SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
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14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BANCORP RHODE ISLAND, INC.
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(Name of Registrant as Specified in Its Charter)
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BANCORPRI [LOGO]
BANCORP RHODE ISLAND, INC.
April 15, 2005
Dear Shareholder:
You are cordially invited to attend the 2005 Annual Meeting of
Shareholders of Bancorp Rhode Island, Inc. to be held at the Hotel
Providence, 311 Westminster Street, Providence, Rhode Island 02903, on
Wednesday, May 18, 2005 at 10:00 a.m.
The official Notice of Annual Meeting, Proxy Statement and Proxy are
included with this letter. The matters listed in the Notice of Annual
Meeting are more fully described in the Proxy Statement. I encourage you
to take the time to review the Proxy Statement.
It is important that your shares be represented and voted at the
Annual Meeting. Accordingly, regardless of whether or not you plan to
attend the meeting, please sign and date the enclosed proxy form and return
it in the enclosed postage paid envelope, so that your shares may be
represented at the meeting. If you decide to attend the meeting you may
revoke your proxy and vote your shares yourself.
Thank you for your consideration. I look forward to seeing you.
Very truly yours,
/s/ Malcolm G. Chace
Malcolm G. Chace
Chairman
BANCORP RHODE ISLAND, INC.
One Turks Head Place
Providence, Rhode Island 02903
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Wednesday, May 18, 2005
To the Shareholders of Bancorp Rhode Island, Inc.:
The Annual Meeting of Shareholders of Bancorp Rhode Island, Inc. (the
"Meeting"), a Rhode Island corporation (the "Company"), will be held at the
Hotel Providence, 311 Westminster Street, Providence, Rhode Island 02903 on
Wednesday, May 18, 2005, at 10:00 a.m. local time, for the following
purposes:
1. To elect five Class III Directors to serve until 2008;
2. To consider and act upon a proposal to ratify the appointment
of KPMG LLP as independent auditors for the Company;
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The Board of Directors of the Company has fixed the close of business
on April 1, 2005 as the record date for the determination of Shareholders
entitled to receive notice of and to vote at the Meeting or any adjournment
thereof. The stock transfer books will not be closed.
All Shareholders are cordially invited and urged to attend the
Meeting. PLEASE SIGN, DATE AND RETURN THE PROXY EVEN THOUGH YOU PLAN TO
ATTEND THE MEETING. Upon your arrival your proxy will be returned to you
if you desire to revoke it or vote in person. Your attendance in person is
encouraged, but should anything prevent your attendance in person, your
presence by proxy will still allow your shares to be voted.
By Order of the Board of Directors
/s/ Margaret D. Farrell, Secretary
Margaret D. Farrell, Secretary
April 15, 2005
BANCORP RHODE ISLAND, INC.
One Turks Head Place
Providence, Rhode Island 02903
PROXY STATEMENT
This Proxy Statement is being furnished to the holders of Common
Stock (the "Shareholders") of Bancorp Rhode Island, Inc., a Rhode Island
corporation ("Bancorp"), in connection with the solicitation of proxies by
the Board of Directors of Bancorp for the Annual Meeting of Shareholders of
Bancorp (the "Meeting") to be held at the Hotel Providence, 311 Westminster
Street, Providence, Rhode Island on Wednesday, May 18, 2005 at 10:00 a.m.
local time, and at any adjournments and postponements thereof. This Proxy
Statement and the related proxy form are being mailed on or about April 15,
2005 to holders of record of Bancorp's Common Stock on April 1, 2005. As
used herein, the "Company" means both Bancorp and Bank Rhode Island, a
Rhode Island financial institution (the "Bank"), the only significant
operating subsidiary of Bancorp.
ACTION TO BE TAKEN UNDER THE PROXY
A proxy for use at the Meeting is enclosed. Subject to such
revocation or suspension, the proxy holders will vote all shares
represented by a properly executed proxy received in time for the Meeting
in accordance with the instructions on the proxy. If no instructions are
specified with regard to the matters to be acted upon, the proxy holders
will vote FOR approval of the proposals set forth in the Notice of Meeting.
Any proxy may be revoked by any Shareholder who attends the Meeting and
gives oral notice of his or her intention to vote in person, without
compliance with any other formalities. In addition, any proxy given
pursuant to this solicitation may be revoked prior to the Meeting by
delivering an instrument revoking it or a duly executed proxy bearing a
later date to the Secretary of Bancorp. The Secretary of Bancorp is
Margaret D. Farrell, and any revocation should be filed with her c/o
Hinckley, Allen & Snyder LLP, 1500 Fleet Center, Providence, Rhode Island
02903.
A proxy may confer discretionary authority to vote with respect to
any matter to be presented at the Meeting which management does not know of
a reasonable time before the date hereof. Management does not know of any
such matter which may come before the Meeting and which would be required
to be set forth in this Proxy Statement or the related proxy form. If any
other matter is properly presented to the Meeting for action, it is
intended that the persons named in the enclosed form of proxy and acting
thereunder will vote in accordance with their best judgment on such matter.
PERSONS MAKING THE SOLICITATION
The Board of Directors of Bancorp is soliciting these proxies.
Bancorp will bear the expense of preparing, assembling, printing and
mailing this Proxy Statement and the material used in the solicitation of
proxies for the Meeting. Bancorp contemplates that proxies will be
solicited principally through the use of the mail, but officers, directors
and employees of the Company may solicit proxies personally or by
telephone, without receiving special compensation therefor. Although there
is no formal agreement to do so, Bancorp may reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding these proxy materials to their principals. In
addition, Bancorp may utilize the services of individuals or companies not
regularly employed by the Company in connection with the solicitation of
proxies, if management of Bancorp determines that this is advisable.
VOTING SECURITIES
Holders of record of Bancorp's common stock, par value $.01 per share
(the "Common Stock"), at the close of business on April 1, 2005, the record
date for the Meeting, are entitled to notice of and to vote at the Meeting.
As of the close of business on April 1, 2005, Bancorp had outstanding
4,019,329 shares of Common Stock entitled to vote. Holders of the Common
Stock are entitled to one vote for each share held on the matters properly
presented at the Meeting.
The holders of a majority of the shares entitled to vote, present in
person or represented by proxy, will constitute a quorum for the
transaction of business at the Meeting. A plurality of votes cast is
required to elect the directors. All other proposals to be voted upon at
the Meeting will require the affirmative vote of holders of a majority of
the Common Stock present in person or represented by proxy at the Meeting.
Abstentions are treated as present and entitled to vote and therefore have
the effect of a vote against a matter. A broker non-vote on a matter is
considered not entitled to vote on the matter and thus is not counted in
determining whether a matter requiring approval of a majority of the shares
present and entitled to vote has been approved.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Bancorp's Articles of Incorporation provide that the Board of
Directors shall be divided into three classes, designated as Class I, Class
II and Class III, and as nearly equal as possible. The Board of Directors
currently consists of 15 persons, of whom five are designated as Class I
Directors, five as Class II Directors and five as Class III Directors.
Directors serve staggered three year terms and until their successors are
duly elected and qualified or until the director's earlier resignation or
removal.
At the Meeting, five Class III Directors are to be elected to serve
until the 2008 annual meeting and until their successors are duly elected
and qualified. The Directors of Bancorp also serve as directors of the
Bank. All nominees are currently directors of both Bancorp and the Bank.
The Board of Directors has reviewed the relationship that each director has
with the Company and with other parties, and affirmatively determined that
all directors, other than Ms. Sherman, are independent as defined under the
Nasdaq listing standards.
Unless authority to do so has been withheld or limited in a proxy, it
is the intention of the persons named as proxies to vote the shares to
which the proxy relates FOR the election of the five nominees named below
to the Board of Directors as Class III Directors. If any nominee named
below is not available for election to the Board of Directors at the time
of the Meeting, it is the intention of the persons named as proxies to act
to fill that office by voting the shares to which a proxy relates FOR the
election of such person or persons as may be designated by the Board of
Directors or, in the absence of such designation, in such other manner as
the proxies may in their discretion determine, unless authority to do so
has been withheld or limited in the proxy. The Board of Directors
anticipates that each of the nominees will be available to serve if
elected.
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The Board of Directors recommends a vote "FOR" the election of the nominees
for election as directors.
The following table sets forth certain information for both the five
nominees for election as Class III Directors (the "Nominees"), and for
those Class I and Class II Directors whose terms expire at the annual
meetings of Bancorp's Shareholders in 2007 and 2006, respectively.
NOMINEES FOR CLASS III DIRECTOR (Term to Expire 2008)
Year First
Business Experience Became
Name Age During Past 5 Years Director*
---- --- ------------------- ----------
Anthony F. Andrade 57 President of A&H Composition and Printing, Inc.
and former President of Universal Press Graphics,
Inc. until his retirement in April 1997. 1996
Malcolm G. Chace 70 Chairman of the Board of each of Bancorp and the
Bank since their formation. Chairman of Mossburg
Industries, Inc. (plastics manufacturer and
packaging) and of Southeastern New England
Shipbuilding Corporation (SENESCO Marine)
(manufacturer of double-hulled barges). Also, a
director of Berkshire Hathaway, Inc. 1996
Ernest J. Chornyei, Jr. 62 Business consultant since February 2000. Prior
thereto, Chairman of the Board of Bradford Dyeing
Association, Inc. (textiles) in Westerly, Rhode
Island. 1996
Edward J. Mack II 46 President and owner of Tri-Mack Plastics
Manufacturing Company (engineering, design and
manufacture of custom high performance plastic
parts) since 1990. 2002
Merrill W. Sherman 56 President and Chief Executive Officer of each of
Bancorp and the Bank since their formantion.
Also, a director of the Providence Journal Co., a
subsidiary of Belo Corp. 1996
CLASS I DIRECTORS CONTINUING IN OFFICE (Term to Expire 2006)
Cheryl W. Snead 46 President and Chief Executive Officer of Banneker
Industries, Inc. (manufacturing, assembly and
packaging and logistics management) since 1991. 1996
John A. Yena 64 Vice Chairman of the Board of each of Bancorp and
the Bank since July 2003. Chairman of the Board
of Johnson & Wales University since June 2004.
Previously Chief Executive Officer of Johnson &
Wales University from July 1989 to June 2004. 1996
Karen Adams 49 Television news anchor for WPRI-TV (Sunrise
Television Corp.) since 1989. 2002
Meredith A. Curren 45 Chief Financial Officer and Principal of Pease &
Curren, Inc. (precious metals) since 1990. Also,
a Trustee of Ocean State Tax Exempt Fund. 2002
Bogdan Nowak 41 President of Rhode Island Novelty, Inc. since
1986 and President of Chemical Light Technologies,
Inc. since 1995. 2002
3
CLASS II DIRECTORS CONTINUING IN OFFICE (Term to Expire 2007)
John R. Berger 61 Business consultant since 1994. Prior thereto,
Executive Vice President and Director of Mergers
and Acquisitions (1993-94) and Executive Vice
President and Chief Investment Officer (1985-93)
for Shawmut National Corporation. 1997
Karl F. Ericson 71 Business consultant and certified public
accountant. From 1970 through 1990, a partner
of KPMG LLP. 1996
Margaret D. Farrell 55 Partner of Hinckley, Allen & Snyder LLP (law
firm) since 1981. 1996
Mark R. Feinstein 49 President of Northeast Management Inc. (video
store franchisee) since 1991. 1996
Pablo Rodriguez, M.D. 50 President of Women's Care, Inc. (medical
services) since 1987. 2003
* The dates of directorship before 2000 reflect the years in which
certain of the directors were elected directors of the Bank, which
was formed in 1996 and became a wholly-owned subsidiary of Bancorp on
September 1, 2000.
Meetings and Committees
General. The Bancorp Board of Directors met seven times and the
Bank's Board of Directors met nine times during 2004. All Directors
attended at least 75% of the Bancorp Board meetings and meetings of Bancorp
committees on which such director serves. The Board of Directors has
adopted a policy that requires members of the Board of Directors to make
every effort to attend each annual Shareholders meeting. All members of
the Board of Directors attended the 2004 Annual Shareholders Meeting.
The Bancorp Board of Directors currently has four standing
committees: an Executive Committee, an Audit Committee, a Compensation
Committee and the Board Governance and Nominating Committee, which was
formed in February 2004. The members and chairs of each of those
committees are appointed each year. Each member of the Bancorp Executive,
Audit and Compensation Committees is also a member of the corresponding
committee of the Bank. No member of the Audit, Compensation or Board
Governance and Nominating Committee is an employee of Bancorp or its
subsidiaries and all are independent as defined under the applicable Nasdaq
listing standards and Securities and Exchange Commission ("SEC") rules. In
addition to the Committees noted above, the Bank has a Directors' Loan
Committee.
Each of the Audit, Compensation and Board Governance and Nominating
Committees has a written charter approved by the Board of Directors. A
copy of each charter is available on the Company's website at
www.bankri.com under "Investor Relations - Corporate Governance".
Executive Committee. The Executive Committee is authorized to
exercise all the powers of the Board in the management of the business and
affairs of the Company while the Board is not in session, subject to
certain limitations set forth in Bancorp's Articles of Incorporation and
the Bank's Agreement to Form. The current members of the Executive
Committee are Malcolm G. Chace (Chairman), Karl F. Ericson, Margaret D.
Farrell, Merrill W. Sherman and John A. Yena. The Executive Committee did
not meet in fiscal year 2004.
Audit Committee. The Audit Committee assists the Board of Directors
in overseeing the integrity of the Company's financial reports; the
Company's compliance with legal and regulatory requirements; the
qualifications and independence of the Company's independent accountants;
and the performance of the Company's internal audit function and
independent accountants. The Audit Committee is responsible for
appointing, setting the compensation and overseeing the Company's
independent accountants. The Audit Committee meets each quarter with the
Company's independent accountants and management, to review the Company's
interim financial results before the publication of quarterly earnings
press releases. The Audit Committee also meets separately each quarter
with the
4
independent accountants and management. The Audit Committee reviews the
adequacy of the Company's internal controls and summaries of regulatory
examinations to assess the Company's program for complying with laws and
regulations. The Audit Committee also oversees and approves the selection
and performance of the Chief Auditor and reviews and approves the Company's
internal audit plan. The current members of the Audit Committee are Karl
F. Ericson (Chairman), Ernest J. Chornyei, Jr., Meredith A. Curren and
Cheryl W. Snead. The Board of Directors has determined that all four
members of the Audit Committee satisfy the financial literacy requirements
of the Nasdaq listing standards and are independent as defined under the
Nasdaq listing requirements and applicable SEC rules. Additionally, the
Board of Directors has determined that Karl F. Ericson qualifies as an
"audit committee financial expert" as defined by the SEC rules. The Audit
Committee held six meetings in fiscal year 2004.
Compensation Committee. The Compensation Committee assists the Board
of Directors in discharging the Board's responsibilities relating to
director and executive compensation. The Compensation Committee's
responsibilities include establishing and reviewing the Company's executive
and director compensation philosophy, strategies, plans and policies,
making recommendations to the Board of Directors with respect to the design
of the Company's incentive compensation plans and equity based plans and
overseeing generally the administration of such plans, recommending to the
Board of Directors for its approval, goals and objectives for the Chief
Executive Officer ("CEO"), evaluating the performance and determining the
compensation of the CEO, developing and overseeing a CEO succession plan
and advising and assisting the CEO in formulating and implementing programs
to facilitate the selection and development of other key managers. The
Compensation Committee also reviews and approves the compensation of other
executive officers of the Company and discharges duties assigned to it
under various benefit and compensation plans. The Compensation Committee
is composed of five members, each of whom is independent as defined under
applicable Nasdaq listing requirements. The current members of the
Compensation Committee are John R. Berger (Chairman), Anthony F. Andrade,
Meredith A. Curren, Edward J. Mack, II and Pablo Rodriguez, M.D. The
Compensation Committee held seven meetings in fiscal year 2004.
Board Governance and Nominating Committee. The Board Governance and
Nominating Committee is responsible for: identifying individuals qualified
to be members of the Board of Directors and recommending such individuals
to be nominated by the Board of Directors for election to the Board of
Directors by the Shareholders; developing and recommending to the Board of
Directors a set of corporate governance principles applicable to the
Company that are consistent with sound corporate governance practices and
in compliance with applicable legal, regulatory or other requirements; and
monitoring and reviewing any other corporate governance matters which the
Board of Directors may refer to the committee from time to time. The Board
Governance and Nominating Committee is composed of four members, each of
whom is independent as defined under applicable Nasdaq listing
requirements. The current members of the Board Governance and Nominating
Committee are Malcolm G. Chace (Chairman), Margaret D. Farrell, Bogdan
Nowak and John A. Yena. The Board Governance and Nominating Committee held
two meetings in fiscal year 2004.
Nomination of Directors
The Board Governance and Nominating Committee considers suggestions
from many sources, including Shareholders, regarding possible candidates
for director. The Board of Directors has adopted a policy that requires
consideration by the Board Governance and Nominating Committee of
nominations submitted by a Shareholder or group of Shareholders that
beneficially own more than 5% of Bancorp's Common Stock for at least one
year as of the date the recommendation was made. The Board Governance and
Nominating Committee does not set specific criteria for directors but
believes the Company is well served when its directors bring to the Board
of Directors a variety of experience and backgrounds, evidence of
leadership in their particular fields, demonstrate the ability to exercise
sound business judgment and independence of thought and have substantial
experience in business and outside the business community in, for example,
the academic or public communities. All candidates must possess integrity
and a commitment to ethical behavior. The Company also strives to have all
directors other than the CEO be independent within the meaning of
applicable Nasdaq rules. The Board Governance and Nominating Committee
must also ensure that members of the Board of Directors as a group maintain
the requisite qualifications under the Nasdaq listing standards for
populating the Audit, Compensation and Board Governance and Nominating
Committees. The Board Governance and Nominating Committee considers
Shareholder nominees for director in the same manner as nominees for
director from other sources.
5
Shareholders may send recommendations for director nominees to the
Board Governance and Nominating Committee at the Company's offices at One
Turks Head Place, Providence, Rhode Island 02903. Submissions should
include information regarding a candidate's background, qualifications,
experience and willingness to serve as a director. In addition, Section
3.03 of Bancorp's By-Laws set forth specific procedures that, if followed,
enable any Shareholder entitled to vote in the election of directors to
make nominations directly at an annual meeting of Shareholders. These
procedures include a requirement for written notice to the Company at least
60 days prior to the scheduled annual meeting and must contain the name and
certain information concerning the nominee and the Shareholders who support
the nominee's election. For the Bancorp annual meeting to be held in 2006,
the notice deadline under the By-Laws is March 18, 2006. A copy of this
By-Law provision may be obtained by writing to Bancorp Rhode Island, Inc.,
Attn: Investor Relations Department, One Turk's Head Place, Providence,
Rhode Island 02903.
Communications with the Board of Directors
The Company's Board of Directors provides a process for Shareholders
to communicate directly with the members of the Board of Directors or the
individual chairman of standing committees. Any Shareholder who desires to
contact one or more of the Company's non-management directors may send a
letter to those individuals at the following address: c/o Bancorp Rhode
Island, Inc., One Turk's Head Place, Providence, Rhode Island 02903.
Communications are distributed to any individual director or directors as
appropriate, depending on the facts and circumstances outlined in the
communication. In that regard, the Board of Directors has requested that
certain items that are unrelated to the duties and responsibilities of the
Board should be excluded, such as:
* Spam
* Junk mail and mass mailings
* Product inquiries
* New product suggestions
* Resumes and other forms of job inquiries
* Surveys
* Business solicitations or advertisements
In addition, material that the Company believes poses a security risk will
be excluded, with the provisions that any communication that is filtered
out must be made available to any outside director upon request.
Compensation of Directors
During 2004, the Compensation Committee undertook a review of
director compensation and engaged an outside consultant to assist in that
process. Based upon the increase responsibilities and time commitment
required of Board members and information provided by the consultant
regarding director compensation at comparable institutions, the
Compensation Committee recommended, and the Board approved, increases to
the retainer and meeting fees, effective October 1, 2004. Directors of the
Company (other than Ms. Sherman) receive a combined annual retainer of
$10,000, $7,000 for service as a Bancorp director and $3,000 for service as
a Bank director. Mr. Chace, as Chairman of the Board and Executive
Committee receives an additional $4,000 annual retainer. Other Committee
Chairmen receive the following retainers: Audit ($3,000); Compensation
($2,500); and all other Committees (other than the Executive Committee)
($2,000). Directors of the Company receive $200 for each Bancorp Board
meeting attended, as well as $200 for each Bancorp Executive Committee and
Compensation Committee meeting attended and $600 for each Bancorp Audit
Committee and Board Governance and Nominating meeting attended. In
addition, directors receive $600 for each meeting of the Bank's Board of
Directors, Executive Committee, Audit Committee or Compensation Committee
attended, and $700 for each Directors' Loan Committee meeting attended.
Under the Amended and Restated Non-Employee Director Stock Plan (the
"Director Plan") approved by the Bank's shareholders at the 1998 annual
meeting and assumed by Bancorp in connection with the reorganization of the
Bank into a holding company structure on September 1, 2000 (the
"Reorganization"), each non-employee director elected at the 1998 meeting
received an option to purchase 1,500 shares of Common Stock, and each new
non-employee director elected thereafter receives an option to purchase
1,000 shares of Common Stock as of the
6
date of election to the Board. In addition, annual grants of options are
made as of the date of each annual meeting of Shareholders to each non-
employee director (other than a director who is first elected at or within
six months of the meeting) to purchase 500 shares of Common Stock. All
options have a ten-year term and an exercise price equal to the fair market
value on the date of grant. Options may be exercised with cash, Common
Stock, or both. Options vest six months after the grant date, unless
automatically accelerated in the event of death, disability or a change in
control.
COMMON STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of 5% Beneficial Owners
The following table sets forth information as of April 1, 2005,
regarding the beneficial owners of more than 5% of Bancorp's Common Stock:
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership (a) of Class
------------------------------------ ------------------------ --------
Malcolm G. Chace (b) 535,900 13.3%
c/o Point Gammon Corporation
One Providence Washington Plaza, Providence, RI 02903
Richard A. Grills 249,995 6.2%
P.O. Box 539, Westerly, RI 02891
Greenwood Partners L.P. (c) 205,864 5.1%
1601 Forum Place, Suite 905, W. Palm Beach, FL 33401
Merrill W. Sherman (d) 265,900 6.6%
c/o Bancorp Rhode Island, Inc.
One Turks Head Place, Providence, RI 02903
Friedman, Billings, Ramsey Group, Inc. 275,896 6.9%
1001 19th Street North
Arlington, VA 22209-1710
(a) All information is based upon ownership of record as reflected on the
stock transfer books of Bancorp or as reported on Schedule 13G or
Schedule 13D filed under Rule 13d-1 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
(b) Includes 603,388 shares held by trusts of which Mr. Chace or his
spouse is a co-trustee and has shared voting and investment power.
Mr. Chace disclaims any economic or beneficial interest in 9,625 of
such shares. Also includes 4,500 shares held by Mr. Chace's spouse.
Mr. Chace is a Director of Bancorp and the Bank.
(c) Arnold Mullen, the general partner of Greenwood Partners, L.P.,
exercises investment and voting power over, and may be deemed to be
the beneficial owner of, the Common Stock held by Greenwood Partners,
L.P. Mr. Mullen owns directly 16,909 shares of Common Stock.
(d) Includes 188,700 shares that may be acquired pursuant to options and
3,850 shares of restricted stock. Ms. Sherman is the President and
Chief Executive Officer and a Director of Bancorp and the Bank.
7
Security Ownership of Directors and Officers
The following table sets forth certain information regarding the
beneficial ownership of Bancorp's Common Stock as of April 1, 2005 by each
director, each executive officer named in the Summary Compensation Table
appearing on page 9 and all directors and executive officers as a group.
Unless otherwise indicated, each person has sole voting and dispositive
power over the shares indicated as owned by such person.
Amount of
Securities Percent
Beneficially Ownership
Name Position Owned (a)
Karen Adams (b)(c) Director 2,775 *
Anthony F. Andrade (d) Director 54,500 1.4%
John R. Berger (d) Director 6,569 *
Malcolm G. Chace (e) Director 535,900 13.3%
Ernest J. Chornyei (d)(f) Director 112,500 2.8%
Meredith A. Curren (b) Director 2,000 *
James V. DeRentis (j) Bank Executive VP - Retail Banking 31,580 *
Karl F. Ericson (d) Director 13,500 *
Margaret D. Farrell (d)(g) Secretary/Director 7,000 *
Mark R. Feinstein (d) Director 18,000 *
Edward J. Mack, II (b) Director 2,675 *
Donald C. McQueen (k) Vice President and Bank COO 54,386 1.4%
Bogdan Nowak (b)(m) Director 23,300 *
Albert R. Rietheimer (l) CFO 62,700 1.6%
Pablo Rodriguez, M.D. (b) Director 2,500 *
Merrill W. Sherman (h) CEO/Director 265,900 6.6%
Linda H. Simmons (n) Bank Executive VP - Finance 5,000 *
Cheryl W. Snead (d) Director 5,010 *
John A. Yena (i) Director 9,500 *
Directors & Executive Officers as a Group
(19 persons) (o) 1,215,295 30.2%
--------------------
* Less than one percent.
(a) If applicable, beneficially owned shares include shares owned by the
spouse, children and certain other relatives of the director or
executive officer, as well as shares held by trusts of which the
person is a trustee or in which he or she has a beneficial interest
and shares acquirable pursuant to options which are presently or will
become exercisable within 60 days. All information with respect to
beneficial ownership has been furnished by the respective directors
and executive officers.
(b) Includes 2,000 shares that may be acquired pursuant to options.
(c) Includes 325 shares held by Ms. Adams' spouse.
(d) Includes 4,500 shares that may be acquired pursuant to options.
(e) Includes 530,400 shares held by trusts of which Mr. Chace, his spouse
or an immediate family member is a co-trustee and has shared voting
and investment power. Mr. Chace disclaims any economic or beneficial
interest in 9,225 of such shares. Also includes 4,500 shares held by
Mr. Chace's spouse and 1,000 shares are held by a limited liability
company of which Mr. Chace is the managing member.
(f) Includes 108,000 shares held by a trust of which Mr. Chornyei is a
beneficiary.
(g) Includes 500 shares held by a retirement plan of which Ms. Farrell is
a co-trustee.
(h) Includes 188,700 shares that may be acquired pursuant to options and
3,850 shares of restricted stock.
(i) Includes 1,000 shares that may be acquired pursuant to options.
(j) Includes 30,480 shares that may be acquired pursuant to options.
(k) Includes 25,980 shares that may be acquired pursuant to options.
(l) Includes 49,700 shares that may be acquired pursuant to options.
(m) Includes 10,000 shares held by investment company of which Mr. Nowak
is a control person.
(n) Includes 5,000 shares that may be acquired pursuant to options
(o) Includes 339,860 shares that may be acquired pursuant to options.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires executive officers and
directors and persons who beneficially own more than ten percent of
Bancorp's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission (the
"SEC") and any national securities exchange on which Bancorp's securities
are registered. Based solely on a review of the copies of such forms
furnished to Bancorp and written representations from the executive
officers and directors, Bancorp believes that during 2004 its executive
officers, directors and greater than ten percent beneficial owners complied
with all applicable Section
8
16(a) filing requirements, except that one of Company's directors, Malcolm
G. Chace, failed to timely file a Form 4 in connection with the purchase of
948 shares of the Company.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by
the Company to its Chief Executive Officer and each of its five most highly
compensated executive officers who earned more than $100,000 in salary and
bonus in 2004 (together, the "Named Executive Officers"), for the calendar
years ending December 31, 2004, 2003 and 2002:
Summary Compensation Table
Long Term
Compensation
---------------
Annual Compensation (a) Securities
---------------------------- Underlying All Other
Name and Principal Position Year Salary ($)(b) Bonus($) Options/SARs(#) Compensation($)(c)
--------------------------- ---- ------------- -------- --------------- ------------------
Merrill W. Sherman 2004 425,034 246,000 19,250 11,095
(President and CEO of both 2003 386,100 0(d) 18,900 14,677
Bancorp and the Bank) 2002 374,037 215,500 22,750 13,314
Donald C. McQueen 2004 210,293 107,500 9,350 8,433
(Vice President and Assistant Secretary of 2003 195,525 0(d) 7,100 8,288
Bancorp and Executive Vice President and 2002 186,766 89,500 7,725 7,901
Chief Operating Officer of the Bank)
Albert R. Rietheimer 2004 179,495 69,200 7,450 7,670
(Chief Financial Officer of both Bancorp and 2003 167,825 0(d) 6,100 6,774
the Bank and Treasurer of Bancorp) 2002 164,054 60,000 6,625 6,192
James V. DeRentis 2004 166,998 69,200 7,000 6,920
(Executive Vice President - Retail 2003 148,435 0(d) 5,400 6,093
Banking & Marketing of the Bank) 2002 143,382 60,000 5,850 5,868
Linda H. Simmons (e) 2004 64,442 90,000(f) 10,000 0
(Executive Vice President - Finance
and Treasurer of the Bank)
--------------------
(a) Any perquisites or other personal benefits received from the Company
by the Named Executive Officer were substantially less than 10% of
the individual's cash compensation.
(b) Includes portion of salary deferred under the 401(k) Plan and the
Nonqualified Deferred Compensation Plan.
(c) Amounts paid in 2004 include the Company's contributions under the
Company's 401(k) Plan in the amounts of $8,200, $7,895, $7,180 and
$6,680 and imputed income resulting from premiums paid by the Company
with respect to split dollar life insurance purchased for such
executives in the amounts of $2,895, $538, $490 and $240 for Ms. M.
Sherman and Messrs. D. McQueen, A. Rietheimer and J. DeRentis,
respectively.
(d) The executive management team volunteered to forgo any salary
increase or bonuses for 2003 in conjunction with developing the
Company's 2003 budget. Accordingly, the absence of 2003 bonuses
should not be construed as reflecting a negative assessment of
executive management's performance in 2003.
(e) Ms. Simmons' employment commenced in September 2004.
(f) Includes signing bonus in the amount of $30,000.
9
Option/SAR Grants in Last Fiscal Year
The following table provides information on option grants in 2004 to
the Named Executive Officers. The Company has not issued stock
appreciation rights.
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration Grant Date
Name Granted(#) Fiscal Year ($/Sh) Date Value($)a)
---- ------------ ------------ -------- ---------- ----------
Merrill W. Sherman 5,000(b) 4.7% 32.43 01/26/2014 44,150
14,250(c) 13.4% 32.91 04/26/2014 132,668
Donald C. McQueen 4,000(b) 3.8% 32.43 01/26/2014 35,320
5,350(c) 5.0% 32.91 04/26/2014 49,809
Albert R. Rietheimer 3,000(b) 2.8% 32.43 01/26/2014 26,490
4,450(c) 4.2% 32.91 04/26/2014 41,430
James V. DeRentis 3,000(b) 2.8% 32.43 01/26/2014 26,490
4,000(c) 3.8% 32.91 04/26/2014 37,240
Linda H. Simmons 10,000(d) 9.4% 35.50 9/16/2014 97,900
(a) Amounts represent the fair value of each option granted and were
estimated as of the date of the grant using the Black-Scholes option-
pricing model with the following weighted average assumptions:
expected volatility of 25%; expected life of 7 years; average risk-
free interest rate of 3.68%; and average Common Stock dividend rate
of 1.71%.
(b) These options are nonqualified stock options exercisable immediately
in full on January 26, 2004 and were made in lieu of bonuses which
the executives agreed to forego in 2003.
(c) These options are nonqualified stock options exercisable in four
equal installments commencing April 26, 2004.
(d) These options are incentive stock options exercisable in four equal
installments commencing September 16, 2004.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Year-End Option/SAR Values
The following table sets forth certain information regarding stock
options exercised during 2004 and currently outstanding options held by the
Named Executive Officer as of December 31, 2004:
Number of Securities Value of
Underlying Unexercised Unexercised
Options/SARs at Fiscal In-the-Money
Shares Acquired Value Year End 2004 Option/SARs($)(a)
Name on Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- ----------- ------------------------- -------------------------
Merrill W. Sherman 10,000 250,200 174,726/25,824 4,465,274/328,242
Donald C. McQueen 17,360 429,718 19,763/12,212 333,114/178,784
Albert R. Rietheimer 0 0 49,178/10,597 1,221,496/158,253
James V. DeRentis 0 0 26,690/9,310 594,655/137,473
Linda H. Simmons 0 0 2,500/7,500 10,300/30,900
(a) Based on the December 31, 2004 closing sale price of the Common Stock
of $39.62 less the exercise price of the options.
Employment Agreements. The Company entered into employment
agreements with Ms. Sherman and Messrs. McQueen, Rietheimer and DeRentis in
December 2000, and with Ms. Simmons in September 2004, which provide that
during the term of the contract, their base salary will not be reduced and
they will remain eligible for participation in the Company's executive
compensation and benefit programs.
Ms. Sherman's agreement provides for a three-year term, which
automatically renews for successive three-year terms on each successive
one-year anniversary unless either party has given the other party written
notice of election not to extend the term at least 90 days prior to any
anniversary date. In the event Ms. Sherman's employment is terminated by
the Company without cause or Ms. Sherman terminates her employment for
"Good Reason," the Company must pay her a lump sum severance payment equal
to 2.99 times the sum of (i) her annual
10
base salary as in effect at the time of termination and (ii) an amount
equal to the average executive cash bonus earned by Ms. Sherman in the two
full fiscal years immediately preceding the year in which termination
occurs, and continue to pay for all medical and life insurance coverage for
36 months. Ms. Sherman is also allowed continued use of the automobile
provided to her in her agreement (with an option to purchase). In
addition, any options which are exercisable on the date of termination
shall not terminate until the earlier of their expiration or three years
after the date of termination. "Good Reason" is defined in Ms. Sherman's
agreement as (i) a significant reduction in the nature or scope of her
duties, responsibilities, authority and powers; (ii) any requirement that
she perform her duties at a location more than 50 miles from where she
currently performs her duties; or (iii) failure of the Company either to
renew the agreement or enter into a new agreement on terms not less
favorable than those existing immediately prior to such nonrenewal (other
than a reduction of fringe benefits required by law or applicable to all
employees generally).
In the event of a "Terminating Event" within one year of a "Change in
Control," Ms. Sherman is entitled to receive as severance an amount equal
to 2.99 times the sum of (i) her annual base salary in effect at the time
of the Change in Control plus (ii) the amount of the largest annual bonus
paid to Ms. Sherman in the three years preceding the Change in Control,
payable in a lump sum. In addition, Ms. Sherman is entitled to receive
continuing medical and life insurance benefits and use of the automobile
provided to her in the agreement (with an option to purchase), for three
years. All options vest upon a Change in Control and remain exercisable
for such three-year period. A "Terminating Event" for this purpose means
either (a) termination of employment for any reason other than for cause or
(b) resignation, death or disability following (i) a Takeover Transaction
or (ii) a Change in Control resulting from a new Board supermajority, in
either case, prior to the first anniversary of the Takeover Transaction or
Change in Control.
The agreements with Messrs. McQueen, Rietheimer and DeRentis and Ms.
Simmons provide for a two-year term, which automatically renews for
successive two-year terms on each successive one year anniversary unless
either party has given the other party written notice of election not to
renew at least 90 days prior to any anniversary date. According the
agreements with Messrs. McQueen, Rietheimer and DeRentis, if the Company
terminates the employment relationship without cause or the executive
terminates their employment for "Good Reason", the executive would be
entitled to continuance of his base salary and all medical and life
insurance coverage for 18 months following the date of termination. Under
the terms of the agreement with Ms. Simmons, the term of such continuance
of base salary and medical and life insurance coverage is nine months
following the date of termination. Messrs. DeRentis and McQueen forfeit
their severance payments in the event that within one year of the date of
termination they accept certain types of positions as specified in their
agreements. In the event Ms. Simmons commences other full-time employment
within her severance period, her severance will be reduced by the amount of
compensation she receives from such employment, and she will forfeit all
medical and life insurance coverage. "Good Reason" is defined in the
agreements of Messrs. Rietheimer, McQueen, DeRentis and Ms. Sherman as the
Company's failure to renew the agreement on any anniversary date or enter
into a new employment agreement on substantially similar terms.
The agreements with Messrs. McQueen, Rietheimer, DeRentis and Ms.
Simmons provide that in the event of a "Terminating Event" within one year
of a Change in Control, the executive is entitled to receive a severance
benefit equal to two times the sum of (i) his annual base salary in effect
at the time of the Change in Control, and (ii) an amount equal to the
largest executive cash bonus earned by the executive in the two years
preceding the Change in Control, payable in a lump sum. In addition, each
executive shall continue to receive medical and life insurance coverage for
the 24 months commencing on the date of the Terminating Event. A
"Terminating Event" means for this purpose either (a) termination of
employment for any reason other than death, disability or for cause or (b)
resignation following (i) a significant reduction in the nature or scope of
the executive's duties, responsibilities, authority and powers from those
exercised prior to the Change in Control, (ii) a greater than 10% reduction
in the executive's annual base salary or fringe benefits (other than
across-the-board salary reductions or changes in fringe benefit plans),
(iii) a requirement that the executive perform duties at a location more
than 50 miles from the location where such duties were performed prior to
the Change in Control, or (iv) failure of any successor of the Company to
continue the executive's employment on substantially similar employment
terms.
If payments under the employment agreements following a Change in
Control are subject to the "golden parachute" excise tax, the Company will
make a "gross-up" payment sufficient to ensure that the net after-tax
11
amount retained by the executive (taking into account all taxes, including
those on the gross-up payment) is the same as if such excise tax had not
applied.
For purposes of all of the agreements, a "Change in Control" will be
deemed to have occurred if: (1) the Company effectuates a Takeover
Transaction; or (2) the Company commences substantive negotiations with a
third party with respect to a Takeover Transaction, if within 12 months of
the commencement of such negotiations, the Company enters into a definitive
agreement with respect to a Takeover Transaction with any party with which
negotiations were originally commenced; or (3) any election of directors of
the Company (whether by the directors then in office or by the shareholders
at a meeting or by written consent) where a majority of the directors in
office following such election are individuals who were not nominated by a
vote of two-thirds of the members of the Board of Directors immediately
preceding such election; or (4) the Company effectuates a complete
liquidation of Bancorp or the Bank.
A "Takeover Transaction" for this purpose means a (i) reorganization,
merger, acquisition or consolidation of Bancorp or the Bank with, or an
acquisition of Bancorp or the Bank or all or substantially all of Bancorp's
or the Bank's assets by, any other bank or corporation, in which the
individuals and entities who were the "beneficial owners" (as defined in
Rule 13d-3 under the Exchange Act) immediately prior to such
reorganization, merger, acquisition or consolidation, do not, following
such reorganization, merger, acquisition or consolidation, beneficially own
more than 50% of the voting power of the corporation resulting from the
reorganization, merger, acquisition or consolidation, (ii) the issuance of
additional shares of Bancorp or the Bank if the individuals or entities who
were the beneficial owners of the outstanding voting securities of Bancorp
or the Bank immediately prior to such issuance do not, following such
issuance, beneficially own securities representing more than 50% of the
voting power of Bancorp or the Bank or (iii) when any person or entity or
group of persons or entities (other than Bancorp or any trustee or other
fiduciary holding securities under an employee benefit plan of Bancorp)
either related or acting in concert becomes the beneficial owner of
securities of the Company representing more than 30% of the voting power of
all outstanding shares of voting securities of Bancorp, other than a person
who was already a 30% beneficial owner as of the date on which the
executive's employment with the Company commenced.
401(k) Retirement Plan. The Company maintains a 401(k) Plan which
qualifies as a tax-exempt plan and trust under sections 401 and 501 of the
Internal Revenue Code of 1986, as amended. Generally, Company employees who
are at least 21 years of age and have completed at least one year of
service with the Company, are eligible to participate in the 401(k) Plan.
Under the 401(k) Plan the Company will make matching contributions of up to
4% of an employee's compensation, subject to qualified plan limitations.
These contributions are vested monthly.
Nonqualified Deferred Compensation Plan. The Company maintains a
nonqualified deferred compensation plan under which certain participants
may contribute the amounts they are precluded from contributing to the
Company's 401(k) Plan because of the qualified plan limitations, and
additional compensation deferrals which may be advantageous for personal
income tax or other planning reasons. In addition, under the deferred
compensation plan participants receive an amount of employer matching
contributions that they have lost under the Company's 401(k) Plan as a
result of the nondiscrimination rules applicable to qualified plans. All
amounts contributed by the participant and by the Company under the plan
are immediately vested. Any excess contributions which cannot be
contributed under the 401(k) Plan and which would otherwise be returned to
the participant at the end of the year, plus the amount of any supplemental
deferrals the participant may choose to make, and any matching
contributions provided for under the plan are credited to a deferred
compensation account (a bookkeeping account) which is credited with
interest at a rate equal to the greater of the Baa1 30-year corporate bond
index, or the Company's projected rate of return on average earning assets
as reflected in its budget for such year.
Participants are entitled to receive a distribution of their account
upon retirement, death, disability or termination of employment except that
any amounts attributable to employer contributions under the nonqualified
plan are subject to forfeiture if the participant is terminated for fraud,
dishonesty or willful violation of any law that is committed in connection
with the participant's employment. A participant is eligible to withdraw
amounts credited to the deferred compensation account in the event of
unforeseeable financial hardship.
12
The amount deferred under the plan is not includible in the income of
the participant until paid and, correspondingly, the Company is not
entitled to a deduction for any liabilities established under the plan
until the amount credited to the participant's deferred compensation
account is paid to him or her.
The amount credited to the deferred compensation account is not
funded or otherwise set aside or secure from the creditors of the Company
and the participant is subject to the risk that deferred compensation may
not be paid in the event of the Company's insolvency or the Company is
otherwise unable to satisfy the obligation. The plan permits (but does not
require) the Company to establish a grantor trust for the purpose of
funding the plan. If such a trust were created, the corpus of the trust
would, under current federal income tax regulations, have to be available
to creditors of the Company in the event of insolvency or bankruptcy in
order to prevent adverse income tax consequences to the participant.
Supplemental Executive Retirement Plans. The Company has adopted two
Supplemental Executive Retirement Plans (each a "SERP") for certain of its
senior executives under which participants designated by the Board are
entitled to an annual retirement benefit. Currently, Ms. Sherman and
Messrs. Rietheimer, McQueen and DeRentis (collectively, the "2000 SERP
Participants") are the only participants in the 2000 SERP. The annual
retirement benefit under the 2000 SERP is $250,000 for Ms. Sherman, $50,000
for Messrs. Rietheimer and McQueen and $35,000 for Mr. DeRentis and is
payable upon the later of the executive attaining age 65 or the executive's
retirement. Under the 2002 SERP, effective November 1, 2002, the 2000 SERP
Participants are entitled to a supplemental retirement benefit which, when
added to the annual retirement benefit provided under the 2000 SERP, would
provide an aggregate annual retirement benefit equal to 70% of
compensation, reduced by the employer contribution under the 401(k) plan
and any social security offset. Under the SERPs, the Company will also
provide a pre-retirement death benefit equal to the projected age 65
accrual balance and a post-retirement death benefit for the participant
equal to the accrual balance at the date of the SERP participant's death,
provided that Ms. Sherman's additional pre-retirement death benefit under
the 2002 SERP is limited to her accrual balance at date of death under the
2002 SERP. On January 20, 2005, the 2002 SERP was amended to provide Ms.
Simmons a $50,000 annual retirement benefit with a pre-retirement death
benefit equal to the projected age 65 accrual balance and a post-retirement
death benefit equal to the accrual balance at the date of the her death.
The pre-retirement and post-retirement death benefits (other than Ms.
Sherman's additional death benefit under the 2002 SERP) are funded through
life insurance policies on the lives of the SERP participants purchased and
owned by the Bank, which contain a split dollar endorsement in favor of the
SERP participants.
The benefit for each current 2000 SERP Participants is fully vested.
The benefits under the 2002 SERP vest beginning on November 1, 2005 in the
case of Ms. Sherman, November 1, 2008 for Messrs. Rietheimer, Mcqueen and
DeRentis and November 1, 2010 for Ms. Simmons. Benefits under the 2002
SERP vest in 20% increments such that the accrual balance would be fully
vested on the fourth anniversary of the first vesting date. Thus, if an
executive left at end of the vesting period, he or she would be 100% vested
in their 2002 SERP accrual balance (i.e., the amount the Company has
accrued to reflect the liability), but not the full benefit, resulting in a
reduced retirement benefit in the event of early retirement. The executive
is required to remain employed at the Company until age 65 to get the full
2002 SERP benefit. The full benefit will vest immediately upon death. In
addition, in the event of a Change of Control, Ms. Sherman and Messrs.
Rietheimer, McQueen and DeRentis become fully vested in the greater of (i)
the retirement benefit calculated in accordance with the 70% formula
described above or (ii) a specific annual Change of Control Benefit Amount,
which is intended to approximate the formula amount. The current Change of
Control Benefit Amount is $131,034 for Ms. Sherman, $190,850 for Mr.
DeRentis, $193,953 for Mr. McQueen, and $168,179 for Mr. Rietheimer. In
the case of Ms. Simmons, in the event of a Change of Control, she will
become fully vested in the $50,000 annual benefit.
The SERPs are unfunded but provide that upon a Change in Control, the
Company must deposit funds in a trust equal to the present value of all
accrued benefits provided under both SERPs and thereafter make annual
additional deposits to reflect any increases in the accrued benefits. All
benefits are forfeited in the event that the participant's employment is
terminated on account of a criminal act of fraud, misappropriation,
embezzlement or a felony that involves property of the Company.
13
Compensation Committee Interlocks and Insider Participation
None of the Company's executive officers serves as a member of the
board of directors or compensation committee of any entity that has one or
more of its executive officers serving as a member of the Company's
Compensation Committee. In addition, none of the Company's executive
officers serves as a member of the compensation committee of any entity
that has one or more of its executive officers serving as a member of the
Company's Board of Directors.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board (the "Compensation
Committee") is composed entirely of independent directors as defined under
applicable requirements of the Nasdaq listing standards, non-employees
within the meaning of Rule 16b-3 of the Exchange Act and outside directors
within the meaning of Section 162(m) of the Internal Revenue Code. From
time to time, Ms. Sherman meets with the Compensation Committee to review
the compensation program and make recommendations for executives reporting
to her. Ms. Sherman does not participate during deliberations regarding
her compensation. The Compensation Committee is charged with the broad
responsibility of seeing that officers and key management personnel are
effectively compensated in a manner which is internally equitable and
externally competitive. From time to time, the Compensation Committee
utilizes various consultants to assist it in its review and evaluation of
the Company's compensation program for executives and other senior
management.
Executive Compensation Philosophy. The Company's executive
compensation philosophy seeks to link executive compensation with the
value, objectives, business strategy, management initiatives and financial
performance of the Company. The overall objectives of the program are to
attract and retain highly qualified individuals in key executive positions,
to motivate executives to achieve goals inherent in the Company's business
strategy, and to link executives' and Shareholders' interests. The Company
also seeks to achieve a balance of the compensation paid to a particular
individual and the compensation paid to other executives both inside the
Company and at comparable corporations and to remain competitive with
larger financial institutions in its marketplace with which the Company
competes for executive talent.
In 2004, the Compensation Committee directly engaged an outside
consulting firm to prepare an executive compensation study. The study
provided comparative information on various components of compensation and
total compensation against a representative peer group of financial
institutions. In the course of its review of executive compensation, the
Compensation Committee sought the advice and input of both its outside
compensation consultant and Company management. This compensation review
confirmed that our compensation program elements individually and in the
aggregate support and reflect our compensation philosophy and strategic
objectives, both on a cash and long-term incentive basis.
Base Salary. Base salaries for executive officers are substantially
dependent upon the base salaries paid for comparable positions at similar
corporations, the responsibilities of the position held, and the experience
level of the particular executive officer. The Compensation Committee sets
the base salary for executives by reviewing compensation for competitive
positions in the market and the historical compensation levels of the
executives. As part of the overall review of the Company's executive
compensation program undertaken in 2004, salaries of certain of the
Company's executives were increased, effective September 2004, to reflect
promotions and increased responsibilities. The Compensation Committee
generally sought, through these increases, to place such salaries at the
median of the survey group.
Cash Bonus Policy. In keeping with the Company's philosophy to pay
for performance, cash bonuses tied to performance measures represent a
substantial portion of an executive's total compensation opportunity.
Under the cash bonus policy, executive officers of the Company are eligible
to receive bonuses of up to 40% (60% in the case of the Chief Executive
Officer and 50% in the case of the Chief Operating Officer of the Bank) of
their base salaries. All bonuses for executive officers are determined at
the discretion of the Compensation Committee, which annually establishes
specific financial goals and performance criteria for the executive
management team. In 2004, the bonus awards were keyed to achieving or
exceeding budgeted net income. The Compensation Committee generally seeks
to award bonuses for superior performance that bring total cash
compensation to the 75th percentile
14
of the survey group. Based upon the 2004 executive compensation study
commissioned by the Compensation Committee, total cash compensation for the
Named Executive Officers falls within that targeted level.
Stock Options. Total compensation at the senior executive level also
includes long-term incentives afforded by stock options granted under the
2002 Equity Incentive Plan. The objectives of the equity incentive
programs are to align executive and Shareholder long-term interests by
creating a strong and direct link between executive pay and total
Shareholder return, and to enable executives to develop and maintain a
significant, long-term stock ownership position in Bancorp's Common Stock.
Annual grants of stock options reflect the executive's position with the
Company and his or her contributions to the Company and are awarded at a
level such that the aggregate exercise price the options equals 85% to 115%
of the executive's annual salary, which the Company believes to be
competitive with other comparable companies. Options are granted at fair
market value and have three to four year vesting schedules to encourage key
employees to continue in the employ of the Company. The Compensation
Committee is currently evaluating whether to provide a portion of this
long-term equity award through restricted stock in lieu of options.
Compensation of Chief Executive Officer. The Company's employment
agreements with Ms. Sherman and the other Named Executive Officers provide
for annual base salary adjustments and entitle the executive to a cash
bonus under the Company's cash bonus policy described above. However, the
Company's Named Executive Officers, including Ms. Sherman, proposed to
forego any salary increase or bonuses in 2003 in view of the expected
negative impact that planned investments in the Company's franchise, such
as the new operations center and new core data processing system, would
have on the Company's 2003 earnings. They also did so, in part, to gain
acceptance within the Company of modest salary increases and reduced bonus
levels for other employees. Accordingly, base salaries for Ms. Sherman and
the other Named Executive Officers were maintained during 2003 at levels
established in May 2002 and no bonus was awarded to Ms. Sherman or the
other Named Executive Officers in fiscal year 2003. In January 2004, the
Compensation Committee increased Ms. Sherman's base salary from $386,100 to
$410,000, effective January 1, 2004, which represented a 6.2% increase.
(The Summary Compensation Table reflects a slightly higher number for 2004
due to an extra pay period falling within the year.) In establishing her
2004 base salary the Committee took into account that the executive
management team, including Ms. Sherman, had voluntarily foregone a raise in
2003. In February 2005, the Compensation Committee awarded Ms. Sherman a
cash bonus of $246,000, representing Ms. Sherman's maximum bonus
opportunity under the executive cash bonus policy, in recognition of the
strong financial performance of the Company during 2004 and Ms. Sherman's
contribution to the Company's growth and profitability. Ms. Sherman also
received options to acquire 19,250 shares of Common Stock which included a
special grant for 5,000 shares made in lieu of a cash bonus for 2003. The
Compensation Committee has reviewed all components of Ms. Sherman's
compensation, including salary, bonus and equity compensation, accumulated
realized and unrealized stock option and restricted stock gains, the dollar
value to her and cost to the Company of all perquisites and other personal
benefits and the projected payout obligations under the SERP. Based on
this review, the Compensation Committee has determined Ms. Sherman's total
compensation in the aggregate to be reasonable and not excessive.
Compliance with Internal Revenue Code Section 162(m). Section 162(m)
of the Internal Revenue Code generally disallows a tax deduction to public
companies for compensation over $1 million paid to a company's chief
executive officer and the four other most highly compensated executive
officers at year end. Qualifying performance-based compensation will not
be subject to the deduction limit if certain requirements are met. The
Committee's policy is to preserve corporate tax deductions by qualifying
compensation paid over $1 million to Named Executive Officers as
performance-based compensation. Nevertheless, maintaining tax
deductibility is but one consideration among many (and is not the most
important consideration) in the design of the compensation program for
senior executives. The Committee may, from time to time, conclude that
compensation arrangements are in the best interest of the Company and its
shareholders despite the fact that such arrangements might not, in whole or
in part, qualify for tax deductibility.
Conclusion. The Committee believes that the compensation program for
executives is competitive and that the program effectively ties executive
compensation to the Company's performance and Bancorp's resultant stock
price performance.
15
Compensation Committee
JOHN R. BERGER - Chairman
ANTHONY F. ANDRADE MEREDITH A. CURREN
EDWARD J. MACK II PABLO RODRIGUEZ, M.D.
Notwithstanding anything to the contrary set forth in any of
Bancorp's previous filings under the Exchange Act that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
foregoing Compensation Committee Report on Executive Compensation and the
following Performance Graph shall not be deemed incorporated by reference
into any such filing.
PERFORMANCE GRAPH
The following graph shows changes in the value of $100 invested on
December 31, 1999 through December 31, 2004, in Bancorp's Common Stock, the
S&P 500 Stock Index, and the SNL Financial L.C. New England Bank Index.
The investment values are based on share price appreciation plus dividends
paid in cash, assuming that dividends were reinvested on the date on which
they were paid.
[GRAPH]
Period Ending
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Index 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04
--------------------------------------------------------------------------------------------------------
Bancorp Rhode Island, Inc. 91.64 122.18 172.51 232.43 342.52 457.40
S&P 500* 121.11 110.34 97.32 75.75 97.40 89.47
SNL New England Bank Index 93.48 123.28 117.49 88.63 146.23 165.45
--------------------
* Source: CRSP, Center for Research in Security Prices, Graduate
School of Business, The University of Chicago 2005.
Used with permission. All rights reserved. crsp.com.
16
The Board of Directors and its Compensation Committee recognize that
the market price of stock is influenced by many factors, only one of which
is issuer performance. Bancorp's stock price may also be influenced by
market perception, Bancorp in particular and the financial services
industry in general, economic conditions, fluctuating interest rates, and
government regulation and supervision. The stock price performance shown
in the graph is not necessarily indicative of future price performance.
TRANSACTIONS WITH MANAGEMENT
The Company has extended loans to certain of its officers, directors,
and principal shareholders, including their immediate families and
affiliated companies ("related parties"). Loans outstanding to related
parties aggregated $5.0 million at December 31, 2004. Loans to related
parties are made in the ordinary course of business under normal credit
terms, including interest rates and collateral, prevailing at the time of
origination for comparable transactions with other persons, and do not
represent more than a normal risk of collectibility or other unfavorable
features.
The law firm of Hinckley, Allen & Snyder LLP, of which Margaret D.
Farrell (a director and Secretary of the Company) is a partner, provides
legal services to the Company. In addition, the spouse of director Edward
J. Mack II is also a partner in Hinckley, Allen & Snyder LLP.
AUDIT COMMITTEE REPORT
Management is responsible for the Company's internal controls and
financial reporting process. The independent accountants are responsible
for performing an audit of the Company's consolidated financial statements
in accordance with generally accepted auditing standards and to issue a
report thereon. The Audit Committee's responsibility is to monitor and
oversee these processes.
The Audit Committee's responsibilities focus on two primary areas:
(1) the adequacy of the Company's internal controls and financial reporting
process and the reliability of the Company's financial statements; and (2)
the independence and performance of the Company's internal auditors and
independent auditors. The Audit Committee meets at least quarterly to, as
appropriate, review, evaluate, and discuss with the Company's management
and internal and external auditors the scope of their audit plans, the
results of their work, the Company's financial statements (including
quarterly earnings releases), quarterly reports issued by the Company's
internal auditor, the adequacy and effectiveness of the Company's internal
controls and changes in accounting principles. The Audit Committee
regularly meets privately with both the internal and external auditors,
each of whom has unrestricted access to the Audit Committee.
In connection with these responsibilities, the Audit Committee
reviewed and discussed the Company's audited financial statements for the
fiscal year ended December 31, 2004 with management and the Company's
independent accountants, KPMG LLP. The Audit Committee also discussed with
KPMG LLP the matters required by Statement on Auditing Standards No. 61.
The Audit Committee received from KPMG LLP written disclosures regarding
the firm's independence as required by Independence Standards Board
Standard No. 1, wherein KPMG LLP confirms their independence within the
meaning of the SEC and Independence Standards Board Rules and disclosed the
fees charged for professional services in the fiscal year ended December
31, 2004. The Audit Committee discussed this information with KPMG LLP and
also considered the compatibility of non-audit services provided by KPMG
LLP with maintaining its independence. The Audit Committee also reviewed
KPMG LLP's proposal to act as the Company's external auditor for the year
ending December 31, 2005.
Based on the review of the audited financial statements and these
various discussions, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K, to be filed with the SEC.
Audit Committee
KARL F. ERICSON - Chairman
ERNEST J. CHORNYEI, JR. MEREDITH A. CURREN CHERYL W. SNEAD
17
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has sole authority to select, evaluate and when
appropriate, to replace the Company's independent auditors. The Audit
Committee has appointed KPMG LLP as the Company's independent auditors for
the 2005 fiscal year. Although action by shareholders in this matter is
not required, the Audit Committee believes it is appropriate to seek
shareholder ratification in light of the critical role played by the
independent auditors in maintaining the integrity of Company financial
controls and reporting and hereby requests Shareholders to ratify such
appointment.
The Board of Directors recommends a vote "FOR" the ratification of
the appointment of KPMG LLP as independent auditors.
KPMG LLP has served as independent auditor of the Company since the
Bank's formation in 1996. Representatives of KPMG LLP will be present at
the Meeting and will have an opportunity to make a statement if they so
desire and to respond to appropriate questions from Shareholders.
Independent Accountant Fees and Services
Aggregate fees for professional services rendered for the Company by
KPMG LLP as of or for the fiscal years ended December 31, 2004 and 2003 are
set forth below. The aggregate fees included in the Audit category are
billed for the fiscal years for the audit of the Company's annual financial
statements and review of financial statements and statutory and regulatory
filings or engagements. The aggregate fees included in each of the other
categories are fees billed in the fiscal years.
2004 2003
---- ----
Audit Fees $161,500 $153,800
Audit-Related Fees $200,000 0
Tax Fees $ 23,000 $ 23,000
All Other Fees $ 22,000 0
Audit Fees for the fiscal years ended December 31, 2004 and 2003 were
for professional services rendered for the audits of the financial
statements of the Company, quarterly review of the financial statements
included in the Company's Quarterly Reports on Form 10-Q, consents and
other assistance required to complete the year end audit of the
consolidated financial statements.
Audit Related Fees for fiscal year ended December 31, 2004 were for
compliance with Section 404 of the Sarbanes-Oxley Act.
Tax Fees as of the fiscal years ended December 31, 2004 and 2003 were
for services rendered for tax returns and estimates, tax advice and tax
planning.
All Other Fees as of the fiscal year ended December 31, 2004 were for
additional fees associated with the audit of the Company's financial
statements for the fiscal year ended December 31, 2003.
The Audit Committee has determined that the provision of the above
services is compatible with maintaining KPMG LLP's independence.
Policy on Audit Committee Pre-Approval. The Audit Committee pre-
approves all audit and non-audit services provided by the independent
accountants prior to the engagement of the independent accountants with
respect to such services. The Chairman of the Audit Committee has been
delegated the authority by the Committee to pre-approve the engagement of
the independent accountants when the entire Committee is unable to do so.
The Chairman must report all such pre-approvals to the entire Audit
Committee at the next committee meeting. None of
18
the services described above were approved by the Audit Committee under the
de minimus exception provided by Rule 2-01(C)(7)(i)(c) under Regulation S-X.
OTHER BUSINESS OF THE MEETING
The Board of Directors is not aware of any matters to come before the
Meeting other than those stated in the Proxy Statement. In the event that
other matters properly come before the Meeting or any adjournment thereof,
it is intended that the persons named in the accompanying proxy and acting
thereunder will vote in accordance with their best judgment.
ANNUAL REPORT AND FORM 10-K
The 2004 Annual Report of Bancorp was mailed to Shareholders with
this Proxy Statement. Upon request, Bancorp will furnish without charge a
copy of Bancorp's Annual Report on Form 10-K for the fiscal year ended
December 31, 2004, including financial statements, but without exhibits, a
copy of which has been filed with the SEC. It may be obtained by writing
to Investor Relations Department, Bancorp Rhode Island, Inc., One Turks
Head Place, Providence, Rhode Island 02903.
SHAREHOLDER PROPOSALS FOR 2006
Bancorp's next annual meeting is scheduled to be held on May 17,
2006. A Shareholder who wants to have a qualified proposal considered for
inclusion in the Proxy Statement for the Company's 2006 annual meeting of
Shareholders must notify the Secretary of Bancorp not later than December
23, 2005. Shareholder proposals that are to be considered at the 2006
annual meeting but not requested to be included in the Proxy Statement must
be submitted no later than March 18, 2006 and no earlier than December 23,
2005.
19
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
REVOCABLE PROXY
BANCORP RHODE ISLAND, INC.
Proxy Solicited on Behalf of the Board of Directors
for Annual Meeting of
Shareholders to be held May 18, 2005
The undersigned hereby authorizes and appoints Malcolm G. Chace,
Merrill W. Sherman, and Albert R. Rietheimer, and each of them, as proxies
with full power of substitution in each, to vote all shares of Common
Stock, par value $.01 per share, of Bancorp Rhode Island, Inc. (the
"Company") held of record on April 1, 2005 by the undersigned at the Annual
Meeting of Shareholders to be held at 10:00 a.m. local time, on Wednesday,
May 18, 2005, at the Hotel Providence, 311 Westminster Street, Providence,
Rhode Island, and at any adjournments or postponements thereof, on all
matters that may properly come before said meeting.
THE DIRECTORS RECOMMEND A VOTE FOR EACH PROPOSAL.
With- For All
For hold Except
PROPOSAL 1 - Election of five Class III [ ] [ ] [ ]
Directors with terms expiring in 2008.
Class III Directors (Term to Expire 2008)
Anthony F. Andrade
Malcolm G. Chace
Ernest J. Chornyei, Jr.
Edward J. Mack II
Merrill W. Sherman
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.
___________________________________________________________________________
For Against Abstain
PROPOSAL 2 - Ratify the appointment of [ ] [ ] [ ]
KPMG LLP as independent auditors for
the Company.
This proxy when properly executed will be voted (i) as directed above, or,
in the absence of such direction, this proxy will be voted FOR the
specified nominees in Proposal 1 and FOR Proposal 2 and (ii) in accordance
with the judgment of the proxies upon other matters that may properly come
before said meeting or any adjournments or postponements thereof.
---------------------------
Please be sure to sign and date |Date |
this Proxy in the box below. | |
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| |
| |
| |
---Shareholder sign above----------Co-holder (if any) sign above---
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Detach above card, sign, date and mail in postage paid envelope provided.
BANCORP RHODE ISLAND, INC.
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| This Proxy must be signed exactly as the name of the |
| Shareholder(s) appears on this card. |
| |
|Executors, administrators, trustees, etc. should give full title as such.|
|If the signatory is a corporation, please sign full corporate name by |
|duly authorized officer. |
| PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED |
| ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. |
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IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE
PROVIDED BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE
PROVIDED.
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