regard to the compensation paid to the Company's non-employee directors for their service during the fiscal year ended December 31, 2017.



 

 

 

 

 

 

 

 

Name

 

Fees Earned or Paid in Cash
($) (1)

 

Stock Awards
($) (2)(3)

 

Change in Pension Value and Non-qualified Deferred Compensation Earnings
($) (4)

 

Total
($)

Michael A. Battle

 

15,763 

 

13,498 

 

-    

 

29,261 

James E. Biddle, Jr.

 

30,476 

 

13,498 

 

3,539 

 

47,513 

Marsha S. Henderson (5)

 

6,875 

 

4,486 

 

-    

 

11,361 

Jody L. Lomeo

 

11,456 

 

10,140 

 

-    

 

21,596 

John R. O'Brien (6)

 

53,500 

 

13,498 

 

-    

 

66,998 

David R. Pfalzgraf, Jr.

 

18,139 

 

13,498 

 

-    

 

31,637 

Michael J. Rogers

 

31,113 

 

13,498 

 

-    

 

44,611 

Oliver H. Sommer

 

19,250 

 

10,140 

 

-    

 

29,390 

Nora B. Sullivan

 

18,689 

 

13,498 

 

-    

 

32,187 

Thomas H. Waring, Jr.

 

19,239 

 

13,498 

 

397 

 

33,134 

Lee C. Wortham

 

33,802 

 

13,498 

 

-    

 

47,300 



(1)Includes the aggregate amount of the cash retainer, plus all committee and/or chairmanship fees and meeting fees paid to each director for service in 2017.



(2)Reflects the fair value of the awards at grant date, in accordance with FASB ASC Topic 718 for financial statement reporting purposes.  For additional information as to the assumptions made in valuation, see Note 12 to the financial statements filed with the SEC in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017.  Amounts shown in the table are based on the Company’s accounting expense for these awards, and do not necessarily correspond to the actual value that may be realized by the directors.



(3)    The following reflects all equity awards granted to each director that were outstanding as of December 31, 2017:



 

 

 

Name

 

Stock Awards (#)

Option Awards (#)

Michael A. Battle

 

340 

-

James E. Biddle, Jr.

 

340 

-

Jody L. Lomeo

 

260 

-

John R. O'Brien

 

340 

-

David R. Pfalzgraf, Jr.

 

340 

-

Michael J. Rogers

 

340 

-

Oliver H. Sommer

 

260 

-

Nora B. Sullivan

 

340 

-

Thomas H. Waring, Jr.

 

340  1,500 

Lee C. Wortham

 

340 

-



Mr.Lomeo’s and Mr. Sommer’s equity awards, which were granted in May 2017 upon commencement of their services as a director, have  a grant date fair value of $39.00.  All other equity awards granted to each director had a grant date fair value of $39.70.



(4) The Company maintains a non-qualified deferred compensation plan whereby the directors may elect to defer 1% to 100% of their fees until retirement or termination of service.  The Company credits such deferrals at a rate determined at the beginning of each plan year equal to 1% over the prime rate as of each January 1st.  This column reflects amounts credited under the deferred compensation plan during 2017 at interest rates greater than 120% of the applicable federal long-term rate then in effect.  Only the above-market portion of interest credited to the participating directors’ accounts has been reported.



(5) Ms. Henderson retired as a director effective March 31, 2017.



(6) Mr. O’Brien announced his resignation as a director effective March 31, 2018.





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HUMAN RESOURCE AND COMPENSATION COMMITTEE INTERLOCKS

AND INSIDER PARTICIPATION



The members of the Human Resource and Compensation Committee during 2017 were:  James E. Biddle, Jr., John R. O’Brien, David R. Pfalzgraf, Jr., Thomas H. Waring, Jr., and Lee C. Wortham.  None of the members of the Human Resource and Compensation Committee was, during fiscal 2017 or previously, an officer or employee of the Company or any of its subsidiaries, and no member had a relationship during 2017 requiring disclosure under “Transactions With Related Persons,” below.



During fiscal 2017, none of the Company's executive officers served on the compensation committee (or equivalent) or on the board of directors of another entity with “interlocking” relationships requiring disclosure under applicable SEC rules.



HUMAN RESOURCE AND COMPENSATION COMMITTEE REPORT



The information contained in this Human Resource and Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Exchange Act.



The Human Resource and Compensation Committee of the Board of Directors has reviewed and discussed the section of this Proxy Statement entitled "Compensation Discussion and Analysis" with management.  Based on this review and discussion, the  Human Resource and Compensation Committee recommended to the Board of Directors that the section entitled "Compensation Discussion and Analysis" be included in this Proxy Statement and incorporated by reference into the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017.



Human Resource and Compensation Committee





 

Thomas H. Waring, Jr., Chairman

David Pfalzgraf

John R. O’Brien

James E. Biddle, Jr. 

Lee C. Wortham

 

 

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EXECUTIVE COMPENSATION



Compensation Discussion and Analysis.



Executive Summary.



Financial Performance.   The Company delivered strong financial performance and growth in 2017, including the following highlights:



The Company achieved net income in 2017 of $10.5 million, a 27%  increase from $8.3 million in net income in 2016By comparison, the average increase in net income of the 2017 Proxy Peer Group (defined below) was 0.4%. 



Return on average equity was 9.11% in 2017 compared with 9.02% for the 2017 Proxy Peer Group.



Loans grew 13%, or $123 million, to $1.1 billion as of December 31, 2017 compared with 13.7% growth for the 2017 Proxy Peer Group.



The Company experienced strong year-over-year deposit growth across all product categories.  Total deposits increased 12% to $1.1 billion compared with 9.5%  growth for 2017 Proxy Peer Group.



Executive Compensation Philosophy.



The Company seeks to align the interests of its executive officers, including the executive officers named in the Summary Compensation Table below (the “NEOs”) with the interests of its shareholders.  The Company’s executive compensation program is designed to complement the Company’s strategic plan objectives and to reward executives for performance as measured against short-term goals, long-term sustained results to the Company’s shareholders, and the Company’s core values.  The Company continues to design and monitor its compensation programs to further ensure that those programs are aligned with these objectives and to reflect emerging best practices.



In addition, the Company continues to focus on rewarding NEOs for achievement of short-term and long-term strategic and operational goals and increased shareholder return, while at the same time avoiding the encouragement of excessive or unnecessary risk taking. Toward that end, the Company continued to emphasize the following prudent compensation practices during 2017:



Short-term and long-term incentive compensation is tied to both financial and non-financial performance measures in order to further align the interests of NEOs with those of the Company’s shareholders.

Compensation criteria are structured so that achievement of corporate and individual goals do not encourage excessive risk-taking through the use of guardrails, which provide a top and bottom metric to monitor performance, and a mix of performance metrics, which reduce the risk associated with any single performance metric.

Performance-based compensation paid to our executive officers is subject to a “clawback” policy, providing for the return of incentive compensation in the event of a restatement of our financial statements involving fraud or illegal conduct.

No tax “gross-ups” are included in any employment-related agreements.

Perquisites and personal benefits are limited to those that support a demonstrated business purpose.

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Change in control provisions in the Company’s employment and other agreements with its NEOs provide for payment of severance benefits, including accelerated vesting of stock options and restricted stock, only upon termination of employment or job diminishment in connection with a change in control (a so-called “double trigger” event). 



Activities of the Human Resource and Compensation Committee.  During 2017 the Human Resource and Compensation Committee of the Company’s Board of Directors (the “Committee”) reviewed and approved all of the Company’s executive and employee incentive plans to monitor the levels of risk involved in each program. 



Compensation Program Objectives and Overview.  The objective of the Company’s executive compensation programs is to attract, develop and retain executive officers capable of effectively leading the Company and maximizing performance for the benefit of the Company’s shareholders.  The Committee has reviewed the various elements of executive compensation provided by the Company during 2017 to ensure that the elements of compensation will align executives’ interests with those of the Company’s shareholders and the long-term interests of the Company.  The Committee determines the allocation of compensation among base salary, and short term and long term incentives by reviewing data from the Company’s Proxy Peer Group (described below) as well as through the use of salary surveys and review of industry trends.  The Committee reviews each element of compensation to ensure the compensation packages offered will allow the Company to attract and retain superior executive talent and reward performance while not encouraging excessive risk-taking.  The Company’s executive compensation program during 2017, discussed in greater detail below, included:



Cash base salary and, where the Committee deemed it appropriate, employment contracts that are competitive within the industry and designed to enable the Company to recruit and retain highly-qualified individuals;

Cash bonus incentive plans, directly linking pay to both Company and individual performance and designed to motivate executives to deliver superior results without encouraging excessive risk-taking;

Long-term equity incentives, designed to align executives’ interests with those of the Company’s shareholders in achieving long-term performance;

Supplemental Executive Retirement Plans (“SERPs”), designed to assist the Company in retaining talented executives and rewarding long-term service to the Company;

A qualified 401(k) plan and a non-qualified deferred compensation plan, allowing executives to defer “pre-tax” earnings to save adequately for retirement;

Welfare programs designed to replace income in the event of sickness, accident, retirement or death; and

Limited perquisites based on demonstrated business purpose.



The decisions made on senior executive compensation, including NEO compensation, are based primarily upon the Committee’s assessment of each executive’s leadership and operational performance, and his or her potential to contribute to the long-term success and soundness of the Company and to enhance long-term shareholder value.  While the Committee does establish objective performance measures, such as those under the cash bonus incentive plan, the Committee primarily considers its subjective assessment of each individual’s performance rather than rigid formulas or short-term changes in business performance in determining the amount and mix of compensation elements and whether each particular payment or award provides an appropriate incentive and reward for performance that sustains and enhances long-term shareholder value.  Key factors affecting the Committee’s judgment include the executive’s performance compared to the financial, operational, and strategic goals established by the Board of Directors at the beginning of each fiscal year; contribution to the Company’s financial results, particularly with respect to key metrics such as asset growth, credit quality and earnings on capital; and effectiveness in leading our initiatives to increase shareholder value.  Additionally, the Committee assesses each executive’s presence in and commitment to the community.



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Role of the Human Resource and Compensation Committee.  The Committee is composed solely of independent directors of the Company.  It is responsible for all policies and practices related to director, executive and employee compensation.  As part of this responsibility, the Committee, on an annual basis, reviews and approves corporate goals and objectives relevant to executive compensation, and reviews and evaluates the performance of each of the senior executive officers, including the NEOs, in light of those goals and objectives.   Compensation for the NEOs is reviewed and approved by the Committee during the first quarter of each year based on performance during the prior year.  Base salary is then reviewed a second time, typically during the third fiscal quarter, to determine whether an individual’s performance merits a further increase, or to address other changes that occur later in the fiscal year.



The Committee meets at least quarterly.  Members of Company management may attend Committee meetings to provide the Committee with information relating to the Company’s compensation and benefit plans and programs, recommended changes to those plans and programs, and educational material.  In particular, the Company’s President and CEO and its Chief Administrative Officer (CAO) attend Committee meetings to present data and analysis and to formulate recommendations regarding compensation for executive officers other than the President and CEO, benefit plans and promotions.  The CAO provides the Committee with data (such as the proxy peer group and compensation survey data described below) for its consideration in setting the base salary for the President and CEO.  In addition, certain members of the executive management team may attend Committee meetings to provide guidance on SEC reporting requirements as well as on other matters related to executive compensation, such as employee benefits and related insurance matters.  The Committee believes that this input from management is critical to ensuring that the Committee and its advisors have the data needed to make informed decisions with respect to the Company’s compensation programs and each NEO’s individual compensation.  In determining the base salary, annual incentive and long-term incentive components of CEO compensation, the Committee will consider multiple factors including the Company’s performance and relative shareholder return, the value of similar compensation elements paid to CEOs at comparable companies, and the awards given to the Company’s President and CEO in past years.  The Committee also spends a portion of each meeting convening in executive session, without the presence of any members of management or other attendees.



Role of Compensation Consultants.  In 2016, the Committee engaged Pearl Meyer & Partners (“Pearl Meyer”), a national executive compensation consultant specializing in aligning executive compensation with business and leadership strategy, to advise on the Company’s proxy peer group and to analyze and provide recommendations with respect to the competitiveness of the Company’s director compensation program.  Pearl Meyer advised the Company on the selection of the Company’s proxy peer group, which was created by the Committee, with input from management and Pearl Meyer for purposes of reviewing and setting 2017 compensation and to gauge the Company’s performance (the “2017 Proxy Peer Group”), as further described below.  In addition, Pearl Meyer reviewed and analyzed the Company’s director compensation program and made recommendations for 2017 director compensation.   Based on Pearl Meyer’s analysis of the Company’s 2017 Proxy Peer Group, and its report of best practices in director compensation, the Committee determined to increase the director retainer fees and committee fees and the value of the annual restricted stock grant.  These payments are disclosed above under “Director Compensation”.



During 2017, the Committee did not engage an independent compensation consultant.  Instead, the Committee Chairperson attended and spoke at the 2017 Bank Compensation & Talent Conference, a multi-day national conference geared toward financial institution human resource and compensation committee leaders that comprised knowledgeable speakers from national compensation consultant groups such as Pearl Meyer, McLagan of Aon plc, and Meridian Compensation Partners, LLC, along with industry compensation attorneys.  In addition, the Committee engaged in discussions with members of compensation committees from other financial institutions of comparable size and structure to learn about their practices for comparison purposes. These discussions did not result in any changes to 2017 compensation.

23

 


 



Benchmark Analysis.  The base salaries paid to the NEOs are compared to a “benchmark” established using relevant industry compensation surveys and compensation information derived from proxy statements filed by other publicly-held companies in the financial services industry.  The Committee considers the compensation data and financial performance of the financial institutions included in those surveys and filings.  For this analysis, the Committee also considers data from its proxy peer group.  The 2017 Proxy Peer Group included financial institutions with assets ranging from approximately one-half to slightly more than double the Company’s asset size, with return on assets, return on average equity and earnings per share similar to or better than the Company’s.  Based upon the Committee’s review and discussion, the 2017 Proxy Peer Group included 21 companies, 12 of which were included in the proxy peer group used for 2016 compensation. With the Company’s growth, some of the prior peers did not accurately represent an asset size within the desired range stated above.  The Committee also strived to include peers that had a comparable customer composition and geography.



The 2017 Proxy Peer Group included ACNB Corporation, CNB Financial Corporation, Chemung Financial Corporation, Codorus Valley Bancorp, Inc., Enterprise Bancorp, Inc., Farmers National Banc Corp., First Savings Financial Group, Inc., German American Bancorp, Inc., Greene County Bancorp, Inc., Mid Penn Bancorp, Inc., Orrstown Financial Services, Inc., Parke Bancorp, Inc., Penns Woods Bancorp, Inc., Peoples Financial Services Corp., Stewardship Financial Corporation, Sussex Bancorp, Two River Bancorp and Unity Bancorp, Inc.



In addition, the Committee reviewed survey data published by Pearl Meyer as well as by McLagan of Aon plc, by both asset size as well as region.  While the 2017 Proxy Peer Group reflected financial institutions that are the most similarly situated to the Company, the Committee believes that it is useful to examine the “best practices” of a broader group of companies, and that multiple sources of compensation data assist the Company in designing pay programs that are both contemporary and relevant.  The Pearl Meyer compensation survey report for 2017 was used to analyze compensation from two groups of companies within the Northeastern U.S.  The first group consisted of approximately 35 financial institutions with asset sizes of $800 million to $1.5 billion and the second included approximately 35 institutions with asset sizes over $1.5 billion.  The McLagan survey is a report consisting of financial institutions across the U.S. segregated by asset size.  The Committee analyzed compensation data from a single group with approximately 25 companies each, identified by $1 billion to $3 billion in asset size. 



The Committee utilizes the salary surveys and the Proxy Peer Group data as sources of information in determining base salary for Messrs. Nasca and Connerton.  The Committee generally targets the 50th to the 75th percentile for the base salary of Messrs. Nasca and Connerton.    The base salary of Mr. Miller is compared to data from the salary surveys, but not to Proxy Peer Group data due to a lack of comparable data for his position.  As a result, Mr. Miller’s compensation is generally determined based upon his individual performance as compared to annual goals, including the achievement of corporate strategic and operational objectives.  For Messrs. Nasca and Connerton, the Committee uses the survey and peer group data as a point of reference and comparison only, for purposes of establishing certain target percentiles, but does not use the data to set a specific level of compensation to be achieved.  The survey data include companies that may not have the complexity of our organization, such as an insurance component, and we believe it is important to pay for the expertise required to manage all facets of our business.  Because the roles and responsibilities of executive officers can vary from one institution to another, the Committee also considers each NEO’s experience, length of service in his or her position, and individual performance.  The Committee has made the decision to pay above the 50th percentile for NEO salary where the Committee believes it is necessary to attract and retain superior executive talent and/or experience in order to support planned growth of the Company.  The Committee believes that this is appropriate in light of the expected future roles of the executives in supporting a larger organization as the Company continues to pursue a growth strategy.  During 2017, the Company paid Mr. Nasca 101% of the weighted survey average base salary at the 50th percentile, as reported in the 2017 salary surveys and 2017 Proxy Peer Group data utilized by the Committee as described above.  Mr. Connerton’s salary was 90% of the weighted survey average at the 50th percentile, which the Committee determined was appropriate due to his shorter tenure as CFO.  Mr. Miller’s salary was 104% of the weighted average base salary at the 50th percentile as reported in the 2017

24

 


 

salary surveys. See “Executive Total Compensation – Base Salary” below for a discussion of actions taken with respect to the NEOs’ base salaries in 2017.





Compensation Recovery Policy.  The Company’s Incentive Plan Clawback Policy provides for the recovery of performance-based compensation paid to certain senior executives of the Company, including the NEOs, in the event of a restatement of the Company’s consolidated financial statements.  The policy applies to performance-based compensation paid during the three-year period prior to the correction of the accounting error, where the amount of such compensation paid to the executive was increased based on the erroneous financial statements, and the executive engaged in fraud or illegal conduct which materially contributed to the need for the restatement.  The policy generally covers compensation paid or awarded to executives under the Company’s short-term and long-term incentive plans.



Executive Total Compensation.  The following discussion describes the key elements of the Company’s NEO compensation program and the actions taken with respect to each element for 2017. 



1.Base Salary.  The Company’s approach to compensation begins with establishing a fair base salary determined by individual factors, such as the employee’s role in the organization, scope and complexity of responsibility of the position, the market value of his or her job, the level of an individual’s expertise in the role and his or her performance in the position, as well as Company performance factors, such as Company financial performance, including earnings per share and growth in net income.  Annual individual performance is measured for the CEO through a formal annual review by the Chairman and Vice Chairman of the Board of Directors and the Chairman of the Committee.   Their review and recommendations are then reviewed and discussed with the full board prior making a final determination.  For other NEOs, individual performance is reviewed monthly with the CEO.  During these monthly meetings, any performance concerns are shared with the executive, and corrective measures (if needed) are outlined.  Based on these monthly meetings and his evaluation of each individual’s performance, the CEO makes recommendations to the Committee regarding annual adjustments to base salary for each of the other NEOs.  In determining base salary, the Committee also considers the level of achievement of corporate strategic and operational objectives established by the Committee as described above under “Compensation Discussion and Analysis – Role of the Human Resource and Compensation Committee and CEO.”  The Committee then compares the executive’s salary against market data as described above under “Compensation Discussion and Analysis – Benchmark Analysis.” 


The Company maintains a common anniversary date for the merit review process and related salary adjustments, which generally occur in the middle of the first quarter each year.  Salaries are then reviewed a second time, usually during the third quarter of each year.  After consideration of compensation data, Company performance and individual performance, the Committee makes a subjective assessment of each individual’s performance as described in the preceding paragraph, and above under “Compensation Discussion and Analysis – Compensation Program Objectives and Overview.”  While it is uncommon for an individual to receive an increase at both review cycles (winter and summer), this may occur when an individual expands his or her skill set or experience, or demonstrates outstanding performance or increased responsibility.  For 2017, the Committee approved discretionary increases to the base salary of Messrs. Nasca. Connerton and Miller, effective March 8, 2017, as follows: Mr. Nasca’s annual base salary was increased from $425,006 to $460,000 or 8.2%; Mr. Connerton’s annual base salary was increased from $182,700 to $200,000 or 9.5%, and Mr. Miller’s annual base salary was increased from $265,223 to $271,854 or 2.5%.  Mr. Nasca’s increase was made due to the Committee’s assessment of his contributions in delivering on the goals of the Strategic Plan.  Mr. Connerton received his increase due to quickly fulfilling the expectations of his position since being appointed as chief financial officer in November 2015 and in recognition of his financial management of the Company.   

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2.Short-Term Cash Incentive Compensation.  The Evans Excels Performance Incentive Plan (the “Evans Excels Plan”) is a short-term cash incentive compensation plan intended to reward performance of officers of the Bank, including the NEOs.  The plan is designed to motivate employees to attain desired objectives and to encourage teamwork and collaboration while aligning compensation with overall Company performance.  This plan is a key element of the total compensation benefits provided to our NEOs and allows the Company to remain competitive with the market by providing the opportunity to receive significant cash incentives.  The design of the plan is intended to ensure that no benefits are paid to executives and other employees unless Company performance goals are attained (subject to the Committee’s discretionary authority to award payouts notwithstanding a failure to achieve those goals, as described below).  If the Company performance goals are attained, the Committee then considers, with management’s input, each employee’s individual performance in determining whether to make awards under the plan, as described below. 



For 2017, the Committee utilized Company annual adjusted net income as the measure for determining whether awards would be paid under the Evans Excels Plan.  The Committee determined the levels of growth in adjusted net income which it believes provide a reasonable balance between shareholder value and appropriate employee motivation and reward.  Adjusted net income is a non-GAAP financial measure, and is defined as net income (GAAP) as reported in the Company’s financial statements excluding the short-term incentive payment, which is calculated net of any tax impact associated with the short-term incentive payment.  The goals set for 2017 and the actual results, as derived from GAAP net income, were as follows:







 

 

 

 

 

 

 

 

 

 

 

 



 

Threshold

 

Target

 

Stretch

 

Actual



 

 

 

 

 

 

 

 

 

 

 

 

Net Income (GAAP)

 

$

9,650,029 

 

$

10,056,871 

 

$

10,464,733 

 

$

10,478,920 

Evans Excels Plan payments

 

 

666,461 

 

 

1,330,262 

 

 

1,996,723 

 

 

1,815,211 

Tax Effect

 

 

(259,920)

 

 

(518,802)

 

 

(778,722)

 

 

(700,671)

Adjusted Net Income

 

$

10,056,570 

 

$

10,868,331 

 

$

11,682,734 

 

$

11,593,460 



In 2017, the "stretch goal" was not met, however the Committee decided to exercise its discretion and pay awards at the stretch level. Although the Company’s 2017 performance was slightly short of the adjusted net income stretch goal, the Committee believes this result is not reflective of management's operating performance due to unusual circumstances related to the passage of the Tax Cuts and Jobs Act of 2017 (“TCJA”) and the corresponding impact on net income. The TCJA was signed into law in December 2017 and resulted in the Company taking a one-time, nonrecurring $2.1 million charge to net income. This charge was not due to any management operating decisions and occurred without an ability for management to anticipate or react in time to off-set any negative impact.  The Company expects to benefit in subsequent fiscal years from the changes to federal income tax law resulting from the TCJA.  

The Committee sets both Company and individual NEO goals each year in reviewing the Board-approved four-year Strategic Plan and aligning Board-approved business targets and associated desired metric results with the calendar year.  Company performance goals for each performance year are set in the fourth quarter of the prior year, and individual performance goals are set in the first quarter of the relevant performance year.  Goals are then cascaded from the Strategic Plan to the CEO and then to each NEO.  The 2017 individual NEO goals are presented in the table below. 

All awards are to be paid out as a percentage of a participant’s annual salary as in effect on the last calendar day during the relevant performance period, which runs from January 1st to December 31st. The Company typically makes payments in February following the end of the performance period.

In addition to the Company performance measure discussed above, the Committee considers individual performance and attainment of assigned goals. Even if the threshold (or higher) Company performance measure is met, an employee must meet a certain level of individual performance to

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receive payment under the plan. Historically, the Committee has considered a broad variety of individual performance goals to establish specific individual performance measures.  The Committee reviews these specific performance measures and exercises some degree of discretion in determining each employee’s payout amount. The Committee also has the discretionary authority to grant awards notwithstanding Company performance below threshold, and to raise, lower or eliminate an NEO’s incentive payout regardless of individual or Company performance.  However, the Committee intends to exercise its discretionary authority only in unusual circumstances where such a modification is warranted, and believes that establishing specific performance measures for each participant will enhance the ability of the plan to encourage individual performance in those targeted areas.  



The individual performance measures established by the Committee are a combination of financial goals derived from the Company’s strategic plan, and discretionary assessment.  Each performance measure receives a weighting, which represents its relative importance to overall individual performance under the plan.  For each individual performance measure, the Committee establishes a “target”, “threshold” and “stretch” standard. 

The table below shows the performance measures and relative weightings of the various performance measures utilized for the NEOs for 2017.  A performance measure requiring an NEO to deliver on a specified strategic plan goal will be broken down into several specific goals/action items, and whether the NEO achieves that goal at threshold, target or stretch level (or not at all) will be determined based on the extent to which he achieved meaningful results toward those specific goals/action items.  Under the terms of the plan, an individual must be employed by the Company on the payment date in order to receive payment under the plan.  The following performance measures were utilized for the NEOs for 2017:

NEO

Performance Measure

Weight

2017 Performance Rating

David Nasca

Adjusted Net Income

50%

Achieved at Target

Efficiency Ratio Improvement

23%

Achieved at Stretch

Leadership

13%

Achieved at Stretch

Risk Management

14%

Achieved at Target

John Connerton

Adjusted Net Income

30%

Achieved at Target

Efficiency Ratio Improvement

25%

Achieved at Stretch

Risk Management

16%

Achieved at Stretch

Successful Build Out of Business Model

13%

Achieved at Stretch

Leadership

16%

Achieved at Stretch

Robert G. Miller, Jr.

Adjusted Net Income

21%

Achieved at Target

Insurance Revenue Growth

42%

Achieved at Stretch

Leadership

17%

Achieved at Stretch

Execute on Acquisition Strategy

20%

Achieved at Stretch



The payouts are determined pursuant to the sum of the weightings for each individual’s total goal set for 2017 before any discretionary override placed by the Committee.  Each goal’s weight is determined by its level of importance and influence level in achieving the goals  set forth in the

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Company’s Strategic Plan. Notwithstanding the individuals’ achievement of their specific performance measures, the established levels of Company performance, described above, are required to “open” the plan to allow payout of incentives.   If the minimum adjusted net income (threshold) level is not met, no awards would be payable pursuant to the plan, except that the Board of Directors may, at its discretion, grant awards notwithstanding Company performance below threshold, and may raise, lower or eliminate an NEO’s payout regardless of Company or individual performance.  To date, the Board of Directors has not exercised its discretionary authority to provide for a payout where the Company’s performance was below threshold.  For 2017, the Committee did, however, exercise its discretionary authority to award payouts as though the Company’s stretch goal had been met, as described above, and to increase Mr. Nasca’s payout by 9.5%, Mr. Connerton’s payout by 3.5% and Mr. Miller’s payout by 2.5% of their respective base salary, as indicated in the Summary Compensation Table, below.



Most of the discretionary increase for each of the NEO’s payouts was made to compensate for the unusual circumstance of the passage of the TCJA late in 2017 and the corresponding $2.1 million net income impact which caused the Company to fall slightly short of the adjusted net income stretch goal.   The Committee believes that the failure to meet the stretch level was not reflective of management operating decisions.  The Company expects to benefit in the subsequent fiscal years from the changes from TCJA.  The impact of the discretion used as it relates to the stretch level payment despite the Company’s adjusted net income being below the stretch level was an increase of Mr. Nasca’s payout by 7.5%, Mr. Connerton’s payout by 3.5%, and Mr. Miller’s payout by 2.5% of their respective base salary.

The Committee also used its discretionary authority to increase Mr. Nasca’s payout by 2.0% of his base salary in order to recognize his significant contributions to the Company’s success during 2017 and to avoid his being unfairly penalized for a failure to achieve one specific stretch objective within one of the Strategic Plan goals. 



The amounts paid under the plan to each NEO for 2017 are set forth in the Summary Compensation Table, below.



The following table illustrates the cash incentive payment, as a percentage of 2017 base salary, that would be payable to each of our NEOs if all individual goals were met at the specified level of performance (assuming Company achievement of at least the “threshold” performance level and no Committee discretionary override).

NEO

Threshold

Target

Stretch

David Nasca

15%  30%  45% 

Robert G. Miller, Jr.

12%  24%  36% 

John Connerton

12%  24%  36% 



These percentages are determined through the Committee’s research in reviewing proxy peer group and compensation survey data in addition to the Committee’s assessment of appropriate incentive levels that are aligned with the financial goals of the Strategic Plan.



3.Equity Incentives.  While the Evans Excels Plan focuses on the achievement of short-term performance measures, the Company’s shareholder-approved 2009 Long-Term Equity Incentive Plan is designed to provide key employees with a reward opportunity that aligns the interests of the participants with those of the Company’s shareholders by focusing on our Company’s performance over a longer period of time.  The equity incentive plan both links the size of awards granted to the NEOs to the past performance of the Company and ties the ultimate realizable value of those awards to the future value of the Company’s common stock, thereby aligning the NEOs’ interests with those of the Company’s shareholders, and encouraging a balance between growth and prudent risk-taking. 



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Under the equity incentive plan, the Committee typically grants awards of restricted stock, which provides immediate value to the NEO (subject to vesting) but loses value in the event that shareholder value decreases, and stock options, under which the NEO recognizes value commensurate with increases in long-term shareholder value.  In 2017, after considering various alternatives under the equity incentive plan, the Committee determined to continue with its past practice of granting stock options and restricted stock based upon a mix of corporate and individual performance factors that influence this discretionary award. 



Both restricted stock and stock options link an NEO’s compensation to long-term Company performance.  The Committee believes that restricted stock is a particularly effective incentive tool because the value of the award can be further enhanced if the value of the Company’s common stock increases after the date the restrictions lapse.  The Committee further believes that stock options are an effective long-term incentive because the holder can only profit if the value of the Company’s common stock increases.  Both types of equity awards also have a retentive effect because they vest over a period of time, typically four years.  Vesting may be accelerated under certain circumstances, such as the executive’s death, disability or retirement, or if an executive’s employment is terminated in connection with a change in control of our Company.  Holders of restricted stock receive dividends if and when dividends are paid on the Company’s common stock during the restrictive period, and have voting rights during the restriction period.  Holders of stock options, on the other hand, have no rights as a shareholder until the options are exercised.   Awards granted under the equity incentive plan typically consist of 75% shares of restricted stock and 25% stock options, which the Committee believes is an appropriate formula to drive increased equity ownership by the Company’s executive officers.  The Committee may also grant awards of stock appreciation rights and restricted stock units under the equity incentive plan, but it has not historically done so. 



The Committee believes that the Evans Excels short-term incentive plan and the equity-based long-term incentive plan together create a balance between short-term and long-term performance goals and encourage appropriate risk-taking.



The Committee exercises its discretion in determining when to grant equity incentive awards, as well as the size and nature of the awards.  Equity awards are typically granted on an annual basis, during the first quarter, based on prior year financial performance, but may under certain circumstances be granted at other times during the year, for example, in connection with a new hire or a change in position within the Company.  As a general matter, the Committee’s process is independent of any consideration of the timing of the release of material non-public information, including with respect to the determination of grant dates or stock option exercise prices.  The Committee has never timed the release of material non-public information to affect the value of executive compensation.  In general, the release of such information reflects long-established timetables for the disclosure of material non-public information such as earnings reports or, with respect to other events reportable under federal securities laws, the applicable requirements of such laws with respect to timing of disclosure.  In determining the amount of each award, the Committee looks at the Company’s performance during the prior year, the number of shares remaining available for issuance under the plan, the market price for the Company’s common stock, and the Committee’s subjective assessment of each individual’s performance.  In 2017, the Committee reviewed a combination of performance factors, ranging from financial metrics to each individual’s contribution in achieving the goals set forth in the Company’s Strategic Plan.  The Committee does not establish specified pre-determined target award values.



During 2017, the Committee approved the following equity awards (for more detail on the awards granted to the Company’s NEOs, see the “Summary Compensation Table” and “Grants of Plan-Based Awards” table below):



Restricted Shares – during 2017, a total of 14,680 shares of restricted stock were granted to 37 employees, of which 3,810 were granted to our NEOs.

Stock Options – during 2017, a total of 24,990 options were granted to 35 employees, of which 7,820 were granted to our NEOs.

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4.Executive Deferred Salary Plan.  Under the Company’s Deferred Compensation Plan, participating NEOs are able to defer, at their election, up to 100% of their base salary.  This deferred salary amount accrues interest at the rate of prime plus 1%, based upon prime as stated in the Wall Street Journal as of January 1st each year (3.75% at January 1, 2017).  The plan is designed to provide a vehicle for executives, including NEOs, to defer their base salary on a “pre-tax” basis in order to achieve their personal retirement goals, and the Committee believes that this plan is useful in recruiting and retaining talented executive officers.  The Company does not contribute to this plan but accrues a liability expense for future payment.  The plan is unfunded and considered a non-qualified plan for tax purposes.  While all of the NEOs are eligible to participate in the Deferred Compensation Plan, to date, only Mr. Miller has elected to participate in this plan.  His contributions to the plan for 2017 are set forth below under “Non-Qualified Deferred Compensation Plan”.



5.Supplemental Executive Retirement Plans (“SERPs”).  Messrs. Nasca and Miller are participants in SERPs provided by the Bank, which increase their retirement benefits above amounts available under the Company’s tax-qualified and other pension programs.  The Committee believes that these plans, and the level of benefits that are provided under these plans, are appropriate to promote retention and to recognize and reward long-term service to the Company.  Mr. Nasca is the sole participant in the Evans Bank, N.A. Supplemental Executive Retirement Plan for Senior Executives (the “Senior Executive SERP”).  The Senior Executive SERP provides a benefit to Mr. Nasca of 35% of his base salary for a period of 15 years. There is a 10-year vesting period on this plan.  The Senior Executive SERP is unfunded and is considered a non-qualified plan for tax purposes.   Mr. Miller participates in the Company’s legacy SERP, which is closed to new participants (the “Legacy SERP”). The Legacy SERP is considered an offset plan, designed to provide 70% of base salary offset by benefits provided under the Defined Benefit Pension Plan, Company contributions to the Evans Employee Savings Plan (401(k) plan), and the value of Company contributions to social security benefits.  The Legacy SERP provides a 15-year benefit, but the benefit is not frozen at a specific age.  Like the Senior Executive SERP, the Legacy SERP is unfunded and is considered a non-qualified plan for tax purposes.  Mr. Miller’s annual benefit, when combined with amounts payable under the Company’s tax-qualified and other pension programs and social security, will equal 70% of the average of his highest five consecutive years’ salary and bonus.





6.Executive Incentive Retirement Plan.  The Company provides certain key executives with an additional non-qualified retirement plan, the “Executive Incentive Retirement Plan” (“EIRP”).  The plan provides an annual contribution by the Company equal to 5% of the executive’s base salary at year end, which then earns interest at prime plus 1%. Mr. Connerton is the only NEO participating in this plan.  The EIRP is unfunded and is considered a non-qualified plan for tax purposes.



7.Perquisites.  The Company provides its NEOs with limited perquisites designed to assist the NEOs in being productive and which the Committee believes are reasonable, competitive and consistent with its overall executive compensation program.  These perquisites, the aggregate cost of which is disclosed in the “Summary Compensation Table” below, generally include an auto allowance and club memberships, which the Committee believes are important to the NEOs’ development of business relationships, an activity critical to the long-term success of the Company, and long-term disability insurance. The Company believes that its perquisites allow senior executive officers to operate more effectively.



Employment Agreements.  The Company believes the use of clear and concise employment contracts can be an effective tool to attract and retain senior executives, as well as to protect proprietary information and customer relationships.  However, in recent years and consistent with trends in corporate governance, the Committee has been limiting its use of executive employment contracts.  The Company has historically been a party to employment contracts with several of its NEOs.  Currently, only Mr. Nasca is covered by an employment contract, which is described below under “Employment Agreements with Our NEOs”.





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Post-Termination Compensation.  As mentioned above, the Company has historically been a party to employment contracts with its NEOs which provide for certain severance payments, described below under “Potential Payments Upon Termination or Change in Control,” if the executive’s employment terminates under circumstances described in the employment contract.  In addition, under the terms of the Company’s 2009 Long-Term Equity Incentive Plan, if there is a change in control of the Company, the executive may be entitled to full acceleration of his equity-based compensation, as described above under “Executive Total Compensation – Equity Incentives.”  The Committee believes that these arrangements are important as a recruitment and retention device, as most of the companies with which we compete for executive talent have similar arrangements in place for their executives.  These arrangements may help incentivize the executive to remain with the Company and to assist in any potential change in control transaction, which provides security for the executive and stability for the Company.  The Committee attempts to balance protection of its executives upon a change in control with protection of the Company’s interests by making accelerated vesting available upon a change in control only if the executive is involuntarily terminated or experiences a job diminishment in connection with the change in control (a so-called “double-trigger”).  Additionally, the Committee links severance payments to agreements by the executive not to compete with the Company, solicit the Company’s employees or customers, or disclose confidential information.



Currently, only Mr. Nasca is a party to an employment contract providing for such change-in-control payments.  However, each of Mr. Miller and Mr. Connerton is a party to a rolling two-year change in control agreement with the Company.  The change in control agreement, like the accelerated vesting of equity awards described above, provides a double-trigger benefit.



For further information on the potential payouts under these arrangements, see “Potential Payments Upon Termination or Change in Control”, below.



Executive Severance Plan.  The Company’s Executive Severance Plan provides post-termination coverage to executive officers who are not covered under an employment contract that provides for severance or similar post-employment compensation, or whose benefits are triggered only under a change in control agreement.  Under the Executive Severance Plan, a participant (1) whose employment is involuntarily terminated by the Company for reasons other than for cause, as defined in the plan, (2) who is required to move employment more than 35 miles from his or her current place of employment, and who rejects the relocation and terminates employment, or (3) whose aggregate compensation is materially reduced, and who terminates employment, will be eligible for severance payments under the Executive Severance Plan.  Under the plan, a participant eligible for benefits would receive 12 months of salary continuance plus the participant’s short term incentive amount at the target level, pro-rated for the time during the year in which the participant was actively employed by the Company.  The severance payments will be made over the 12-month period following termination in accordance with the Company’s regular payroll cycle.  In addition, the Company will reimburse eligible participants for up to $5,000 in outplacement services during the 12-month period following termination (payable in a lump sum, in cash).  Payments and benefits under the Executive Severance Plan are subject to the participant’s compliance with one-year non-competition and non-solicitation covenants, and an employee will cease to be a participant in this plan if severance benefits are triggered under an employment contract or change in control agreement.  Messrs. Miller and Connerton are participants in the Executive Severance Plan.  Mr. Nasca, who has an employment contract providing for severance benefits, does not participate in this plan. 



Tax and Accounting Considerations.  Section 162(m) of the Internal Revenue Code generally denies publicly-held corporations a federal income tax deduction for compensation exceeding $1,000,000 paid to the chief executive officer, chief financial officer, and the three other highest paid executive officers (other than the CEO and CFO), excluding performance-based compensation.  With the enactment of TCJA in December 2017, the deductibility of executive compensation is now further limited and the covered group under the amended statute has been expanded.  The TCJA expands the definition of covered employees to include the CFO, CEO, and the three most highly compensated officers for the tax year and designates covered employees as covered employees forever.  Previously, if a covered employee retired, the individual would no longer be considered covered in retirement.    While Section 162(m) has not historically impacted

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the deductibility of the Company’s executive compensation, the expansion of the definition of covered employee into retirement is expected to lead to tax liability for the Company with respect to Mr. Nasca, who has elected under the terms of the Senior Executive SERP to receive his benefit in a lump sum, which will exceed $1 million.   This assessment is based on the Committee’s initial analysis of the TCJA.   Given the complexity of the TCJA, anticipated guidance from the U.S. Treasury regarding implementation of the TCJA, and the potential for guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board related to the TCJA,  this assessment may be adjusted later to reflect any such guidance provided.  The Committee will continue to monitor the impact of the TCJA on the Company’s ability to deduct executive compensation, and in particular, will review future Internal Revenue Service rulings related to the tax treatment of executive compensation.  Section 409A of the Internal Revenue Code generally changes the tax rules that affect most forms of deferred compensation that were not earned and vested prior to 2005, and imposes an additional tax on certain forms of deferred compensation.  The Committee takes Section 409A into account in determining the form and timing of compensation paid to the Company’s executives.  While Section 409A is generally not applicable to the compensation provided by the Company, it does affect the timing of certain severance and non-qualified benefit payments. 



The Company values stock option and restricted stock grants under FASB ASC Topic 718.  More information regarding the application of ASC Topic 718 by the Company may be found in Note 12 to the Company’s audited financial statements filed with the SEC in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.



Say On Pay.  Proposal II provides the Company’s shareholders with the opportunity to cast a non-binding advisory vote on executive compensation.  Shareholders are being asked to approve the compensation paid to the Company’s NEOs, as described in this proxy statement, including this “Compensation Discussion and Analysis” and the compensation tables and narrative discussions contained in this proxy statement under the caption “Executive Compensation”. 



We attempt to maintain a regular dialogue with our major shareholders to discuss various corporate governance topics, including executive compensation that may be of interest to them.  These discussions have provided useful guidance for our Committee as it reviews and adopts the various compensation policies and practices affecting our employees, including our NEOs.  At our 2017 Annual Meeting of Shareholders, a substantial majority of our shareholders voted to approve the compensation paid to our NEOs, with 91% of the votes cast supporting the measure. 



In reviewing the Company’s compensation programs and making decisions related to 2017 executive compensation, the Committee evaluated the results concerning the vote on the advisory resolution on executive compensation at that meeting. Going forward, the Committee will continue to consider shareholder feedback when determining executive compensation.





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Summary Compensation Table.  The following table sets forth the compensation of the Company’s NEOs for the fiscal years ended December 31, 2017, 2016 and 2015.  The NEOs identified in the table below are the Company's Principal Executive Officer, Principal Financial Officer, and one other individual who was serving as an executive officer as of  December 31, 2017 and met the applicable SEC reporting threshold.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name and
Principal Position

 

Year

 

Salary
(1)

 

Bonus
(2)

 

Stock Awards
(3)

 

Option Awards
(3)

 

Non-Equity Incentive Plan Compensation
(4)

 

Change in Pension Value and Non-Qualified Deferred Compensation Earnings
(5)(6)(7)

 

All Other Compensation
(8)

 

Total

David Nasca

 

2017

 

$

453,271 

 

$

-    

 

$

79,790 

 

$

26,602 

 

$

207,000 

 

$

72,372 

 

$

45,964 

 

$

884,999 

President and CEO of the

 

2016

 

 

423,468 

 

 

-    

 

 

76,000 

 

 

25,305 

 

 

153,002 

 

 

-    

 

 

45,024 

 

 

722,800 

Company and the Bank

 

2015

 

 

417,115 

 

 

-    

 

 

70,452 

 

 

23,453 

 

 

102,687 

 

 

321,325 

 

 

43,427 

 

 

978,459 

(principal executive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John Connerton

 

2017

 

$

196,675 

 

$

-    

 

$

28,835 

 

$

9,615 

 

$

72,000 

 

$

4,414 

 

$

36,337 

 

$

347,876 

Treasurer of the

 

2016

 

 

181,142 

 

 

-    

 

 

28,250 

 

 

9,451 

 

 

58,099 

 

 

2,605 

 

 

33,819 

 

 

313,367 

Company and  Executive

 

2015

 

 

151,699 

 

 

40,970 

 

 

18,046 

 

 

5,968 

 

 

24,183 

 

 

-    

 

 

20,222 

 

 

261,088 

Vice President and CFO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of the Bank (principal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

financial officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert Miller, Jr.

 

2017

 

$

270,579 

 

$

-    

 

$

41,870 

 

$

13,910 

 

$

97,867 

 

$

199,030 

 

$

48,927 

 

$

672,183 

Secretary of the

 

2016

 

 

264,726 

 

 

-    

 

 

40,750 

 

 

13,567 

 

 

63,000 

 

 

134,345 

 

 

48,175 

 

 

564,563 

Company, President of                                                               

 

2015

 

 

267,978 

 

 

-    

 

 

39,799 

 

 

13,262 

 

 

43,389 

 

 

-    

 

 

39,269 

 

 

403,697 

TEA and Executive Vice

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

President of the Bank      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



(1) Amounts reported under “salary” for Mr. Miller include the “employee portion” of residual commissions earned on certain products sold through M&W Group, Inc. prior to September 1, 2000.



(2) Mr. Connerton received a retention bonus in 2015 after fulfilling a two year obligation to remain with the Bank that began in 2013. 



(3) Reflects the aggregate fair value of the awards at grant date as determined in accordance with FASB ASC Topic 718 for financial statement reporting purposes.  For additional information as to the assumptions made in valuation, see Note 12 to the financial statements filed with the SEC in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017.  Amounts shown in the table are based on the Company’s accounting expense for these awards, and do not necessarily correspond to the actual value that may be realized by the NEOs.    



(4)  Although the Company did not meet its “stretch” goal for fiscal 2017 under its Evans Excels Plan, as described above under “Executive Total Compensation”, the Committee exercised its discretion to award payouts as though the Company had achieved the stretch goal. Considered together with each NEO’s individual goals described above under “Compensation Discussion and Analysis - Executive Total Compensation,” this resulted in payouts at “stretch level.



(5) With respect to Mr. Nasca, includes the aggregate change in the accumulated benefits under the Bank’s Senior Executive SERP.  For 2016, the aggregate change in actuarial present value of accumulated benefits for Mr. Nasca was a negative number. However, applicable SEC rules require that we report a “$0” in this column instead of the negative number. The actual decrease in actuarial present values for 2016 was $(19,553).



(6)  With respect to Mr. Miller, includes the aggregate change in the accumulated benefits under the Bank’s Defined Benefit Pension Plan and the Legacy SERP.  For 2015, the aggregate change in actuarial present value of accumulated benefits for Mr. Miller was a negative number. However, applicable SEC rules require that we report a “$0” in this column instead of the negative number. The actual decrease in actuarial present values for 2015 was $(79,906).



(7)  With respect to Mr. Connerton, includes the aggregate change in the accumulated benefits under the Bank’s Defined Benefit Pension Plan. For 2015, the aggregate change in actuarial present value of accumulated benefits for Mr. Connerton was a negative number. However, applicable SEC rules require that we report a “$0” in this column instead of the negative number. The actual decrease in actuarial present values for 2015 was $(138).



(8)  For 2017, includes: 401(k) matching contributions of $16,200 $11,800,  and $16,247 for Mr. Nasca, Mr. Connerton, and Mr. Miller respectively; the $16,929 cost of Mr. Miller’s use of a Company owned automobile; club dues for Mr. Nasca of $14,252; the Company’s contribution to the EIRP for Mr. Connerton of $13,229; the economic benefit of an endorsement split-dollar life insurance policy held by the Bank; dividends paid on unvested restricted stock awards; auto allowances for Mr. Nasca and Mr. Connerton; and club dues for Mr. Miller. Other than the items for which specified dollar amounts were provided, none of the items specified in this footnote (8) exceeded $10,000 for any individual NEO.    







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Grants of Plan-Based Awards.  The following table reflects the terms of the compensation plan-based awards granted to Named Executive Officers in 2017.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan Based Awards



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

Grant Date

 

Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1)

 

All Other Stock Awards: Number of Shares of Stock or Units

 

All Other Option Awards: Number of Securities Underlying Options

 

Exercise or Base Price of Option Awards (per share)
(2)

 

Grant Date Fair Value of Stock and Option Awards
(3)



 

 

 

 

Threshold

 

 

Target

 

 

Stretch

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David Nasca

 

3/22/2017

 

$

69,000 

 

$

138,000 

 

$

207,000 

 

2,020 

 

4,150 

 

$

39.50 

 

$

106,392 

John Connerton

 

3/22/2017

 

$

24,000 

 

$

48,001 

 

$

72,001 

 

730 

 

1,500 

 

$

39.50 

 

$

38,450 

Robert Miller, Jr.      

 

3/22/2017

 

$

32,622 

 

$

65,245 

 

$

97,867 

 

1,060 

 

2,170 

 

$

39.50 

 

$

55,780 



(1)  Values reflect possible payouts assuming both Company and individual performance at the specified levels under the Evans Excels Plan. As discussed above under “Compensation Discussion and Analysis – Executive Total Compensation – Short-Term Cash Incentive Compensation,” although the maximum, or “stretch”, level of Company performance under the Evans Excels Plan for 2017 was not met as a result of the impact of the enactment of the TCJA in December 2017, the Committee exercised its discretion to ratify payouts at “stretch level to all of the NEOs.   Individual performance levels and results achieved are specified in the table included in that section, and actual amounts paid to the NEOs for 2017 are included in the Summary Compensation Table, above.



(2) Reflects the exercise price for the options granted, which was the closing market price for the Company’s common stock on the grant date.



(3) Reflects full grant date fair value in accordance with FASB ASC Topic 718 of the stock and options granted.  For additional information as to the assumptions made in valuation, see Note 12 to the financial statements filed with the SEC in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.



The option and restricted stock awards in 2017 were granted under the Company’s 2009 Long-Term Equity Incentive Plan. 25% of the options and restricted stock granted will vest each year on the anniversary of the grant date, subject to acceleration of vesting upon the individual’s death, disability, retirement, or involuntary termination in connection with a change in control.  The awards shown in the table above will be fully vested in 2021.  Dividends are paid on unvested stock awards when and as declared by the Board of Directors.



Employment Agreements with our NEOs



We have historically entered into employment contracts with our NEOs.  Currently, only Mr. Nasca, our CEO, has an employment contract.  Mr. Miller and Mr. Connerton are currently employed on an “at will” basis. 



The material terms of Mr. Nasca’s employment contract are as follows:



David J. Nasca - Employment Agreement, by and among Mr. Nasca, the Company and the Bank, pursuant to which Mr. Nasca serves as the President and Chief Executive Officer of the Company and the Bank.  Subject to prior termination, the term of Mr. Nasca's employment is for a three year term, which is renewed daily until his 62nd birthday (October 27, 2019), at which time the contract will have a remaining and declining three year term.  Automatic daily renewal will cease if the Bank gives Mr. Nasca written notice of non-renewal, in which case Mr. Nasca’s employment will end 36 months after the date of the non-renewal notice, unless the parties agree to a shorter period.  Mr. Nasca’s employment agreement provides for an initial base salary, which is adjusted annually by the Board of Directors of Evans Bank, N.A., provided, however, that Mr. Nasca’s annual salary may not be decreased.  Mr. Nasca is entitled to participate in all Company and Bank cash and equity incentive programs made available to senior executives, as well as all employee benefit plans, programs, and arrangements for which he qualifies.  He is entitled to four weeks paid vacation each year, plus five personal days and customary bank holidays.  The Bank provides Mr. Nasca with a monthly automobile allowance of $750 and reimburses him for reasonable club dues and certain other expenses he incurs in the performance of his duties under the agreement. 

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In the event Mr. Nasca's employment is terminated:



by the Company or the Bank without “cause” or by Mr. Nasca for “good reason,” or under certain circumstances within one year following a “change in control” of the Company, he will be paid three times the sum of the highest base salary paid to him at any time under the employment agreement plus the average annual non-equity incentive bonus paid to Mr. Nasca in the three years prior to termination.  The Company will also continue to provide amounts or benefits payable under applicable benefit plans for 36 months;



because of death, his estate will be paid a lump sum amount equal to two times Mr. Nasca’s then annual base salary, as well as any amounts or benefits payable under applicable benefit plans, but subject to offset for any payment due Mr. Nasca under any life insurance plan maintained by the Company or the Bank;



because of “disability,” (i) Mr. Nasca will be entitled to participate in the short- and long-term disability plans and benefits offered by the Bank to senior executives, including long-term disability income replacement benefits and supplemental retirement benefits under a long-term disability program; and (ii) the Bank will continue to provide Mr. Nasca with certain life and medical insurance benefits under the same cost-sharing arrangement as in effect for active employees until Mr. Nasca’s (A) full-time employment by another employer, (B) attaining age 65, or (C) death;



by the Company or the Bank for “cause” or by Mr. Nasca other than for “good reason,” Mr. Nasca will not be entitled to payment of any amounts or benefits, other than that portion of his annual salary accrued through the date of termination and any accrued and unpaid vacation.



The Company's or the Bank's obligation to make such payments to Mr. Nasca are conditioned upon Mr. Nasca's compliance with his obligations of confidentiality, non-competition and  non-solicitation set forth in his employment agreement.



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Potential Payments Upon Termination or Change-in-Control.  The following table shows the potential incremental value transfer to each NEO under various termination or change-in-control scenarios as of December 31, 2017, the last business day of fiscal 2017.  Unvested, unexercised stock options and unvested restricted stock awards are valued at the closing market price of the Company’s common stock on that date.  The actual amounts to be paid out can only be determined at the time of such NEO's separation from the Company.







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Event

 

David Nasca

 

John Connerton

 

Robert Miller, Jr.



 

 

 

 

 

 

 

 

 

Retirement or Voluntary Termination Without "Good Reason" (1)

 

$

728,778 

 

$

119,482 

 

$

1,964,999 



 

 

 

 

 

 

 

 

 

Termination for "Cause" (1)

 

$

728,778 

 

$

119,482 

 

$

1,964,999 



 

 

 

 

 

 

 

 

 

Termination Without "Cause" or for "Good Reason" (2)(5)

 

$

2,622,624 

 

$

367,485 

 

$

2,302,098 



 

 

 

 

 

 

 

 

 

"Change in Control" Termination (3)(5)

 

$

3,793,879 

 

$

817,509 

 

$

2,778,919 



 

 

 

 

 

 

 

 

 

Death or Disability (4)(5)

 

$

2,542,130 

 

$

672,120 

 

$

2,778,919 



(1) With respect to Mr. Nasca, reflects Senior Executive SERP actuarial present value of accumulated benefit obligation as of 12/31/17 less 6% for each year under age 62 and proportionately reduced for each year of service under 15 years.



With respect to Mr. Connerton, reflects Defined Benefit Pension Plan (“Pension Plan”) actuarial present value of the accumulated benefit obligation as of 12/31/2017 and actuarial present value under the Executive Incentive Retirement Plan (“EIRP”) based on current vested benefit.



With respect to Mr. Miller, reflects Pension Plan and Legacy SERP actuarial present value of the accumulated benefit obligation as of 12/31/17.



(2) With respect to Mr. Nasca, reflects (a) lump sum employment contract payout, (b) estimated value of healthcare benefits for 36 months, and (c) Senior Executive SERP actuarial present value of the accumulated benefit obligation as of 12/31/2017 less 6% for each year under age 62 and proportionately reduced for each year of service under 15 years



With respect to Mr. Connerton, reflects (a) lump sum Executive Severance Plan payout, (b) Pension Plan  actuarial present value of the accumulated benefit obligation as of 12/31/2017 and (c) EIRP actuarial present value of the accumulated benefit obligation as of 12/31/2017 based on current vested benefit.



With respect to Mr. Miller, reflects (a) lump sum Executive Severance Agreement payout, and (b) Pension Plan and Legacy SERP actuarial present value of the accumulated benefit obligation as of 12/31/2017.



(3)  With respect to Mr. Nasca, reflects (a) lump sum employment contract payout, (b) estimated value of healthcare benefits for 36 months, (c) Senior Executive SERP actuarial calculated as the projected benefit obligation and (d) intrinsic value of stock awards and option awards that provide for accelerated vesting upon termination for the stated reason.



With respect to Mr. Connerton, reflects (a) lump sum change in control agreement payout, (b) EIRP payout, including the present value of expected benefits through age 65, (c) Pension Plan actuarial present value of the accumulated benefit obligation as of 12/31/2017  and (d) intrinsic value of stock awards and option awards that provide for accelerated vesting upon termination for the stated reason. 



With respect to Mr. Miller, reflects (a) lump sum change in control agreement payout, (b) Legacy SERP payout calculated as the accumulated benefit obligation, assuming payment in a single lump sum regardless of individual elections to receive payment over time, (c) Pension Plan actuarial present value of the accumulated benefit obligation as of 12/31/2017, and (d) intrinsic value of stock awards and option awards that provide for accelerated vesting upon termination for the stated reason.



(4)  With respect to Mr. Nasca, reflects (a) Executive Life Insurance Plan lump sum death benefit, (b) estimated value of healthcare benefits for 24 months, (c) Senior Executive SERP lump sum payout calculated as the accumulated benefit obligation, and (d) intrinsic value of stock awards and option awards that provide for accelerated vesting upon termination for the stated reason. 



With respect to Mr. Connerton, reflects (a) Executive Life Insurance Plan lump sum death benefit, (b) EIRP actuarial present value of the accumulated benefit obligation as of 12/31/2017 based on current vested benefit, (c) Pension Plan  actuarial present value of the accumulated benefit obligation as of 12/31/2017 and (d) intrinsic value of stock awards and option awards that provide for accelerated vesting upon termination for the stated reason.



With respect to Mr. Miller, reflects (a) Executive Life Insurance Plan lump sum death benefit, (b) Legacy SERP payout calculated as the accumulated benefit obligation, assuming payment in a single lump sum regardless of individual elections to receive payment over time, (c) Pension Plan  actuarial present value of the accumulated benefit obligation as of 12/31/2017 and (d) intrinsic value of stock awards and option awards that provide for accelerated vesting upon termination for the stated reason.



(5)  Payment may be postponed for a six month period to avoid application of Section 409A of the Internal Revenue Code.

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All post-termination payments under Mr. Nasca’s employment contract are linked to two-year confidentiality, non-competition and non-solicitation obligations.  Payments under the change in control agreements with Mr. Miller and Mr. Connerton are linked to one-year confidentiality, non-competition and non-solicitation obligations.  The events that constitute “cause,” “good reason,” “disability” and “change in control” are described in the employment contract or change in control agreement with each NEO.  Accelerated vesting of stock options and restricted stock awards assumes the awards are not converted into comparable awards with respect to voting securities of the surviving or acquiring entity upon a change in control of the Company, in accordance with the terms of the 2009 Long-Term Equity Incentive Plan.



Outstanding Equity Awards at Fiscal Year-End. The following table provides information about unexercised stock options and unvested restricted stock outstanding for the Named Executive Officers as of December 31, 2017.  







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Option Awards

 

Stock Awards

Name

 

Number of Securities Underlying Unexercised Options (#) Exercisable

 

Number of Securities Underlying Unexercised Options (#) Unexercisable
(#) (1)

 

Option Exercise Price

 

Option Expiration Date

 

Number of Shares or Units of Stock that Have Not Vested
(#) (1)

 

Market Value of Shares or Units of Stock that Have Not Vested
(2)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

David Nasca

 

-    

 

4,150 

 

$

39.50 

 

3/22/2027

 

2,020 

 

$

84,638 



 

2,075 

 

6,225 

 

 

25.00 

 

3/16/2026

 

2,280 

 

 

95,532 



 

3,360 

 

3,360 

 

 

24.72 

 

3/17/2025

 

1,425 

 

 

59,708 



 

3,502 

 

1,168 

 

 

22.93 

 

4/24/2024

 

568 

 

 

23,799 



 

6,100 

 

-    

 

 

17.64 

 

3/19/2023

 

-    

 

 

-    



 

10,380 

 

-    

 

 

15.50 

 

5/4/2022

 

-