PROPOSAL 4
ADVISORY (NON-BINDING) VOTE ON THE FREQUENCY OF FUTURE
SHAREHOLDER VOTES TO APPROVE EXECUTIVE COMPENSATION
The Dodd-Frank Act also enables shareholders, at least once every six years, to vote on the frequency with which we will conduct shareholder
votes on the compensation of our named executive officers. This proposal gives the Companys shareholders the opportunity to advise the Board of Directors on how frequently they would like to vote on the compensation of executive officers:
every one, two or three years. Shareholders may also abstain from voting on the frequency of future shareholder say-on-pay votes on executive compensation.
Because the vote is advisory, it will not be binding on the Company or its Board of Directors. However, the Compensation Committee will
take into account the outcome of the vote when considering the frequency of future shareholder votes on executive compensation.
The Board
of Directors recommends an advisory say-on-pay vote every year because it believes that such frequency provides the highest level of accountability and
communication by having the shareholder vote correspond with the most recent compensation information presented in the proxy statement for the Companys annual meetings.
As stated above, this is an advisory vote only. Shareholders are not voting to approve or disapprove the recommendation of the Board of
Directors. The alternative receiving the greatest votes every year, every two years, or every three years will be the frequency that shareholders approve.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR A FREQUENCY OF ONE YEAR FOR FUTURE ADVISORY VOTES ON
EXECUTIVE COMPENSATION. WE STRONGLY ENCOURAGE YOU TO USE THE ENCLOSED WHITE PROXY CARD TO VOTE IN ACCORDANCE WITH THE BOARDS RECOMMENDATIONS.
EXECUTIVE COMPENSATION
General
This Executive Compensation section describes the Companys executive compensation philosophy and objectives, details the
elements of our executive compensation program, and explains how the Compensation Committee of the Companys Board of Directors arrived at its compensation decisions for our 2022 named executive officers (the named executive
officers) listed below. The discussion provides detailed information about 2022 executive compensation and a preview of how the Companys compensation program has changed in 2023.
2022 Named Executive Officers
|
|
|
Named
Executive Officer |
|
Title |
F. Brad Denardo |
|
Chairman, President and Chief Executive Officer |
|
|
Lora M. Jones |
|
Senior Vice President, Treasurer and Chief Financial Officer |
|
|
Paul M. Mylum |
|
Executive Vice President/Chief Lending Officer |
|
|
Lara E. Ramsey |
|
Executive Vice President/Chief Operating Officer |
|
|
David K. Skeens |
|
Senior Vice President/Senior Operations, Risk and Technology Officer |
The Company is a smaller reporting company as defined under SEC rules. As such, the Company is
exempt from various SEC reporting requirements. These exemptions include, but are not limited to, reduced disclosure obligations regarding executive compensation in our proxy statements. We have elected to comply with certain scaled disclosure
requirements applicable to smaller reporting companies but have provided selected additional disclosures to be consistent with our practice of transparency to our shareholders.
31
Executive Summary
Summary of Recent Changes
The Company aims to support the long-term interests of shareholders through its compensation programs, practices, and policies. The
Compensation Committee reviews on an ongoing basis the Companys executive compensation program to evaluate whether it supports the Companys executive compensation philosophies and objectives and is aligned with shareholder interests.
Despite the strong show of support of the Companys executive compensation program from shareholders at the 2022 Annual Meeting
(advisory approval of 93% of the votes cast), the Company has been encouraged by proxy advisory firms, including Institutional Shareholder Services Inc., to more closely align compensation with Company performance. ISS has also recommended that the
Company utilize long-term incentives to improve the long-term focus of the Companys overall compensation program. Driver has expressed similar concerns about the Companys compensation practices. In response to this feedback, the
Compensation Committee has engaged Meridian, a third-party independent compensation consulting firm, to assist the Company in a redesign of its executive compensation program. The Compensation Committee is taking a measured and deliberate approach
to the redesign of the program and as such, most of the changes will be effective for 2023 but have been part of a process that started in 2022. Actions that the Compensation Committee, along with the Board, has taken include the following:
|
|
|
Approving the National Bankshares, Inc. 2023 Stock Incentive Plan. If approved by shareholders at the
Annual Meeting, the plan will allow the Company to grant stock and stock-based awards to executive officers in lieu of cash compensation to directly incentivize such persons to create value for shareholders. The plan includes design features that
meet a number of the practices preferred by the institutional investment community. |
|
|
|
Revising the Annual Incentive Plan for Executives. The Company is addressing the need to balance
short-term operational performance with long-term shareholder value in our 2023 incentive plan for executives as follows: |
|
|
|
The Companys annual incentive plan will continue to reward executive officers on achievement of annual
financial metrics, but has been revised in 2023 to reduce the individual performance component for all named executive officers. Each of the named executive officers will have 80% of their incentive based on the Companys achievement of targets
for ROA and net income, with each metric weighted equally for the purposes of earning awards under the plan; the remaining 20% will be based on a qualitative individual assessment. |
|
|
|
Under the 2023 incentive plan, the named executive officers will receive 50% of their award payout in Company
common stock in the form of restricted stock units, and the remaining 50% will be paid in cash. The restricted stock units will vest in equal installments over a three-year period, with the vesting of each installment being contingent on the
Companys ROA being 1.15% or higher for the prior year. This new equity component to the incentive plan is contingent on shareholder approval of the National Bankshares, Inc. 2023 Stock Incentive Plan at the Annual Meeting.
|
2022 Financial Accomplishments
The Company had solid performance in 2022:
|
|
|
Net income grew $5.55 million, or 27.23%, when results for the years ended December 31, 2022 and 2021
are compared. |
|
|
|
Earnings per share were $4.33 in 2022, compared to earnings per share of $3.28 in 2021, a 31.91% increase year
over year. |
32
|
|
|
Dividend yield improved from 4.04% for the year ended December 31, 2021 to 4.27% for the year ended
December 31, 2022. |
|
|
|
Loans, net of unearned income and deferred cost, grew by $49.50 million, or 6.16%, when December 31,
2022 is compared with December 31, 2021. During 2022, the Company expanded its lending footprint, opening two new loan production offices in Charlottesville and Staunton, Virginia. |
|
|
|
Loan quality continues to reflect low credit risk, with net charge-offs of $155 thousand, or 0.02% of
average loans, for the year ended December 31, 2022. |
|
|
|
The return on average equity for the year ended December 31, 2022 was 17.81%, compared with 10.59% for the
year ended December 31, 2021. |
|
|
|
The return on average assets improved from 1.26% for the year ended December 31, 2021 to 1.52% for the year
ended December 31, 2022. |
Compensation Governance
Compensation Best Practices
The Company has implemented the following compensation-related best practices:
|
|
|
Provides a competitive pay opportunity that balances reward and retention |
|
|
|
Limits the use of perquisites |
|
|
|
Prohibits hedging or pledging of company stock by directors or executive officers |
|
|
|
Subjects incentive plan awards to a clawback policy |
|
|
|
Utilizes an independent compensation consultant |
|
|
|
Conducts risk assessment to ensure the compensation programs do not encourage inappropriate risk taking
|
|
|
|
Offers agreements with double trigger change of control termination and no excise tax gross-up |
Advisory Vote on Executive Compensation
The Companys shareholders approved the compensation of our named executive officers, as discussed and disclosed in the Companys
2022 proxy statement, in an advisory vote at our 2022 Annual Meeting of Shareholders. The advisory vote received the support of 93% of the votes cast (2,916,834 shares voted For and 210,340 shares voted Against). The
Compensation Committee considered the results of this advisory vote to be overwhelmingly favorable and concluded that the Companys overall pay practices have strong shareholder support.
Summary of Executive Compensation Actions
The following is a summary of actions taken by the Company in determining compensation for 2022:
|
|
|
Our President and Chief Executive Officer received a base salary increase of 5% and our other named executive
officers received base salary increases ranging from 3% to 16.85%. |
|
|
|
Under our 2022 annual incentive plan and based on achievements with respect to both the corporate financial and
individual performance components of the plan, the resulting payouts in terms of base salary was 30% for the President and Chief Executive Officer and 20% for our other named executive officers. |
|
|
|
We eliminated our historical practice of paying director fees to our President and Chief Executive Officer.
|
33
What Guides Our Program
Compensation Philosophy and Objectives
The Compensation Committee believes that the continued success of the Company in achieving its strategic objectives depends in large part on
the talent and leadership of its executives and the alignment of those executives with the interests of our shareholders. Accordingly, the Compensation Committees philosophy toward executive compensation can be summarized as follows:
|
|
|
Competitive Compensation. We offer compensation to our executive officers using various components
to appropriately balance income security with at-risk compensation. Compensation is positioned at a level that allows the Company to retain and recruit executive talent, is competitive with peer financial
institutions, and fits within the Companys conservative approach to managing overhead expenses. |
|
|
|
Pay-for-Performance. We provide compensation
opportunities that fairly reward executive officers for their contributions to the Companys annual and long-term business objectives. |
|
|
|
Promote Long-Term Share Ownership. Starting in 2023, if the National Bankshares, Inc. 2023 Stock
Incentive Plan is approved, we will use share ownership to support risk management efforts, balancing demands for short-term results with long-term consequences. |
|
|
|
Provide Reasonable Income Security. Certain named executive officers participate in a salary
continuation plan that provides income security through a fixed dollar income stream upon retirement, death, disability, and change in control. |
|
|
|
Mitigate Risk. We offer a compensation program that we do not believe materially increases, or has
the potential to materially increase, risk to the Company. This is accomplished through plan design, metric selection and goal setting, and compensation-related policies such as a clawback and anti-hedging and pledging policies.
|
Elements of Compensation
For 2022, total direct compensation for our named executive officers consists primarily of base salary and an annual cash incentive. Each of
these and other elements of compensation are described below.
|
|
|
Compensation Element |
|
Purpose |
Base Salary |
|
Provides a fixed amount of compensation to recognize the duties, responsibilities, and scope of influence of the executives role. The level of base salary also takes into consideration the executives experience, skills,
and prior performance. |
|
|
Annual Incentive Plan |
|
Rewards the achievement of annual goals for financial performance, as well as key annual individual goals that strengthen the business and position the Company for long-term success. |
|
|
Officers Salary Continuation Plan |
|
Provides income security through a fixed dollar income stream upon retirement, death, disability, and change in control. |
|
|
Other Compensation |
|
Named executive officers participate in the benefit and retirement programs generally available to all full-time Company employees with the purpose of providing health, welfare and financial stability. Perquisites are generally
limited to those that assist our named executive officers in conducting their business duties productively. Change-in-control and other separation benefits are provided
to ensure that executives act in the best interest of the Company regardless of future employment status. |
34
Compensation Positioning and Mix
The Company strives to maintain an executive compensation program (both individual components and in the aggregate) that is competitive with
the market. Compensation level and pay mix decisions generally are made on three factors: (1) the market range for each role; (2) the knowledge, skills and experience of the executive; and (3) the executives time in role and
performance. In general, incentive opportunities place a greater emphasis on variable compensation depending on the executives ability to influence the performance of the Company as a whole.
The Decision-Making Process
Role of the Compensation Committee
The
Compensation Committee operates under a written charter that is reviewed and approved annually by the Board. A copy of this charter is available under www.nationalbankshares.com/Corporate-Governance.
Pursuant to its charter, the Compensation Committee is charged with annually evaluating the performance of the Companys President and
Chief Executive Officer and determining the appropriate compensation and benefits package for him. As authorized by its charter, the Compensation Committee has delegated to Mr. Denardo the responsibility for evaluating the performance and
setting the compensation of the other named executive officers, and he reports to the Compensation Committee at least annually about those matters.
In carrying out its responsibilities, the Compensation Committee meets at least twice each year. There are no officers or employees present at
the Compensation Committees annual meeting to evaluate the performance of the President and Chief Executive Officer and to determine his compensation. The Compensation Committee considers the Companys financial performance data,
information about the financial performance of peer institutions, and salary data from salary surveys and publicly available sources. The Compensation Committee also monitors the results of the annual advisory say-on-pay vote and incorporates such results as one of many factors considered in connection with the discharge of its responsibilities, although no such factor is assigned a quantitative
weighting.
Role of Executives in Establishing Compensation
The President and Chief Executive Officer is not present during executive sessions of the Compensation Committee at which his performance and
compensation are discussed. For all other named executive officers, the President and Chief Executive Officer plays a role in the design and implementation of our compensation program, and provides the Compensation Committee with a report on the
performance and compensation of such officers. The President and Chief Executive Officer and other members of management may attend meetings from time to time at the request of the Compensation Committee to provide reports and information on agenda
topics.
Independent Compensation Consultant
The Compensation Committee did not engage a compensation consultant to assist with data or compensation decision making for 2022 pay decisions.
In the Fall of 2022, the Company engaged Meridian, an independent compensation consulting firm, to assist the Compensation Committee and
the Board in revising the incentive compensation plan so that equity awards are a meaningful component of total compensation for executive officers.
35
Executive Compensation Decisions in 2022
Base Salary
President and Chief Executive Officer
The base salary for Mr. Denardo was determined by the Compensation Committee after considering compensation for chief executive officers
reported in the Virginia Bankers Associations annual salary survey and from the public documents of peer financial institutions that disclose salaries paid to other individuals holding similar positions. The Compensation Committee determines
annual salary increases for Mr. Denardo after assessing his contributions to the success of the Company. In measuring the Companys success, the committee reviews the Companys financial results, including the Companys ROA and
return on equity (ROE). Based on the Companys performance in 2021, on March 1, 2022, the Compensation Committee set Mr. Denardos 2022 salary at $546,000, which was an increase over his salary in 2021. The committee
also considered Mr. Denardos extensive tenure and long track record of success in profitably leading the Company and the Bank and in managing risks to the Company and the Bank during the challenging economic environment in 2021. Although
the committee reviews peer compensation in determining Mr. Denardos salary increase, it does not utilize an objective formula. The committee considers the Companys progress in meeting budget goals for the year, but it does
not utilize a quantitative assessment of budget goals in determining the amount of annual salary increase. Likewise, although there are no objective measures utilized, the Compensation Committee considers stock performance and the level of
shareholder dividends, among other criteria, in determining base salary. In assessing the Companys stock performance, the Compensation Committee looks at its price, the price to earnings ratio, and dividend yield as compared with the common
stock of the Companys peers.
Other Named Executive Officers
In 2022, base salaries for the named executive officers other than Mr. Denardo were established after considering the pay levels of peers
at other similarly-sized Virginia institutions and salary survey data published by the Virginia Bankers Association. The annual increase in base salary for these individuals is determined by the
President and Chief Executive Officer. In making the determination for each officer, Mr. Denardo considers the nature and responsibility of the position; the competitiveness of the market for the executives services; the expertise of the
individual executive; and to what degree the executive has achieved annual performance goals. Individual annual performance goals support the Companys business strategy, but are not tied to objective performance measures. The President and
Chief Executive Officer reports changes to the executive officer salaries to the Compensation Committee at least annually.
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer |
|
2021 Base Salary |
|
|
Increase (%) |
|
|
2022 Base Salary |
|
F. Brad Denardo |
|
$ |
520,000 |
|
|
|
5 |
% |
|
$ |
546,000 |
|
Lora M. Jones |
|
$ |
132,650 |
|
|
|
16.85 |
% |
|
$ |
155,000 |
|
Paul M. Mylum |
|
$ |
206,000 |
|
|
|
4.37 |
% |
|
$ |
215,000 |
|
Lara E. Ramsey |
|
$ |
141,110 |
|
|
|
13.39 |
% |
|
$ |
160,000 |
|
David K. Skeens |
|
$ |
180,200 |
|
|
|
3 |
% |
|
$ |
185,600 |
|
The base salary information in the table above is different than the salary information provided in the
Summary Compensation Table on page 41 because the increases in the base salaries were not made effective as of the beginning of the calendar years but at different times during the years presented.
Annual Incentive Plan
The Company has an annual incentive plan (the Incentive Plan) for its executive officers that is designed to reward achievements
consistent with the Companys strategic plan. The plan provides a method for the Company to motivate, attract, and retain qualified executives.
36
Awards under the Incentive Plan have historically been paid out after the Companys
December 31 fiscal year end in the form of a cash bonus and out of an incentive pool calculated on both the individual incentive targets of each participant in the Incentive Plan and of the Companys level of performance achieved in one or
more financial objectives that the Compensation Committee approves at the beginning of each year. Target annual incentive awards for each named executive officer are expressed as a percentage of base salary, as follows:
|
|
|
|
|
Named Executive Officer |
|
Target Annual Incentive (As a % of Base Salary) |
|
F. Brad Denardo |
|
|
30 |
% |
Lora M. Jones |
|
|
20 |
% |
Paul M. Mylum |
|
|
20 |
% |
Lara E. Ramsey |
|
|
20 |
% |
David K. Skeens |
|
|
20 |
% |
For 2022, seventy percent (70%) of the President and Chief Executive Officers target annual incentive
award was based on the achievement of pre-determined corporate financial goals. The remaining thirty percent (30%) was based on individual performance. One-half (50%) of
the other executive officers target annual incentive award was based on the achievement of pre-determined corporate financial goals, with the remaining one-half
(50%) based on individual performance. The corporate financial goals were established by the Compensation Committee. For Mr. Denardo, the individual performance assessment is made by the Compensation Committee, and for the other named executive
officers the individual performance assessment is made by the Compensation Committee and Mr. Denardo. The assessments take into account both quantitative and qualitative factors.
Award Components
Corporate Financial Component: At the beginning of each year, the Compensation Committee establishes threshold, target, and
superior levels of corporate financial performance. The ultimate value of the incentive pool can increase based on actual performance and is funded based on year-end results as follows:
|
|
|
|
|
Level of Performance |
|
Incentive Pool Funding |
|
Superior |
|
|
150 |
% |
Target |
|
|
100 |
% |
Threshold |
|
|
50 |
% |
Below Threshold |
|
|
0 |
% |
The Compensation Committee also retains the discretion to consider other factors (including, for example, our
performance relative to peers, market conditions, the interest rate environment or any unusual expenses) in determining the overall corporate financial component payout. For 2022, the incentive pool was funded based on the achievement of pre-determined company-wide net income goals for 2022 established by the Compensation Committee, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Financial Goal |
|
Level of Performance |
|
|
Actual |
|
|
Threshold |
|
|
Target |
|
|
Superior |
|
Net Income |
|
$ |
9,570 |
|
|
$ |
19,139 |
|
|
$ |
28,709 |
|
|
$ |
25,932 |
|
Based on the net income achieved by the Company in 2022, the incentive pool was funded at 100% of target.
Individual Performance Component: The Incentive Plan also has an individual performance component that is tailored to each named
executive officers position, duties, and responsibilities. In February 2023, the Compensation Committee reviewed and considered each named executive officers performance during 2022, including recommendations and performance summaries
from the President and Chief Executive Officer for each of the other named executive officers. The Compensation Committee reviewed the President and Chief Executive Officers 2022 performance independently. The Compensation Committee determined
that the President and Chief Executive Officer and each other named executive officer met their respective individual performance objectives in 2022.
37
2022 Award Payouts
Based on the corporate financial component and individual performance component determinations described above, the actual cash incentive
awards received by each of our named executive officers for 2022 were as follows:
|
|
|
|
|
Named
Executive Officer |
|
Actual Award Payout |
|
F. Brad Denardo |
|
$ |
156,000 |
|
Lora M. Jones |
|
$ |
26,530 |
|
Paul M. Mylum |
|
$ |
41,200 |
|
Lara E. Ramsey |
|
$ |
28,222 |
|
David K. Skeens |
|
$ |
37,120 |
|
The Incentive Plan awards paid to the named executive officers in early 2023 for fiscal 2022 performance are
also provided in the Summary Compensation Table on page 41.
Administration of the Incentive Plan
The Compensation Committee is responsible for the oversight, supervision and existence of the Incentive Plan and for any modification or
termination of the Incentive Plan. As mentioned above, the Compensation Committee also retains the discretion to consider other factors (including, for example, our performance relative to peers, market conditions, the interest rate environment or
any unusual expenses) in determining the overall corporate financial component payout. The President and Chief Executive Officer monitors the individual performance component for each participant and makes recommendations to the Compensation
Committee concerning award opportunities and the amount of a participants awards under the Incentive Plan. The President and Chief Executive Officer has been delegated discretion to interpret the terms of the Incentive Plan, to determine
eligibility for benefits, and to calculate the incentive compensation awards under the Incentive Plan, with the exception of matters concerning his own eligibility or awards under the Incentive Plan. The Compensation Committee will make decisions
concerning all matters concerning the President and Chief Executive Officers award, approve all opportunities, goals and award payments made to the named executive officers and approve the aggregate value of opportunities and award payout
under the Incentive Plan. The Compensation Committee, in its discretion, makes all final determinations which may be necessary or desirable for the effective administration of the Incentive Plan.
Unless the Compensation Committee deems otherwise, awards will not be earned or paid, regardless of corporate financial or individual
performance, if (1) any regulatory agency issues a formal, written enforcement action, memorandum of understanding or other negative directive action where the Compensation Committee considers it imprudent to provide awards under the Incentive
Plan, or (2) after a review of the Companys credit quality measures, the Compensation Committee considers it imprudent to provide awards under the Incentive Plan.
The Compensation Committee may withhold or adjust any incentive compensation award in its sole discretion as it deems appropriate and will
have the President and Chief Executive Officer notify each participant of its decision to withhold or adjust an incentive compensation award.
The Incentive Plan has provisions for prorated payments to a participant in the event of the participants death, permanent disability or
retirement. If a participants employment ceases for any other reason, including, without limitation, a voluntary termination of employment by a participant as defined by the Companys personnel policies, or an involuntary termination with
or without cause, the participant will not be eligible for any incentive compensation award under the Incentive Plan.
Payments under the
Incentive Plan are subject to the Companys Clawback Policy described below.
Qualified Retirement Plans
The named executive officers participate with other eligible employees in the Companys three qualified retirement plans. Every
participants benefits are determined under the specific provisions of each of the plans. These plans are discussed in greater detail under Compensation of Our Named Executive Officers Retirement Plans Qualified Retirement
Plans.
38
Nonqualified Salary Continuation Plan
In 2006, the Company established a nonqualified salary continuation plan designed to supplement the retirement benefits of those more highly
compensated executive officers who, because of legal limitations, are unable to participate fully in the Companys qualified retirement plans. As part of the nonqualified salary continuation plan, the Company has entered into salary
continuation plan agreements, which have been amended from time to time, with a group of selected executive officers.
Assuming retirement
at normal retirement age (age 65), contributions to the salary continuation plan are sufficient to provide the greater of lifetime or 15 years of annual supplemental retirement income payments equal to 25.0% of projected final average salary (based
on 2008 annual salary, adjusted by a pre-retirement inflation factor of 4%) for Mr. Denardo, 27.3% of final average salary (based on 2021 annual salary, adjusted by a
pre-retirement inflation factor of 4%) for Mr. Skeens, 25.0% of final average salary (based on 2021 annual compensation, adjusted by a pre-retirement inflation
factor of 4%) for Mr. Mylum, and 22.2% of final average salary (based on 2021 annual salary, adjusted by a pre-retirement inflation factor of 4%) for Ms. Ramsey. Final average salary is equal to the
projected average salary for the five years prior to the normal retirement age.
In 2006, the Company entered into a salary continuation
plan agreement with Mr. Denardo that provides for the payments described above. In 2016, the Company entered into a separate additional salary continuation plan agreement with Mr. Denardo. Assuming retirement at the normal age (age 70 for
this agreement), the 2016 agreement provides an additional $17,512 annual benefit payable for the greater of 15 years or lifetime. Both salary continuation plan agreements with Mr. Denardo are in payout status.
The nonqualified salary continuation plan and related agreements are discussed in greater detail under Compensation of Our Named
Executive Officers Retirement Plans Nonqualified Retirement Plan.
Board of Directors Fees
Mr. Denardo received the same compensation as outside directors for serving as a director of the Company and its subsidiaries from January
through October 2022. Starting in November 2022, no inside director will receive additional compensation for service as a director of the Company or any of its subsidiaries. See also Corporate Governance Matters.
Perquisites and Other Personal Benefits
The Compensation Committee has determined that Mr. Denardo, as President and Chief Executive Officer, should receive a comprehensive and
competitive total compensation package, including perquisites. During 2022, these perquisites were limited to a Company-owned automobile, which facilitates business travel, as well as Virginia Tech football tickets and club memberships which assist
Mr. Denardo with marketing and business development efforts. Mr. Denardo determines the perquisites available to the other named executive officers.
39
Other Policies and Practices
|
|
|
Clawback Policy |
|
The Company has adopted a clawback policy applicable to our named executive officers. Under the clawback policy, the Compensation Committee may, in its reasonable discretion, require an executive officer to reimburse the Company for
the amount of any payment previously received by such officer under a cash bonus plan as well as an equity compensation plan. This type of reimbursement is often called a clawback. The clawback would apply if the Company is required to
restate financial statements for any year in the three-year period preceding the date on which the Company would be required to prepare a restatement, regardless of whether such restatement was a result of an officers intentional misconduct or
gross negligence. Once Nasdaq adopts and implements a final rule for clawback policies as directed by the SEC and mandated by the Dodd-Frank Act, the Company will modify its existing policy as necessary. |
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|
Prohibition on Hedging |
|
Executive officers and directors are prohibited from engaging in short sales of Company stock and from engaging in transactions in publicly-traded options, such as puts, calls and other derivative securities based on Company stock
including any hedging, monetization or similar transactions designed to decrease the risks associated with holding Company stock such as zero-cost dollars and forward sales contracts. |
|
|
Prohibition on Pledging |
|
Executive officers and directors are prohibited from pledging Company stock as collateral for any loan or holding Company stock in a margin account. |
|
|
Compensation Risk Assessment |
|
The Compensation Committee oversees a periodic risk assessment of the Companys compensation programs to determine whether such programs are reasonably likely to have a material adverse effect on the Company. For 2022, the
Compensation Committee concluded that the Companys compensation programs were appropriately balanced to mitigate compensation-related risk with cash elements, financial and non-financial goals, formal
goals and discretion, and short-term and long-term rewards. The Company also has policies to mitigate compensation-related risk, including clawback provisions and prohibitions on stock pledging and hedging activities, as described above.
Furthermore, the Compensation Committee believes the Companys policies on ethics and compliance along with its internal controls also mitigate against unnecessary or excessive risk-taking. |
|
|
Compensation Committee Interlocks and Insider Participation |
|
No director who serves on the Compensation Committee is an officer or employee of the Company or any subsidiary of the Company. No executive officer of the Company, the Bank or NBFS serves as a director of another entity which has
an executive officer serving on the Compensation Committee. No executive officer of the Company, the Bank or NBFS serves as a member of the compensation committee of another entity which has an executive officer who serves as a director or member of
our Compensation Committee. None of the members of the Compensation Committee, or any business organizations or persons with whom they may be associated, has had any transactions with the Company or its subsidiaries, except as explained in
Corporate Governance Matters-Director Independence; Certain Relationships and Related Transactions. |
40
COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
Summary Compensation Table
The following
table sets forth information concerning total compensation earned or paid to the individuals who served as the Companys named executive officers for the fiscal year ended December 31, 2022.
|
|
|
|
|
|
|
Summary Compensation Table |
Name and Principal Position |
|
Year |
|
Salary ($) |
|
Bonus ($) |
F. Brad Denardo |
|
2022 |
|
587,714 |
|
|
Chairman, President & CEO Company |
|
2021 |
|
517,333 |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Chairman, President & CEO Bank |
|
|
|
|
|
|
Chairman, President & CEO NBFS |
|
|
|
|
|
|
Lora M. Jones(4) |
|
2022 |
|
147,600 |
|
|
Treasurer & CFO Company |
|
2021 |
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
Paul M. Mylum |
|
2022 |
|
248,187 |
|
|
Executive Vice President/Chief Lending Officer Bank |
|
2021 |
|
202,500 |
|
|
Lara E. Ramsey |
|
2022 |
|
168,116 |
|
|
Executive Vice President/Chief Operating Officer Bank |
|
2021 |
|
139,397 |
|
|
Corporate Secretary Company / Bank |
|
|
|
|
|
|
David K. Skeens |
|
2022 |
|
208,422 |
|
|
Senior Vice President/ Senior Operations, Risk and Technology Officer Bank |
|
2021 |
|
185,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary Compensation Table
(continued) |
Name |
|
Year |
|
|
Non-Equity
Incentive Plan
Compensation ($)(1) |
|
Change in Pension Value and
Nonqualified Deferred
Compensation Earnings ($)(2) |
|
All Other
Compensation ($)(3) |
|
Total ($) |
F. Brad Denardo |
|
|
2022 |
|
|
156,000 |
|
|
|
70,258 |
|
813,972 |
|
|
|
2021 |
|
|
149,040 |
|
185,690 |
|
87,041 |
|
939,104 |
Lora M. Jones |
|
|
2022 |
|
|
26,530 |
|
|
|
16,021 |
|
190,150 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
Paul M. Mylum |
|
|
2022 |
|
|
41,200 |
|
|
|
23,088 |
|
312,475 |
|
|
|
2021 |
|
|
40,000 |
|
118,928 |
|
21,474 |
|
382,902 |
Lara E. Ramsey |
|
|
2022 |
|
|
28,222 |
|
|
|
16,742 |
|
213,080 |
|
|
|
2021 |
|
|
27,400 |
|
79,425 |
|
14,771 |
|
260,993 |
David K. Skeens |
|
|
2022 |
|
|
37,120 |
|
|
|
19,823 |
|
265,365 |
|
|
|
2021 |
|
|
28,832 |
|
85,995 |
|
19,660 |
|
319,637 |
(1) |
Consists of cash bonus payments earned by the officer pursuant to the Companys Incentive Plan for the
respective year. |
(2) |
Consists of changes in the actuarial present fair value in the National Bankshares, Inc. Retirement Income Plan
and in the Officers Salary Continuation Plan for each officer. For the year ended December 31, 2022, the actuarial present value of the accumulated benefits under such plans decreased by $213,534 for Mr. Denardo, $51,024 for
Ms. Jones, $74,798 for Mr. Mylum, $138,300 for Ms. Ramsey and $209,284 for Mr. Skeens, which amounts are not reflected in the column above. All changes in values are based on reports from independent advisors, using the
assumptions described in the Retirement PlansQualified Retirement PlansNational Bankshares, Inc. Retirement Income Plan and Retirement PlansNonqualified Retirement PlansOfficers Salary Continuation
Plan sections of this proxy statement. |
(3) |
Additional information about All Other Compensation for the executive officers is provided in the
following table. |
(4) |
Ms. Jones was appointed Chief Financial Officer of the Company and of the Bank in May 2022.
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
Detail of All Other
Compensation |
Name |
|
Year |
|
Directors Fees ($)(1) |
|
Matching Contribution Under National Bankshares, Inc. Retirement Accumulation Plan ($) |
|
Contribution Under National Bankshares,
Inc. Employee Stock Ownership Plan ($) |
|
Perquisites
($)(2) |
|
Total All Other Compensation ($) |
F. Brad Denardo |
|
2022 |
|
27,500 |
|
15,250 |
|
12,945 |
|
14,563 |
|
70,258 |
|
|
2021 |
|
47,800 |
|
14,500 |
|
11,557 |
|
13,184 |
|
87,041 |
Lora M. Jones |
|
2022 |
|
|
|
8,665 |
|
7,355 |
|
|
|
16,021 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Paul M. Mylum |
|
2022 |
|
|
|
12,488 |
|
10,600 |
|
|
|
23,088 |
|
|
2021 |
|
|
|
11,950 |
|
9,524 |
|
|
|
21,474 |
Lara E. Ramsey |
|
2022 |
|
|
|
9,055 |
|
7,687 |
|
|
|
16,742 |
|
|
2021 |
|
|
|
8,220 |
|
6,551 |
|
|
|
14,771 |
David K. Skeens |
|
2022 |
|
|
|
10,722 |
|
9,101 |
|
|
|
19,823 |
|
|
2021 |
|
|
|
10,940 |
|
8,720 |
|
|
|
19,660 |
See All Other Compensation in the Summary Compensation Table above.
(1) |
Directors fees for Mr. Denardo include fees from the Company and the Bank from January through
October 2022. |
(2) |
In 2022, perquisites for Mr. Denardos totaled $7,859 for personal use of a Company-owned automobile
and $6,703 for club dues and Virginia Tech football tickets. |
Employment Agreements and Change in Control Arrangements
The Companys Chairman, President and Chief Executive Officer, F. Brad Denardo, has been employed by the Company and its subsidiaries for
many years. He has provided guidance in the growth and long-term development of the Companys business. His experience and knowledge of the operations and customs of the Company is a benefit to the future success of the Company. As an
inducement to his continued employment, the Board of Directors determined that the Company should enter into an employment agreement with Mr. Denardo. The Board also approved the change in control provisions contained in Mr. Denardos
employment agreement in part to ensure that the Company would be more likely to retain his services during periods of uncertainty resulting from significant ownership changes, should they occur.
The Company and Mr. Denardo entered into an executive employment agreement on December 17, 2008, which agreement was amended and
restated on March 11, 2015, with an effective date of January 1, 2015. Pursuant to the terms of the employment agreement, Mr. Denardo was named the Companys Executive Vice President at an initial annual base salary of $360,000.
The agreement also provides for his service in any other executive or management position with the Company and its affiliates, and for cash bonuses and stock-based awards in such amounts as may be determined by the Companys Board of Directors
or a committee thereof. The employment agreement had an initial two-year term and continues for successive one-year terms unless either party provides notice of non-renewal at least one year prior to the end of the then-current term.
If the
Company terminates Mr. Denardos employment without Cause or if he resigns for Good Reason (as those terms are defined in the employment agreement), he will be entitled to receive for 24 months following his
termination (i) monthly salary continuation payments based on his highest annual base salary in effect at any time during the term of his agreement and (ii) on a monthly basis, all welfare and executive benefits he was receiving at the
time of termination, subject to the terms of the Companys plans and programs. Mr. Denardo will also be entitled to receive, in a lump sum payment, an amount equal to (i) his base salary through the date of termination, (ii) any
incentive or bonus compensation earned but not paid, (iii) the product of his last annual bonus paid or payable and a fraction, the numerator of which is the number of days in the then-current year through the date of termination and the
denominator of which is 365, and (iv) any other benefits or awards that have been earned or become payable, but which have not yet been paid to Mr. Denardo (the Accrued Obligations).
42
The employment agreement also contains provisions which can have the effect of prolonging,
enhancing and accelerating Mr. Denardos compensation and benefits under certain circumstances involving a Change in Control of the Company (as the term is defined in the agreement). The term of the employment agreement is
automatically extended for three years from the date of a Change in Control and Mr. Denardo is entitled to continue to receive compensation and benefits during that period as set forth in the employment agreement, except that he becomes
entitled to minimum annual stock-based awards equal to 30% of his base salary. If within two years after a Change in Control, Mr. Denardos employment is terminated by the Company without Cause or by him for Good Reason, he becomes
entitled to receive a lump sum salary continuation payment equal to 2.99 times his average annual compensation includable in his annual gross income for the period of five years preceding the Change in Control (the Salary Continuation
Benefit). If such a termination occurs at or after the two-year anniversary of the Change in Control (or if the Change in Control is not considered a change in control event for purposes of
Internal Revenue Code Section 409A), the Salary Continuation Benefit will instead be paid in equal monthly installments over a 24-month period. If Mr. Denardos employment is terminated by the
Company without Cause or by him for Good Reason after a Change in Control at any time the agreement is in effect, he also is entitled to receive any Accrued Obligations, welfare and executive benefits for 36 months, and certain enhancements to his
retirement benefits as set forth in the employment agreement. The agreement provides that if amounts payable to Mr. Denardo in connection with a Change in Control would result in certain adverse tax consequences under the Internal Revenue Code,
payments under the agreement will be reduced to the extent necessary to avoid imposition of such tax consequences.
The employment
agreement provides that all payments under the agreement are intended either to be outside the scope of Internal Revenue Code Section 409A or to comply with its provisions.
The employment agreement contains provisions requiring Mr. Denardo to maintain the confidentiality of Company information. The agreement
also provides that Mr. Denardo will not compete with the Company for 24 months after ceasing employment, unless the termination is by the Company without Cause or by him for Good Reason following a Change in Control.
43
Potential Payments Upon Termination Before or After a Change in Control
The following table provides information on the potential payments to the named executive officers upon termination of employment before or
after a change in control of the Company, assuming the termination or change in control occurred on December 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Benefit |
|
Before Change in Control Termination Without Cause or Resignation For Good
Reason ($) |
|
|
After Change in Control Termination Without Cause or Resignation For Good
Reason ($) |
|
|
Long-Term Incapacity ($) |
|
|
Death ($) |
|
F. Brad Denardo |
|
Post-Termination Compensation |
|
|
587,714 |
|
|
|
1,412,518 |
|
|
|
|
|
|
|
|
|
|
|
Welfare & Executive Benefits Continuation |
|
|
36,949 |
|
|
|
73,898 |
|
|
|
|
|
|
|
|
|
|
|
Officers Salary Continuation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value: |
|
|
624,663 |
|
|
|
1,486,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lora M. Jones |
|
Post-Termination Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Welfare & Executive Benefits Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers Salary Continuation Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul M. Mylum |
|
Post-Termination Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Welfare & Executive Benefits Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers Salary Continuation Plan |
|
|
36,923 |
(1) |
|
|
55,844 |
(2) |
|
|
36,923 |
(3) |
|
|
70,000 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value: |
|
|
36,923 |
|
|
|
55,844 |
|
|
|
36,923 |
|
|
|
70,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lara E. Ramsey |
|
Post-Termination Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Welfare & Executive Benefits Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers Salary Continuation Plan |
|
|
24,351 |
(1) |
|
|
27,817 |
(2) |
|
|
24,351 |
(3) |
|
|
45,000 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value: |
|
|
24,351 |
|
|
|
27,817 |
|
|
|
24,351 |
|
|
|
45,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David K. Skeens |
|
Post-Termination Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Welfare & Executive Benefits Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers Salary Continuation Plan |
|
|
40,297 |
(1) |
|
|
46,632 |
(2) |
|
|
40,297 |
(3) |
|
|
68,940 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value: |
|
|
40,297 |
|
|
|
46,632 |
|
|
|
40,297 |
|
|
|
68,940 |
|
(1) |
The Officers Salary Continuation Plan early termination benefit is an annual amount commencing at normal
retirement age payable to the officer for the longer of life or to the officers beneficiary for up to 15 years. |
(2) |
The Officers Salary Continuation Plan change in control benefit is an annual amount commencing at termination
of employment payable to the officer for the longer of life or to the officers beneficiary for up to 15 years. |
(3) |
The Officers Salary Continuation Plan disability benefit is an annual amount commencing at normal retirement
age payable to the officer for the longer of life or to the officers beneficiary for 15 years. |
(4) |
The Officers Salary Continuation Plan death benefit is an annual amount commencing at death payable to the
officers beneficiary for 15 years. |
The table above does not provide information on the present value of
accumulated benefits for each officer under the National Bankshares, Inc. Retirement Income Plan. Such benefits are vested and are not affected by termination of employment or a change in control of the Company. See Pension Benefits
Table for more information.
44
Retirement Plans
The Company maintains several qualified and nonqualified employee benefit plans for employees of participating employers in the plans. These
benefit plans are described below.
Qualified Retirement Plans
National Bankshares, Inc. Retirement Income Plan. Until December 31, 2001, the Bank maintained a
tax-qualified, noncontributory defined benefit retirement plan for qualified employees called the National Bank of Blacksburg Retirement Income Plan (the NBB Plan). Effective on December 31,
2001, the NBB Plan was amended; its name was changed to the National Bankshares, Inc. Retirement Income Plan (the NBI Plan); and the Bank of Tazewell County Employee Pension Plan (the BTC Plan) was merged into the NBI Plan.
The NBB (now NBI) Plan became effective on February 1, 1984, when the Bank amended and restated its previous pension plan. This plan covers all officers and employees of the Company and its subsidiaries who have reached age 21 and have had one
year of eligible service on the January 1 or July 1 enrollment dates. Employee benefits are fully vested after five years of service, with no partial vesting. Prior to the December 31, 2001 plan amendment, retirement benefits at the
normal retirement age of 65 were calculated at 66% of the employees average monthly compensation multiplied by the number of years of service, up to a maximum of 25 years. After December 31, 2001, retirement benefits at the normal
retirement age are calculated at 1.75% of average monthly compensation multiplied by the number of years of service, up to 35 years. Added to this is 0.65% of excess monthly average compensation (defined in the NBI Plan as the amount of
the average monthly compensation that is in excess of a participants monthly Social Security covered compensation, generally the rounded average of the Social Security taxable wage bases) multiplied by the number of years of service, up to 35
years. The benefit formula was amended again in 2008 to reduce the benefit formula for future accruals to 1.00% of monthly compensation, multiplied by the number of years of service up to 35 years. Average monthly compensation is determined by
averaging compensation over the five highest paid consecutive years in the employees final 10 years of employment. Retirement benefits under the NBI Plan are normally payable in the form of a straight life annuity, with 10 years guaranteed;
but other payment options may be elected. Benefits accrued by participants in the NBB Plan and in the BTC Plan prior to December 31, 2001, will be calculated based upon compensation and service under the old NBB Plan and BTC Plan formulas.
Benefits accrued by participants after January 1, 2002, are calculated under the NBI Plan formulas. The compensation covered by the NBI Plan includes the total of all amounts paid to a participant for personal services reported on the
participants federal income tax withholding statement (Form W-2), except that earnings were limited to $200,000, indexed for the cost of living, until 1994. In 1994, the earnings limit was decreased to
$150,000, which is indexed for the cost of living after 1994. For 2022, the limit on compensation was $305,000.
National Bankshares,
Inc. Employee Stock Ownership Plan. The Company sponsors a non-contributory Employee Stock Ownership Plan in which the Bank and NBFS were participating employers for 2022. All full-time employees who are
over the age of 21 and who have been employed for one year are eligible to participate. Contributions under the ESOP are discretionary for each participating employee and participants are not permitted to make contributions to the plan.
Contributions are allocated to a participants account based upon a participants covered compensation, which is W-2 compensation. The contributions are fully vested after three years.
National Bankshares, Inc. Retirement Accumulation Plan. The Company sponsors the National Bankshares, Inc. Retirement Accumulation Plan
which qualifies under Internal Revenue Code Section 401(k) (the 401(k) plan). For 2022, the Bank and NBFS were participating employers. All full-time employees who have six months of service and who are over the age of 21 are
eligible to participate. Participants may contribute up to 100% of their total annual compensation to the plan, subject to Internal Revenue Code deferral annual dollar limits. Employee contributions are matched by the employer at 100% for the first
4% of salary contributed and at 50% of the next 2% of salary contributed. Employees are fully vested at all times in contributions and employer match sums.
Nonqualified Retirement Plan
Officers Salary Continuation Plan. In 2006, the Bank entered into salary continuation agreements with a select group of subsidiary bank
officers, including Mr. Denardo, Mr. Skeens and Ms. Ramsey. In 2013, the Bank entered into a salary continuation agreement with Mr. Mylum. The Salary Continuation Plan benefits are funded by investments in bank subsidiary-owned
life insurance policies on the lives of the participating officers. The officers and their beneficiaries are unsecured creditors of the Company and of the Bank with respect to the benefits under the Salary Continuation Plan.
45
Each of the salary continuation agreements provides an annual benefit for the participating
officer at normal retirement age (defined as age 65) while in the active service of the Company. The salary continuation agreement benefits approximate 25.0% of final average salary based on 2008 annual salary adjusted for inflation, for
Mr. Denardo; 27.3% of final average salary based on 2021 annual salary, adjusted for inflation, for Mr. Skeens; 25.8% of final average salary based on 2021 annual salary, adjusted for inflation, for Mr. Mylum, and 22.2% of final
average salary based on 2021 annual salary, adjusted for inflation, for Ms. Ramsey. The benefit is payable for the greater of 15 years or the officers lifetime. If the officer dies before receiving the annual benefit for 15 years, the
benefit is paid to his or her beneficiary for the remainder of that period. A reduced benefit is available upon the officers early termination if he or she is 50 years of age or older, upon disability or upon a change in control of the
officers employer. Early termination, disability and change in control are defined in the salary continuation agreements. A death benefit that is equal in amount to the annual retirement benefit is paid to
the officers beneficiary for 15 years in the event of the officers death while an active employee. No benefit is payable if the officer is terminated for cause, as that term is defined in the agreements.
Under his salary continuation agreement, in 2017, Mr. Denardo became entitled to receive annual payments of $72,488 as a result of his
achieving normal retirement age. On August 1, 2017, at age 65, Mr. Denardo began receiving monthly payments of $6,040.67 based on his agreement. In 2016, the Bank entered into a new and additional salary continuation agreement with
Mr. Denardo (the 2016 Agreement). The 2016 Agreement provides an additional annual benefit for Mr. Denardo at normal retirement age (defined as age 70) that is payable for the greater of 15 years or the executives
lifetime and provides for similar provisions related to beneficiaries and reduced or elimination of benefits upon occurrence of certain events as his 2006 Agreement. On August 1, 2022, at 70, Mr. Denardo began receiving additional monthly
payments of $1,459.33 based on this second agreement.
Mr. Skeens agreement provides that he will be paid $68,940 annually at
his normal retirement age, which will occur in 2031. Mr. Mylum will be paid $70,000 annually at his normal retirement age, which will occur in 2031. Ms. Ramseys agreement provides that she will be paid $45,000 annually at her normal
retirement age, which will occur in 2033.
Pension Benefits Table
The following table provides additional information about the pension benefits from the National Bankshares, Inc. Retirement Income Plan and
from the Officers Salary Continuation Plan for Mr. Denardo, Ms. Jones, Mr. Mylum, Ms. Ramsey and Mr. Skeens.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits Table |
|
Name |
|
Plan Name |
|
Number of Years of Credited Service (#) |
|
|
Present Value of Accumulated Benefits ($) |
|
|
Payments During Last Fiscal Year ($) |
|
F. Brad Denardo |
|
Company Retirement Income |
|
|
39 |
|
|
|
2,086,096 |
|
|
|
|
|
|
|
Officers Salary Continuation |
|
|
n/a |
|
|
|
836,422 |
|
|
|
79,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lora M. Jones |
|
Company Retirement Income |
|
|
12 |
|
|
|
79,339 |
|
|
|
|
|
|
|
Officers Salary Continuation |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul M. Mylum |
|
Company Retirement Income |
|
|
16 |
|
|
|
463,604 |
|
|
|
|
|
|
|
Officers Salary Continuation |
|
|
n/a |
|
|
|
256,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lara E. Ramsey |
|
Company Retirement Income |
|
|
26 |
|
|
|
408,831 |
|
|
|
|
|
|
|
Officers Salary Continuation |
|
|
n/a |
|
|
|
171,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David K. Skeens |
|
Company Retirement Income |
|
|
32 |
|
|
|
596,071 |
|
|
|
|
|
|
|
Officers Salary Continuation |
|
|
n/a |
|
|
|
274,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
PAY VERSUS PERFORMANCE
Pay versus Performance Table
As required
by SEC rules, the following table provides information on total compensation and compensation actually paid to our principal executive officer (PEO) and to our other named executive officers (NEOs) for the fiscal years ended
December 31, 2022 and December 31, 2021, and (i) the cumulative shareholder return on our common stock and (ii) our net income over the same time period. This information is presented based on methodology that has been prescribed by the
SEC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Summary Compensation Table Total for PEO(1) |
|
|
Compensation Actually Paid to PEO(1)(2) |
|
|
Average Summary Compensation Table Total for Non-PEO NEOs(3) |
|
|
Average Compensation Actually Paid to
Non-PEO NEOs(3)(4) |
|
|
Value of Initial Fixed $100 Investment Based on
Total Shareholder Return(5) |
|
|
Net Income |
|
2022 |
|
$ |
813,972 |
|
|
$ |
840,459 |
|
|
$ |
245,268 |
|
|
$ |
262,755 |
|
|
$ |
139.53 |
|
|
$ |
25,932,000 |
|
2021 |
|
$ |
939,104 |
|
|
$ |
778,831 |
|
|
$ |
288,788 |
|
|
$ |
232,437 |
|
|
$ |
119.01 |
|
|
$ |
20,382,000 |
|
(1) |
During 2022 and 2021, F. Brad Denardo was our PEO. |
(2) |
The following table sets forth the adjustments made during each year represented in the table above to arrive
at compensation actually paid to our PEO during each of the years in question: |
|
|
|
|
|
|
|
|
|
Adjustments to determine compensation actually paid for
PEO |
|
2022 |
|
|
2021 |
|
Deduction for amounts reported for aggregate change in the actuarial present value of the
accumulated benefit under all defined benefit and actuarial pension plans reported in the Summary Compensation Table |
|
$ |
0 |
|
|
-$ |
185,690 |
|
Increase for service cost, calculated as the actuarial present value of each benefit under all
such plans attributable to services rendered during year |
|
$ |
26,487 |
|
|
$ |
25,417 |
|
Increase for prior service cost, calculated as the entire cost of benefits granted (or credit for
benefits reduced) in a plan amendment (or initiation) during the year that are attributed by the benefit formula to services rendered in periods prior to the amendment |
|
$ |
0 |
|
|
$ |
0 |
|
Total Adjustments |
|
$ |
26,487 |
|
|
-$ |
160,273 |
|
(3) |
During 2022, our other NEOs consisted of Lora M. Jones, Paul M. Mylum, Lara E. Ramsey and David K. Skeens.
During 2021, our other NEOs consisted of Rebecca M. Melton, Mr. Mylum, Ms. Ramsey and Mr. Skeens. The 2021 average summary compensation table total has been adjusted upward to correct an inadvertent error in the summary compensation table included
in the Companys 2021 proxy statement. Under the Total column in such table, the amount for Ms. Melton should have been reported as $191,621. The amount was incorrectly reported as $159,194 because the negative change in pension
value of $32,427 was mistakenly deducted from Ms. Meltons total compensation. |
(4) |
The following table sets forth the adjustments made during each year represented in the table above to arrive
at average compensation actually paid to our other NEOs during each of the years in question: |
|
|
|
|
|
|
|
|
|
Adjustments to determine compensation actually paid for
non-PEO NEOs |
|
2022 |
|
|
2021 |
|
Deduction for amounts reported for aggregate change in the actuarial present value of the
accumulated benefit under all defined benefit and actuarial pension plans reported in the Summary Compensation Table |
|
$ |
0 |
|
|
-$ |
71,087 |
|
Increase for service cost, calculated as the actuarial present value of each benefit under all
such plans attributable to services rendered during year |
|
$ |
17,487 |
|
|
$ |
14,735 |
|
Increase for prior service cost, calculated as the entire cost of benefits granted (or credit for
benefits reduced) in a plan amendment (or initiation) during the year that are attributed by the benefit formula to services rendered in periods prior to the amendment |
|
$ |
0 |
|
|
$ |
0 |
|
Total Adjustments |
|
$ |
17,487 |
|
|
-$ |
56,352 |
|
(5) |
Total shareholder return is calculated assuming a fixed investment of $100 in the Companys common stock
based on the closing price on December 31, 2020, the last trading day prior to January 1, 2021, assuming reinvestment of dividends, through and including the end of each fiscal year. The amount for 2021 represents the one-year total
shareholder return and the amount for 2022 represents the two-year total shareholder return. |
47
Relationship between Financial Performance and Executive Compensation
As described in more detail under Executive CompensationWhat Guides Our Program and Executive
CompensationExecutive Compensation Decisions in 2022, our executive compensation program strives to support the long-term interests of shareholders by retaining and motivating an experienced and talented leadership team. The
Companys compensation decisions are focused primarily on the Companys long-term performance and, therefore, compensation paid for a particular year may not directly reflect the Companys performance for that year. The Compensation
Committee and the Board have recently approved a redesigned executive compensation program intended to more directly align executive compensation with Company performance. These changes, which will be effective in 2023, are described in further
detail under Executive CompensationExecutive SummarySummary of Recent Changes.
In accordance with the SECs
disclosure requirements regarding pay versus performance, this section compares the compensation actually paid, which is defined in SEC rules and described above, to the Companys total shareholder return and net income for fiscal
years 2022 and 2021.
Principal Executive Officer
From 2021 to 2022, compensation actually paid to the PEO increased by $61,628, or 7.9%. Over the same period, the Companys
total shareholder return increased by approximately 17.2% and net income increased by approximately 27.2%. Excluding the impact of a one-time gain on a private equity investment of $3.82 million during 2022, net income grew by approximately 12.4%
over net income in 2021. Accordingly, the increase in compensation actually paid to the PEO from 2021 to 2022 was generally aligned with the increases in the Companys total shareholder return and net income over the same period.
Other Named Executive Officers
From
2021 to 2022, compensation actually paid to the other NEOs increased by $30,318, or approximately 13.0%. As noted above, over the same period, the Companys total shareholder return increased by approximately 17.2% and net income
increased by approximately 27.2%. Excluding the impact of a one-time gain on a private equity investment of $3.82 million during 2022, net income grew by approximately 12.4% over net income in 2021. Accordingly, the increase in compensation
actually paid to the other NEOs from 2021 to 2022 was closely aligned with the increases in the Companys total shareholder return and net income over the same period.
48
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on a review of filings with SEC, the Company is not aware of any holders of more than 5% of its common stock.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table presents the beneficial ownership of the Companys common stock as of March [8], 2023, by each director, nominee and
executive officer named in the Summary Compensation Table, and all directors and executive officers as a group. Except as otherwise noted, the named individual has sole voting and investment power with respect to the stock.
|
|
|
|
|
|
|
|
|
Name of
Beneficial Owner |
|
Shares of Common Stock Beneficially Owned as of March [8], 2023 |
|
|
Percentage of Class |
|
Lawrence J. Ball |
|
|
12,000 |
|
|
|
* |
|
F. Brad Denardo |
|
|
37,716 |
(1) (2) |
|
|
* |
|
John E. Dooley |
|
|
10,597 |
(2) |
|
|
* |
|
Michael E. Dye |
|
|
3,307 |
(2) |
|
|
* |
|
Norman V. Fitzwater, III |
|
|
7,000 |
(2)(3) |
|
|
* |
|
Charles E. Green, III |
|
|
46,238 |
(2)(3) |
|
|
* |
|
Mildred R. Johnson |
|
|
4,000 |
(3) |
|
|
* |
|
Lora M. Jones |
|
|
1,158 |
(1) |
|
|
* |
|
Mary G. Miller |
|
|
6,250 |
|
|
|
* |
|
Paul M. Mylum |
|
|
1,524 |
(1) |
|
|
* |
|
William A. Peery |
|
|
12,998 |
(3) |
|
|
* |
|
Lara E. Ramsey |
|
|
5,924 |
(1)(2) |
|
|
* |
|
Glenn P. Reynolds |
|
|
8,589 |
(3) |
|
|
* |
|
David K. Skeens |
|
|
10,603 |
(1) |
|
|
* |
|
James C. Thompson |
|
|
8,222 |
|
|
|
* |
|
All current directors and executive officers as a group (16 persons) |
|
|
176,439 |
|
|
|
3.00 |
% |
* |
Represents less than 1% of the Companys outstanding common stock. |
(1) |
Includes shares owned through the National Bankshares, Inc. Employee Stock Ownership Plan as follows:
Mr. Denardo, 20,045 shares; Ms. Jones, 1,158 shares; Mr. Mylum, 1,524 shares; Ms. Ramsey, 5,782 shares; and Mr. Skeens, 10,541 shares. |
(2) |
Includes shares owned jointly with spouse: Mr. Denardo, 485 shares; Dr. Dooley, 10,597 shares;
Mr. Dye, 2,307 shares; Mr. Fitzwater, 6,500 shares; Mr. Green, 12,658 shares; and Ms. Ramsey 142 shares. |
(3) |
Includes shares held by affiliated companies, spouses and dependent children, or as custodians or trustees, as
follows: Mr. Fitzwater, 500 shares; Mr. Green, 12,480 shares; Ms. Johnson, 1,235 shares; Mr. Peery, 7,332 shares; and Mr. Reynolds, 3,033 shares. |
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors and executive officers to file with the SEC initial reports of ownership and
reports of changes in ownership of our common stock and to furnish us with copies of all forms filed.
To our knowledge and based on the
written representations of our directors and executive officers, during the past fiscal year our directors and executive officers complied with all applicable Section 16(a) filing requirements except that Mr. Dye filed one late report
reporting one transaction.
49
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
For the year ending December 31, 2023, the Audit Committee of the Board of Directors has appointed Yount, Hyde & Barbour, P.C.,
(YHB) as the independent registered public accounting firm to audit the Companys financial statements and its internal controls over financial reporting, subject to ratification by the Companys shareholders. YHB has acted as
the Companys independent registered public accounting firm for many years.
The selection of YHB as the Companys independent
auditors is not required to be submitted to a vote of the shareholders for ratification. The Company is doing so because it believes that it is a matter of good corporate practice. If the shareholders fail to vote on an advisory basis in favor of
the selection of YHB, the Audit Committee will reconsider whether to retain YHB, and may retain that firm or another firm without re-submitting the matter to the shareholders. Even if the shareholders ratify
the appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that a change would be in the Companys best
interests.
Representatives of YHB are expected to be at the Annual Meeting of Shareholders. Those representatives will have the
opportunity to make a statement at the meeting and to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE APPOINTMENT OF YOUNT, HYDE & BARBOUR, P.C. AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2023. WE
STRONGLY ENCOURAGE YOU TO USE THE ENCLOSED WHITE PROXY CARD TO VOTE IN ACCORDANCE WITH THE BOARDS RECOMMENDATION.
Principal
Accounting Fees and Services
The following fees were paid to YHB for services provided to the Company for the years ended
December 31, 2022 and December 31, 2021. The Audit Committee determined that the provision of non-audit services by YHB did not compromise the firms ability to maintain its independence.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
|
Fees ($) |
|
|
Percentage |
|
|
Fees ($) |
|
|
Percentage |
|
Audit fees |
|
|
163,225 |
|
|
|
81 |
% |
|
|
134,700 |
|
|
|
80 |
% |
Audit-related fees |
|
|
25,900 |
|
|
|
13 |
% |
|
|
23,550 |
|
|
|
14 |
% |
Tax fees |
|
|
11,220 |
|
|
|
6 |
% |
|
|
10,175 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,345 |
|
|
|
100 |
% |
|
|
168,425 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit fees: Audit and review services, review of documents to be filed with the SEC and the audit of
the effectiveness of the Companys internal control over financial reporting in accordance with the Federal Deposit Insurance Corporation Improvement Act.
Audit-related fees: Employee benefit plan audits and, in 2022, consultation regarding implementation of the new credit losses
accounting standard.
Tax fees: Preparation of federal and state tax returns, and consultation concerning tax compliance issues. No
tax services are performed by YHB to the Company for its directors or executive officers.
The Company did not pay YHB any fees other than
as stated in table.
The Audit Committee meets and specifically approves in advance the provision of all services of YHB.
50