svbi06proxy
SCHEDULE
14A INFORMATION
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 the Registrant [ ]
Check
the
appropriate box:
[ ] Preliminary
Proxy Statement [ ] Confidential,
for Use of the Commission
Only
(as
permitted by Rule 14a-6(e)(2))
[X] Definitive
Proxy Statement
[ ] Definitive
Additional Materials
[ ] Soliciting
Material Pursuant to 240.14a-11(c) or 240.14a-12
SEVERN
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):
[X] No
fee required.
[ ] Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) 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):
(4) Proposed
maximum aggregate value of transaction:
(5) Total
fee paid:
[ ] 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 previously. Identify
the previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1)
Amount Previously Paid:
(2) Form,
Schedule or Registration Statement No.:
(3) Filing
Party:
(4)
Date
Filed:
Severn
Bancorp, Inc.
200
Westgate Circle, Suite 200, Annapolis, Maryland 21401
March
21,
2007
To
the Shareholders of Severn Bancorp, Inc.:
You
are
cordially invited to attend the Annual Meeting of shareholders of Severn
Bancorp, Inc. to be held on Wednesday, April 25, 2007, at 7:30 p.m. Eastern
Time, at The Doubletree Hotel, 210 Holiday Court, Annapolis, MD
21401.
At
the
Annual Meeting, you will be asked to elect three directors, each to serve for
a
three-year term, ratify the appointment of Beard Miller Company LLP as
independent auditor of Severn Bancorp, Inc., and transact such other business
as
may properly come before the Annual Meeting or any adjournments
thereof.
The
Board
of Directors unanimously recommends that you vote FOR the election of all three
of the Board's nominees for election as directors and FOR the ratification
of
Beard Miller Company LLP as independent auditor for Severn Bancorp, Inc. We
encourage you to read the accompanying Proxy Statement, which provides
information about Severn Bancorp, Inc. and the matters to be considered at
the
Annual Meeting.
It
is important that your shares be represented at the Annual Meeting. Whether
or
not you plan to attend the Annual Meeting, you are requested to complete, date,
sign and return the enclosed proxy card in the enclosed postage paid envelope.
Any proxy given may be revoked by you in writing or in person at any time prior
to its exercise.
Sincerely,
/s/
Alan
J.
Hyatt
Chairman,
President and
Chief Executive Officer
SEVERN
BANCORP, INC.
200
Westgate Circle, Suite 200
Annapolis,
Maryland 21401
(410)
260-2000
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO
BE HELD ON
April
25, 2007
NOTICE
IS
HEREBY GIVEN that the Annual Meeting of Shareholders of Severn Bancorp, Inc.
will be held at The Doubletree Hotel, 210 Holiday Court, Annapolis, Maryland
21401 on Wednesday, April 25, 2007, at 7:30 p.m., Eastern Time, and at any
adjournments thereof, for the following purposes, all of which are more
completely set forth in the accompanying Proxy Statement:
1. To
elect
Melvin Hyatt, S. Scott Kirkley, and Albert W. Shields to serve as directors
for
a three-year term;
2. To
ratify
the appointment of Beard Miller Company LLP as independent auditor for Severn
Bancorp, Inc. for the year ending December 31, 2007; and
3. To
transact such other business as may properly come before the Annual Meeting
and
any postponements or adjournments of the meeting.
Except
for
procedural matters, the Board of Directors is not aware of any other matters
that may come before the Annual Meeting and any adjournments of the
meeting.
Shareholders
of record at the close of business on March 9, 2007 are entitled to notice
of
and to vote at the Annual Meeting and at any adjournments of the
meeting.
By
Order
of the Board of Directors
/s/
S.
Scott
Kirkley
Secretary
Annapolis,
Maryland
March
21,
2007
IT
IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN.
EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD PROMPTLY IN THE ENVELOPE PROVIDED. ANY PROXY GIVEN
MAY
BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO ITS
EXERCISE.
PROXY
STATEMENT
FOR
SEVERN
BANCORP, INC.
200
WESTGATE CIRCLE, SUITE 200
ANNAPOLIS,
MARYLAND 21401
(410)
260-2000
This
proxy statement contains information about the annual meeting of shareholders
of
Severn Bancorp, Inc. to be held on Wednesday, April 25, 2007, at 7:30 p.m.
Eastern Time at The Doubletree Hotel, 210 Holiday Court, Annapolis, Maryland
21401, and at any postponements or adjournments of the
meeting.
INFORMATION
ABOUT THE ANNUAL MEETING AND VOTING
Why
did you send me this proxy statement?
We
sent
you this Proxy Statement and the enclosed proxy card because you were a
shareholder of Severn Bancorp, Inc. (the “Company”) on March 9, 2007, the record
date for the Annual Meeting. Our Board of Directors chose this day as the record
date for shareholders entitled to vote at the Annual Meeting of Shareholders.
The Board of Directors is soliciting your proxy to be voted at the Annual
Meeting of Shareholders.
This
Proxy Statement summarizes the information you need to know to cast an informed
vote at the meeting. However, you do not need to attend the meeting to vote
your
shares. Instead, you may simply complete, sign and return the enclosed proxy
card.
We
began
sending this Proxy Statement, Notice of Annual Meeting and the enclosed proxy
card on or about March 21, 2007 to all shareholders entitled to vote. On March
9, 2007, the record date for the Annual Meeting, there were 9,150,850 shares
of
our common stock issued and outstanding. The common stock is our only class
of
stock outstanding. Our Annual Report/Form 10-K for the fiscal year ended
December 31, 2006 accompanies this Proxy Statement. The Annual Report/Form
10-K
is not to be deemed a part of the material for the solicitation of
proxies.
How
do I vote by proxy?
You
vote
your proxy by completing the enclosed proxy card in accordance with its
instructions, signing and dating the proxy card and returning it in the
postage-paid envelope. You may also just sign and date your proxy card and
return it. Your vote is important. Whether
you plan to attend the meeting or not, we urge you to complete, sign and date
the enclosed proxy card and to return it promptly in the envelope provided.
Returning the proxy card will not affect your right to attend the meeting and
vote.
If
you
properly fill in your proxy card and send it to us in time to vote, your "proxy"
(one of the individuals named on your proxy card) will vote your shares as
you
have directed. If you sign the proxy card but do not make specific choices,
your
proxy will vote your shares as recommended by the Board of Directors as
follows:
• "FOR"
the
election of all three nominees for director, and
• "FOR"
ratification of the appointment of Beard Miller Company LLP as independent
auditor for the year ending December 31, 2007.
In
addition, the proxy card confers authority on the proxy named in the proxy
card
to vote with respect to:
| 1. |
The
election of any person as a director should the nominee be unable
to serve
or, for good cause, will not serve;
|
| 2. |
Other
proposals for which management did not have notice by February 6,
2007;
and
|
| 3. |
Matters
incidental to the conduct of the
meeting.
|
On
these
other matters, your proxy will vote in accordance with the recommendation of
the
Board of Directors, or, if no recommendation is given, in their own discretion.
At the time this Proxy Statement was mailed, we knew of no matters that needed
to be acted upon at the meeting, other than those discussed in this Proxy
Statement.
How
many votes do I have?
The
number of votes you have is dependent on the number of shares of common stock
you own. Each share of common stock entitles you to one vote. The proxy card
indicates the number of shares of common stock that you own.
Can
I change my vote after I return my proxy card?
Yes.
Even
after you have submitted your proxy, you may change your vote at any time before
the proxy is exercised if you file with the Secretary of the Company either
a
notice of revocation or a duly executed proxy bearing a later date. You may
also
revoke the proxy if you attend the meeting in person and so request. Attendance
at the meeting will not by itself revoke a previously granted
proxy.
How
do I vote in person?
If
you
plan to attend the meeting and vote in person, we will give you a ballot form
when you arrive. However, if your shares are held in the name of your broker,
bank, or other nominee, you must bring a proxy card and letter from the nominee
authorizing you to vote the shares and indicating that you were the beneficial
owner of the shares on March 9, 2007, the record date for voting.
What
constitutes a quorum?
The
presence at the meeting, in person or by proxy, of the holders of a majority
of
the shares of common stock outstanding on the record date will constitute a
quorum, permitting the conduct of business at the meeting. Proxies that are
marked as abstentions will be included in the calculation of the number of
shares considered to be present at the meeting.
What
vote is required for each proposal?
The
three
nominees for director who receive the most votes at the meeting will be elected.
If you do not vote for a particular nominee or you indicate "withhold authority
to vote" for a particular nominee on your proxy card, your vote will not count
either "for" or "against" the nominee.
In
order
to ratify the selection of the independent auditor, the auditor must receive
the
affirmative vote of a majority of the votes cast at the meeting. As a result,
if
you "abstain" from voting, it will have no effect on the results of the
vote.
In
order
to approve any other matters that may properly come before the meeting,
generally, a majority of those votes cast by stockholders will be sufficient
to
approve on the matter. However, there may be occasions where a greater vote
is
required by law, or by our Articles of Incorporation or Bylaws.
Who
will bear the costs of solicitation of proxies?
We
will
bear the costs of this solicitation, including the expense of preparing,
assembling, printing and mailing this Proxy Statement and the material used
in
this solicitation of proxies. The proxies will be solicited principally through
the mails, but directors, officers and regular employees of the Company may
solicit proxies personally or by telephone. Although there is no formal
agreement to do so, we may reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expense in forwarding
these proxy materials to their principals. In addition, we may pay for and
utilize the services of individuals or companies we do not regularly employ
in
connection with the solicitation of proxies.
STOCK
OWNERSHIP
Who
are the largest owners of Severn Bancorp’s common stock?
Persons
and groups owning in excess of 5% of the common stock are required to file
reports with the Securities and Exchange Commission regarding their ownership
pursuant to the Securities Exchange Act of 1934. Except as set forth in the
following tables, we know of no person or entity, including any group of
persons, who or which is the beneficial owner of more than 5% of the outstanding
shares of common stock on the record date. "Beneficial ownership" is a technical
term broadly defined by the Securities and Exchange Commission to mean more
than
ownership in the usual sense. So, for example, you beneficially own common
stock
not only if you hold it directly, but also if you hold it indirectly or, through
a relationship, contract, or understanding, have, or share, the power to vote
the stock or to sell it, or you have the right to acquire it within 60 days
of
the record date.
How
much stock do Severn Bancorp’s directors and officers own?
The
following table shows the beneficial ownership of the Company's common stock
as
of March 9, 2007 by (i) each director and nominee for director; (ii) our
President and Chief Executive Officer, Chief Financial Officer, and our other
most highly compensated executive officers in 2006; and (iii) by all directors
and executive officers as a group.
The
securities “beneficially owned” by a person are determined in accordance with
the definition of “beneficial ownership” set forth in the regulations of the SEC
and, accordingly, include securities as to which the person has or shares voting
or investment power. Shares of Common Stock which a person has the right to
acquire within 60 days after March 9, 2007, the record date, are deemed
outstanding for computing the share ownership and percentage ownership of the
person having such right, but are not deemed outstanding for computing the
percentage of any other person. The same shares may be beneficially owned by
more than one person. Beneficial ownership may be disclaimed as to certain
of
the securities.
|
Name
of Individual
|
Amount
and
Nature
of
Beneficial
Ownership
|
Percent
of Class
|
|
Nominees
for Director:
|
|
|
|
Melvin
Hyatt
|
179,5461
|
1.96%
|
|
S.
Scott Kirkley
|
385,7102
|
4.21%
|
|
Albert
W. Shields
|
71,4973
|
0.78%
|
|
Directors
Continuing in Office:
|
|
|
|
Louis
DiPasquale, Jr.
|
207,9884
|
2.27%
|
|
Alan
J. Hyatt
|
1,438,9625
|
15.72%
|
|
Melvin
E. Meekins, Jr.
|
532,6806
|
5.82%
|
|
Ronald
P. Pennington
|
127,2707
|
1.39%
|
|
T.
Theodore Schultz
|
56,1708
|
0.61%
|
|
Keith
Stock
|
116,2609
|
1.25%
|
|
Other
Executive Officer:
|
|
|
|
Thomas
G. Bevivino
|
3,93610
|
0.04%
|
|
All
directors and executive officers as a group (10 persons)
|
3,120,01911
|
34.01%
|
1 141,596
of such shares are owned by Mr. Melvin Hyatt. 36,300
of such shares are owned by Mr. Melvin Hyatt and his wife. 1,650 of such shares
relate to exercisable options granted to Mr. Melvin Hyatt. Mr. Melvin Hyatt
is
the uncle of Alan J. Hyatt.
2 20,317
of such shares are owned by Mr. Kirkley.
288,585 of such shares are owned by Mr. Kirkley and his wife. 73,508 of
such
shares are allocated to Mr. Kirkley as a participant in the Company’s Employee
Stock Ownership Plan (“ESOP”). 3,300 of such shares relate to exercisable
options granted to Mr. Kirkley.
31,650
of such shares relate to exercisable options
granted to Mr. Shields.
4 71,302
of such shares are owned by Mr.
DiPasquale. 135,036 of such shares are owned by Mr. DiPasquale for the
benefit
of his children. 1,650 of such shares relate to exercisable options granted
to
Mr. DiPasquale.
5 76,670
of such shares are owned by Mr. Alan
Hyatt. 1,225,059 of such shares are owned by Mr. Alan Hyatt and his wife,
Sharon
G. Hyatt. Mr. Alan Hyatt controls 21,120 shares as custodian for his children.
105,778 of such shares are allocated to Mr. Alan Hyatt as a participant
in the
Company’s ESOP. 3,300 of such shares relate to exercisable options granted to
Mr. Alan Hyatt. 7,035 of such shares are owned by Mrs. Sharon Hyatt.
6 98,555
of such shares are owned by Mr. Meekins.
320,900 of such shares are owned by Mr. Meekins and his wife. 109,925 of
such
shares are allocated to Mr. Meekins as a participant in the Company’s ESOP.
3,300 of such shares relate to exercisable options granted to Mr. Meekins.
7 125,620
of such shares are owned by Mr.
Pennington and his wife. 1,650 of such shares relate to exercisable options
granted to Mr. Pennington.
8 38,020
of such shares are owned by Mr. Schultz.
16,500 of such shares are owned by Mr. Schultz and his wife. 1,650 of such
shares relate to exercisable options granted to Mr. Schultz.
9 48,610
of such shares are owned by Mr. Stock.
66,000 shares are held by First Financial Partners, Inc., a private investment
company of which Mr. Stock serves as Chairman. 1,650 of such shares relate
to
exercisable options granted to Mr. Stock.
10 176
of such shares are held by Mr. Bevivino and
his wife. 460 of such shares are allocated to Mr. Bevivino as a participant
in
the Company’s ESOP. 3,300 of such shares relate to exercisable options granted
to Mr. Bevivino.
11 Includes
a total of 289,671 shares of stock
allocated to the executive officers as participants in the Company’s ESOP and a
total of 23,100 shares relating to options granted to directors and executive
officers of the Company.
PRINCIPAL
SHAREHOLDERS
The
following table presents information regarding the beneficial ownership of
Common Stock as of March 9, 2007 by each person known to be the beneficial
owner
of more than 5% of the outstanding Common Stock of the Company.
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of Class
|
| |
|
|
|
Alan
J. Hyatt12
|
1,438,962
|
15.72%
|
|
Sharon
G. Hyatt
200
Westgate Circle, Suite 200
|
|
|
|
Annapolis,
Maryland 21401
|
|
|
| |
|
|
|
Louis
Hyatt 13
|
950,867
|
10.39%
|
|
200
Westgate Circle, Suite 200
|
|
|
|
Annapolis,
Maryland 21401
|
|
|
| |
|
|
|
Melvin
E. Meekins, Jr. 14
|
532,680
|
5.82%
|
|
200
Westgate Circle, Suite 200
|
|
|
|
Annapolis,
Maryland 21401
|
|
|
12 76,670
of such shares are owned by Mr. Alan Hyatt. 1,225,059 of such shares are
owned
by Mr. Alan Hyatt and his wife, Sharon G. Hyatt. Mr. Alan Hyatt controls
21,120
shares as custodian for his children. 105,778 of such shares are allocated
to
Mr. Alan Hyatt as a participant in the Company’s (‘ESOP’). 3,300 of such shares
relate to exercisable options granted to Mr. Alan Hyatt. 7,035 of such shares
are owned by Mrs. Sharon Hyatt.
13 901,362
of such shares are owned by Mr. Louis Hyatt. 47,718 of such shares are
owned by
Mr. Louis Hyatt and his wife. 1,787 of such shares are allocated to Mr.
Louis
Hyatt as a participant in the Company’s ESOP. Louis Hyatt is the father of Alan
J. Hyatt.
14 98,555
of such shares are owned by Mr. Meekins. 320,900 of such shares are owned
by Mr.
Meekins and his wife. 109,925 of such shares are allocated to Mr. Meekins
as a
participant in the Company’s ESOP. 3,300 of such shares relate to exercisable
options granted to Mr. Meekins.
DISCUSSION
OF PROPOSALS RECOMMENDED BY THE BOARD
Proposal
1: Election of Directors
General. Our
Board of Directors consists of nine members divided into three classes as nearly
equal in number as possible. The members of each class are elected for a term
of
three years and until their successors are elected and qualified. One class
is
elected annually. We have nominated three directors for election at the annual
meeting, which is the number of directorships fixed for the election of
directors.
We
have
nominated the persons named below, all of whom are present members of the Board
of Directors of the Company, for election to serve until the 2010 annual meeting
of shareholders:
|
Name
of Individual
|
Age15
|
Principal
Occupation for Last Five Years
|
| |
|
|
|
Melvin
Hyatt
|
74
|
Melvin
Hyatt
has been a director of the Company since its inception and a director
of
Severn Savings Bank, FSB (the “Bank”) since 1978. He is a retired
restaurant owner and was formerly employed by the Housing Authority
of the
City of Annapolis, Maryland. Mr. Hyatt is the uncle of Alan J. Hyatt
and
the brother of Louis Hyatt.
|
|
S. Scott Kirkley
|
54
|
S.
Scott Kirkley
has been a director and Secretary/Treasurer of the Bank since 1980,
Senior
Vice President from 1989 to 2006, and now serves as Executive Vice
President. He has served in the same capacities for the Company since
1990. Mr. Kirkley has been employed by the Bank on a full-time basis
since
1987 and has primary responsibility for the Bank’s residential loan
operations.
|
|
Albert
W. Shields
|
62
|
Albert
W. Shields
was elected as a director of the Company and the Bank in December
2003. He
is presently the Vice President of Sales for the Northeast Region
of HD
Builder Solutions Group. He was the Chief Executive Officer of Floors,
Inc. from 1986 until 2002 when the company was sold to The Home Depot.
Mr.
Shields has been involved in the real estate and development market,
and
the building supply industry for the past 35 years.
|
Directors
Continuing in Office. The
directors continuing in office whose terms will expire at the 2008 annual
meeting of shareholders are:
|
Name
of Individual
|
Age15
|
Principal
Occupation for Last Five Years
|
| |
|
|
|
Ronald
P. Pennington
|
67
|
Ronald P.
Pennington
has been a director of the Company since its inception and a director
of
the Bank since 1980. Mr. Pennington has owned and operated an independent
tool distributorship since 1985, and now is a retired investor.
|
|
T. Theodore Schultz
|
67
|
T.
Theodore Schultz
has been a director of the Company since its inception and a director
of
the Bank since 1986. Mr. Schultz is self-employed and owns Schultz
and
Company, Inc. He is an enrolled agent, accredited tax advisor with
an
accounting and tax practice in the Annapolis, Maryland area since
1971.
|
15
As of December 31, 2006
Directors
Continuing in Office. The
directors continuing in office whose terms will expire at the 2009 annual
meeting of shareholders are:
|
Name
of Individual
|
Age15 |
Principal
Occupation for Last Five Years
|
|
Alan
J. Hyatt
|
52
|
Alan
J. Hyatt
has been Chairman of the Board and President of the Bank since 1982,
having previously served as an officer and director since 1978. He
has
also served as the Chairman of the Board and President of the Company
since 1990. Mr. Hyatt has been a partner in the law firm of Hyatt
&
Weber, P.A., in Annapolis, Maryland since 1978, and is a real estate
broker with Arundel Realty Services, LLC, also in Annapolis, Maryland.
Mr.
Hyatt spends approximately 50% of his professional time on the affairs
of
the Bank and the Company and the balance on his law
practice.
|
|
Melvin
E. Meekins, Jr.
|
65
|
Melvin
E. Meekins, Jr.
joined the Bank as a director and Executive Vice President in April
1983,
and he serves in the same capacity for the Company. Mr. Meekins is
the
Bank’s Principal Operating Officer. Mr. Meekins has been employed in the
savings and loan industry since 1962.
|
|
Louis
DiPasquale, Jr.
|
84
|
Louis
DiPasquale, Jr.
has been a director since the inception of the Company and the Bank
in
1946. Mr. DiPasquale has been the owner/operator of the Motel Carlton
in
Baltimore, Maryland since 1964. Mr. DiPasquale served as
Secretary/Treasurer of the Bank from 1964 to 1978.
|
|
Keith
Stock
|
54
|
Keith
Stock served
as a Director of the Bank and the Company from April 1990 to December
1993, and was re-elected in 2003. Mr.
Stock has served as President of MasterCard Advisors, LLC, a MasterCard
International business since 2004. Previously he served in management
positions with consulting firms CapGemini Ernst & Young, AT Kearney
and McKinsey & Co., as well as Chairman and Chief Executive Officer of
First Financial Investors, Inc. and its bank holding company, St.
Louis
Bank, FSB.
|
15
As of December 31, 2006
The
Board of Directors and Committees. Our
Board of Directors generally meets on a monthly basis, or as needed. During
the
year ended December 31, 2006, our Board of Directors met twelve times. No
director attended fewer than 75% in the aggregate of (a) the total number of
board meetings held while the director was a member during the year ended
December 31, 2006 and (b) the total number of meetings held by committees on
which the director served during the year ended December 31, 2006.
It
is the
policy of the Board of Directors to encourage directors to attend each annual
meeting of shareholders. Such attendance allows for direct interaction between
shareholders and members of the Board of Directors. All the directors except
Mr.
Schultz attended the 2006 Annual Meeting of Shareholders.
Director
Independence.
The
Board of Directors examines the independence of our directors on an annual
basis
in both fact and appearance to promote arms-length oversight. Based upon the
definition of an “independent director” under Rule 4200 of the Nasdaq
marketplace Rules, the Board of Directors has determined that the Company has
a
majority of “independent” directors that comprise its Board as required by the
corporate governance rules of Nasdaq. Independent directors as of December
31,
2006 consisted of: Louis DiPasquale, Jr., Melvin Hyatt, Ronald Pennington,
T.
Theodore Schultz, Albert W. Shields and Keith Stock. The Board believes that
these directors are independent because
they are not executive officers or employees of the Company and otherwise
satisfy all of the Nasdaq independence requirements and, in the opinion of
the
Board of Directors, are not individuals having a relationship which will
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. In determining independence, the Board
considered that Mr. Melvin Hyatt is the uncle of Alan J. Hyatt, and the brother
of Louis Hyatt; however, the Board concluded that Mr. Melvin Hyatt was
independent because he abstains from voting on matters involving Alan J. Hyatt
or Louis Hyatt.
Corporate
Governance Committee
On
March
16, 2004, the Board of Directors adopted a Corporate Governance Committee
Charter. The Company’s Corporate Governance Committee is comprised of at least
three members, each appointed by the Board of Directors, and is responsible
for
developing a set of corporate governance policies for the Company. The Bank’s
Corporate Governance Committee consists of Louis DiPasquale, Jr.; Ronald
Pennington; T. Theodore Schultz; Albert W. Shields; and Keith Stock. The
Corporate Governance Committee met one time in 2006. Beginning in 2007, the
committee, in addition to setting corporate governance policies of the Company,
will be responsible for establishing criteria for selecting new directors,
and
identifying, screening and recruiting new directors. In addition, the committee
will select members for the various Board of Director committees, determine
director and committee member compensation and consider the establishment of
a
process for shareholders to submit recommendations of director candidates and
to
communicate with the Board.
Nominating
Committee
The
Company’s nominating committee consists of the full Board of Directors, however,
only the independent directors may vote on nominations. A director is
“independent” as defined under Rule 4200 of the Nasdaq Marketplace Rules. The
Board has determined that the following directors are independent: Louis
DiPasquale, Jr.; Melvin Hyatt; Ronald Pennington; T. Theodore Schultz; Albert
W.
Shields; and Keith Stock. While the nominating committee will consider nominees
recommended by shareholders, it has not actively solicited recommendations
from
shareholders for nominees nor established any procedures for this purpose,
other
than the procedures contained in the Bylaws concerning nominations of candidates
by shareholders. The Company’s Bylaws provide that if a shareholder wishes to
submit nominations for directors, it should be done in writing and sent to
the
Secretary of the Company at least 60 days prior to the Annual Meeting of
Shareholders. The Governance Committee intends to consider whether policies
and
procedures for shareholder nominations are necessary beyond those set forth
in
the Bylaws. Our Board in its capacity as the nominating committee met one time
during 2006. This year’s nominees were selected by the full Board and approved
by the independent directors after evaluating each nominee’s
general business acumen, the nominee’s knowledge of the Company and its business
activities. In addition to the aforementioned criteria, the Board considers
the
investment in the Company made by the nominee as demonstrated by the number
of
shares owned by each such nominee. The Board’s process for identifying and
evaluating director nominees relates to the general business acumen and
knowledge of the Company and its business activities. Board membership longevity
is also evaluated when considering the nomination of current Board members.
There was no third party paid to identify or assist in finding candidates for
the Board of Directors.
Compensation
Committee
The
Company has no compensation committee because the Company has no employees.
The
executive officers of the Company are employed and paid by the Bank. The Bank
has a compensation committee. The primary functions of the Compensation
Committee are to review and refine the Bank’s executive compensation philosophy
and guiding principles to reflect the Company’s mission, values and long-term
strategic objectives and to adopt and administer the Company’s executive
compensation programs in a manner that furthers the Company’s strategic goals
and serves the interests of our shareholders. The role of the Compensation
Committee is described in greater detail under the section entitled
“Compensation Discussion and Analysis”. The Bank’s Compensation Committee
consists of: Louis DiPasquale, Jr.; Melvin Hyatt; Ronald Pennington; T. Theodore
Schultz; Albert W. Shields; and Keith Stock. Each
of
the members of the Bank’s Compensation Committee is independent under the rules
of the Nasdaq Stock Market.
The
Compensation Committee met one time in 2006.
Scope
of Authority of the Compensation Committee.
The
scope of the Compensation Committee’s authority and responsibilities is set
forth in its charter, a copy of which is attached as Appendix A to this proxy
statement. The chairperson, in consultation with other members of the Committee
sets the agenda of each meeting. As provided under the Committee’s charter, the
Committee may delegate its authority to special subcommittees as the Committee
deems appropriate, consistent with the applicable law and Nasdaq listing
standards.
The
Role of Management in Determining or Recommending Executive
Compensation.
As part
of the review process, each executive provides input into the performance of
the
Company and the performance of each executive officer, including himself.
However, no executive officer participates in the Committee’s deliberations or
decisions.
Role
of Compensation Consultants in Determining or Recommending Executive
Compensation.
Under
its charter, the Compensation Committee has authority to retain, at the
Company’s expense, such counsel, consultants, experts and other professionals as
it deems necessary. To date, the Committee has not relied on compensation
consultants. Instead, the Committee performs an informal survey of area
companies and banks and reviews the compensation practices of the surveyed
companies.
Audit
Committee
T.
Theodore Schultz, Chairman, Ronald Pennington, Keith Stock and Albert W. Shields
serve as the Company’s Audit Committee. As of the date of this Proxy Statement,
each of the Audit Committee members is an “independent director” under the rules
of the Nasdaq Stock Market and the applicable SEC rules. The Audit Committee’s
responsibilities are described in a written charter that was adopted by the
Board of Directors of the Company, a copy of which is attached as Appendix
B to
our proxy statement. The Board has determined that Keith Stock is the Audit
Committee’s “financial expert,” as such term is defined by applicable federal
securities laws. The Audit Committee met four times in 2006.
Audit
Committee Report
The
Audit
Committee has reviewed and discussed the Company's audited consolidated
financial statements for the fiscal year ended December 31, 2006 with the
Company's management. The Audit Committee has discussed with Beard Miller
Company LLP, the Company's independent auditors, the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication
with Audit Committees. The
Audit
Committee has received the written disclosures and the letter from Beard Miller
Company LLP required by Independence Standards Board Standard No. 1,
Independence
Discussions with Audit Committees, and
has
discussed with Beard Miller Company LLP the independence of Beard Miller Company
LLP. Based on the review and discussions described in this paragraph, the Audit
Committee recommended to the Company’s Board of Directors that the Company's
audited consolidated financial statements for the fiscal year ended December
31,
2006 be included in the Company's Annual Report on Form 10-K for the fiscal
year
ended December 31, 2006 for filing with the Securities and Exchange
Commission.
Audit
Committee Members:
T.
Theodore Schultz, Chairman
Ronald
Pennington
Albert
W.
Shields
Keith
Stock
Recommendation:
The
Board
recommends a vote “FOR” all three nominees for director.
Proposal
2: Ratification of appointment of independent
auditor.
General
We
have
appointed Beard Miller Company LLP as independent auditor for the year ending
December 31, 2007. If you do not ratify the selection of the independent
auditor, the Audit Committee and the Board will reconsider the appointment.
However, even if you ratify the selection, the Board may still appoint a new
independent auditor at any time during the year if it believes that a change
would be in the best interests of the Company and its shareholders.
Relationship
with Independent Auditors
Beard
Miller Company LLP, who performed audit services for us in 2006, including
an
audit of the consolidated financial statements and services related to filings
with the Securities and Exchange Commission, has served as our accountants
since
2003. Beard Miller Company LLP performed all of its services in 2006 at
customary rates and terms. Representatives of Beard Miller Company LLP will
be
present at the meeting, will be available to respond to your appropriate
questions and will be able to make such statements as they desire.
Audit
Fees.
The
aggregate fees billed by Beard Miller Company LLP for professional services
rendered for the audit of the Company’s annual financial statements for the
fiscal years ended December 31, 2006 and December 31, 2005 and the review of
the
financial statements included in the Company’s Forms 10-Q for fiscal years 2006
and 2005 totaled $163,095 and $94,406, respectively.
Audit-Related
Fees.
There
were no fees billed by Beard Miller Company LLP for assurance and related
services that are reasonably related to the performance of the audit or review
of the Company’s financial statements for the fiscal years ended December 31,
2006 and December 31, 2005 and that are not disclosed in the paragraph captioned
“Audit Fees” above.
Tax
Fees. The
aggregate fees billed by Beard Miller Company LLP for professional services
rendered for tax compliance, tax advice and tax planning for the fiscal years
ended December 31, 2006 and December 31, 2005 were $17,750 and $13,651,
respectively.
All
Other Fees.
There
were no fees billed by Beard Miller Company LLP for products and services,
other
than the services described in the paragraphs “Audit Fees,” “Audit-Related
Fees,” and “Tax Fees” above for the fiscal years ended December 31, 2006 and
December 31, 2005.
Policy
on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent
Auditor
Among
its
other duties, the Audit Committee is responsible for appointing, setting
compensation and overseeing the work of the independent auditor. The Audit
Committee has established a policy regarding pre-approval of all audit and
non-audit services provided by the independent auditor. On an ongoing basis,
management communicates specific projects and categories of service for which
the advance approval of the Audit Committee is requested. The Audit Committee
reviews these requests and advises management if the Committee approves the
engagement of the independent auditor. Pursuant to its pre-approval policies
and
procedures, the Audit Committee approved the foregoing audit and permissible
non-audit services provided by Beard Miller Company LLP in fiscal 2006.
The
Audit
Committee reviews summaries of the services provided by Beard Miller Company
LLP
and the related fees and has considered whether the provision of non-audit
services is compatible with maintaining the independence of Beard Miller Company
LLP.
Recommendation. The
Board of Directors recommends a vote "FOR" the ratification of the selection
of
Beard Miller Company LLP as the independent auditor for the year ending December
31, 2007.
COMPENSATION
DISCUSSION AND ANALYSIS
Background
Because
we do not have any employees, compensation decisions are made by the
Compensation Committee of the Bank’s Board of Directors. The non-employee
directors, consisting of Louis DiPasquale, Jr., Melvin Hyatt, Ronald Pennington,
T. Theodore Schultz, Albert W. Shields and Keith Stock serve as members of
the
Compensation Committee. Melvin Hyatt, a director of the Bank, does not
participate in compensation decisions relating to our Chairman, President and
Chief Executive Officer Alan J. Hyatt, his nephew.
The
Compensation Committee operates under a written charter adopted by the Board
of
Directors. The responsibilities of the Committee include:
| · |
To
adopt, review and refine an executive compensation philosophy and
guiding
principles that reflect the Company’s mission, values and long-term
strategic objectives;
|
| · |
To
administer the Company’s executive compensation programs in a manner that
furthers the Company’s strategic goals and serves the interests of our
shareholders;
|
| · |
To
evaluate and determine the total compensation levels of the chief
executive officer and other executive
officers;
|
| · |
To
make recommendations regarding stock option grants;
and
|
| · |
To
recommend to the Board the compensation arrangements with non-employee
directors.
|
Objectives
of Our Compensation Program
The
primary objectives of the Compensation Committee with respect to executive
compensation are:
| · |
To
attract and retain the best possible executive talent;
|
| · |
To
tie annual and long-term cash and stock incentives to achievement
of
corporate and individual performance objectives;
and
|
| · |
To
align executives' incentives with stockholder value
creation.
|
To
achieve these objectives, the Compensation Committee has implemented and
maintains compensation plans that tie a substantial portion of executives'
overall compensation to the financial performance of the Company. Overall,
the
total compensation opportunity is intended to create an executive compensation
program that is set at the median competitive levels of comparable public
savings and loan companies and when our performance is at a commensurate median
competitive level.
The
Bank’s executive officers have no employment contracts. Annually, the Bank’s
Compensation Committee evaluates profiles of comparable financial institutions
to assure that the compensation to its executive officers is comparable to
its
peer group. Other factors used by the Compensation Committee in determining
compensation for its executive officers include an assessment of the overall
financial condition of the Bank, including an analysis of the Bank’s asset
quality, interest rate risk exposure, capital position, net income and
consistency of earnings. The Bank’s return on average assets and return on
equity are considered and compared to its peer group. In addition, the
Compensation Committee interviews each executive officer individually and
collectively to evaluate performance of the company and the individual executive
officers. This input is used to determine the total compensation package for
each executive officer, and the allocation between the different components
within the compensation package. The complexity of the activities of the
executive officers are considered, and intangible items are considered such
as
the reputation and general standing of the Bank within the community and the
likelihood of continuing successful and profitable results.
Compensation
Components
Compensation
consists of the following components:
Base
Salary. Base
salary is designed to reward the performance of our executive officers in the
daily fulfillment of their responsibilities to us. Base salaries for our
executives are established based on the scope of their responsibilities and
historical compensation levels, taking into account competitive market
compensation paid by other companies for similar positions. Generally, we
believe that executive base salaries should be targeted near the median of
the
range of salaries for executives in similar positions and with similar
responsibilities at comparable companies in line with our compensation
philosophy. Base salaries are reviewed annually, and adjusted from time to
time
to realign salaries with market levels after taking into account individual
responsibilities, performance and experience.
Annual
Bonus. Our
annual bonus plan for our executives provides for a cash bonus, dependent upon
the level of achievement of corporate and personal goals. The Compensation
Committee approves the annual award for the Chief Executive Officer and for
each
other Executive Officer. The annual bonuses are designed to reward executive
officers for achieving our annual corporate financial goals and for achieving
individual annual performance objectives.
Long-Term
Incentive Program. We
believe that long-term performance is achieved through an ownership culture
that
encourages long-term performance by our executive officers through the use
of
stock-based awards. In connection with this, our board of directors has adopted
the Severn Bancorp, Inc. Stock Option and Incentive Plan, which was
ratified by our shareholders at the 1998 annual meeting. The plan is designed
to
advance the interest of the Company through providing our executive officers,
select key employees and directors with the opportunity to acquire shares and
thereby align their interest with those of our shareholders. By encouraging
such
stock ownership, we seek to attract, retain and motivate the best available
personnel for positions of substantial responsibility and to provide additional
incentive to our directors and key employees and to promote the success of
the
business. The plan provides that the exercise price must be the market value
per
share, defined as the average of the highest and lowest selling price of our
stock on the Nasdaq Stock Market on such date, or if there were no sales on
such
date, then the mean between the bid and asked price on such date. Generally,
such options granted become vested and exercisable, on a cumulative basis,
with
respect to 20% of the optioned shares upon each of the first five anniversary
dates of the grant. The awarding to directors of options is not subject to
vesting rules. Our Compensation Committee acts as the Stock Option Committee
under the Stock Option and Incentive Plan.
Other
Compensation. Our
executive officers participate in other employee benefit plans generally
available to all employees, including the following:
| · |
The
Bank maintains a 401(k) plan, and contributes, on behalf of each
participating employee, a matching contribution of 50% of salary
deferred
by an employee up to 6% of each participant's salary. The Bank’s plan also
allows a non-matching profit sharing contribution to be determined
at the
discretion of the Board of
Directors.
|
| · |
The
Company maintains an Employee Stock Ownership Plan (the "ESOP") for
employees of the Bank and its subsidiaries. The ESOP provides an
opportunity for the employees of the Bank to become shareholders
and thus
strengthen their direct interest in the success of the Bank. In addition,
the ESOP assists the Bank in attracting and retaining capable personnel.
As of December 31, 2006, a total of 792,356 shares of the Company’s Common
Stock were owned by the ESOP, of which 782,908 shares were allocated
to
employees.
|
| · |
The
Bank provides Messrs. Meekins and Kirkley with the use of a company
owned
automobile and pays or reimburses them for all insurance, maintenance,
registration and fuel costs. In addition, the Bank contributes toward
payment of their health insurance premiums in excess of the amounts
that
would otherwise be contributed.
|
Determination
of Executive Compensation
Traditionally,
the Compensation Committee reviews our executive compensation program in
November of each year, although decisions in connection with new hires and
promotions are made on an as-needed basis. As part of the review process, each
executive provides input into the performance of the company and the performance
of each executive officer, including himself. However, no executive officer
participates in the Committee’s deliberations or decisions. Each executive’s
current and prior compensation is considered in setting future compensation.
In
addition, the Committee performs an informal survey of area companies and banks
and reviews the compensation practices of the surveyed companies. To some
extent, the compensation plan (base salary, bonus and stock options) is similar
to the elements used by many companies; however, additional emphasis on fair
treatment of all employees requires that we limit executive salaries at a level
that does not prohibit us from competing for quality employees. The exact
salary, annual bonus and stock option grants are chosen in an attempt to balance
our competing objectives of fairness to all employees and attracting and
retaining executive officers. Based on the informal survey of area companies
and
banks, the performance of the Company and each of the executive officers in
2006, the committee awarded a bonus to Mr. Hyatt, Mr. Meekins, and Mr. Kirkley
totaling approximately 10% more than the bonus awarded to them in 2005. The
Committee also awarded a bonus to Mr. Bevivino totaling approximately 67% more
than the bonus awarded to him in 2005. This larger percentage increase was
because the Committee concluded that in addition to meeting the criteria for
determining the bonus for the other executive officers, Mr. Bevivino served
as
Chief Financial Officer for all of 2006, while he served in that role for only
a
part of 2005. In addition, the Committee determined that each executive officer
would receive a base salary increase for 2007 of approximately 5%. The Committee
had given Mr. Hyatt, Mr. Meekins and Mr. Bevivino a base salary increase for
2006 of approximately 6%. Mr. Kirkley received a base salary increase of
approximately 8% for 2006.
Accounting
and Tax Considerations
Effective
January 1, 2006, we adopted Statement of Financial Accounting Standards No.
123R. This accounting standard requires us to record as compensation expense
the
grant date fair value of a stock option over the life of the option. Prior
to
the adoption of FAS 123R, no compensation expense was required to be recorded
in
connection with stock options granted at fair market value. The Stock Option
Committee intends to consider the compensation expense of option grants when
making future awards; however, given that, traditionally, the Compensation
Committee has not made large grants of option awards to our executive officers
and employees, we do not expect that the compensation expense associated with
option grants will have a material adverse effect on our reported
earnings.
Generally,
Section 162(m) of the Internal Revenue Code of 1986, and the IRS regulations
adopted under that section, which are referred to collectively as Section
162(m), denies a deduction to any publicly held corporation, such as the
Company, for certain compensation exceeding $1,000,000 paid during each calendar
year to each of the chief executive officer and the four other highest paid
executive officers, excluding, among other things, certain qualified
performance-based compensation. Our policy is to maximize the tax deductibility
of compensation paid to our most highly compensated executives under Section
162(m). For example, our Stock Option and Incentive Plan is intended to satisfy
an exemption for "qualified performance-based compensation" under Section
162(m). We do not believe that Section 162(m) will have a material, adverse
effect on us in 2007.
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis section appearing above with our management. Based on this review
and these discussions, the Compensation Committee recommended to our Board
of
Directors that the Compensation Discussion and Analysis be included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and
in
this proxy statement.
Compensation
Committee Members:
Louis
DiPasquale, Jr.
Melvin
Hyatt
Ronald
Pennington
T.
Theodore Schultz
Albert
W.
Shields
Keith
Stock
The
information contained in this Compensation Committee Report is not “soliciting
material” and has not been “filed” with the Securities and Exchange Commission.
This Compensation Committee Report will not be incorporated by reference into
any of our future filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that we may specifically incorporate
it by reference into a future filing.
Summary
Compensation Table
The
following table sets forth information regarding compensation earned by our
Chief Executive Officer, our Chief Financial Officer and our other executive
officers during 2006:
Summary
Compensation Table for 2006
|
Name
and
Principal
Position
|
|
Year
|
|
Salary
(1)
|
|
Bonus
(1)
|
|
Option
Awards
(2)
|
|
All
Other Compensation
(3)
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
J. Hyatt
President
and Chief
Executive
Officer
|
|
|
2006
|
|
$
|
265,000
|
|
$
|
191,000
|
|
$
|
16,515
|
|
$
|
11,307
|
|
$
|
483,822
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
E. Meekins, Jr.
Executive
Vice-President
|
|
|
2006
|
|
$
|
318,250
|
|
$
|
135,300
|
|
$
|
17,519
|
|
$
|
34,440
|
|
$
|
505,509
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.
Scott Kirkley
Executive
Vice-President
|
|
|
2006
|
|
$
|
225,000
|
|
$
|
82,500
|
|
$
|
17,519
|
|
$
|
24,396
|
|
$
|
349,415
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
G. Bevivino
Executive
Vice-President
and
Chief Financial Officer
|
|
|
2006
|
|
$
|
159,000
|
|
$
|
50,000
|
|
$
|
17,519
|
|
$
|
12,262
|
|
$
|
238,781
|
|
1 Amounts
reflect compensation for services rendered in 2006.
2 Amounts
calculated utilizing the provisions of Statement of Financial Accounting
Standards (“SFAS”) 123R, “Share-based Payments.” See note 11 of the
Consolidated
Financial Statements in our Annual Report for the year ended December 31,
2006
regarding assumptions underlying valuation of equity awards.
3 All
other compensation consisted of the following elements:
|
Name
and
Principal
Position
|
|
Year
|
|
Health
Care Contribution
(1)
|
|
401
(k) Matching Contribution
(2)
|
|
ESOP
Plan (3)
|
|
Auto
Expenses
(4)
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
J. Hyatt
President
and Chief Executive Officer
|
|
|
2006
|
|
$
|
-
|
|
$
|
5,000
|
|
$
|
6,307
|
|
$
|
-
|
|
$
|
11,307
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
E. Meekins, Jr.
Executive
Vice-President
|
|
|
2006
|
|
$
|
5,225
|
|
$
|
6,600
|
|
$
|
6,307
|
|
$
|
13,608
|
|
$
|
34,440
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.
Scott Kirkley
Executive
Vice-President
|
|
|
2006
|
|
$
|
5,225
|
|
$
|
6,600
|
|
$
|
6,307
|
|
$
|
6,264
|
|
$
|
24,396
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
G. Bevivino
Executive
Vice-President and Chief Financial Officer
|
|
|
2006
|
|
$
|
-
|
|
$
|
6,270
|
|
$
|
5,992
|
|
$
|
-
|
|
$
|
12,262
|
|
1 Amounts
reflect contributions made by the Company for the executive’s health insurance
premiums in excess of the amounts the Company would otherwise
contribute.
2 Amounts
reflect matching contributions made by the Company for the executive’s 401(k)
plan.
3 Amounts
reflects contributions made by the Company to the executive’s ESOP
account.
4
The Company provides automobiles for the exclusive use of Mr. Meekins and
Mr.
Kirkley. In addition, the Company also pays or reimburses these executives
for
all
insurance,
maintenance, registration and fuel costs. Amounts shown reflect the aggregate
incremental cost of such automobiles including depreciation and other costs.
Grants
of Plan-Based Awards Table
The
following table sets forth certain information with respect to the plan based
awards granted during 2006 to each of our executive officers listed in the
Summary Compensation Table:
Grants
of Plan-Based Awards for 2006
| |
|
|
|
All
Other
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
Grant
Date
|
|
|
|
|
|
|
Number
of
|
|
Exercise
or
|
|
Fair
Value
|
|
|
|
|
|
|
Securities
|
|
Base
Price
|
|
of
Stock
|
|
|
|
|
|
|
Underlying
|
|
of
Option
|
|
and
Option
|
|
|
Name
and Principal Position
|
|
Grant
Date
|
|
Options
|
|
Awards
|
|
Awards
(1)
|
|
| |
|
|
|
|
|
|
|
|
|
|
Alan
J. Hyatt
President
and Chief Executive Officer
|
|
|
02/21/06
|
|
|
16,500
|
|
$
|
18.900
|
|
$
|
96,294
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
E. Meekins, Jr.
Executive
Vice-President
|
|
|
02/21/06
|
|
|
16,500
|
|
$
|
17.182
|
|
$
|
102,150
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.
Scott Kirkley
Executive
Vice-President
|
|
|
02/21/06
|
|
|
16,500
|
|
$
|
17.182
|
|
$
|
102,150
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
G. Bevivino
Executive
Vice-President and Chief Financial Officer
|
|
|
02/21/06
|
|
|
16,500
|
|
$
|
17.182
|
|
$
|
102,150
|
|
1
Amounts calculated utilizing the provisions of Statement of Financial Accounting
Standards (“SFAS”) 123R, “Share-based Payments.” See note 12 of the Consolidated
Financial Statements in our Annual Report for the year ended December 31, 2006
regarding assumptions underlying valuation of equity awards. There were no
stock
awards in 2006.
Narrative
to Summary Compensation Table and Plan-Based Awards Table
The
Company does not have employment agreements with the executive officers. Salary
and bonus decisions concerning executive officers are made by the Compensation
Committee as described above in “Compensation Discussion and
Analysis.”
On
February 21, 2006, the Compensation Committee awarded incentive stock options
under our Stock Option and Incentive Plan to our executive officers. The
exercise price was based on the market value per share of our common stock
on
the date of grant, except that as required by the Internal Revenue Code laws
and
regulations and the provisions of our plan relating to incentive stock options
granted to persons owning more than 10% of our common stock, the option price
for Mr. Hyatt was equal to 110% of the market value per share. These options
will become vested and exercisable in five, equal annual installments of 20%
upon each of the first five anniversaries of the date of the grant, except
that
the options will become immediately exercisable upon the death or permanent
disability of the holder or, at the discretion of the Compensation Committee,
upon a change of control of the Company. The options will expire five years
from
the grant date.
Outstanding
Equity Awards at Fiscal Year-End Table
The
following table includes certain information with respect to the value of all
unexercised options previously awarded to the executive officers listed in
the
Summary Compensation Table as of December 31, 2006:
Outstanding
Equity Awards at Fiscal Year End 2006
| |
|
Option
Awards
|
|
|
|
|
|
|
Name
and
Principal Position
|
|
Number
of Securities Underlying unexercised Options
Exercisable
|
|
Number
of Securities Underlying Unexercised Options
Available
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
| |
|
|
|
|
|
|
|
|
|
|
Alan
J. Hyatt
President
and Chief Executive Officer
|
|
|
-
|
|
|
16,500(1
|
)
|
$
|
18.900
|
|
|
02/21/11
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
E. Meekins, Jr.
Executive
Vice-President
|
|
|
-
|
|
|
16,500(1
|
)
|
$
|
17.182
|
|
|
02/21/11
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.
Scott Kirkley
Executive
Vice-President
|
|
|
-
|
|
|
16,500(1
|
)
|
$
|
17.182
|
|
|
02/21/11
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
G. Bevivino
Executive
Vice-President and Chief Financial Officer
|
|
|
-
|
|
|
16,500(1
|
)
|
$
|
17.182
|
|
|
02/21/11
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Options will vest in five equal annual installments of 20% upon each of the
first five anniversaries of the date of grant on February 21, 2006.
Options
Exercised and Stock Vested
No
options were exercised by an executive officer in 2006. The Stock Option and
Incentive Plan does not authorize the issuance of stock awards and the Company
has no outstanding stock awards.
Potential
Payments upon a Termination of Employment or Change of Change in Control
We
do not
have employment agreements, severance or "change in control" agreements with
our
executive officers.
Under
our
stock option and incentive plan, all outstanding stock options automatically
will become exercisable upon the termination of the employment of the holder
due
to death or permanent disability.
In
the
event of a "change in control," as defined in our stock option and incentive
plan, all outstanding stock options will become immediately exercisable, as
determined by the Compensation Committee in its sole discretion. Our plan
defines "change of control" to mean: (i) the sale of all, or a material portion,
of the assets of the Company; (ii) a merger or recapitalization in the Company
whereby the Company is not the surviving entity; (iii) an acquisition by which
a
person becomes a controlling shareholder within the meaning of federal banking
regulations; or (iv) the acquisition, directly or indirectly, of the beneficial
ownership (within the meaning of that term as it is used in Section 13(d) of
the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of ten percent or more of the outstanding voting securities of
the
Company by any person, entity, or group; provided, however, that a change in
control of the Company shall not include the acquisition or disposition of
securities of the Company by any person in control of the Company at the time
of
the adoption of the plan and shall not include any subsequent acquisition or
disposition of the securities of the Company by any person owned or controlled
by, or under common control with, a person in control of the Company at the
time
of the adoption of this Plan.
In
the
event of a change of control, the Committee, in their discretion, will take
one
or a combination of the following actions to be effective as of the date of
such
change in control:
| · |
provide
that such options shall be assumed, or equivalent options shall be
substituted by the acquiring or succeeding corporation, or
|
| · |
provide
that the participants will receive upon the closing of the change
in
control transaction a cash payment for each option surrendered equal
to
the difference between (1) the market value of the consideration
to be
received for each share of our common stock in the change in control
transaction times the number of shares subject to a surrendered Option
and
(2) the aggregate exercise price of such surrendered
options.
|
The
following table sets forth the intrinsic value of the unvested stock options
held by each executive officer named in the Summary Compensation Table as of
December 31, 2006 that would become vested upon termination of employment of
the
executive due to death or permanent disability or, assuming that the Committee
so elects, the occurrence of a change in control as described above:
|
Name
and Principal Position
|
|
Amount
($)(1)
|
|
|
Alan
J. Hyatt
President
and Chief Executive Officer
|
|
$
|
4,224
|
|
| |
|
|
|
|
|
Melvin
E. Meekins, Jr.
Executive
Vice-President
|
|
$
|
26,928
|
|
| |
|
|
|
|
|
S.
Scott Kirkley
Executive
Vice-President
|
|
$
|
26,928
|
|
| |
|
|
|
|
|
Thomas
G. Bevivino
Executive
Vice-President and Chief Financial Officer
|
|
$
|
26,928
|
|
1
Calculated based on the difference between the closing price of our common
stock
on December 31, 2006 and the exercise price of unvested stock options as of
such
date, multiplied by the number of outstanding options.
In
the
event that the employment of an executive officers was terminated for any other
reason on December 31, 2006, none of the unvested options would vest and all
such options would expire.
In
the
event that the employment of an executive officer was terminated due to
disability or death on December 31, 2006, they or their estate would be entitled
to payments under disability or life insurance plans that we maintain for
full-time employees.
Director
Compensation
The
Company does not compensate its directors. Each director of the Company is
also
a director of the Bank. Meetings of the directors of the Company are held
immediately before or after meetings of the directors of the Bank. Non-employee
directors of the Bank received $2,000 per meeting of the Board of Directors
attended in 2006. In addition, each non-employee member of a committee of the
Board of Directors of the Bank received a fee as follows: $300 per Compliance
Committee meeting; $350 per Stock Option Committee meeting; $600 per Cash Audit
Committee meeting; $800 per Compensation Committee meeting; $800 per Corporate
Governance Committee meeting; and $800 per Audit Committee meeting. The Chairman
of each committee received an additional $250 per meeting. A total of $167,679
was paid as directors’ fees and committee fees for the Bank in
2006.
Effective
January 1, 2007, the non-employee directors are entitled to receive $2,200
per
attended meeting. In addition, each committee member will receive the following:
$300 per Compliance Committee meeting; $350 per Stock Option Committee meeting;
$600 per Cash Audit Committee meeting; $850 per Compensation
Committee meeting;
$800 per Corporate Governance Committee meeting; and $850 per Audit Committee
meeting. The Chairman of each committee will receive an additional $260 per
meeting.
Non-employee
directors are also eligible to receive stock options under our stock option
and
incentive plan. On February 21, 2006, each of Messrs. DiPasquale, Melvin Hyatt,
Pennington, Schultz, Shields and Stock each received an option to purchase
1,650
shares of our common stock at an exercise price of $17.182 per share. The
options are exercisable immediately and terminate five years from the date
of
grant.
The
following table sets forth a summary of the compensation we paid to our
non-employee directors in 2006:
Director
Compensation for 2006
|
Name
|
|
Year
|
|
Fees
earned or
paid
in cash(1)
|
|
Option
Awards(2)
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
Louis
DiPasquale, Jr.
|
|
|
2006
|
|
$
|
24,800
|
|
$
|
8,865
|
|
$
|
33,665
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin
Hyatt
|
|
|
2006
|
|
$
|
25,750
|
|
$
|
8,865
|
|
$
|
34,615
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
P. Pennington
|
|
|
2006
|
|
$
|
30,950
|
|
$
|
8,865
|
|
$
|
39,815
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T.
Theodore Schultz
|
|
|
2006
|
|
$
|
31,200
|
|
$
|
8,865
|
|
$
|
40,065
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albert
W. Shields
|
|
|
2006
|
|
$
|
26,000
|
|
$
|
8,865
|
|
$
|
34,865
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
Stock
|
|
|
2006
|
|
$
|
26,650
|
|
$
|
8,865
|
|
$
|
35,515
|
|
1
For 2006, each non-employee director received $2,000 for each Board of Directors
meeting, and fees ranging from $300 to $800 for each Board of Directors
committee meeting. In addition, the chairman of the various Board of Directors
committees received a fee of up to $250 per committee meeting.
2
Amounts calculated utilizing the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 123R, “Share-based Payments.” See Note 12 of
the consolidated financial statements in the Company’s Annual Report for the
year ended December 31, 2006 regarding assumptions underlying valuation of
equity awards. Because the options were immediately exercisable, the amounts
reported in this column represent the grant date fair value of each stock option
award. At December 31, 2006, the aggregate number of options awards outstanding
for each director was as follows: Louis DiPasquale, Jr. 750; Melvin Hyatt 1,650;
Ronald P. Pennington 1,650; T. Theodore Schultz 1,650; Albert W. Shields 1,650;
Keith Stock 1,650.
Compensation
Committee Interlocks and Insider Participation
No
member
of our Board’s
Compensation Committee has served as one of our officers or employees at any
time. None of our executive officers serve as a member of the compensation
committee of any other company that has an executive officer serving as a member
of our Board of Directors. None of our executive officers serve as a member
of
the board of directors of any other company that has an executive officer
serving as a member of our Board’s
Compensation Committee.
Melvin
Hyatt, a member of the compensation committee, is the brother of Louis Hyatt
and
the uncle of Alan J. Hyatt, each of whom engaged in certain transactions with
us
as described below.
Certain
Transactions With Related Persons
Our
Board
of Directors is charged with monitoring and reviewing issues involving potential
conflicts of interest, and reviewing and approving all related party
transactions.
Alan
J.
Hyatt, who is an affiliated person by virtue of his stock ownership and
positions as director and President of the Company and the Bank, is a partner
of
the law firm of Hyatt & Weber, P.A., which serves as general counsel to the
Company and the Bank. The law firm of Hyatt & Weber, P.A. received fees in
the amount of $325,380 for services rendered to the Company and to the Bank
and
its subsidiaries for the year ended December 31, 2006. The law firm received
$401,979 in fees from borrowers who obtained loans from the Bank for the year
ended December 31, 2006. Additionally, that law firm received $7,872 in
trustee’s commissions arising from the sale of foreclosed real estate by the
Bank. Mr. Hyatt's interest in such fees and commissions is
undeterminable.
Two
subsidiaries of the Bank, Homeowner’s Title and Escrow Corporation, and Hyatt
Commercial leased space during 2006 at 1925 West Street on a month to month
basis from 1925 West, LLC. Alan J. Hyatt is a partner of the entity that owns
1925 West, LLC. The rent paid in 2006 totaled $55,974. Homeowner’s Title and
Escrow Corporation and Hyatt Commercial, Inc. moved to the Company’s new
headquarters effective in 2007 and no longer lease space from 1925 West,
LLC.
Louis
Hyatt, a 10% shareholder and the brother of Melvin Hyatt and the father of
Alan
J. Hyatt is a real estate broker at Hyatt Commercial, a wholly owned subsidiary.
As a real estate broker, Louis Hyatt earned $144,612 in commissions from Hyatt
Commercial. In addition, Hyatt Commercial provided health insurance benefits
to
Louis Hyatt at a cost of $9,874.
In
March
2007, the Company adopted written policies and procedures regarding approval
of
transactions between the Company and any employee, officer, director and certain
of their family members and other related persons required to be reported under
Item 404 of Regulation S-K. Under these policies, a majority of the
disinterested members of the Audit Committee must approve any transaction
between the Company and any related party that involve more than $10,000. If
a
majority of the members of the Audit Committee are interested in the proposed
transaction, then the transaction must be approved by a majority of the
disinterested members of the Board (excluding directors who are employees of
the
Company). The Chair of the Audit Committee has the delegated authority to
pre-approve or ratify (as applicable) any related party transaction in which
the
aggregate amount involved is expected to be less than $120,000. In determining
whether to approve or ratify a related party transaction, the Audit Committee
will take into account, among other factors it deems appropriate, whether the
related party transaction is on terms no less favorable than terms generally
available to an unaffiliated third-party under the same or similar circumstances
and the extent of the related party’s interest in the transaction. After
adopting this policy, the Audit Committee ratified each of the transactions
described above and approved the continuation of such transactions for the
current year on substantially the same term and conditions.
DATE
FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR
INCLUSION IN PROXY STATEMENT
Any
proposal that a Company shareholder wishes to have included in the Company's
proxy statement and form of proxy relating to the Company's 2008 annual meeting
of shareholders under Rule 14a-8 of the Securities and Exchange Commission
must
be received by the Company's Secretary at Severn Bancorp, Inc., 200 Westgate
Circle, Suite 200, Annapolis, Maryland 21401 on or before November 21, 2008.
Nothing in this paragraph shall be deemed to require the Company to include
in
its proxy statement and form of proxy for such meeting any shareholder proposal
that does not meet the requirements of the Securities and Exchange Commission
in
effect at the time, including Rule 14a-8.
In
addition, shareholders are notified that the deadline for providing the Company
timely notice of any shareholder proposal, submitted outside of the Rule 14a-8
process for consideration at the Company’s 2008 annual meeting of shareholders,
is February 5, 2008. As with respect to any proposal which the Company does
not
have notice on or prior to February 5, 2008, discretionary authority shall
be
granted to the persons designated in the Company’s proxy related to the 2008
annual meeting of shareholders to vote on such proposal.
ANNUAL
REPORT AND FINANCIAL STATEMENTS
A
copy of
the Company's Annual Report to Shareholders for the year ended December 31,
2006
accompanies this Proxy Statement.
Upon
receipt of a written request, the Company will furnish to any shareholder
without charge a copy of the Company's Annual Report on Form 10--K for the
year
ended December 31, 2006 and the exhibits thereto required to be filed with
the
Commission under the Securities Exchange Act of 1934. Such written request
should be directed to:
S.
Scott Kirkley
Executive
Vice President and Secretary
Severn
Bancorp, Inc.
200
Westgate Circle, Suite 200
Annapolis,
Maryland 21401
The
Form 10-K is not part of the proxy solicitation materials.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors, certain officers and persons who own more than 10% of its Common
Stock, to file with the Securities and Exchange Commission initial reports
of
ownership of the Company’s equity securities and to all subsequent reports when
there are changes in such ownership. Based on a review of reports submitted
to
the Company, the Company believes that during the fiscal year ended December
31,
2006 all Section 16(a) filing requirements applicable to the Company’s officers,
directors, and more than 10% owners were complied with on a timely basis,
including all required filings by the Company’s directors, officers, and more
than 10% beneficial owners on Forms 3, 4, or 5, as applicable, to satisfy the
reporting requirements under federal securities laws, except for the following:
(1) the untimely filing of Form 4’s relating to the stock option grant on
February 21, 2006 to Messrs. DiPasquale, Melvin Hyatt, Pennington, Schultz,
Shields, Stock, Alan Hyatt, Meekins, Kirkley and Bevivino. The deadline to
file
the Form 4’s was February 25, 2006, however the Form 4’s were filed on March 21,
2006, (2) the untimely filing of a Form 4 relating to the acquisition by Keith
Stock, a director of the Company, or 416 shares of Common Stock
on
December 16, 2006. The deadline for filing the Form 4 for that transaction
was
December 20, 2006, however the Form 4 was filed on February 5,
2007.
COMMUNICATIONS
WITH DIRECTORS
If
any
shareholder wishes to communicate with a member of the Board of Directors,
the
shareholder may communicate in writing to 200 Westgate Circle, Suite 200,
Annapolis, Maryland 21401, attention: S. Scott Kirkley, via first class mail,
or
by facsimile at (410) 841-6296. Shareholders may also speak with the directors
who attend our annual meeting of shareholders.
OTHER
MATTERS
As
of the
date of this Proxy Statement, the Board of Directors does not know of any other
matters to be presented for action by the shareholders at the Annual Meeting.
If, however, any other matters not now known are properly brought before the
meeting, the persons named in the accompanying proxy will vote such proxy in
accordance with the determination of a majority of the Board of Directors.
The
enclosed proxy confers discretionary authority to vote with respect to any
and
all of the following matters that may come before the Meeting: (i) matters
which
the Company did not receive notice by February 6, 2007 were to be presented
at
the meeting; (ii) approval of the minutes of a prior meeting of the
shareholders, if such approval does not amount to ratification of the action
taken at the meeting; (iii) the election of any person to any office for which
a
bona fide nominee named in this Proxy Statement is unable to serve or for good
cause will not serve; (iv) any proposal omitted from this Proxy Statement and
the form of the proxy pursuant to Rules 14a-8 or 14a-9 under the Securities
Exchange Act of 1934; and (v) matters incident to the conduct of the
meeting.
By
order
of the Board of Directors
/s/
S.
Scott
Kirkley
Secretary
Annapolis,
Maryland
March
21,
2007
24