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SMITHTOWN BANCORP,
INC.
NOTICE
OF
2010
ANNUAL MEETING
OF
SHAREHOLDERS
AND
PROXY
STATEMENT
Meeting
Date:
Thursday,
May 6, 2010
at 10:00
a.m. (Eastern Standard Time)
Meeting
Place:
Sheraton
Long Island Hotel
110 Motor
Parkway
Hauppauge,
New York 11788
SMITHTOWN BANCORP,
INC.
March 12,
2010
Dear
Fellow Shareholder,
You are cordially invited to attend our
2010 Annual Meeting of shareholders which will be held on Thursday, May 6, 2010
at 10:00 a.m. (Eastern Standard Time) at the Sheraton Long Island Hotel located
at 110 Motor Parkway, Hauppauge, New York.
The
Notice of Meeting and Proxy Statement accompanying this letter contain important
information about the Annual Meeting, the proposals that will be considered and
how you can vote your shares.
We
encourage you to promptly complete, sign, date and return the enclosed proxy
card. Whether or not you expect to attend the Annual Meeting, please
vote your proxy so that your shares will be represented at the
meeting.
Sincerely,
Bradley
E. Rock
Chairman
of the Board of Directors
and Chief
Executive Officer
SMITHTOWN
BANCORP, INC.
100 MOTOR
PARKWAY, SUITE 160
HAUPPAUGE,
NEW YORK 11788
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
To Be
Held
THURSDAY,
May 6, 2010
To the
Shareholders:
The
Annual Meeting of Shareholders of Smithtown Bancorp, Inc. (the “Bancorp”), will
be held at the Sheraton Long Island Hotel, 110 Motor Parkway, Hauppauge, New
York 11788, on May 6, 2010, at 10:00 a.m., for the following
purposes:
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1.
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The
election of three directors to serve a term of three
years.
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2.
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To
ratify the appointment of Crowe Horwath LLP, as independent auditors for
the year ending December 31, 2010.
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3.
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To
consider a shareholder proposal, if properly presented at the Annual
Meeting.
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4.
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To
transact such other business as may properly come before the meeting or
any adjournment thereof.
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Pursuant
to a resolution of the Board of Directors adopted at the Board of Directors
meeting on January 26, 2010, only shareholders of record at the close of
business on March 8, 2010 shall be entitled to notice of and to vote at this
meeting.
Dated: March
12, 2010
Hauppauge, New York
|
BY
ORDER OF THE BOARD OF DIRECTORS
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Bradley
E. Rock
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Chairman
of the Board
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&
Chief Executive Officer
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TABLE
OF CONTENTS
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Page
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General
Proxy Information
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1
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Authorized
Shares and Voting Rights
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1
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Voting
of Proxy
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1
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Matters
to be voted on at the Meeting
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1
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Financial
Statements
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1
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Proposal
No. 1 – Election of Directors
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2
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Director
Nominees
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2
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Directors
Continuing in Office
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3
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Information
About Executive Officers
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4
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Ownership
of Bancorp Common Shares by Directors, Executive Officers
and
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Certain
Beneficial Owners
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5
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Security
Ownership of Directors and Executive Officers
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5
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Security
Ownership of Certain Beneficial Owners
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7
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Section
16(a) Beneficial Ownership Reporting Compliance
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7
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Corporate
Governance
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7
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Board
Independence and Composition
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7
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Board
Leadership
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8
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The
Board’s Role in Risk Oversight
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8
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Board
Meetings
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8
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Board
Attendance at Annual Meeting
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8
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Code
of Conduct for Directors and Employees
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9
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Committees
of the Board of Directors
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9
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Corporate
Governance and Nominating Committee
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9
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Audit
Committee
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9
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Compensation
Committee
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10
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Compensation
Committee Interlocks and Insider Participation
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11
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Compensation
of Executive Officers and Directors
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11
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Compensation
Committee Report
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11
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Compensation
Discussion and Analysis
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12
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Summary
Compensation Table
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19
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Itemization
of All Other Compensation Table
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21
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Grants
of Plan Based Awards Table
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23
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Outstanding
Equity Awards at Fiscal Year End Table
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25
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Option
Exercises and Stock Vested Table
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26
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Pension
Benefits Table
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27
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NonQualified
Deferred Compensation Table
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28
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Potential
Payments on Termination of an Executive Officer Table
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31
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Potential
Payments in the Event of a Change in Control Table
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33
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Director
Compensation Table
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35
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Audit
Committee Report
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36
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Proposal
No. 2 - Approval of Independent Auditors
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37
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Independent
Auditor’s Fees
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37
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Certain
Relationships and Related Party Transactions
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38
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Shareholder
Proposals and Nominations
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39
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Communications
with the Board of Directors
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39
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Proposal
No. 3 - Shareholder Proposal to Declassify the Board of
Directors
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39
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Other
Business
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41
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Appendix
A – Charter of Governance and Nominating Committee
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A-1
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Appendix
B – Charter of Audit Committee
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B-1
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SMITHTOWN
BANCORP, INC.
100
MOTOR PARKWAY, SUITE 160
HAUPPAUGE,
NEW YORK 11788
PROXY
STATEMENT
GENERAL
PROXY INFORMATION
This
Proxy Statement (this “Proxy Statement”) is furnished in connection with the
solicitation by and on behalf of the Board of Directors of Smithtown Bancorp,
Inc. (the “Bancorp”) of proxies to be used at the Annual Meeting of Shareholders
of the Bancorp to be held at the Sheraton Long Island Hotel, 110 Motor Parkway,
Hauppauge, New York 11788, on May 6, 2010, and at any adjournment thereof. Bank
of Smithtown (the “Bank”) is a wholly-owned subsidiary of the Bancorp. The date
of this Proxy Statement is March 12, 2010, the approximate date on which this
Proxy Statement and accompanying form of proxy were first mailed to our
shareholders.
The costs
of the proxy solicitation are to be paid by the Bancorp. In addition to
solicitation, certain directors, officers and/or employees of the Bancorp may,
without extra compensation, solicit proxies by telephone, facsimile or written
or electronic mail. We have retained Laurel Hill Advisory Group LLC to assist in
the solicitation of proxies from shareholders of the Bancorp for an anticipated
fee of $6,500, plus out-of-pocket expenses.
Authorized
Shares and Voting Rights
Only
shareholders of record as of the close of business on March 8, 2010 (the “Record
Date”) will be entitled to vote at the meeting and any adjournment
thereof. Each shareholder is entitled to one vote for each share of
stock held by him or her. There were 14,967,508 shares of common
stock (“Common Shares”) outstanding on the Record Date. Shareholders
may vote in person or by proxy. Each holder of common stock is
entitled one vote on the proposals presented in this Proxy Statement for each
common share held. There is no cumulative voting for the election of
directors.
Voting
of Proxy
All valid proxies received prior to
the meeting will be voted in accordance with the specifications made
thereon. If no choices are indicated on the proxy, it is intended
that the shares of stock represented by the proxy will be voted for the election
of the director nominees identified in this proxy statement. With
respect to the director nominees, if any of such nominees should become
unavailable for any reason, which the directors do not now contemplate, it is
intended that, pursuant to the accompanying form of proxy, votes will be cast
for a substitute nominee designated by the Board of Directors.
A
shareholder may vote his or her proxy by executing the accompanying form of
proxy and returning it to Smithtown Bancorp, Inc., 100 Motor Parkway, Suite 160,
Hauppauge, New York 11788. A shareholder may also vote his or her
proxy by telephone or electronically through the internet (as is permitted under
New York State law and the Bancorp Bylaws) by following the instructions
included on the accompanying form of proxy. A shareholder may revoke
his or her proxy at any time prior to exercise of the authority conferred
thereby: (1) by written notice received by the Bancorp’s Secretary, Judith
Barber, at Smithtown Bancorp, Inc., 100 Motor Parkway, Suite 160, Hauppauge, New
York 11788, if the proxy was executed and returned to the Bancorp, or (2) by
re-voting his or her proxy if the proxy was originally voted by telephone or
electronically through the internet, in which case the vote cast on the date
that is closest to the date of the Annual Meeting will be the vote that is
counted, or (3) by the shareholder’s oral revocation at the Annual
Meeting.
If you have questions regarding how to vote or regarding the
proposals, please call our proxy solicitor, Laurel Hill Advisory Group LLC, at
1-888-742-1305, Monday through Friday between 9:00a.m. and 5:00p.m., Eastern
Standard Time.
Matters
To Be Voted On At The Meeting
There are
three (3) proposals that are scheduled to be voted on at the Annual
Meeting. Shareholders are being asked to vote on:
(1) the
election of three directors to the Board of Directors of the Bancorp, (2)
ratification of Crowe Horwath LLP as the Bancorp’s independent auditors for the
year ending December 31, 2010, and (3) to act on one shareholder proposal, if
properly presented at the meeting.
Directors
are elected by a plurality of the votes cast at the Annual Meeting, either in
person or by proxy. With respect to the approval of the ratification
of Crowe Horwath LLP as the Bancorp’s independent auditors referred to in
proposal no. 2, and the shareholder proposal referred to in proposal no. 3, such
proposals will be approved if a majority of the outstanding Common Shares vote
in favor of those proposals. Abstentions and broker non-votes will be
counted as not having voted and will not be counted in determining if the
plurality with respect to proposal (1) was obtained, or if the majority, with
respect to proposals (2) and (3) was obtained.
Financial
Statements
A copy of
the Bancorp's Annual Report to Shareholders, including financial statements for
the fiscal year ended December 31, 2009, has been mailed to the
shareholders.
PROPOSAL
NO.1
ELECTION
OF DIRECTORS
The
Certificate of Incorporation of the Bancorp provides that the Board of Directors
shall consist of nine members and that the directors shall be classified into
three classes, each of which shall serve for a term of three years, with the
term of office of one class expiring each year.
Nominees
for Election of Directors
The Board of Directors has nominated
Patrick A. Given, Robert W. Scherdel and Hyukmon Kwon for election at the 2010
Annual Meeting. All nominees are presently serving as directors, and were
elected to their present term of office by the shareholders. The nominees, whose
terms are expiring this year, are proposed for re-election for terms expiring in
2013. Patrick A. Given, Robert W. Scherdel and Hyukmon Kwon are each an
independent director within the meaning of pertinent legal and regulatory
standards. If a nominee declines to serve or becomes unable to serve
for any reason (although the Board of Directors knows of no reason to anticipate
that this will occur), the proxy may vote for such substitute nominee as the
Board of Directors may designate.
The Board
of Directors recommends a vote FOR the election of all
Nominees
(Proposal
No. 1 on the Proxy)
NOMINEES
Patrick A. Given
,
|
Director
since 1989
|
Current
term expires 2010
|
Patrick
A. Given, age 65, is a partner in Given Associates, LLC, a local real estate
appraisal and consulting firm that he established in 1973 in Hauppauge, New
York. Mr. Given has been a certified General Real Estate Appraiser
and real estate broker for more than thirty-six years. His knowledge
of real estate, both commercial and residential, in Suffolk and Nassau counties,
as well as the New York metropolitan area, serves as a valuable resource for the
Board. Mr. Given’s expertise in analyzing and assessing the value of
all forms of real estate development, including office buildings, shopping
centers, hotels, residential community developments, condominium developments,
single family subdivisions, and raw land, also makes him uniquely qualified to
serve on the Board. In addition to operating his business here, Mr.
Given has been a long time resident of the Town of Smithtown.
Robert
W. Scherdel
|
Director
since 1996
|
Current
term expires 2010
|
Robert W.
Scherdel, age 55, has worked for more than thirty-one years in various
businesses in the field of accounting and finance. He holds an MBA in
accounting and finance and has extensive experience in reviewing financial
statements and related reports, and in developing and supervising compliance
with internal control procedures in a regulated environment. From
1980 through 2004, Mr. Scherdel was the Chief Executive Officer and President of
Sunrest Health Facilities, Inc. which operated the Sunrest Nursing Home in Port
Jefferson, New York. In that role, he managed and directed all
operations of the nursing home, including the supervision of 227 employees,
development of operational budgets and capital plans, establishing and
implementing policies and procedures for daily operations and regulatory
compliance and preparation and review of all financial statements and related
reports. During that time, Mr. Scherdel also acted as a financial
consultant and reviewed and analyzed monthly financial statements and related
reports for other health care providers. From 1980 through 2004, Mr. Scherdel
was also involved in his own separate restaurant business as well as the
development of several residential and commercial rental properties. Since 2005
(after the sale of Sunrest), Mr. Scherdel has been involved in developing and
managing real estate in New York and South Carolina, and in limousine rentals
and auto sales in South Carolina. He is the President of Warren 50
Realty Corp., Coast Limousine LLC and Extreme Wheels & Deals, LLC, which are
the operating entities for those businesses. Mr. Scherdel’s
significant background and experience qualify him as an audit committee
financial expert within the meaning of the rules of the Securities and Exchange
Commission and are well suited for his role as Chairman of the Audit Committee
and as a member of the Board.
Hyukmon
Kwon
|
Director
since 2003
|
Current
term expires 2010
|
Hyukmon
Kwon, age 68, is the owner and operator of Sunrise Golf, a local community
business that sells golf equipment and related merchandise. Mr. Kwon
first opened the store in 1986 and it has operated on Main Street in Smithtown
since 1994. Mr. Kwon has a Bachelor of Arts degree from the
prestigious Seoul National University. His knowledge and fine
reputation in the community are some of his attributes that first formed the
basis for his election to the Board and have proven beneficial to the Board over
the last six and a half years. Mr. Kwon brings to the Board a broad
and varied perspective which stem from his early years as an import/export
trader in Korea and the United States, and his more recent years running a
successful community business.
DIRECTORS
CONTINUING IN OFFICE
Barry
M. Seigerman
|
Director
since 1993
|
Current
term expires 2011
|
Barry M.
Seigerman, age 69, is currently a Broker/Producer for Bank of Smithtown
Insurance Agents and Brokers, Inc. In 1974 Mr. Seigerman founded The
Seigerman Agency, Inc., a full service insurance product-sales, risk assessment
and management company, in Suffolk County, New York. He served as the
Chairman and Chief Executive Officer until August 2004 when the company was
purchased by Bank of Smithtown. He continued to serve as Chief
Executive Officer and President of the company until August 2007. Mr.
Seigerman’s skills as a manager of a successful business with 25 employees, his
years of experience identifying, evaluating and minimizing business risks and
his depth of knowledge of insurance products and services were specific
attributes that particularly qualified him for election to the Board in
1993. Mr. Seigerman’s familiarity with and understanding of the
operations and needs of small and large businesses in the areas served by the
Bank are important resources for the Board in guiding and reviewing the
strategic goals of the Bank’s insurance division.
Manny
Schwartz
|
Director
since 1998
|
Current
term expires 2011
|
Manny
Schwartz, age 67, has forty-seven years of experience in all aspects of
founding, developing and managing one of the largest shower door manufacturers
on the East Coast, now known as Quality Enclosures. He is also the
former President, now Vice President (since 2009) of Sarasota Shower Door
Company, Inc. and MMS Properties, both of which are located in Sarasota,
Florida. Mr. Schwartz grew up on Long Island and raised his family in
Smithtown, New York. In addition to his experience in production,
sales and service, Mr. Schwartz has valuable first-hand experience in the
development, financing and construction of large commercial buildings in New
York and Florida, which expertise factored into his election to the Board and
have enabled him to capably serve the Board during his
directorship.
George
H. Duncan
|
Director
since 2008
|
Current
term expires 2011
|
George H.
Duncan, age 64, has worked for a variety of public and private companies in
maritime transportation management. Mr. Duncan retired from his
position as a consultant for Marine Brokerage (an international shipping firm)
in 2006. Prior to that time, he served as Vice President of Breeze
Shipholding, Inc. and of Inter-Auto Transport until 2003. In his
career, Mr. Duncan has been involved with credit facilities and other types of
financial arrangements connected to shipping, including credit facilities for
the purchase of large cargo vessels. Mr. Duncan has also been a
shareholder of the Bancorp for many years. His stepfather, Carlyle
Hodgkinson, was a Chairman of the Board of the Bank and also served as a
director of the Bank of Smithtown for 20 years. Mr. Duncan’s
knowledge of and commitment to the Bank, coupled with his special knowledge of
commercial credit facilities, made him a well suited candidate for the
Board.
Bradley
E. Rock
|
Director
since 1988
|
Current
term expires 2012
|
Bradley E. Rock, age 57, has served as
Chairman and Chief Executive Officer of the Bancorp and the Bank for the past 20
years. From 1990 until November 2009, Mr. Rock also held the title of
“President” of the Bancorp and the Bank. Prior to that time Mr. Rock
practiced law for eleven years with the Schechter law firm in Smithtown, New
York, where he specialized in banking, real estate, education and corporate
law. Mr. Rock grew up in the Town of Smithtown and raised his own
family here. During Mr. Rock’s tenure as Chairman and Chief Executive
Officer, the Bancorp’s assets have increased by more than $2 billion and the
value of the Bancorp’s stock has increased at a compounded annual growth rate of
more than 13% per year. Mr. Rock is also a recent past Chairman of
the American Bankers Association. ABA is the largest banking trade
group in the United States, representing more than 95% of the industry’s assets
and 2 million bankers from all 50 states. During the past 6 years,
Mr. Rock testified frequently before Congress on legislative and regulatory
reforms and other matters impacting banks. The leadership skills,
experience and thorough knowledge of the banking industry that uniquely
qualified Mr. Rock to become a Director in 1988 have developed into his being an
influential spokesperson for community banks and an invaluable member of the
Board
.
Patricia
C. Delaney
|
Director
since 2000
|
Current
terms expires 2012
|
Patricia
C. Delaney, age 51, is an attorney in private practice and has served as General
Counsel to the Bancorp and the Bank since 1994. Ms. Delaney was
raised in the Town of Smithtown and continues to reside and work in Hauppauge
today. Her practice is primarily in real property, banking, corporate
and commercial law. She has represented large and small businesses in
the community in a variety of transactions including formation, governance,
financing, leasing, sales and acquisitions and regulatory
compliance. Ms. Delaney’s relationship with the Bank began in 1988 as
an associate with the Schechter law firm in Smithtown, New
York. Since then she has counseled the Bank and the Bancorp regarding
many of its operations. The attributes that prompted Ms. Delaney’s
election to the Board were her legal experiences and skills, as well as her
understanding of banking practices and policies, and in particular of those of
Bank of Smithtown. Those attributes continue to contribute to her
effective service as a director today.
Joseph
M. Winters
|
Director
since 2008
|
Current
term expires 2010
|
Joseph M.
Winters, age 43, has served as a consultant for Winters Brothers Waste Systems,
Inc. since 2007. Beginning in 1998, Mr. Winters was the Chairman, CEO
and President of Winters Brothers Waste Management until the company was sold by
Mr. Winters and his brothers to a large, national company in
2007. With 430 employees and more than $150 million in annual
revenue, Winter Brothers is the largest waste management and recycling company
on Long Island, and was one of the largest privately held waste companies in the
United States. In his 23-year career in the waste management
business, Mr. Winters started up two companies from scratch; the first one in
Vermont became the second largest company of its kind in that state; and the
second one here on Long Island, was started in 1998 with one truck and Mr.
Winters and his brothers as the only employees, and grew into the successful
operation that it is today. Mr. Winters has proven his ability to
develop, operate and manage a competitive and profitable
business. That ability along with his experience in financing,
accounting, strategic planning and marketing fully qualified him to serve as a
member of the Board, and his participation has already provided additional
insight to the various ecological, business and financial trends affecting the
Bank.
Information About the Executive
Officers
(for information regarding Mr. Rock, see the description
on page 3)
John A.
Romano
, age 52, has served as the President and Chief Operating Officer
of the Bancorp and the Bank since November 2009. Prior to that time,
he served as an Executive Vice President of the Bancorp and the Bank and Chief
Retail Officer of the Bank since February 2000.
Christopher
Becker
, age 44, has served as Executive Vice President and Chief
Financial Officer of the Bancorp and the Bank since November,
2009. Mr. Becker joined the Bancorp and the Bank as an Executive Vice
President in April 2009. Mr. Becker has more than twenty years of
banking experience most of which was with Bridgehampton National Bank where he
served as Chief Financial Officer, Executive Vice President and as Chief
Operating Officer until his departure in 2005. Mr. Becker served as President
and Chief Executive Officer of a bank in organization before joining Bank of
Smithtown.
Robert
J. Anrig
, age 61, has served as an Executive Vice President and Chief
Lending Officer of the Bank since April 1998.
Anita
M. Florek
, age 59, has served as an Executive Vice President of the
Bancorp and the Bank since January 1993. Ms. Florek also served as the Chief
Financial Officer of the Bancorp and the Bank from 1993 until November
2009.
OWNERSHIP
OF BANCORP COMMON SHARES BY
DIRECTORS,
EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS
Security
Ownership of Directors and Executive Officers
The
following table shows the number of shares of Common Stock in which all
directors and executive officers of the Bancorp and the Bank, serving in 2009,
individually, and as a group, had a beneficial ownership interest as of February
26, 2010.
|
|
Amount
and Nature of
Common
Shares
Beneficially
Owned
|
|
|
Percent
of Class
|
|
Robert
J. Anrig
|
|
|
46,543
|
(1) (15)
|
|
|
|
*
|
Christopher
Becker
|
|
|
15,300
|
(2) (16)
|
|
|
|
*
|
Patricia
C. Delaney
|
|
|
40,227
|
(3) (17)
|
|
|
|
*
|
George
H. Duncan
|
|
|
61,813
|
(4) (16)
|
|
|
|
*
|
Anita
M. Florek
|
|
|
57,875
|
(5) (15)
|
|
|
|
*
|
Patrick
A. Given
|
|
|
63,304
|
(6) (17)
|
|
|
|
*
|
Hyukmun
Kwon
|
|
|
34,607
|
(7) (17)
|
|
|
|
*
|
Bradley
E. Rock
|
|
|
164,349
|
(8) (15)
|
|
|
1.09
|
%
|
John
A. Romano
|
|
|
38,831
|
(9) (18)
|
|
|
|
*
|
Robert
W. Scherdel
|
|
|
27,251
|
(10) (17)
|
|
|
|
*
|
Manny
Schwartz
|
|
|
90,183
|
(11) (17)
|
|
|
|
*
|
Barry
M. Seigerman
|
|
|
52,011
|
(12) (17)
|
|
|
|
*
|
Thomas
J. Stevens
|
|
|
51,445
|
(13) (15)
|
|
|
|
*
|
Joseph
M. Winters
|
|
|
6,125
|
(14) (16)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Directors
and executive officers
|
|
|
749,864
|
|
|
|
5.0
|
%
|
of
the Bancorp and the Bank as a group(i)
|
|
|
|
|
|
|
|
|
*Represents
less than 1% of the outstanding common stock of the class.
(i) The
group includes Mr. Stevens who resigned from his employment with the Bank in
December 2009. The total number of Common Shares owned by the directors and
currently acting executive officers is 698,419 which is 4.6% of the outstanding
Common Shares.
(1)
Includes 37,798 Common Shares as to which Mr. Anrig has sole voting and
investment power 2,117 Common Shares as to which he has voting but no investment
power, and 6,628 Common Shares as to which he has sole voting and limited
investment power.
(2)
Includes 9,300 Common Shares as to which Mr. Becker has sole voting and
investment power, and 6,000 Common Shares as to which he has voting but no
investment power.
(3)
Includes 35,301 Common Shares as to which Ms. Delaney has sole voting and
investment power, 2,235 Common Shares to which she has shared voting and
investment power, 2,559 Common Shares to which she has voting power but no
investment power, and 132 Common Shares as to which she has no voting or
investment power.
(4)
Includes 1,863 Common Shares as to which Mr. Duncan has sole voting and
investment power, 57,639 Common Shares as to which he has shared voting and
investment power that are held in a margin account and deemed to be pledged,
2,300 Common Shares as to which he has voting but no investment power, and 11
Common Shares as to which he has no voting or investment power.
(5)
Includes 7,581 Common Shares as to which Ms. Florek has sole voting and
investment power, 16,800 Common Shares as to which she has shared voting and
investment power, and 3,617 Common Shares as to which she has voting but no
investment power, 23,220 Common Shares as to which she has voting and limited
investment power, and 6,657 Common Shares as to which she has no voting or
investment power.
(6)
Includes 1,587 Common Shares as to which Mr. Given has sole voting and
investment power, 58,641 Common Shares as to which he has shared voting and
investment power, 2,559 Common Shares as to which he has voting but no
investment power, and 517 Common Shares as to which he has no voting or
investment power.
(7)
Includes 1,248 Common Shares as to which Mr. Kwon has sole voting and investment
power 30,800 Common Shares as to which he has shared voting and investment power
and 2,559 Common Shares as to which he has voting but no investment
power.
(8)
Includes 59,590 Common Shares as to which Mr. Rock has sole voting and
investment power, 6,400 Common Shares as to which he has shared voting and
investment power as a co-trustee of a trust for the benefit of a family member,
57,370 Common Shares as to which he has voting but no investment power, 40,857
Common Shares as to which he has voting and limited investment power, and 132
Common Shares as to which he has no voting or investment power.
(9)
Includes 1,233 Common Shares as to which Mr. Romano has sole voting and
investment power, 20,990 Common Shares as to which he has shared
voting and investment power, and 16,608 Common Shares as to which he has voting
but no investment power.
(10)
Includes 24,692 Common Shares as to which Mr. Scherdel has sole voting and
investment power and 2,559 Common Shares as to which he has voting but no
investment power.
(11)
Includes 41,389 Common Shares as to which Mr. Schwartz has sole voting and
investment power, 44,750 Common Shares as to which he has shared voting and
investment power, 2,559 Common Shares as to which he has voting but no
investment power, and 1,485 Common Shares as to which he has no voting or
investment power. Mr. Schwartz has pledged 10,000 of the Common
Shares that he owns as security.
(12)
Includes 200 Common Shares as to which Mr. Seigerman has sole voting and
investment power, 49,252 Common Shares as to which he has shared voting and
investment power, and 2,559 Common Shares as to which he has voting power but no
investment power.
(13)
Includes 43,400 Common Shares as to which Mr. Stevens has sole voting and
investment power and 8,045 Common Shares as to which he has no voting or
investment power. Mr. Stevens resigned
in December
2009.
(14)
Includes 4,125 Common Shares as to which Mr. Winters has an indirect beneficial
ownership as a member of Winters St. James LLC and as to which he has shared
voting and investment power, and 2,000 Common Shares as to which he has voting
but no investment power.
(15) The
Common Shares for which the individual has voting power but limited investment
power are the shares held for the individual in the Bank of Smithtown Employee
Stock Ownership Plan. The Common Shares for which the individual has voting
power but no investment power are the restricted shares awarded to the
individual under the Smithtown Bancorp Restricted Stock Plan and under the
Smithtown Bancorp, Inc. 2007 Stock Compensation Plan.
(16) The
Common Shares for which the individual has voting power but no investment power
are the restricted shares awarded to the individual under the Smithtown Bancorp,
Inc. 2007 Stock Compensation Plan.
(17) The
Common Shares for which the individual has voting power but no investment power
are the restricted shares awarded to the individual under the Smithtown Bancorp
Restricted Stock Plan and under the Smithtown Bancorp, Inc. 2007 Stock
Compensation Plan.
(18) The
Common Shares for which the individual has voting power but no investment power
are the shares held for the individual in the Bank of Smithtown Employee Stock
Ownership Plan and the restricted shares awarded to the individual under the
Smithtown Bancorp Restricted Stock Plan and under the Smithtown Bancorp, Inc.
2007 Stock Compensation Plan.
Except
for Mr. Duncan and Mr. Schwartz, none of the Bank’s executive officers or
directors has pledged the Common Shares listed above as
security.
Security
Ownership of Certain Beneficial Owners
Listed
below are the beneficial owners of more than 5% of the outstanding Common Shares
of the Bancorp as of February 26, 2010.
Name
and
Address
|
|
Common
Shares
|
|
|
Percent
|
|
of Beneficial Owner
|
|
Beneficially Owned
|
|
|
of Class
|
|
|
|
|
|
|
|
|
BlackRock,
Inc.
|
|
|
|
|
|
|
|
|
40
East 52
nd
Street
|
|
|
|
|
|
|
|
|
New
York, New York 10022
|
|
|
882,421
|
(1)
|
|
|
5.89
|
%
|
(1) Based
on information contained in an amended Schedule 13G that BlackRock, Inc. filed
with the SEC on February 12, 2010. Based on that Schedule 13G/A, on December 1,
2009, BlackRock, Inc. completed its acquisition of Barclays Global Investors, NA
and certain of its affiliates (the “BGI Entities”) and as a result
(substantially all of) the BGI Entities are now included as subsidiaries of
BlackRock, Inc. for purposes of Schedule 13G filings. BlackRock, Inc. has sole
voting power and sole dispositive power over 882,421 Common Shares.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires the Bancorp’s executive officers,
directors, and certain stockholders owning more than 10% of any class of the
Bancorp’s equity securities (“10% Stockholders”) to file reports with the SEC
(“Reports”) indicating their ownership of securities of the Bancorp and any
changes in such ownership. Executive officers, directors and 10%
Stockholders (collectively, “Reporting Persons”) are required to provide copies
of Reports filed by them to the Bancorp. Based solely upon a review
of copies of all such Reports and amendments thereto filed during or with
respect to the Bancorp’s most recent fiscal year and furnished to the Bancorp,
as well as certain written representations provided to the Bancorp by the
Reporting Persons, no Reporting Persons failed to file reports on a timely basis
during the most recent fiscal year, except Barry M. Seigerman. Mr.
Seigerman inadvertently failed to file a timely Form 4 on one occasion during
2009 for a purchase by him on March 5, 2009. The purchase was for 300 shares and
was reported in a Form 4 filed with the SEC on March 18, 2009.
CORPORATE
GOVERNANCE
We have a
long standing commitment to operate in accordance with good corporate governance
policies. These policies provide an important framework within which our board
of directors and management can pursue the strategic objectives of the Bancorp
and build upon the shareholder value that has been the hallmark of our
organization for so many years.
Board
Independence and Composition
The core
responsibility of the Board of Directors is to provide objective, independent
judgment in its management oversight function and the Board’s composition
reflects that principle. The Board is composed of a substantial majority of
independent directors. A director’s independence is determined in
accordance with the definition set forth in National Association of Securitites
Dealers (“NASDAQ”) listing standards and other pertinent and applicable legal
and regulatory standards. The Corporate Governance and Nominating Committee
annually reviews the relationships between directors or members of their
immediate families and the Bancorp and the Bank, in order to make
recommendations to the full Board for its determination regarding the
independence of each director. As a result of this review, the Board has
determined that the following directors are independent directors: Patrick A.
Given, Hyukmun Kwon, Robert W. Scherdel, Manny Schwartz, George H. Duncan and
Joseph M. Winters. In making its recommendations to the Board, the
Corporate Governance and Nominating Committee considered the relationship
between Given Associates LLC and the Bank. Given Associates is a
company in which Mr. Given is a partner and which provides real estate appraisal
and consulting services. The Committee concluded that since Given
Associates LLC was one of several appraisal services used by the Bank and that
the compensation paid to Given Associates by the Bank did not exceed
$200,000
or 5% of the firm’s consolidated gross revenue for the year, Mr. Given qualified
as an independent director. Mr. Rock is not considered to be an independent
director due to his position as Chief Executive Officer of the Bancorp and the
Bank. Mr. Seigerman does not qualify as an independent director because he is
employed by Bank of Smithtown Insurance Agents and Brokers, Inc., a wholly owned
subsidiary of the Bank. Ms. Delaney is not considered an independent director as
ordinary course legal services rendered to the Bancorp and the Bank exceeded the
thresholds set forth in NASDAQ listing standards for director independence. See
the section entitled “Certain Relationships and Related Party Transactions” in
this proxy statement for more information.
Board
Leadership
The Board
of Directors, in its discretion, may elect a Chairman of the Board. The Chairman
leads the board and presides at all Board meetings, and is responsible for
delivery of information for the Board’s informed decision-making.
Based
upon the structure that best serves the interests of the Bancorp, the Board
determines whether the role of the Chairman of the Board and the Chief Executive
Officer should be held by one individual or should be separated. The bylaws of
the Bancorp require the Chief Executive Officer of the Bancorp to be a member of
the Board of Directors. Currently, the Board believes that the positions of
Chairman of the Board and Chief Executive Officer should be held by the same
person because this combination has served the company well in the past and
continues to work well today, by providing unified leadership and
direction.
Pursuant
to the bylaws of the Bancorp, if the Chairman of the Board is an independent
director pursuant to the standards for determining independence described above,
he or she serves as the Chariman of the Governance and Nominating Committee. If
the role of Chairman of the Board is not an independent director, as is
presently the case, then the Board may elect a lead director. The lead director
elected by the Board must meet the qualifications for an independent director.
The lead director serves as the Chairman of the Governance and Nominating
Committee and presides at all Board meetings when the Chairman of the Board is
not present, including executive sessions of non-management directors. Patrick
M. Given currently serves as the Lead Director, having been elected by the Board
in December, 2005.
The
Board’s Role in Risk Oversight
Throughout
the year, the Board assesses the primary operational and regulatory risks facing
the Bancorp and the Bank. In their discussions, the Board considers the relative
magnitude of the risks, the likelihood of the risks coming to fruition, and
reviews the plans that management has to mitigate those risks. The Audit
Committee, which is responsible for the oversight of the Bank’s internal auditor
and the Bank’s independent auditors and meets directly with those auditors at
various times during the course of the year, reports to the entire Board on the
risks discussed in its committees and management’s plans and progress in the
supervision and control of those risks.
In order
to centralize the management of risks, in 2009 the Board approved the creation
of the position of Enterprise Risk Officer and the responsibilities of the
person in that position. Earlier this year, the Board approved the framework
designed to assist all areas of the organization in achieving our strategic
objectives by establishing a systemic approach to evaluating and improving the
effectiveness of risk management and control. The Board will continue to review
and approve or modify the level of risk that is acceptable, monitor the status
of significant risks and the responses thereto, evaluate the status of new
initiatives to identify and control risks, and monitor the enterprise risk
management strategy and infrastructure. The Enterprise Risk Officer reports to
the full Board on a quarterly basis and as appropriate.
Board
Meetings
The Board of Directors holds regular
monthly meetings. The Board held eighteen meetings during
2009. Each director
attended
75% or more of the aggregate number of meetings of the Board of Directors and
the committee or committees thereof on which such director served during
2009.
Board
Attendance at Annual Meeting
The
Bancorp does not have a policy that requires members of the Board of Directors
to attend the Annual Meeting. All members of the Board of Directors
are encouraged to attend the Annual Meeting. All of the members of
the Board of Directors attended the Annual Meeting of the Bancorp held in May
2009 except Mr. Kwon.
Code
of Conduct for Directors and Employees
We have adopted a code of conduct
applicable to all of our directors and all of our employees, including, the
Chief Executive Officer, President, Chief Financial Officer, and Chief
Accounting Officer. Shareholders may request a copy of the Code of
Ethics by contacting Bank of Smithtown Department of Human Resources, 100 Motor
Parkway, Hauppauge NY 11788.
COMMITTEES
OF THE BOARD OF DIRECTORS
Corporate
Governance and Nominating Committee
The Corporate Governance and Nominating
Committee consists of five members. The members of the Committee are:
Patrick A. Given (Chairperson/Lead Director), Hyukmun Kwon, Robert W. Scherdel,
Manny Schwartz and George H. Duncan. All members of the Corporate Governance and
Nominating Committee are independent directors.
The Board of Directors has adopted a
written charter for the Corporate Governance and Nominating Committee. The
Committee is responsible for collecting and analyzing information with regard to
directors’ “independence” as defined by NASDAQ listing standards and other
pertinent legal and/or regulatory standards in effect at the time. The Committee
is also responsible for making recommendations concerning committee membership
and ensuring that committee members satisfy the criteria for membership on a
particular committee for independence and have the skills to effectively
participate on a particular committee. The charter was last amended
in October 2009 to comply with recent amendments to regulations of the Federal
Deposit Insurance Corporation which require the Committee to evaluate on an
annual basis whether the directors serving or who may serve on the Audit
Committee are outside directors and are independent of management and the
criteria for making those evaluations. A copy of the charter, as amended, is
attached to this proxy statement as Appendix A and is available on the Bank’s
website at
www.bankofsmithtown.com
(click on Investor Relations and then Governance Documents)
.
The Committee is responsible for
identifying and evaluating prospective nominees for vacancies on the Board of
Directors in accordance with the process set forth in its charter. In
considering candidates to be nominated as director, including those submitted by
shareholders, the Committee is guided by the bylaws of the Bancorp which set
forth qualifications for directors regarding their citizenship and stockholder
status. The Committee considers the age of a prospective nominee
which may not be less than 21 and not more than 72 years of age, and the ability
of a prospective nominee to satisfy the “independent director” standard
applicable to the Bancorp. The Committee is responsible for gathering
information about a prospective nominee to make certain that he or she meets the
minimum requirements regarding age, citizenship and stockholder
status.
The Committee strives to nominate
candidates who exhibit high standards of ethics, integrity, commitment and
accountability in his or her professional and personal activities, and who are
committed to promoting the long term interests of the Bancorp’s shareholders.
Candidates are also evaluated based upon their experience, education and skills,
their reputation in the community, and their ability to dedicate sufficient time
and attention to effectively performing his or her duties as a director. The
Committee also reviews the needs of the board and of the candidates’ qualities
and characteristics with those of the other directors and other proposed
nominees in its efforts to assure that the board is effective, collegial, and
responsive to the needs of the Bancorp and its shareholders. The Committee
strives to recommend candidates that further its objective of having a board
that encompasses a broad range of talents and expertise and reflects a diversity
of background, experience and viewpoints.
The Committee may receive nominees for
vacancies on the Board of Directors from members of the Board of Directors, from
shareholders of the Company and from third party search firms. The
procedure to be followed by a shareholder to submit a nominee to the Committee
is set forth in “Shareholder Proposals and Nominations” in this proxy
statement.
After the Committee evaluates a
prospective nominee, it makes a recommendation to the full Board of Directors
which must approve a nominee by a vote of a majority of the independent
directors.
The
Corporate Governance and Nominating Committee met one time during
2009.
Audit
Committee
The Audit Committee, consisting of
five directors, had fourteen meetings in 2009. The members of the
Audit Committee are:
Robert W.
Scherdel (Chairperson), Hyukmun Kwon, Manny Schwartz, Patrick A. Given and
George H. Duncan. All members of the Audit Committee are independent under
NASDAQ listing standards and other pertinent legal and regulatory standards. The
Board of Directors has determined that the Chairman of the Committee, Mr.
Scherdel, qualifies as an “audit committee financial expert” within the meaning
of SEC regulations and NASDAQ listing standards. The Audit Committee is
responsible for overseeing and reviewing the Bank’s financial reporting process
on behalf of the board of directors, the internal audits conducted by Bank
employees and/or auditors retained for those purposes, and the audits conducted
by the independent auditors, in conformance with regulations of the New York
State Banking Department, the laws of the State of New York, federal securities
laws and regulations, and NASDAQ Rules.
The Board of Directors adopted a
written charter for the Audit Committee in October 2002. The charter was last
amended in October 2009. The charter was amended to comply with amendments to
regulations of the Federal Deposit Insurance Corporation by adding (i) that all
members of the committee must also be “independent of management” as such term
is defined in pertinent legal and/or regulatory standards, (ii) that the
determination of whether a committee member is an “independent director”, an
“audit committee financial expert” and “independent of management” shall be made
annually by the Board of Directors based on the recommendations of the
Governance and Nominating Committee, and (iii) that if one or more employees of
Bank of Smithtown is performing the internal audit function, the employee(s)
shall report to the Audit Committee regarding audit matters and to the Chief
Executive Officer of the Bank regarding administrative matters. A copy of the
charter, as amended is attached to this proxy statement as Appendix B, and is
available on the Bank’s website at
www.bankofsmithtown.com
(click on Investor Relations and then Governance Documents).
Please see the Audit Committee Report
included in this proxy statement for information about our 2009 fiscal year
audit.
Compensation
Committee
The
Compensation Committee consists of five members. The members of the
Committee are: Patrick A. Given (Chairperson), Robert W. Scherdel, Hyukmun Kwon,
Manny Schwartz and George H. Duncan. All members of the Compensation Committee
are independent directors within the meaning of pertinent legal and regulatory
standards.
The
charter of the Compensation Committee of Bank of Smithtown which serves as the
Compensation Committee for the Bancorp was adopted by the Board of Directors in
December 2005. The Compensation Committee charter was last amended in
April 2007 (i) to require that members of the Committee also qualify as “outside
directors” within the meaning of Section 162(m) of the Internal Revenue Code and
as “non employee” directors within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934, (ii) to direct the Committee to make recommendations to
the Board of Directors regarding the total amount to be awarded to all employees
of the Bank under the Bank of Smithtown Bankwide Annual Cash Incentive Plan and
the awards to be made under the Smithtown Bancorp Inc. 2007 Stock Compensation
Plan, and (iii) to charge the Committee with reviewing and approving the
Compensation Discussion and Analysis required to be included in the proxy
statement and recommending to the Board of Directors its inclusion in the proxy
statement. A copy of the charter, as amended, is available on the
Bank’s website at
www.bankofsmithtown.com
(click on Investor Relations and then Governance Documents).
The
Committee met eleven times during the course of 2009. The Committee
made recommendations to the Board relative to the total amount of compensation
to be awarded to the Bank employees under the Bank of Smithtown Bankwide Annual
Incentive Cash Plan, the contribution to be made to the Bank of Smithtown
Employee Stock Ownership Plan and the equity grants to be made pursuant to the
Smithtown Bancorp Inc. 2007 Stock Compensation Plan. In addition, the
Committee made recommendations to the Board regarding the compensation and
benefits to be paid to the Bank’s executive officers and directors.
In order
to make those recommendations to the Board, the Compensation Committee is
charged with collecting and analyzing information which it deems to be necessary
and pertinent. In addition to evaluating the Bank’s performance over
the prior year, the Committee reviews market data regarding compensation and
benefits paid to both executive officers and directors in the Bank’s competitive
market and by other high performing banks. It also considers the expense to the
Bank associated with cash and equity compensation as well as the benefit plans
provided to the Bank’s executive officers and directors. While the Committee may
not delegate its authority to other persons, it may retain the services of third
party advisors for assistance as it deems necessary or appropriate.
Under the
Bankwide Annual Cash Incentive Plan which was approved by the shareholders at
the 2007 Annual Meeting, all employees, including the Bank’s executive officers,
are eligible to receive cash incentive compensation awards. The
awards are based upon the Bank’s overall performance, the performance of the
various departments within the Bank and the individual employee’s
performance. The Compensation Committee reviews the methodologies
devised by the Bank’s senior management team to be used to implement the
plan. Based upon the Bank’s performance, and in accordance with the
Bank’s compensation philosophy (which is set forth in the Compensation
Discussion and Analysis section of this proxy statement), the Committee
evaluates the reasonableness of those methodologies, the appropriateness of the
award opportunities available to Bank employees, and the total amount to be
awarded.
The
Compensation Committee reviews the compensation that the Bank executive officers
are eligible to receive under the Bankwide Annual Cash Incentive Plan. With
respect to the executive officers’ compensation, the Committee reviews a tally
sheet which sets forth all of the components of the executive officers’
compensation paid in the prior year. During 2009, the Bank enlisted the services
of Amalfi Consulting to assist the Compensation Committee in calculating the
potential payments that would be paid to the executive officers if there was a
change in control of the Bancorp pursuant to the Change in Control Agreements
that each executive officer (other than Mr. Becker) has with the
Bancorp.
The
Compensation Committee also reviews information regarding the compensation paid
to other bank executives and the performance of other banks. The Committee has
developed a peer group of banks for comparison which is made up of banks that
are similar in size, geographic location and performance. The peer group is
reviewed each year by the Committee and banks are added or dropped to make for
an appropriate comparison. The Committee weighs the comparative data in light of
the size, location and performance of the Bank and the other banks, as well as
the duties, performance, experience, skills and abilities of the Bank’s
executive officers. The Committee then makes its recommendation to
the Board regarding the amount that should be awarded to the executive officers
with regard to the salaries to be paid to the executive officers and the
benefits to be provided to the executive officers.
The Committee follows the same process
in determining the compensation to be paid to the Chief Executive Officer as
described above for the other executive officers. In addition, the
Committee weighs the growth and profitability of the Bank during Mr. Rock’s
tenure as Chief Executive Officer, as well as the change in the market value of
the Bancorp’s shares during Mr. Rock’s tenure.
With
respect to fees to be paid and benefits to be provided to the members of the
Board of Directors, the Compensation Committee reviews the fees and benefits
being paid to the directors in the Bank’s peer group. The Committee
uses the same peer group that is used for the executive officers’ compensation
comparison. The Committee reviews the fees that were paid to directors in the
prior year as well as the restricted stock awards made to directors in prior
years. The Committee makes recommendations to the Board regarding the fees to be
paid, the fee structure (i.e., annual retainer or monthly meeting fees), the
payment of additional fees for participation on certain committees, and the
payment of additional fees for certain committee chairpersons, the lead director
and the Secretary of the Board. The Committee also makes
recommendations to the Board concerning the benefits payable to directors and
the expenses for which directors may be reimbursed, which the Committee deems to
be reasonable and appropriate.
Mr. Rock
participates in discussions with the Compensation Committee and makes
recommendations to the Committee
with
respect to the compensation of executive officers and directors. Mr.
Rock does not participate in the deliberations or approval of the Committee or
the Committee’s discussion with the Board concerning the compensation to be paid
to him. Mr. Rock does not receive any fees as a director of the Bank or the
Bancorp.
As part of its review of the various
forms of compensation paid or awarded to the executive officers and the other
employees of the Bank, the Committee evaluates if any of the Bank’s compensation
policies or practices create incentives for the employees to take risks that are
reasonably likely to have a material adverse affect on the value of the Bancorp.
Based on its review, the Committee believes that any possible incentives for
employees to engage in risks that could be harmful to the Bank are eradicated by
the Bankwide performance goals that must be achieved as part of all cash
incentive compensation and by the service conditions on the additional forms of
compensation paid to the executive officers.
Compensation
Committee Interlocks and Insider Participation
There are
no members of the Compensation Committee who are now or were formerly an officer
of the Bancorp or employee of the Bank or who has or had a relationship with the
Bancorp or the Bank, other than as a director.
COMPENSATION
OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation
Committee Report
The Compensation Committee has reviewed
and discussed the following Compensation Discussion and Analysis with
management. Based upon its review thereof, the Compensation Committee
has recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in the Bancorp’s annual report on Form 10-K and in this
proxy statement.
This report has been furnished by
Patrick A. Given, Robert W. Scherdel, Hyukmun Kwon, Manny Schwartz
and
George H.
Duncan. The report shall not be deemed incorporated by reference by
any general statement incorporating this document by reference into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, except
to the extent that the Bancorp specifically incorporates such information by
reference, and shall not otherwise be deemed filed under such
acts.
COMPENSATION
DISCUSSION AND ANALYSIS
Introduction
This
Compensation Discussion and Analysis provides an overview of the Bank’s
executive compensation program, including:
- the
general compensation philosophy of our executive compensation
program;
- the
process we use making executive compensation decisions;
- the
role of executive officers in the compensation process;
- the
material elements of our executive compensation program and the determinations
made by the Board with respect to each element;
- information
about compensation for individuals who served as Chief Executive Officer, Chief
Financial Officer during 2009, for each of the other three most
highly-compensated executive officers who were serving as executive
officers at the end of 2009, and for Thomas Stevens, an executive officer who
resigned in December, 2009, but who otherwise would have qualified to be a named
executive officer. Anita Florek held the title “Chief Financial Officer” from
1993 until November 2009. Christopher Becker joined the Bank in April 2009 as an
Executive Vice President and became the Chief Financial Officer of the Bancorp
and the Bank in November 2009.
Compensation
Philosophy
The Bank has been a high-performing
organization for many years. In order to continue to perform at high
levels over a long period of time, the Bank needs to attract and retain
highly-skilled, dedicated and experienced people for the senior management team
and the Board of Directors. To attract and retain such people in the New York
metropolitan market, the Bank must offer highly-competitive
packages. Not only are the cost of living and compensation levels
higher in the New York metropolitan area than in most other regions of the
country, but the Bank must also compete with the compensation packages offered
by many very large banks located in New York City.
While we want to attract and retain
highly-qualified people for the senior management team and Board of Directors,
we must also remember that the primary goal of the Bancorp is to build long-term
shareholder value. Therefore, we must balance the need to attract and
retain highly-qualified people with the need to keep costs at reasonable levels
in order to create sufficient profitability for the shareholders.
The Bank has used a bankwide
incentive compensation Plan for many years. The plan includes all members of the
senior management team, as well as every other Bank employee. We
believe that part of the reason for the Bank’s long-term success is that the
design of the incentive compensation plan promotes teamwork and creates an
alignment among an individual’s compensation, the Bank’s performance and the
individual’s contribution to the Bank’s performance. We also believe
that it is productive for members of the senior management team to have goals
and standards for their incentive compensation linked to the goals and standards
for the incentive compensation for the entire staff.
With those objectives in mind, in
January 2009 the Compensation Committee evaluated compensation in the context of
the Bank’s performance in the prior year and recommended compensation for the
executive officers that blended cash and equity at a level that was competitive
and reflective of the Bank’s 2008 performance. In one of the most difficult
years for our nation’s economy and financial companies since the 1930’s, the
Bank achieved its 14th consecutive year of record earnings. Net income had
increased 10% over the prior year and full-diluted earnings per share had
increased 4% over the prior year. Return on average equity was 16.73%, nearly
triple that of the average ROE (5.67%) for a peer group of 285 banks in the
United States with assets between $1 billion and $3 billion. During 2008 the
Bank opened 4 new branches and total deposits grew 38% of which 79% were in core
deposits. The Bank began shifting its loan portfolio more toward permanent
mortgages on commercial and residential properties, and away from construction
loans which tend to be riskier in a slumping economy. At year end, the ratio of
nonperforming loans to total loans was .31%, noticeably less than our peer group
ratio of 2.10%. The Bank success was also reflected in its efficiency ratio at
53.03% at year end, which was 80 basis points better than 2007 and substantially
better than the average peer group ratio of 66.91%, and which demonstrated the
Bank’s ability to manage expenses effectively even during a period of rapid
growth.
The Compensation Committee believes
that the Bank’s compensation programs and the amounts paid thereunder in 2009,
appropriately aligned pay and performance, reinforced a culture in which
employees think like shareholders and act like a team, and enabled the Bank to
attract and retain talented and dedicated executive officers.
Roles
of Officers in Setting Compensation
The Compensation Committee gathers
the information pertinent to its compensation discussion from Mr. Rock, the
Bank’s Human Resources department and the Finance department. Mr. Rock also
works with the Compensation Committee to develop strategies and recommendations
for the Committee. All compensation matters related to the senior
management team and the directors, and all cash and equity incentive awards are
considered by the Compensation Committee. Mr. Rock presents to the
Compensation Committee a general overview of the Bank’s performance and
achievements during the year as well as his assessment of each of the executive
officer’s performance during the year. He reviews with the Committee the
performance measures pertinent to the executive officers’ compensation under the
Annual Cash Incentive Plan and the level of those measures achieved by the
executive officers. He shares with the Compensation Committee the individual
goals set for each of the executive officers and his evaluation of their
achievement. Mr. Rock makes recommendations to the Compensation Committee as to
the executive officers’ (excluding himself) base salaries and equity
compensation. Based upon its review and discussion of all of the foregoing, the
Compensation Committee then formulates and presents its final recommendations to
the full Board for approval. All matters related Mr. Rock’s
compensation are based on similar information regarding the Bank’s performance,
the performance measures achieved by Mr. Rock under the Annual Cash Incentive
Plan, and the Committee’s own evaluation of Mr. Rock’s performance during the
year. Mr. Rock’s compensation is discussed in executive session by both the
Compensation Committee and the full Board without any participation by Mr.
Rock.
The
Compensation Process
To assure that the compensation
programs for executive officers and directors are appropriately competitive in
the marketplace, the Compensation Committee benchmarked the Bank’s performance
against a peer group. The Compensation Committee reviews the composition of the
peer group annually to ensure that companies are relevant for comparative
purposes. Based upon asset size, geographic location, cost of living and number
of branches, the Committee developed a group of banks with similar
characteristics to the Bank. That group was then narrowed down to include only
highly performing banks as measured by their return on equity, net income
growth, deposit growth, loan growth and percentage of non-performing
loans to total loans. As a result, the Committee dropped a few banks included in
the peer group used in 2007, and added a bank that was a better comparison to
the Bank and its performance for the year under review. Based on this
process the Committee used the following banks for peer group purposes during
January 2009:
Berkshire Bancorp Inc. (BERK)
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Intervest Bancshares Corp. (IBAC)
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City Bank (CTBK)
|
Peapack-Gladstone Financial Corp (PGC)
|
Center Financial Corp. (CLFC)
|
Sierra Bancorp (BSRR)
|
First of Long Island Corp. (FLIC)
|
State Bancorp Inc. (STBC)
|
First Regional Bancorp (FRGB)
|
Suffolk Bancorp (SUBK)
|
Farmers & Merchants Bancorp (FMCB)
|
Temecula Valley Bancorp, Inc. (TMCV)
|
Flushing Financial Corp (FFIC)
|
Wilshire Bancorp, Inc. (WIBC)
|
Heritage Commerce Corp. (HTBK)
|
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The Compensation Committee evaluated
base salary, total cash compensation (base salary and annual cash incentives)
and total direct compensation (total cash compensation plus all forms of equity
compensation) of the executive officers in comparison to officers with similar
roles in banks in the peer group. The Committee considered the experience of
each of the Bank’s executive officers, their years of service to the Bank, and
the responsibilities of each officer as they related to the officers in the peer
group as well as to one another. The Compensation Committee recognized, however,
that the roles and duties of executive officers vary from institution to
institution and that a direct one-to-one comparison is not always possible.
Given those and other limitations associated with comparative pay information,
the Committee used the peer group data as a point of reference and comparison
only, and not as the determinative factor for the executives’ compensation, or
for establishing or setting a level of compensation to be achieved. In addition,
consideration was given to the difficulty in finding peer group banks that
performed as well as the Bank in each of the areas measured. As a
result, reliance on benchmarking for setting compensation was tempered by the
Committee’s analysis of the Bank’s superior performance over its prior year and
the Bank’s outstanding performance over the prior 10 year period (during which
period all of the executive officers were employed in similar capacities), as
well as the Committee’s assessment of each executive officer’s contribution to
those performances and relationship to the Bank’s future success.
The Compensation Committee also
reviewed the components of the compensation paid to the executive officers in
prior years. The Committee looked at all of the different elements of the
executive officer’s compensation (which are more particularly described under
“Elements of Compensation” herein) and considered whether each of them was an
appropriate way to reward the executive officer in light of the executive
officer’s responsibilities and performance, and the Bank’s performance. The
Committee considered whether those forms of compensation were competitive with
what was being offered to executive officers in similar positions in the Bank’s
competitive market. The Committee reviewed the different forms of equity
compensation, including options and restricted stock, that it was authorized to
award pursuant to the Smithtown Bancorp, Inc. 2007 Stock Compensation Plan
previously approved by the shareholders. The Committee discussed
those different forms of compensation, their immediate and long term effects,
and their relationship to the other forms of compensation paid to the executive
officers. The Committee also made determinations about whether those different
forms were still in keeping with the compensation philosophy and goals of the
Bank. The Committee next considered the cost to the Bank of the various forms of
compensation in determining the forms of compensation that were the most
appropriate.
The final process that the
Compensation Committee went through after its evaluation and analysis of all of
the information described above, was to review a tally sheet which provided an
overall picture of all of compensation and benefits paid to and for the
executive officers in 2008. The tally sheet was prepared by the Bank’s human
resources department and its finance department. The tally sheet included
information regarding the cash compensation (base salary and incentive
compensation) paid to each executive officer, the value of the vested and
unvested restricted stock awards previously made, the estimated value of the
executive officer’s account under Bank of Smithtown Employee Stock Ownership
Plan, the benefits and perquisites paid on behalf of each executive officer, the
contribution made by the Bank to the executive officer’s retirement accounts
(under the Bank’s 401K plan and the Executive Incentive Retirement Plan), the
benefit payable under the Supplemental Executive Retirement Agreement (which
applies to Mr. Rock only), and the potential payments to each executive officer
in the event a change in control of the Bancorp occurred. The
information presented in the tally sheet allowed the Committee to see how its
recommendations for the upcoming year compared to the actual total compensation
paid in the prior year. The tally sheet also enabled the Compensation Committee
to assess if the components of compensation were striking the right balance
between cash and equity and immediate and long term rewards. The Committee
reviewed the prior year’s compensation to assess if the totality of their
intended recommendations was appropriate in light of the Bank’s performance and
the particular executive officer’s performance during the periods compared. The
Committee also considered the tally sheet information in assessing the
management team’s internal pay equity and in decisions regarding change in
control arrangements. The Committee then considered whether any adjustments to
their recommendations were needed. Although no one component of the compensation
recommended is necessarily derived from the Committee’s use of the tally sheets,
they do assist the Committee in determining where, if any, adjustments in the
Committee’s recommendations could best be made. Following their review, the
Committee concluded that the Committee’s recommendations were consistent with
the level of achievement by the Bank over the prior year and the executive
officer’s contribution to the Bank’s performance, and that the mix of
compensation was in keeping with the Bank’s compensation philosophy and
principals.
Elements
of Compensation and Determinations
(a)
Base
Salary
. The base salaries that were provided to the senior
management team were based upon a number of considerations, including the scope
and complexity of the executive officer’s role, any changes in their
responsibilities from year to year, the executive officer’s skills and
leadership ability. The Compensation Committee used judgment and discretion
rather than relying on any specific formula for results. The Committee reviewed
the base salary paid to each executive officer over the previous six years and
the percentage change in salary from year to year. The increase in the cost of
living in the Bank’s geographic region was also factored into the base salary
component of the executive officers’ compensation. Finally, the Committee gave
consideration to the executive officer’s ability to be awarded additional
compensation under the Bank’s other compensation plans which compensation was
more directly tied to the Bank’s performance. After discussing all of those
considerations, the Committee recommended a higher percentage increase in the
base salary for Mr. Romano in recognition of his increased responsibilities and
successful management of the growth in the Bank’s branch operations. The
Committee also recommended that Mr. Rock’s base salary be increased to a level
that was more in line with the salaries of CEOs of banks in the peer group and
in competition with the Bank, and also in recognition of Mr. Rock’s overall
level of leadership and his continued ability to develop and implement
strategies to enhance shareholder value
.
The Committee
determined that increasing Mr. Rock’s base salary was also the most appropriate
compensation mechanism to use for the Bank because it had less of a cost effect
on the Bank than other compensation alternatives. The Committee also believed
that a salary increase was the better way to affect an increase Mr. Rock’s total
compensation rather than modifying, at that point in time, the formulaic
calculation of Mr. Rock’s compensation under the Bank’s Annual Cash Incentive
Plan in a manner that was different from the calculation applied to the rest of
the Bank employees entitled to awards under that Plan. The base salary paid to
each executive officer in 2009 is set forth in column (b) of the Summary
Compensation Table (Table I) set forth in this proxy statement.
(b)
Cash
Incentive Compensation
. Annual cash incentives at the Bank
were paid under the Annual Cash Incentive Plan. The plan was approved by the
shareholders in April 2007 and is intended to comply with the
“performance-based” compensation requirements of Section 162(m) of the Internal
Revenue Code so that any amounts paid under the plan will be fully deductible by
the Bank. Every person employed at the Bank is included in the plan from tellers
and other members of the staff to the Chief Executive Officer. The
plan is similar to the incentive plan that had been in place for the previous
fourteen years. The plan is designed to correlate each individual’s compensation
with his or her contribution to the Bank’s performance. In order to receive
compensation under the Plan, the employee’s department must have performed well,
the Bank must have performed well and the individual must have received an
evaluation indicating that he or she had performed well. The Compensation
Committee reviewed the Bank’s performance at yearend against levels of financial
achievement that were set at the beginning of the year for different measures of
how well the Bank performed over the year. Each department of the Bank has
performance measures related to the department’s function as well as performance
measures related to the Bank’s overall performance. The result was
that each employee had a variety of performance measures for his or her
department or branch, and a variety of Bankwide performance
measures. Those performance measures would typically include such
indications of performance as net income, efficiency, deposit growth, loan
growth, asset quality, net interest margin and other measures pertinent to the
responsibilities of the employee’s department and the Bank’s performance as a
whole. While some of the departments shared the same performance measures the
weight given to each performance measure and the level of achievement required
in each performance level varied among the departments so that they were more
closely associated with the department’s primary function. The amount of
compensation paid depended on the level of achievement in each of the
performance measures and an evaluation of the individual’s performance and
contribution during the year. For 2008, the executive officers were treated as
one group and the performance measures upon which their incentive compensation
was based were the same for each of them. They included growth in net income and
net interest margin, growth in core deposits and loan growth, with growth in net
income being weighted more heavily than the other three equally weighted
measures. This change reflected the Committee’s desire to align the executive
officers’ cash incentive compensation to the Bank’s overall performance and
shareholder value and to reinforce the concept of teamwork, starting at the top
with senior management. For staff, managers, officers, all of the executive
officers, this pay-for-performance methodology has helped create a culture that
is one of the principal drivers of the Bank’s performance over the past sixteen
years.
None of the employees, including the
executive officers, have a particular performance goal that was set as their
target under the Annual Cash Incentive Plan. In almost every year since the Bank
initiated incentive compensation, the Bank has achieved a strong financial
performance, often times well above that achieved by its peers, and has
consistently improved upon that performance from one year to the next.
Sustaining that level of performance is a difficult achievement in and of
itself, let alone improving upon it year after year. Nonetheless, the
performance measures and levels of achievement set at the beginning of the year
for the plan were designed to motivate the employees to cause the Bank’s
performance to be better than the prior year. In 2008, the Bank had another year
of improved performance over the prior year, with the most improvement evident
in net income growth, loan growth and deposit growth. As a result, the cash
incentive compensation paid to Mr. Rock, Ms. Florek and Mr. Romano was greater
the year before. The incentive awards paid to Mr. Anrig and Mr. Stevens,
however, were less than in the prior year. That result was a function of the
reduced weight given to loan growth as one of their performance measures and
more emphasis in the calculation of their award being placed on other measures
of Bankwide performance. The amount of compensation paid to the executive
officers as a result of achieving those goals is set forth in column (c) of the
Summary Compensation Table (Table I) set forth in this proxy statement.
Additional information concerning the amounts paid under the plan in 2008 is
provided in the Grants of Plan-Based Awards Table (Table II) and the narrative
following that table.
(c)
Equity Compensation
.
Under
the Smithtown Bancorp, Inc. 2007 Stock Compensation Plan approved by the
shareholders in 2007, the Board of Directors is authorized to award equity
compensation in variety of forms and has the discretion to fix the performance
measures used to determine the amount to be awarded. The purpose of the plan is
to provide the Bank with the opportunity to offer incentive equity awards in
order to continue to attract and retain high level officers and directors and to
motivate them to continue their relationship with the Bank and thereby align
their interests and compensation with the long-term interests of shareholders.
The plan is intended to comply with the “performance-based” compensation
requirements of Section 162(m) of the Internal Revenue Code so that awards paid
under the plan will be fully deductible by the Bank. Equity compensation was
awarded to each of the executive officers and directors pursuant to that plan.
The plan authorizes the grant of incentive stock options, non-qualified stock
options, stock appreciations rights, restricted stock, restricted stock units,
performance shares, performance units and stock-based awards. The variety of
awards authorized under the plan is intended to give the Board of Directors
flexibility in making awards that are appropriate and competitive under the
circumstances, and to help the Bank minimize its expense for providing
additional incentive compensation.
At their January 2009 meeting the
Compensation Committee discussed whether awards under the plan should be made,
the form of award, to whom the awards should be made, the amounts to be awarded,
and the expense to the Bancorp to make the awards contemplated. The Committee
recommended to the Board of Directors that the equity compensation to be awarded
in 2009 be in the form of restricted stock awards that would vest over a period
of five years. The Committee believed that such awards were consistent with the
Bank’s compensation philosophy and principals in that they would provide the
executive officer with incentive to remain in the Bank’s employ and thereby
foster retainage. At the same time the awards would be made at a reasonable cost
to the Bancorp, they would result in minimal dilution in the shareholders’
equity and they would further align the executive officer’s interests with those
of the shareholders of the Bancorp and their stake in the long-term success of
the Bancorp.
The Compensation Committee discussed
the amount of the restricted stock to be awarded in 2009 based upon the Bank’s
performance, each executive officer’s performance, the base salary and incentive
compensation being paid to the executive officer, and the expense to the Bancorp
to make the awards. The Committee examined the differences between Mr. Rock’s
responsibilities as the Chief Executive Officer and the responsibilities of the
other four executive officers. The Committee reviewed the significant, valuable
changes in the Bank during Mr. Rock’s near 20 year tenure as Chief Executive
Officer, including, the Bank’s growth from the smallest bank on Long Island to
the largest independent bank on Long Island with over $2 billion in assets; the
value of the Bancorp stock increasing at a compounded annual growth rate of more
than 13% per year, and the heightened visibility of the Bancorp for investors
and customers resulting from the Bancorp’s widely-recognized success and Mr.
Rock’s role as the primary spokesperson for the Bancorp in one on one investor
meetings and as a keynote speaker at investor conferences across the nation
which in turn has produced a widely-held national shareholder base including
institutional investors holding approximately 39% of the Bancorp’s stock. The
Committee also considered how the Bank benefited from Mr. Rock’s work as the
Chairman of the American Bankers Association through which he advocated on
behalf of all banks, including independent community banks like Bank of
Smithtown, and was an influential voice regarding legislative and regulatory
reforms. In recognition of his commitment and dedication to the
Bancorp, and in order to properly and competitively award his continued
contribution to its the success and correlate his efforts to long-term
shareholder value, the Committee believed an award of restricted stock to Mr.
Rock that was significantly more than the restricted stock awards to the other
executive officers was merited and necessary. Based upon those recommendations,
the Board made the awards of restricted stock to the executive officers and
directors of the Bank in February, 2009.
The shares of stock awarded under the
plan in 2009 are subject to the restrictions. The restrictions are similar to
those that have been placed on the restricted stock awards made in prior years
under the original plan approved by the shareholders in 2005 and the successor
plan approved in 2007. The following is a description of the restrictions on the
awards made in 2009:
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(i)
|
the
stock may not be transferred during the restricted period. The restricted
period is five years from the date of the award, however, the restrictions
lapse with respect to 20% of the shares awarded in a given year on
December 31
st
of each year after the date of the
award;
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(ii)
|
the
restrictions shall be lifted in the event of the death or disability of
the recipient of the award or in the event of a change in control in the
Bancorp. For Mr. Rock, the restrictions shall also be lifted
upon his retirement provided he does not retire before age 60 and he does
not become employed by another bank in the New York metropolitan area.
Those qualifications on Mr. Rock’s award were proposed by the Compensation
Committee and approved by the Board of Directors in recognition of Mr.
Rock’s years of service as Chief Executive Officer, the success of the
Bancorp during his tenure and the differences in his responsibilities as
Chief Executive Officer and the responsibilities of the other executive
officers and directors, and
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(iii)
|
except
as set forth above or as determined by the Board of Directors, all of the
shares on which the restrictions have not lapsed shall be forfeited and
all rights of the recipient to such shares shall terminate, without
further obligation on the part of the Bancorp or the Bank, unless the
recipient remains in the continuous employment of the Bank for the entire
restricted period or, in the event a director no longer serves as a
director of the Bank during the restricted period in relation to which
such shares were granted.
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Under the terms of the plan, it is
within the Board’s discretion to permit a recipient who no longer serves as an
employee or director, to continue to receive the unvested portion of his or her
restricted stock award after such employment or directorship
ceases. In the past, following the retirement of former director,
Augusta Kemper, and then of director Sanford Scheman, the Committee believed and
the Board agreed that the continued vesting of the restricted stock awarded to
them was deserving on the basis of their years of service and contribution to
the Bancorp as a director. As such, the restricted stock awarded to each of them
on which the restrictions had not lapsed, has continued to vest in the same
manner and on the same schedule as if each of them continued to serve as a
director during the entire restricted period. Dr. Scheman has continued to serve
as a director emeritius since his retirement in October 2008. In
December 2009, Thomas Stevens resigned from his position as an Executive Vice
President of the Bancorp and the Bank, and the unvested portion of the
restricted stock awards previously made to him was forfeited, and the Board has
determined that they shall not be permitted to continue to vest.
(d)
Perquisites
. The Bank pays a
portion of the cost of the executive officers’ automobiles. The
annual benefit to each executive officer
is less than $10,000
.
The
Bank also paid a portion of Mr. Rock’s country club expenses to the extent that
it was used in connection with Bank business. The Board of Directors believes
the payment of these perquisites is justified in light of their amount and the
Bank’s desire to offer competitive forms of compensation to its executive
officers. The benefit to Mr. Rock resulting from the perquisites
provided to him are included in column (i) of the Summary Compensation Table
(Table I) and column (g) of Table I-A set forth in this proxy
statement.
(e)
Supplemental Executive Retirement
Agreement
. The Bank has a Supplemental Executive
Retirement Agreement with Mr. Rock that was originally executed in May, 2004 and
amended and restated in January 2007. That Agreement is targeted to
provide 70% of final average base salary for Mr. Rock’s last three years of work
prior to termination of service less amounts provided to Mr. Rock in the form of
social security benefits and the Bank’s contributions to Mr. Rock’s accounts
under the Bank’s 401k plan, the Executive Deferred Compensation Plan and
Executive Incentive Retirement Plan. The Supplemental Executive Retirement
Agreement was originally granted to Mr. Rock and has been maintained as part of
his compensation benefits in recognition of the Bank’s overall growth and
success during his tenure and the value of his guidance and leadership over the
past 20 years. The Board also recognized that such agreements are typically
included in the compensation packages of chief executive officers of Mr. Rock’s
experience and stature. Lastly, the Board of Directors believed that
continuation of the Supplemental Executive Retirement Agreement would encourage
Mr. Rock to remain in the employ of the Bank until he is eligible to receive the
full benefits of the Agreement and to strive to improve his own performance and
resulting base salary on which benefits under the Agreement are
based. The Agreement was amended in December 2008 to incorporate
changes necessary to ensure compliance with the requirements of Section 409A of
the Internal Revenue Code of 1986, as amended. Those amendments modify the form
and timing of distribution elections and do not affect the amount of
compensation that Mr. Rock is entitled to under the
Agreement.
(f)
Executive
Incentive Retirement Agreements
. In January 2000, the Bank
executed an Executive Incentive Retirement Agreement with Mr. Rock, Ms. Florek,
Mr. Anrig, Mr. Romano and Mr. Stevens. The Agreement was developed to
motivate the executive officers to sustain superior bank performance and to
provide incentive for them to continue their employment by the
Bank. The Board of Directors chooses the eligible officers with whom
the Bank enters into such Agreements. The Agreements provide for a contribution
up to 10% of base salary to each executive officer’s account, based upon the
return on equity (“ROE”) of the Bancorp from the previous fiscal
year. The earnings on the Executive Incentive Retirement Plan
accounts are based upon the percentage change in the fair market value of the
Bancorp’s common stock price, the actual growth rate, with a guaranteed annual
minimum rate of 6% and a maximum rate of 12%. The executive officer
must be employed by the Bank for a period of five years in order to be vested in
the plan. If the executive officer does not remain in the continuous
employment of the Bank until early retirement (age 55 with 15 years service) or
normal retirement (age 65), then no benefits are paid. The executive
officer has the option to choose how benefits are paid (lump sum or equal
monthly installments over fifteen years) for normal retirement, early
retirement, disability and death. Additional information regarding
the Executive Incentive Retirement Agreements is provided in the Nonqualified
Deferred Compensation table (Table VI) set forth in this proxy statement and the
narrative following that table. The plan was amended in 2008 to
incorporate changes necessary to ensure compliance with the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended. Those amendments
modified the form and timing of distribution elections and did not affect the
amount of compensation that each executive officer is entitled to under the
Agreement. At the time of his resignation in December 2009, Mr.
Stevens was not eligible to receive any benefits under the terms of his
Agreement and therefore, no such benefits were paid to him.
The Compensation Committee reviewed
both the Supplemental Executive Retirement Agreement and the Executive Incentive
Retirement Agreements and the cost to the Bank to maintain them. The Committee
found those plans to be an efficient and effective way to motivate the executive
officers to remain in the Bank’s employ for the long term and, to provide a
benefit that is competitive with what is being offered to executive officers in
similar positions in the Bank’s marketplace.
(g)
Executive
Deferred Compensation Plan
. The Bank has had a voluntary
executive deferred compensation plan since January, 2004. Mr. Rock, Ms. Florek,
Mr. Anrig, Mr. Romano and Mr. Stevens are all participants in the plan. The plan
allows individuals deemed eligible by the Board of Directors to defer a
percentage of compensation that could have otherwise been deferred into the
Bank’s qualified 401(k) plan but for the limitations imposed by the Internal
Revenue Code for highly compensated employees. In 2009, the
Compensation Committee continued to believe that it was necessary to continue to
offer participation in this plan as an additional competitive benefit in its
efforts to attract and thereafter retain certain highly compensated individuals
to work for the Bank. The amounts that are deferred earn interest based upon the
prime rate in effect as of the first business day of the year and each
participant is immediately vested in the plan. In December 2008, each
officer made a payout election which determined whether the amount due under the
plan upon the termination of the executive officer’s employment would be paid in
either a lump sum or over a five or ten year period following
termination. Further details about the plan are provided in the
Nonqualified Deferred Compensation table (Table VI) set forth in this proxy
statement. The plan was amended in 2008 to comply with the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended.
The affect of those amendments was to modify the form and timing of the
distribution selected by the participant under the Plan and not the amount of
compensation to which the participant is entitled under the Plan.
(h)
Change-in-Control
Agreements
. The Bancorp has Agreements with Mr. Rock, Ms.
Florek, Mr. Anrig and Mr. Romano (and with Mr. Stevens until his resignation)
and certain other employees of the Bank (collectively, the “Executives”) which
would become effective in the event of a change in control of the
Bancorp. These Agreements provide additional benefits competitive
with the benefits being offered to similar employees in the Bank’s marketplace
and help to retain those employees by providing a sufficient level of
income protection in the event a change in control were to take place. The
Agreements also reduce the personal uncertainty that the Executives are likely
to feel when considering a corporate transaction that would result in a change
in control, but that may be in the best interest of the Bancorp’s shareholders.
Moreover, these agreements provide valuable retention incentive that focus the
Executives on completing such transactions, thus enhancing long term shareholder
value. To that end, the Compensation Committee continues to believe that they
serve an important function in the overall compensation offered to those
Executive and are in keeping with the compensation philosophy of the Bancorp.
While the potential payments to be made to the executive officers under those
Agreements was considered by the Compensation Committee in analyzing the
potential wealth accumulation for the executive officers, such payments were
considered in light of the foreseeable likelihood of an event that would trigger
those payments.
The Agreements provide that if the
Executive’s employment is terminated for any reason other than cause, death or
disability subsequent to a change in control of the Bancorp, or if the Executive
elects to terminate his or her employment following a change in control because
of a diminution of the Executive’s compensation or responsibilities or following
a breach by the Bancorp of the Agreement, the Executive would be entitled to:
(i) receive an amount equal to three times the sum of the Executive’s highest
salary and incentive compensation paid in the three most recent years preceding
the change in control, and (ii) to receive an amount equal to the contributions
and benefits that the Executive would have received for a three year period
based on the benefits and contributions paid on the Executive’s behalf in the
year preceding the Executive’s termination, and (iii) to continue to participate
in the health benefit plans of the Bank for a period of three years following
termination. The Agreement with Mr. Rock also provides that if at any time
within one year after a change in control, he elects to terminate his employment
with the Bank for any reason, he will receive the amounts and the benefits
described above. The Agreements specify the time periods in which the event that
triggers the change in control must occur. For Mr. Rock, the event which
triggers payment of the benefit in the Agreement must occur within thirty-six
months subsequent to a change in control. For all other Executives,
it is a twenty-four month time period. The reason for those differences in Mr.
Rock’s agreement is to acknowledge his unique position at the Bank and his years
of service to the Bank. One of the triggering events that is included
in the Agreements with Mr. Rock, Mr. Anrig and Ms. Florek (a change in title) is
not included in the Agreements with Mr. Romano or Mr. Stevens. The Compensation
Committee believed that event was not appropriate in the Agreements with Mr.
Romano (whose title was Executive Vice President and Chief Retail Officer at the
time of the Committee’s review) and Mr. Stevens because their titles were not
universally applied to the individuals with their responsibilities in other
banking institutions. The benefits that would have been payable to Mr. Rock, Ms.
Florek, Mr. Anrig, and Mr. Romano if an event had occurred on December 31, 2009
that would have triggered payment under the Agreements are shown in
the Potential Payments in the Event of a Change In Control Table
(Table VIII) set forth in this proxy statement. As a result of Mr. Stevens
resignation in December 2009, no such benefits would have been payable to him
had such a triggering event occurred on December 31, 2009.
(i)
Retirement
Plans for All Employees
. The Bank maintains both an Employee
Stock Ownership Plan and a 401(k) plan covering full-time employees, including
the Bank’s executive officers, who have attained the age of 21 years and who
have completed 1,000 hours of employment during the year. Benefits
under the Employee Stock Ownership Plan are based solely on the amount
contributed by the Bank which is used to purchase common shares of stock of the
Bancorp. A participant’s allocation is the total employer
contribution multiplied by the ratio of that participant’s applicable
compensation over the amount of such compensation for all participants for that
year. Benefits are not subject to deduction of social security or
other offset amounts. The total amount contributed to the Employee Stock
Ownership Plan for 2009 was $300,000. The total amount contributed by
the Bank to the 401(k) plan in 2009 was $222,801.
Tax
Implications of Executive Compensation
Section 162(m) of the Internal Revenue
Code of 1986, as amended places a limit of $1,000,000 on the amounts of
compensation that may be deducted by the Bank in any year with respect to the
Chief Executive Officer or any other Senior Executive Officer unless the
compensation is performance-based compensation as described in Section 162(m)
and the related regulations. One of the benefits of the Bank of Smithtown Annual
Cash Incentive Plan and the Smithtown Bancorp, Inc. 2007 Stock Compensation Plan
adopted by the Board and approved by the shareholders in 2007, was that they
were structured with the intention that cash and equity compensation granted
pursuant to the plans can qualify as performanced based compensation and thus be
tax deductible to the Bank under Section 162(m). The Compensation Committee,
however, retains the discretion to award compensation that exceeds the
deductibility limit of Section 162(m). In 2009, the Compensation Committee
reviewed the effect of Section 162(m), but in light of the total compensation
being considered for the executive officers (other than Mr. Rock), the effect of
Section 162(m) was not a critical factor in the Committee’s recommendations.
With respect to the compensation being considered for Mr. Rock, the Committee
allocated the mix between performance based pay and other compensation to create
a total compensation benefit that was within the limits for deductibility set
forth in Section 162(m).
Changes
in Compensation Programs Made in 2009
Although our compensation programs are
fine-tuned as conditions change, the Board believes that it is important to
maintain consistency in our compensation philosophy and approach. To that end,
in 2009, the Compensation Committee recommended and the Board
agreed that Mr. Rock’s compensation under the Annual Cash Incentive
Plan and the Stock Compensation Plan should be determined by using financial
criteria and performance goals that are designed to reflect the unique position
of the Chief Executive Officer and that are different from those used for the
other executive officers and other employees. In addition to measures reflecting
Bankwide performance, such as growth in net income, net interest margin, return
on average equity, and measures pertinent to the current economic climate, such
as core deposit growth and the ratio of nonperforming loans to total loans,
measures tied to shareholder return over a 10-year period have been added to the
criteria by which performance based portion of the Chief Executive Officer’s
compensation will be determined. The performance criteria and goals for the
other executive officers will be the same as those for the other employees in
their department. As such, while they will include measures that specifically
relate to the function of their department and current economic conditions (eg.,
for the loan
department
- the percentage of nonperforming loans), they will be more heavily weighted in
goals which reflect the Bank’s overall performance during the year.
These changes recognize the significant
issues existing for financial institutions in the current and anticipated
economic environment. They are also in keeping with the compensation philosophy
of the Board in its desire to align executive officers’ compensation with the
achievement of building long-term shareholder value.
Stock
Ownership Guidelines
The Bylaws of the Bancorp do not
require and the Bank does not have a policy that requires its executive officers
to be shareholders of the Bancorp or to maintain a level of share ownership. The
Bylaws of the Bancorp require that a director be a shareholder of the
Bancorp. In its efforts to encourage the executive officers and
directors to own Common Shares and to continue to keep their interests aligned
with the interest of the shareholders, in 2009 the Board of Directors awarded
the executive officers with shares pursuant to the Employee Stock Ownership Plan
and awarded the executive officers and directors with shares of restricted stock
pursuant to the Smithtown Bancorp, Inc. 2007 Stock Compensation
Plan.
Executive
Officer Compensation
The
following tables (I through VI) set forth compensation for individuals who
served as the Chief Executive Officer and the Chief Financial Officer during
2009, for each of the other three most highly-compensated executive officers who
were serving as executive officers at the end of 2009, and for Thomas Stevens,
an executive officer who resigned in December, 2009, but who otherwise would
have qualified as a named executive officer in 2009. From 1990 until November
2009, Mr. Rock also held the title of President of the Bancorp and the Bank. Mr.
Romano held the title of Executive Vice President of the Bancorp and the Bank
and Chief Retail Officer of the Bank from February 2000 until November 2009 when
he became the President and Chief Operating Officer of the Bancorp and the Bank.
Anita Florek held the title Chief Financial Officer from 1993 until November
2009. Christopher Becker joined the Bank in April 2009 as an Executive Vice
President and became the Chief Financial Officer of the Bancorp and the Bank in
November 2009. The positions shown in Table I are the officer’s titles as of
December 31, 2009.
TABLE
I
SUMMARY
COMPENSATION
Name
and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Change in
Pension Value and
Nonqualified
Deferred Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)(1)
|
|
(f)(2)
|
|
(g)(3)
|
|
|
(h)(4)(5)
|
|
|
(i)(6)
|
|
|
(j)
|
|
Bradley
E. Rock
|
|
2009
|
|
|
830,769
|
|
|
|
|
358,500
|
|
|
|
|
375,000
|
|
|
|
891,585
|
|
|
|
107,378
|
|
|
|
2,563,232
|
|
Chairman
& CEO of
|
|
2008
|
|
|
591,076
|
|
None
|
|
|
250,680
|
|
None
|
|
|
280,672
|
|
|
|
456,549
|
|
|
|
115,159
|
|
|
|
1,694,136
|
|
Bancorp
and Bank
|
|
2007
|
|
|
511,923
|
|
|
|
|
212,320
|
|
|
|
|
350,839
|
|
|
|
367,921
|
|
|
|
92,351
|
|
|
|
1,535,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
A. Romano
|
|
2009
|
|
|
228,707
|
|
|
|
|
17,925
|
|
|
|
|
102,000
|
|
|
|
3,916
|
|
|
|
31,058
|
|
|
|
383,606
|
|
President
& COO
|
|
2008
|
|
|
220,453
|
|
None
|
|
|
20,890
|
|
None
|
|
|
100,194
|
|
|
|
15,798
|
|
|
|
34,410
|
|
|
|
391,745
|
|
of
Bancorp and Bank
|
|
2007
|
|
|
203,500
|
|
|
|
|
21,232
|
|
|
|
|
100,194
|
|
|
|
13,188
|
|
|
|
32,475
|
|
|
|
370,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
Becker
|
|
2009
|
|
|
106,905
|
|
None
|
|
|
-
|
|
None
|
|
|
-
|
|
|
|
-
|
|
|
|
175
|
|
|
|
107,125
|
|
Executive
Vice
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
& CFO of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bancorp
and Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anita
M. Florek
|
|
2009
|
|
|
224,092
|
|
|
|
|
17,925
|
|
|
|
|
75,000
|
|
|
|
4,693
|
|
|
|
32,056
|
|
|
|
353,766
|
|
Executive
Vice President
|
|
2008
|
|
|
220,453
|
|
None
|
|
|
20,890
|
|
None
|
|
|
72,126
|
|
|
|
17,407
|
|
|
|
36,190
|
|
|
|
367,066
|
|
&
Chief Accounting
|
|
2007
|
|
|
203,500
|
|
|
|
|
21,232
|
|
|
|
|
80,140
|
|
|
|
15,717
|
|
|
|
33,094
|
|
|
|
353,683
|
|
Officer
of Bancorp and Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Anrig
|
|
2009
|
|
|
224,092
|
|
|
|
|
17,925
|
|
|
|
|
115,000
|
|
|
|
4,693
|
|
|
|
32,599
|
|
|
|
394,309
|
|
Executive
Vice President
|
|
2008
|
|
|
220,453
|
|
None
|
|
|
20,890
|
|
None
|
|
|
126,142
|
|
|
|
18,137
|
|
|
|
36,341
|
|
|
|
421,963
|
|
&
Chief Lending Officer of Bank
|
|
2007
|
|
|
203,500
|
|
|
|
|
21,232
|
|
|
|
|
121,290
|
|
|
|
16,787
|
|
|
|
32,959
|
|
|
|
395,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Stevens
|
|
2009
|
|
|
183,846
|
|
|
|
|
17,925
|
(7)
|
|
|
|
105,000
|
|
|
|
3,865
|
(7)
|
|
|
28,577
|
|
|
|
339,213
|
|
|
|
2008
|
|
|
189,576
|
|
None
|
|
|
20,890
|
|
None
|
|
|
110,575
|
|
|
|
14,793
|
|
|
|
31,361
|
|
|
|
367,195
|
|
|
|
2007
|
|
|
173,730
|
|
|
|
|
21,232
|
|
|
|
|
106,322
|
|
|
|
13,110
|
|
|
|
29,144
|
|
|
|
343,538
|
|
Narrative
and Explanation of Footnotes to the Summary Compensation Table (Table
I)
|
(1)
|
The
amount reported represents the grant date fair value for each year
indicated of the restricted stock awarded in that year
to
the executive officer under the Smithtown Bancorp Restricted Stock Plan
and the 2007 Stock Compensation Plan. The
value
is based upon the number of shares awarded and the closing price of the
stock on the NASDAQ Stock Market on the
date
of the grant. The amount reported for 2007 is adjusted for the ten percent
stock dividend on Common Shares paid on
April
2, 2007. The awards of restricted stock are subject to the
service conditions described in the Compensation
Discussion
and
Analysis portion of this proxy
statement.
|
|
(2)
|
At
the Annual Meeting of Shareholders held in April, 2007, the shareholders
approved the adoption of the Smithtown Bancorp, Inc. 2007 Stock
Compensation Plan. Under the terms of that plan, the
Compensation Committee is authorized to award stock options, however, no
stock options were awarded in 2009.
|
|
(3)
|
The
amounts shown in this column for 2009 reflect incentive compensation paid
in February 2009 for performance during
2008.
|
|
(4)
|
For
Mr. Rock the amount reported includes the amount attributable to the
change in the actuarial present value of the accumulated benefit provided
to him under his Supplemental Executive Retirement Agreement which was
$366,767 in 2007, $419,852 in 2008 and $881,398 in 2009. This is not an
amount that was paid to Mr. Rock during the years reported. Mr. Rock is
not eligible to receive the full benefits under this Agreement until he
reaches 60 years of age. Mr. Rock’s change in pension value in 2009 was
driven primarily by a year-to-year increase in salary, along with an
additional year of service and age. Mr. Rock is the only
executive officer who has a Supplemental Executive Retirement Agreement.
|
|
(5)
|
The
balance of the amount reported represents a portion of the interest paid
on the Executive Deferred Compensation Plan and the Executive Incentive
Retirement Plan. The amount reported is only the portion of the interest
paid on the executive officers’ accounts under those plans which exceeded
120% of the applicable long-term federal rate (the “above-market interest
rate”). The interest paid on the Executive Deferred Compensation Plan in
2009 was not “above-market” and therefore is not included in the amount
reported. The rate of interest paid on the Executive Deferred Compensation
Plan is set on the first business day in January of the plan year and is
based upon the highest rate published as the U.S. Prime Rate in the Wall
Street Journal on that date. The interest paid for the year
2007 was 8.25%. The interest paid for the year 2008 was 7.25%.
The interest paid for the year 2009 was 3.25%. The interest
paid on the Executive Incentive Retirement Plan is an annual rate equal to
the percentage change in the fair market value of the Bancorp’s common
stock price over a one year period measured as of December 31, with a
minimum guaranteed rate of 6% and a maximum guaranteed rate of
12%. The interest paid for the years 2007 and 2008 was 12%. The
interest paid for 2009 was 6%. Although Mr. Rock no longer
participates in the Director Incentive Retirement Plan, interest at the
rate of 12% was paid on his existing account under that plan in 2007 and
2008 and at the rate of 6% in 2009 and those amounts are also included in
the number reported.
|
|
(6)
|
The
amount reported in this column (i) is an aggregate of the components shown
on supplemental Table I-A which
follows.
|
|
(7)
|
Mr.
Stevens resigned from his position on December 2, 2009 and the portion of
restricted stock awarded to him since 2005, including the total amount
awarded in February 2009, which had not vested and equaled 3,040 Common
Shares, was forfeited. At the time of his resignation, Mr. Stevens was not
eligible to receive any benefits under his Executive Incentive Retirement
Agreement and therefore the account established under the Agreement and
all interest paid on the account were
forfeited.
|
TABLE
I-A
ITEMIZATION
OF ALL OTHER COMPENSATION
(column
(i)) OF SUMMARY COMPENSATION TABLE
Name
and
Principal
Position
|
|
Year
|
|
401(K)
Contribution
($)
|
|
|
Executive
Incentive
Retirement
Contribution
($)
|
|
|
ESOP
Contribution
($)
|
|
|
Life
Insurance
($)
|
|
|
Perquisites
($)
|
|
|
Dividends
Paid
Restricted
Stock
($)
|
|
|
Total
($)
|
|
(a)
|
|
(b)
|
|
(c)(1)
|
|
|
(d)(2)
|
|
|
(e)(3)
|
|
|
(f)(4)
|
|
|
(g)(5)
|
|
|
(h)(6)
|
|
|
(i)
|
|
Bradley
E. Rock
|
|
2009
|
|
|
8,250
|
|
|
|
43,264
|
|
|
|
6,860
|
|
|
|
3,339
|
|
|
|
39,471
|
|
|
|
6,194
|
|
|
|
107,378
|
|
|
|
2008
|
|
|
7,750
|
|
|
|
52,000
|
|
|
|
6,810
|
|
|
|
5,064
|
|
|
|
39,946
|
|
|
|
3,589
|
|
|
|
115,159
|
|
|
|
2007
|
|
|
7,750
|
|
|
|
45,000
|
|
|
|
6,750
|
|
|
|
2,241
|
|
|
|
28,387
|
|
|
|
2,223
|
|
|
|
92,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
A. Romano
|
|
2009
|
|
|
5,722
|
|
|
|
17,056
|
|
|
|
6,860
|
|
|
|
957
|
|
|
|
|
|
|
|
463
|
|
|
|
31,058
|
|
|
|
2008
|
|
|
5,383
|
|
|
|
20,500
|
|
|
|
6,810
|
|
|
|
1,344
|
|
|
|
|
*
|
|
|
373
|
|
|
|
34,410
|
|
|
|
2007
|
|
|
5,575
|
|
|
|
19,200
|
|
|
|
6,750
|
|
|
|
676
|
|
|
|
|
|
|
|
274
|
|
|
|
32,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
Becker
|
|
2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175
|
|
|
|
|
*
|
|
|
-
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anita
M. Florek
|
|
2009
|
|
|
5,684
|
|
|
|
17,056
|
|
|
|
6,860
|
|
|
|
1,993
|
|
|
|
|
|
|
|
463
|
|
|
|
32,056
|
|
|
|
2008
|
|
|
5,383
|
|
|
|
20,500
|
|
|
|
6,810
|
|
|
|
3,124
|
|
|
|
|
*
|
|
|
373
|
|
|
|
36,190
|
|
|
|
2007
|
|
|
5,590
|
|
|
|
19,200
|
|
|
|
6,750
|
|
|
|
1,280
|
|
|
|
|
|
|
|
274
|
|
|
|
33,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Anrig
|
|
2009
|
|
|
5,684
|
|
|
|
17,056
|
|
|
|
6,860
|
|
|
|
2,536
|
|
|
|
|
|
|
|
463
|
|
|
|
32,599
|
|
|
|
2008
|
|
|
5,383
|
|
|
|
20,500
|
|
|
|
6,810
|
|
|
|
3,275
|
|
|
|
|
*
|
|
|
373
|
|
|
|
36,341
|
|
|
|
2007
|
|
|
5,395
|
|
|
|
19,200
|
|
|
|
6,750
|
|
|
|
1,340
|
|
|
|
|
|
|
|
274
|
|
|
|
32,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Stevens
|
|
2009
|
|
|
5,570
|
|
|
|
14,680
|
|
|
|
6,860
|
|
|
|
1,004
|
|
|
|
|
|
|
|
463
|
|
|
|
28,577
|
|
|
|
2008
|
|
|
5,687
|
|
|
|
17,373
|
|
|
|
6,810
|
|
|
|
1,118
|
|
|
|
|
*
|
|
|
373
|
|
|
|
31,361
|
|
|
|
2007
|
|
|
5,211
|
|
|
|
16,400
|
|
|
|
6,750
|
|
|
|
509
|
|
|
|
|
|
|
|
274
|
|
|
|
29,144
|
|
Narrative
and Explanation of Footnotes to Table I-A
This
table contains a breakdown of the components of all of the other compensation
paid to the executive officers which is totaled and reported in the Summary
Compensation Table (Table I) in column (i) thereof.
|
(1)
|
The
amount reported is the contribution made by the Bank to the Bank of
Smithtown 401K plan for each executive
officer.
|
|
(2)
|
The
amount reported is the contribution made by the Bank to the Executive
Incentive Retirement Plan for each executive
officer.
|
|
(3)
|
The
amount reported is the value of the Bank’s contribution to the Bank of
Smithtown Employee Stock Ownership Plan (the “ESOP”) for each executive
officer. The value is based upon the number of shares of common
stock to which the executive officer is entitled as a result of the Bank’s
contribution to the ESOP during the year and the closing price of the
stock on the date of the grant. The estimated number of shares of common
stock to which each executive officer was entitled to as a result of the
Bank’s contribution in 2009 is 478 shares and the closing price of the
stock on the date of the grant was $14.34. The number of shares of common
stock to which each executive officer was entitled to as a result of the
Bank’s contribution in 2008 was 326 shares and the closing price of the
stock on the date of the grant was $20.89. The number of shares
of common stock to which each executive officer was entitled to as a
result of the Bank’s contribution in 2007 was 254 shares and the closing
price of the stock on the date of the grant was $26.54. As a result of Mr.
Stevens’ resignation, no shares were added to his account in
2009.
|
|
(4)
|
The
amount reported is the actual value of the premium paid by the Bank for
the death benefit coverage to the executive officer under the Bank Owned
Life Insurance policy (“BOLI”) maintained by the Bank for each executive
officer. The Bank provides two different types of life
insurance coverage for its employees. The first is pursuant to
a Group Term Life (“GTL”) policy under which all eligible employees are
entitled to a benefit based upon a multiple of their annual
salary. For the executive officers the benefit payable under
the GTL is capped at $50,000. The second type of coverage, the
BOLI, is only provided to the executive officers and certain other
officers of the Bank and the directors of the Bank. The Bank
has purchased a life insurance policy on the life of each of those
individuals. The Bank has entered into an agreement with those
Bank employees whereby a portion of the policy is payable to the
individual’s designated beneficiary and a portion of the policy is payable
to the Bank. The portion that is payable to each
executive officer’s designated beneficiary is based upon a multiple of the
executive officer’s annual salary (less the benefit payable under the GTL)
and the balance of the policy is the portion that is payable to the
Bank.
|
|
(5)
|
The
amount reported is the dollar value of Mr. Rock’s personal use of the car
provided for him by the Bank ($6,358) plus the amount paid by the Bank for
Mr. Rock’s business use portion of his golf club expenses
($33,113). The total amount of compensation in the form of
perquisites and incidental personal benefits paid to the other executive
officers was less then $10,000 each and therefore is not
included.
|
|
(6)
|
The
amount reported is the dividends paid in each year indicated to the
executive officer on the restricted stock awarded to him or her under the
Smithtown Bancorp, Inc. 2007 Stock Compensation Plan and its predecessor
plan. The dividends paid on the restricted stock are paid at
the same time and in the same amount as the dividends paid to all
shareholders of common stock of the
Bancorp.
|
TABLE
II
GRANTS
OF PLAN-BASED AWARDS
|
|
Equity
|
|
|
Estimated Possible
Payouts Under
Non-Equity Incentive
Plan Awards
|
|
|
All Other
Stock
Awards:
Number
Of
Shares
of Stock
|
|
|
Grant Date
Fair Value of
|
|
Name
|
|
Date
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
or Units
(#)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)(1)
|
|
|
(f)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradley
E. Rock
|
|
2/4/09
|
|
|
|
225,000
|
|
|
|
439,286
|
|
|
|
25,000
|
|
|
|
358,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
A. Romano
|
|
2/4/09
|
|
|
|
61,200
|
|
|
|
119,486
|
|
|
|
1,250
|
|
|
|
17,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
Becker (2)
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anita
M. Florek
|
|
2/4/09
|
|
|
|
45,000
|
|
|
|
87,859
|
|
|
|
1,250
|
|
|
|
17,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Anrig
|
|
2/4/09
|
|
|
|
69,000
|
|
|
|
134,714
|
|
|
|
1,250
|
|
|
|
17,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Stevens
|
|
2/4/09
|
|
|
|
63,000
|
|
|
|
123,000
|
|
|
|
1,250
|
|
|
|
17,925
|
|
|
(1)
|
The
amount reported is the award of restricted stock granted in 2009 under the
Smithtown Bancorp, Inc. 2007 Stock Compensation Plan. The grant date fair
value of the Common Shares awarded pursuant to the Bank of Smithtown
Employee Stock Ownership Plan is included in the Summary Compensation
Table column (i) and specified in Table I-A – All Other Compensation (see
footnote 3). Mr. Stevens resigned from his position on December 2, 2009,
and as a result forfeited the shares awarded to him in 2009 reported
here.
|
|
(2)
|
Mr.
Becker’s employment with the Bank began in April 2009 and no awards of
stock were made to him in 2009.
|
Narrative
Pertaining to Cash Incentive Compensation and Stock Awards Reported in the
Summary Compensation
Table
(Table I) and the Grants of Plan-Based Awards Table (Table II)
The
amounts reported in columns (e) (g) and (i) of the Summary Compensation Table
(Table I), columns (f) and (h) of the
All Other
Compensation (Table I-A) and the Grants of Plan-Based Awards Table (Table II)
represent the incentive compensation paid in 2007, 2008 and 2009 under Bank’s
incentive compensation plan in effect for each year, the Common Shares awarded
in 2007 under the Smithtown Bancorp Restricted Stock Plan, the Common Shares
awarded in 2008 and 2009 under the Smithtown Bancorp, Inc. 2007 Stock
Compensation Plan, and the Common Shares awarded under Bank of Smithtown
Employee Stock Ownership Plan in 2007, 2008 and 2009.
The
Bankwide Annual Cash Incentive Plan under which incentive compensation was paid
in February 2009 is described in the Compensation Discussion and Analysis set
forth in this proxy statement. That plan was approved by the
shareholders in April 2007 and replaced the Bankwide Incentive Compensation Plan
under which incentive compensation was awarded in prior years. Under
the plan, the threshold level represents the level of performance that must be
achieved in order for an employee to be paid any incentive
compensation. If the combined performance of the Bank, the individual
participant’s department or branch, and the individual’s performance do not
reach the threshold level, then the individual would not be entitled to any
compensation under that plan. The amount reported in column (c) of
Table II is the amount that would have been paid to the executive officer if the
threshold level of performance under the plan was achieved.
Beyond
the threshold level, there were numerous levels of performance under that plan
and the compensation paid to the individual participant was a function of the
performance level attained. There was no goal that was set as the
target for any Bank employee. The amount reported here as the
“target” level required a very ambitious level of performance, but one that the
Bank’s senior management team believed could be achieved and desired its
employees to strive for during the year. The amount reported in
column (d) of Table II is the amount that would have been paid to the executive
officer if that level was achieved. The amount reported in column (g)
of the Summary Compensation Table (Table I) is the actual amount paid to each
executive officer based on the performance level that was achieved in the year
prior to year reported.
There was
no maximum amount that could have been paid to a participant if the combined
performance (of the individual, the individual’s department and the Bank)
exceeded the highest performance level set forth for the year
2008. The plan was designed to encourage employees, individually and
as part of a team, to work diligently and for 2008 did not limit the award that
could have been received for an outstanding performance.
Equity
awards were made pursuant to (i) Bank of Smithtown Employee Stock Ownership Plan
in 2007, 2008 and 2009, (ii) the Restricted Stock Plan in 2007 and (iii) the
Smithtown Bancorp, Inc. 2007 Stock Compensation Plan in 2008 and 2009, none of
which are
incentive
plans as defined under pertinent legal regulations. In April, 2007,
the shareholders approved the Smithtown Bancorp, Inc. 2007 Stock Compensation
Plan which replaced the Restricted Stock Plan in existence since 2005. The terms
of the plan are described in the Compensation Discussion and Analysis set forth
in this proxy statement. The plan authorizes the Board, to make awards of equity
compensation in a variety of forms, including an award of common shares subject
to restrictions imposed by the Board (a “restricted stock
award”). The Compensation Committee made recommendations to the Board
based upon the performance of the Bank and the Bancorp in the previous year and
the recipient’s contribution to that performance. The decision to
make an award is within the sole discretion of the Board and is not based upon
any specific measures of performance. The amount of stock awarded to
each executive officer in 2009 under that plan is shown in column (e) of Table
II.
The value
of the restricted stock award, based upon the closing price of the stock on the
date of the grant, is shown in column (e) of Table I and column (f) of Table
II.
Under the
terms of the Restricted Stock Award Agreement with each recipient of restricted
stock, the recipient is entitled to vote the shares and receive the dividends
paid on the shares during the restricted period (five years after the award is
made). The dividend paid on the shares of restricted stock is the
same as the dividend that was paid on the Common Shares during the
year. The amount of the dividends paid to the executive officers on
the restricted stock awarded to them is included in the amount reported in
column (i) of the Summary Compensation Table (Table I) and is quantified per
year in column (h) of the All Other Compensation Table (Table I-A).
In
January 2007, 2008 and 2009, the Compensation Committee recommended and the
Board approved the amount to be contributed by the Bank to the Bank of Smithtown
Employee Stock Ownership Plan. The terms of that plan are described
in the Compensation Analysis and Discussion set forth in this proxy
statement. The decision to make a contribution to that plan is within
the sole discretion of the Board and there are no specific performance measures
set forth in that plan. The value of the number of shares allocated
to the executive officer based on the Bank’s contribution to the plan each year
is included in the amount reported in column (i) of the Summary Compensation
Table (Table I), is itemized per year in column (e) of the All Other
Compensation Table (Table I-A), and the valuation method is explained in
footnote (3) to that Table.
TABLE
III
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
|
Stock Awards
|
|
Name
|
|
Number of Shares
or Units of Stock
That Have
Not Vested
(#)
|
|
|
Market Value of
Shares or Units
of Stock That Have
Not Vested
($)
|
|
(a)
|
|
(b)(1)(2)
|
|
|
(c)(3)
|
|
Bradley
E. Rock
|
|
|
32,370
|
|
|
|
192,601
|
|
|
|
|
|
|
|
|
|
|
John
A. Romano
|
|
|
2,117
|
|
|
|
12,596
|
|
|
|
|
|
|
|
|
|
|
Christopher
Becker(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Anita
M. Florek
|
|
|
2,117
|
|
|
|
12,596
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Anrig
|
|
|
2,117
|
|
|
|
12,596
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Stevens(5)
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
Restricted
stock awards made in 2005 are fully vested except with respect to Mr.
Stevens as explained in footnote (5) below. The shares reported were
awarded in 2006 and 2007 pursuant to the Smithtown Bancorp, Inc.
Restricted Stock Plan and are adjusted for the stock dividends paid in
2006 and 2007. The shares reported also include the awards of
restricted stock made in 2008 and 2009 pursuant to the Smithtown Bancorp,
Inc. 2007 Stock Compensation Plan.
|
|
(2)
|
Under
the terms of the Restricted Stock Plan and the agreements made by the
Bancorp with each executive officer governing the awards made pursuant to
the Smithtown Bancorp, Inc. 2007 Stock Compensation Plan, on December
31
st
in each of the five years following the date the award is made, 20% of the
restricted stock award for that particular year (adjusted for any stock
splits or stock dividends paid thereon) will vest to the recipient and the
restrictions thereon will lapse. A complete description of the
Restricted Stock Plan, the 2007 Stock Compensation Plan and the conditions
on which the awards will vest is provided in the Compensation Discussion
and Analysis in this proxy statement under Elements of
Compensation.
|
|
(3)
|
The
value reported is based on the closing price of the Common Shares on the
NASDAQ Stock Market on December 31, 2009 at
$5.95.
|
|
(4)
|
Mr.
Becker’s employment with the Bank began in April 2009 and no awards of
stock were made to him in 2009.
|
|
(5)
|
Mr.
Stevens received the same restricted stock awards in 2005, 2006, 2007,
2008 and 2009 as the other executive officers (not including Mr. Rock),
but the shares that had not vested at the time of his resignation in
December 2009 (3,040) were forfeited by
him.
|
TABLE
IV
OPTION
EXERCISES AND STOCK VESTED
|
|
Stock Awards
|
|
Name
|
|
Number of
Shares
Acquired on
Vesting
(#)
|
|
|
Value
Realized on
Vesting
($)
|
|
(a)
|
|
(b)(1)
|
|
|
(c)(2)
|
|
Bradley
E. Rock
|
|
|
11,074
|
|
|
|
65,890
|
|
|
|
|
|
|
|
|
|
|
John
A. Romano
|
|
|
923
|
|
|
|
5,491
|
|
|
|
|
|
|
|
|
|
|
Christopher
Becker(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Anita
M. Florek
|
|
|
923
|
|
|
|
5,491
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Anrig
|
|
|
923
|
|
|
|
5,491
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Stevens(4)
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
The
shares reported were awarded in 2005, 2006 and 2007 pursuant to the
Smithtown Bancorp, Inc. Restricted Stock Plan and are adjusted for the
stock dividends paid in 2006 and 2007. The shares reported also include
the awards of restricted stock made in 2008 and 2009 pursuant to the
Smithtown Bancorp, Inc. 2007 Stock Compensation
Plan.
|
|
(2)
|
The
value reported is based on the closing price of the Common Shares on the
NASDAQ Stock Market on December 31, 2009 at
$5.95.
|
|
(3)
|
Mr.
Becker’s employment with the Bank began in April 2009 and no awards of
stock were made to him in 2009.
|
|
(4)
|
Mr.
Stevens received the same restricted stock awards in 2005, 2006, 2007,
2008 and 2009 as the other executive officers (not including Mr. Rock),
but the shares that had not vested at the time of his resignation in
December 2009 (3,040) were forfeited by
him.
|
TABLE
V
PENSION
BENEFITS
Name
|
|
Plan Name
|
|
Number of Years
Of
Credited
Service
(#)
|
|
|
Present
Value of
Accumulated
Benefit
($)
|
|
|
Payments
During
Last
Fiscal
Year
($)
|
|
(a)
|
|
(b)(1)
|
|
(c)
|
|
|
(d)(2)
|
|
|
(e)
|
|
Bradley
E. Rock
|
|
Supplemental
Executive
Retirement
Agreement
|
|
|
6
|
|
|
|
1,969,166
|
|
|
|
-
|
|
(1)
|
A
description of the Supplemental Executive Retirement Agreement with Mr.
Rock is provided in the Compensation Discussion and Analysis set forth in
this proxy statement. Under the terms of the Agreement, a cash
benefit is payable to Mr. Rock upon his retirement at the normal
retirement age (60 years) and a reduced benefit is payable if Mr. Rock’s
employment is terminated before he reaches age 60. A
description of the early retirement benefits payable under the Agreement
that Mr. Rock was entitled to as of December 31, 2009 is set forth in the
Payments Upon Termination Table (Table VII) herein. The benefit
payable under the Agreement is based only on Mr. Rock’s base salary and
not any other compensation that he received during his
employment.
|
(2)
|
The
valuation method and material assumptions made in quantifying this amount
are set forth in Note 14 of Notes to Consolidated Financial Statements in
Form 10-K filed by the Company with the Securities and Exchange Commission
on March 12, 2010.
|
TABLE
VI
NONQUALIFIED
DEFERRED COMPENSATION
Name
|
|
Executive
contributions in
last FY
($)
|
|
|
Registrant
contributions in
last FY
($)
|
|
|
Aggregate
earnings in last
FY
($)
|
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
|
Aggregate
Balance at last
FYE
($)
|
|
(a)
|
|
(b)(1)
|
|
|
(c)(2)
|
|
|
(d)(3)
|
|
|
(e)
|
|
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradley
E. Rock
|
|
|
20,000
|
|
|
|
43,264
|
|
|
|
40,016
|
|
|
|
-
|
|
|
|
739,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
A. Romano
|
|
|
83,000
|
|
|
|
17,056
|
|
|
|
20,951
|
|
|
|
-
|
|
|
|
460,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
Becker
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anita
M. Florek
|
|
|
12,000
|
|
|
|
17,056
|
|
|
|
19,063
|
|
|
|
-
|
|
|
|
359,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Anrig
|
|
|
10,000
|
|
|
|
17,056
|
|
|
|
20,338
|
|
|
|
-
|
|
|
|
400,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Stevens (4)
|
|
|
7,500
|
|
|
|
14,680
|
|
|
|
1,421
|
|
|
|
-
|
|
|
|
48,707
|
|
Narrative
and Explanation of Footnotes to Table VI – Nonqualified Deferred
Compensation
(1)
|
Pursuant
to the Executive Deferred Compensation Plan, the executive officer may
defer a portion of his or her compensation each year. The
percentage of compensation that may be deferred is approximately the
amount by which the executive officer’s contribution to the Bank’s 401K
Plan is limited by reason of Sections 402(g) and 401(a) (17) of the
Internal Revenue Code. Under the terms of the plan, the Bank
will pay interest on the executive’s account at an annual rate equal to
the highest rate published as the U.S. Prime Rate in the Wall Street
Journal on the first day of January of the Plan Year. The
interest rate paid by the Bank under this plan in 2009 was
3.25%. Each year the executive must elect by December 15
whether to participant in the plan for the following year and whether
he/she desires the benefit payable under the plan to be paid in a lump sum
or a five or ten year payout. The executive may not change
his/her election during the Plan Year. The executive is 100%
vested in the plan and the benefit under the Plan is payable to the
executive upon termination of employment by the Bank. The
amounts reported here are included in the executive officer’s compensation
reported in column (g) of the Summary Compensation Table (Table I) set
forth in this proxy statement.
|
(2)
|
The
Executive Incentive Retirement Plan is a nonqualified defined contribution
plan under which retirement benefits are accrued for the executive
officers of the Bank (in addition to the Bank’s 401k
Plan). Benefits under the plan are based solely on the amount
contributed by the Bank which for the executive officers is up to ten
percent of the officer’s salary (shown in column (c) of the Summary
Compensation Table) for the prior fiscal year based upon the return on
equity of the Bancorp from the prior fiscal year. The Bank pays
interest on the executive’s account at an annual rate equal to the
percentage change in the fair market value of the Bancorp’s common stock
price over a one year period measured on December 31, with a minimum
guaranteed rate of six percent and a maximum guaranteed rate of twelve
percent. The interest rate paid by the Bank under the plan in
2009 was 6%. Benefits under the plan are payable to the
executive officer upon retirement at age 65; upon early retirement
(between age 55 and 65); if the executive officer becomes disabled before
age 55 or if the executive officer is terminated due to a change in
control. The amounts reported here are included in the
executive officers’ compensation reported in column (i) of the Summary
Compensation Table (Table I)and are indicated by year in column (d) of All
Other Compensation Table (Table
I-A).
|
(3)
|
The
amount reported is the total interest paid to the named executive officer
under the Executive Deferred Compensation Plan and the Executive Incentive
Retirement Plan, including the “above market” interest reported in column
(h) of the Summary Compensation Table (Table I). For Mr. Rock only, the
amount also includes the interest paid on his existing account under the
Director Incentive Retirement Plan. Although Mr. Rock no longer
participates in that plan, interest is paid on his existing account. The
amount reported for all the executive officers includes the “above-market”
interest reported in column (h) of the Summary Compensation Table (Table
I).
|
(4)
|
Mr.
Stevens was not eligible to receive any benefits under the Executive
Incentive Retirement Plan at the time of his resignation in December
2009. He is entitled to receive the amount in his account under
the Executive Deferred Compensation Plan as of June
2010.
|
POTENTIAL
PAYMENTS ON TERMINATION OF AN EXECUTIVE OFFICER (Table VII)
Pursuant to the terms of the Executive
Deferred Compensation Plan, 2007 Stock Compensation Plan and its predecessor
plan, the Executive Incentive Retirement Plan and the Supplemental Executive
Incentive Retirement Agreement (for Mr. Rock only), the executive officers are
entitled to payment under those plans in the event their employment is
terminated, including termination in connection with a change in control of the
Bancorp. Mr. Stevens resigned on December 2, 2009. The amounts payable to him
under these plans is discussed herein.
Pursuant to the terms of the agreements
that each executive officer has with the Bancorp for the restricted stock award
made in 2009 under the 2007 Stock Compensation Plan and the predecessor
Smithtown Bancorp Restricted Stock Plan, unless the Board determines otherwise,
if the executive officer’s employment is terminated due to death or disability,
all of the restricted shares previously awarded would vest immediately, but if
termination was for any other reason, the unvested shares would be forfeited. As
a result of Mr. Stevens’ resignation on December 2, 2009, all of the unvested
shares were forfeited. With regard to Mr. Rock only, if his
employment was terminated as a result of his retirement, all unvested shares
would immediately vest, provided he has reached age 60 and he does not become
employed by a bank in the New York metropolitan area. The amount
reported in column (b) of the Potential Payments on Termination Table (Table
VII) which follows is the market value (based on the closing price on the NASDAQ
Stock Market) as of December 31, 2009 of the unvested restricted stock as of
December 31, 2009.
Under the terms of the Executive
Deferred Compensation Plan, regardless of the reason for termination, the
executive officer is entitled to the amount in the executive’s account under the
plan as of the date of termination. The amount is payable to the executive in a
lump sum or over a period of five or ten years based on the executive officer’s
election. If the executive officer chooses to have the benefit payable over a
period of time, interest will continue to be paid at the average interest rate
being paid in the prior three years on the balance in the executive officer’s
account on the date of termination. The amount reported in column (c) of Table
VII represents the balance in each executive officer’s account as of December
31, 2009. Mr. Stevens is entitled to receive the amount in his account under the
Executive Deferred Compensation Plan as of June 2010.
Pursuant to the terms of the Executive
Incentive Retirement Plan, early retirement age is 55 years and normal
retirement age is 65 years. As of December 31, 2009, only Mr. Rock and Ms.
Florek would have been entitled to the early retirement benefit payable under
the plan which is the balance in their respective accounts as of that date; Mr.
Anrig and Mr. Romano would not have been entitled to the benefit because they
have not been employed by the Bank for the requisite 15 years and/or they were
not 55 years of age. At the time of Mr. Stevens’ resignation, he was
not entitled to the benefit because he had not been employed by the Bank for the
requisite 15 years and was not 55 years of age. If any of the executive
officers’ employment was terminated on December 31, 2008 as a result of a
disability or a change in control, they would have received the amount in their
account as of the date of termination. The benefit payable if the
executive officer passes away while still employed by the Bank is the greater of
the amount in the executive officer’s account on the date of death or the
projected retirement benefit. In column (d) of Table VII the first
number shown is the executive officer’s account balance as of December 31,
2009. The second number is the lump sum projected normal retirement
benefit payable if the executive officer had passed away on December 31,
2009. The early retirement, disability and death benefits described
above are payable by the Bank in a lump sum or equal monthly installments over
fifteen years with interest at the rate being paid on the account on the date of
termination. The change in control benefit is payable in a lump sum.
There is no benefit paid if the executive officer is terminated for
cause.
The terms
of the Supplemental Executive Retirement Agreement with Mr. Rock are fully
described in the Compensation Discussion and Analysis set forth in this proxy
statement and in the Pension Benefits Table (Table V) and the footnotes
thereto. If Mr. Rock’s employment was terminated (other than for
cause, disability or due to a change in control) on December 31, 2009, he would
have been entitled to payment of the amount which the Bank is required to accrue
under GAAP to account for the benefit that may become payable under the
Agreement. The amount of the annual payment which would begin when
Mr. Rock reaches 60 years of age and which is payable to him for life with 15
years of payments guaranteed is the first number shown in column (e) of Table
VII. If Mr. Rock’s employment was terminated on December 31, 2009 due
to his death or disability, he would have received the same benefit as if he had
reached normal retirement age on December 31, 2009 which is 70% of his projected
final average base salary less amounts provided to him in the form of 50% of
social security benefits and contributions made by the Bank to his accounts
under the 401K plan, Executive Deferred Compensation Plan and the Executive
Incentive Retirement Plan. The annual payment is the second number
shown in column (e) of Table VII. In the event of Mr. Rock’s disability, the
payment would not be made until he reached the age of 60 and would be made for
life with a guaranteed payment for fifteen years. In the event of Mr. Rock’s
death, the annual payment would commence immediately following his death and
would be paid for fifteen years. The change in control benefit payable to Mr.
Rock under the Supplemental Executive Retirement Agreement is set forth in the
Potential Payments in the Event of a Change In Control (Table VIII) in this
proxy statement.
TABLE
VII
POTENTIAL
PAYMENTS UPON TERMINATION
Name
|
|
Stock
Compensation
Plans
($)
|
|
|
Executive Deferred
Compensation Plan
($)
|
|
|
Executive Incentive
Retirement Plan
($)
|
|
|
Supplemental Executive
Retirement Agreement
($)
|
|
(a)
|
|
(b)(1)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
Bradley
E. Rock
|
|
|
192,601
|
|
|
|
94,873
|
|
|
|
624,748
|
|
|
|
287,719
|
|
|
|
|
|
|
|
|
|
|
|
|
1,664,941
|
|
|
|
279,222
|
|
John
A. Romano
|
|
|
12,596
|
|
|
|
212,609
|
|
|
|
248,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,032,573
|
|
|
|
-
|
|
Christopher
Becker (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Anita
M. Florek
|
|
|
12,596
|
|
|
|
62,685
|
|
|
|
296,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
696,493
|
|
|
|
-
|
|
Robert
J. Anrig
|
|
|
12,596
|
|
|
|
103,189
|
|
|
|
296,993
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
524,822
|
|
|
|
|
|
Thomas
J. Stevens(3)
|
|
|
-
|
|
|
|
48,707
|
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
Includes
the shares of restricted stock awarded under the Smithtown Bancorp, Inc.
2007 Stock Compensation Plan, and its predecessor
plan.
|
|
(2)
|
Mr.
Becker’s employment began in April and he did not receive any award of
restricted stock in 2009, nor was he a participant in the
Executive Incentive Retirement Plan or Executive Deferred Compensation
Plan in 2009.
|
|
(3)
|
Since
Mr. Stevens resigned on December 2, 2009, the amounts shown in this table
are the actual amounts payable to him following his
resignation.
|
POTENTIAL
PAYMENTS IN THE EVENT OF A CHANGE IN CONTROL (Table VII)
The Bank
has a Change-In-Control Agreement with each of the executive officers (other
than Mr. Becker who joined the Bank in April 2009) and certain other employees
of the Bank (the “Agreements”). The definition of a change in control
is substantially the same as is contained in the Executive Incentive Retirement
Plan, the Executive Deferred Compensation Plan, the Supplemental Executive
Retirement Plan, the Smithtown Bancorp Restricted Stock Plan (approved by the
shareholders in 2005) and in the 2007 Stock Compensation Plan. Under
the Agreements, the executive officer would be entitled to payment if his or her
employment were terminated by the Bank (other than for cause) within a certain
period of time (for Mr. Rock 36 months; for the other executive officers 24
months) following a change in control. In addition, if the officer
terminates his or her employment with the Bank within those same time periods
for good reason, the officer is entitled to payment under the
Agreements. Good reason is defined in the Agreements as termination
upon the occurrence of or after a significant adverse change (not consented to
by the executive officer) in the executive’s responsibilities, functions,
powers, authority or duties than those exercised by the officer prior to the
change in control; a reduction in the officer’s base salary or cash
incentive compensation opportunity; a relocation of the employment to
a location that is more than 50 miles from the officer’s location at the time of
the change in control or a requirement that the officer travel more than 30
working days in a calendar year or more than 10 consecutive calendar days at any
one time; a change in title from the title held prior to the change in control
(for certain executive officers); a failure to continue in effect or a reduction
in any benefit, programs or perquisites that were provided to the officer prior
to the change in control unless the Bank provides the executive with
substantially similar benefits or the changes are due to legal requirements or
are made to all employees on a non-discriminatory basis, or if the Bank or its
successor does not perform under the Agreement. The Agreement with
Mr. Rock also permits him to terminate his employment for any reason within one
year of the change in control and receive the benefits payable under the
Agreement.
The benefit to which the executive
would be entitled is (a) an amount equal to the sum of three times the
executive’s highest paid salary in the three most recent years preceding the
change in control and three times the executive’s highest incentive compensation
paid in the three most recent years preceding the change in control, and (b) an
amount equal to the contributions and benefits that the executive would have
received for a three year period based on the benefits and contributions paid on
the executive’s behalf in the year preceding the executive’s termination, and
(c) to continue to participate in the Bank’s health, dental and medical plans
and be provided coverage under the Bank’s life and disability insurance plans
for a period of three years following termination, and (d) to become fully
vested in all unvested restricted stock awards under the equity compensation
plans. The payment to which the executive is entitled under (a) and
(b) in the preceding sentence is payable to the executive in a lump sum by the
Bank. In addition, the executive officer is entitled to a payment
which is equal to the amount of the excise tax (under Section 4999 of the
Internal Revenue Code of 1986, as amended) and income taxes and interest and
penalties imposed with respect thereto, that the executive would be required to
pay on the benefit paid pursuant to the Agreement.
The payments and benefits to which the
executive officers would be entitled assuming a triggering event had occurred on
December 31, 2009, are reflected in the Potential Payments In the Event of a
Change In Control (Table VIII) which follows.
TABLE
VIII
POTENTIAL
PAYMENTS IN THE EVENT OF A CHANGE IN CONTROL
|
|
Amounts Payable Under Change In Control Agreements
|
|
Name
|
|
3 times
Highest
Salary
($)
|
|
|
3 times
Highest
Incentive
Compensation
($)
|
|
|
Restricted
Stock
Accelerated
Vesting
Value
($)
|
|
|
Value of
Welfare
Benefits
($)
|
|
|
Qualified
and Non-
Qualified
Retirement
Benefits
($)
|
|
|
Supplemental
Executive
Retirement
Agreement
Benefit
(SERA)
($)
|
|
|
Double
Gross Up
(For Excise,
Income and
Medicare
Taxes)
|
|
|
Gross
Payment to
Executive
Officer
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)(1)
|
|
|
(e)(2)
|
|
|
(f)(3)
|
|
|
(g)(4)
|
|
|
(h)(5)
|
|
|
(i)
|
|
Bradley
E. Rock
|
|
|
2,492,307
|
|
|
|
1,125,000
|
|
|
|
192,601
|
|
|
|
34,656
|
|
|
|
295,170
|
|
|
|
4,131,159
|
|
|
|
1,725,405
|
|
|
|
9,996,298
|
|
John
A. Romano
|
|
|
686,121
|
|
|
|
306,000
|
|
|
|
12,596
|
|
|
|
42,489
|
|
|
|
151,767
|
|
|
|
-
|
|
|
|
529,654
|
|
|
|
1,728,627
|
|
Anita
M. Florek
|
|
|
672,276
|
|
|
|
240,420
|
|
|
|
12,596
|
|
|
|
13,566
|
|
|
|
145,989
|
|
|
|
-
|
|
|
|
456,560
|
|
|
|
1,517,385
|
|
Robert
J. Anrig
|
|
|
672,276
|
|
|
|
378,426
|
|
|
|
12,596
|
|
|
|
35,040
|
|
|
|
149,814
|
|
|
|
-
|
|
|
|
525,976
|
|
|
|
1,774,128
|
|
Footnotes
to Table VIII - Potential Payments Upon a Change In Control (Table
VIII)
|
(1)
|
The
amount reported is the value of the unvested restricted stock as of
December 31, 2009 (based on the closing price of the stock on that date)
that would have immediately vested.
|
|
(2)
|
The
amount reported includes approximately 36 months of medical, disability
and life insurance benefits paid by the Bank in
2009.
|
|
(3)
|
The
amount reported includes approximately 36 months of the Bank’s
contribution to the executive’s account under the 401k Plan, the Employee
Stock Ownership Plan and the Executive Incentive Retirement Plan, and the
interest that the Bank would pay on the executive’s account under the
Executive Deferred Compensation Plan and Executive Incentive Retirement
Plan based upon the amount contributed and the interest paid by the Bank
in 2009.
|
|
(4)
|
Mr.
Rock is the only executive officer who has a Supplemental Executive
Retirement Agreement. Under the Agreement, in the event of a
termination due to a change in control, Mr. Rock would be entitled to the
same amount that would be payable to him if his employment was terminated
on or after he reached normal retirement age (60). The amount
of the benefit is 70% of the highest salary that would have been paid to
him in the 3 years prior to normal retirement age (assuming an annual
salary increase of 10%) less 50% of Social Security benefits and the
Bank’s contributions to Mr. Rock’s 401K Plan, Executive Deferred
Compensation Plan and Executive Incentive Retirement
Plan.
|
|
(5)
|
The
amount reported is amount payable to the executive officer to reimburse
him or her for the excise tax that the executive officer would be required
to pay.
|
Director
Compensation
The
following table sets forth the compensation paid and awards made to the each of
the Directors serving on the Board of Directors during 2009.
TABLE
IX
2009
DIRECTOR COMPENSATION
Name
|
|
Fees
Earned
or
Paid
in Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Change
in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
(a)
|
|
(b)(1)
|
|
|
(c)(2)
|
|
|
(d)(3)
|
|
|
(e)(4)
|
|
|
(f)
|
|
Patricia
C. Delaney
|
|
|
23,000
|
|
|
|
8,962
|
|
|
|
882
|
|
|
|
231
|
|
|
|
33,075
|
|
George
H. Duncan
|
|
|
23,000
|
|
|
|
8,962
|
|
|
|
-
|
|
|
|
143
|
|
|
|
32,105
|
|
Patrick
A. Given
|
|
|
36,000
|
|
|
|
8,962
|
|
|
|
1,203
|
|
|
|
231
|
|
|
|
46,396
|
|
Hykmun
Kwon
|
|
|
23,000
|
|
|
|
8,962
|
|
|
|
-
|
|
|
|
231
|
|
|
|
32,193
|
|
Robert
W. Scherdel
|
|
|
33,000
|
|
|
|
8,962
|
|
|
|
1,201
|
|
|
|
231
|
|
|
|
43,394
|
|
Manny
Schwartz
|
|
|
32,000
|
|
|
|
8,962
|
|
|
|
1,115
|
|
|
|
231
|
|
|
|
42,308
|
|
Barry
M. Seigerman
|
|
|
28,000
|
|
|
|
8,962
|
|
|
|
1,177
|
|
|
|
49,669
|
(5)
|
|
|
87,808
|
|
Joseph
M. Winters
|
|
|
21,000
|
|
|
|
8,962
|
|
|
|
-
|
|
|
|
75
|
|
|
|
30,037
|
|
|
(1)
|
The
amount reported includes the annual retainer paid to each director in the
amount of $20,000.
|
|
(2)
|
The
amount reported is the grant date fair value of the restricted stock award
made to the director in 2009. The amount reported represents the grant
date fair value of the restricted stock awarded in 2009 to the director
under the 2007 Stock Compensation Plan. The value is based upon the number
of shares awarded (625 shares to each director) and the closing price of
the stock on the NASDAQ Stock Market on the date of the grant (February 4,
2009). The awards of restricted stock are subject to the
service conditions described in the Compensation Discussion and Analysis
portion of this proxy statement. The number of shares of restricted stock
awarded to each director (other than George H. Duncan and Joseph M.
Winters), which had not vested as of December 31, 2009 is
1059. The number of shares of restricted stock awarded to
George H. Duncan which had not vested as of December 31, 2009 is
225. The number of shares of restricted stock awarded to Joseph
M. Winters which had not vested as of December 31, 2009 is
125.
|
|
(3)
|
The
amounts reported includes a portion of the interest paid on the directors’
accounts under the Director Incentive Retirement Plan for the year 2009 at
the rate of 6%. The amount reported is only the portion of the
interest paid on those plans which exceeded 120% of the applicable
long-term federal rate (the “above-market interest rate”). The
interest paid on the Director Deferred Compensation Plan in 2009 (3.25%)
was not “above-market” and therefore is not included in the amount
reported.
|
|
(4)
|
The
amount reported is the amount of dividends paid in 2009 to the directors
on the restricted stock awarded under the Smithtown Bancorp Restricted
Stock Plan in 2005, 2006 and 2007 and under the Smithtown Bancorp, Inc.
2007 Stock Compensation Plan in 2008 and 2009. The dividends
paid on the restricted stock are paid at the same time and in the same
amount as the dividends paid on the Bancorp’s Common
Shares.
|
|
(5)
|
The
amount reported includes the dividends described in footnote (4) above in
the amount of $231 and compensation received by Mr. Seigerman as an
employee of Bank of Smithtown Insurance Agents and Brokers, Inc., a wholly
owned subsidiary of the Bank. Mr. Seigerman is employed on a
part-time basis. In 2009, he was paid $49,438, inclusive of
base salary ($40,000), the cost of health and retirement benefits and
reimbursement of a portion of his car expenses
($9,438).
|
Narrative
and Explanation of Footnotes to Director Compensation Table (Table
IX)
Directors
received an annual retainer of $20,000 paid on a quarterly basis at a rate of
$5,000 per quarter in 2009. The members of the Compensation Committee
(other than the chairperson) also received an annual fee of $500. The
members of the Corporate Governance and Nominating Committee (other than the
chairperson) also received an annual fee of $500. Patrick A. Given,
as the lead director and chairperson of both the Compensation Committee and
Corporate Governance and Nominating Committee received an annual fee of $5,000.
The members of the Audit Committee (other than Robert W. Scherdel) received an
annual fee of $2,000. Robert W. Scherdel also received a fee of
$2,000 as the chairperson of the Audit Committee. The members of the
Bank’s Directors’ Loan Committee, who are not officers of the Bank, also
received an annual fee of $8,000. Patricia C. Delaney also received a fee of
$2,000 as the secretary of the Board. The total fees paid to each director in
2009 are reported in column (b) of Table IX.
The total amount of director’s fees
paid during 2009 was $219,000.
All directors serving in 2005, 2006
and 2007 (other than Mr. Rock) were awarded restricted stock pursuant to the
Smithtown Bancorp Inc. Restricted Stock Plan in those years. In 2008,
the directors (other than Mr. Rock and Mr. Winters) were awarded restricted
stock pursuant to the Smithtown Bancorp, Inc. 2007 Stock Compensation Plan. In
2009, all directors (other than Mr. Rock) were awarded restricted stock pursuant
to the Smithtown Bancorp, Inc. 2007 Stock Compensation Plan. Shares
awarded to the directors are subject to the same restrictions as those awarded
to the Bank’s executive officers under those plans. A description of both plans
is included in the Compensation Analysis and Discussion set forth in this proxy
statement. In February, 2009, each director was awarded 625 shares of Bancorp
common stock pursuant and subject to the 2007 Stock Compensation
Plan.
The Bank
established a non-qualified Director Deferred Fee Plan in 2004. All
directors of the Company are eligible to participate in the
plan. Under the plan, directors may elect to defer all or a portion
of their fees each year in advance of the beginning of the plan
year. The rate of interest paid by the Bank on the director’s account
under the plan is based on the prime rate published in the Wall Street Journal
on the first business day of January in each year of the plan. In
2009, the interest paid on the directors’ accounts under this plan was at the
rate of 3.25%. A director makes a payout election which provides for
payment upon termination on a lump sum, five or ten year basis.
The Bank has entered into Director
Incentive Retirement Agreements with Mr. Given, Mr. Scherdel, Mr. Schwartz, Mr.
Seigerman and Ms. Delaney (the “Agreements). To be eligible, a
director must be less than 62 years of age at the time that he or she becomes a
Board member. The Agreement provides for a contribution up to 25% of
the director’s fees to each director’s account based upon the return on equity
of the Bancorp from the previous fiscal year. The earnings on the
accounts are based upon the percentage change in the Bancorp’s fair market value
common stock price, the actual growth rate, with a guaranteed annual minimum
rate of 6% and a maximum rate of 12%. In 2009, the rate of interest
paid on the directors’ accounts under this plan was 6%. The director
must serve as a director for a period of five years in order to be vested under
the Agreement. Benefits under the Agreements are payable to the
director upon normal retirement age (72), early retirement age (between 55 and
72, provided the director has served for ten years), disability, or if there is
a change in control of the Bancorp or the Bank. The director has the
option to choose how benefits are paid for normal retirement, early retirement,
disability and death. Benefits are paid in a lump sum or in equal
monthly installments over ten years as chosen by the director
.
In 2008, the Director Deferred Fee Plan
and the Director Incentive Retirement Agreements were amended to incorporate
changes necessary to ensure compliance with the requirements of Section 409A of
the Internal Revenue Code of 1986, as amended. Those amendments
modify the form and timing of distribution elections and do not affect the
amount of the benefit that the director is entitled to under each
plan.
AUDIT
COMMITTEE REPORT
With
respect to the audited financial statements of the Bank as of December 31, 2009
and for the year then ended, the Audit Committee:
(1) Has
reviewed and discussed with the Bank’s management the audited financial
statements;
(2) Discussed
with the independent auditors the matters required to be discussed by Statement
on Auditing Standards No. 61 as amended, and
(3) Has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1, (which relates to the
auditor’s independence from the Bank) and has discussed with the auditors the
auditors’ independence from the Bank.
Based on
the review and discussions of the Bank’s audited financial statements with the
Bank’s management and the independent auditors of the Bank referred to in (1) –
(3) above, the Audit Committee recommended to the Board of Directors that the
Bank’s audited financial statements be included in the Bank’s Annual Report on
Securities and Exchange Commission Form 10-K for the year ended December 31,
2009, for filing with the Securities and Exchange Commission.
The Audit
Committee has considered whether the provision of non-audit services by the
Bank’s independent auditors is compatible with maintaining auditor
independence.
The
foregoing report has been furnished by Robert W. Scherdel, Hyukmun Kwon, Manny
Schwartz, Patrick A. Given and George H. Duncan. This report shall
not be deemed incorporated by reference by any general statement incorporating
this document by reference into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent that the Bancorp
specifically incorporates such information by reference, and shall not otherwise
be deemed filed under such acts.
PROPOSAL
NO.2
APPROVAL
OF INDEPENDENT AUDITORS
The Board of Directors has selected
Crowe Horwath LLP, Certified Public Accountants, to continue as the independent
auditors for the Bank and the Bancorp for the year ending December 31,
2010. Crowe has served as the independent auditors for the Bank and
the Bancorp since August 26, 2003 and was the independent auditor for the Bank
and the Bancorp for the year ended December 31, 2008 and December 31,
2009. There were no issues on which the Bancorp consulted with Crowe
prior to their engagement as independent auditors.
Representatives of Crowe will be
present at the Annual Meeting to answer questions and are free to make
statements during the course of the meeting.
The Board
of Directors recommends a vote FOR the proposal to ratify the appointment of the
independent auditors.
(Proposal
No. 2 on the Proxy)
Independent
Auditors’ Fees
Crowe Horwath LLP
(“Crowe”) served as the independent auditors for the Bank and Bancorp for the
year 2009.
The chart below sets forth the aggregate fees billed for
professional services rendered by Crowe for services performed in each of 2009
and 2008, and breaks down these amounts by category of service:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Audit
Fees
|
|
$
|
231,250
|
|
|
$
|
198,000
|
|
Audit-Related
Fees
|
|
|
79,021
|
|
|
|
69,000
|
|
Tax
Fees
|
|
|
33,550
|
|
|
|
33,125
|
|
All
Other Fees
|
|
|
33,425
|
|
|
|
31,970
|
|
Audit
Fees
Audit fees are fees billed for the
audit of our consolidated financial statements, the audit of management's
assessment on internal control over financial reporting and for the review of
interim financial statements included in the Bancorp’s filings on Form 10Q and
10K.
Audit
Related Fees
For 2009 and 2008, audit related fees
principally included fees billed for comfort letters and consents and other SEC
related matters, and for 2009 only, fees billed for debt issuance
procedures.
Tax
Fees
Tax fees are billed for services
rendered in connection with the preparation of the tax returns and for tax
advice.
All
Other Fees
For 2009 and 2008, the Bank was billed
for services rendered by Crowe in connection with the audit of the Bank’s
benefit plans.
All of
the fees billed by Crowe described above were reviewed and approved by the Audit
Committee.
Pre-approval
Policies and Procedures
The Audit Committee has adopted a
policy and procedure for the pre-approval of all audit and non-audit services to
be rendered by the Bank’s independent auditors. The Audit Committee
reviews the proposal for audit services to be provided by the independent
auditors for the upcoming fiscal year and approves the services and the fees to
be paid for the services. All proposals for non-audit services by the
independent auditors are also reviewed and approved by the Audit Committee prior
to being performed.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Some of the directors and officers of
the Bancorp, and some of the corporations and firms with which these individuals
are associated, are also customers of Bank of Smithtown in the ordinary course
of business, or are indebted to the Bank in respect of loans of $120,000 or
more. It is anticipated that some of these individuals, corporations
and firms will continue to be customers of and indebted to the Bank on a similar
basis in the future. All loans extended to such individuals,
corporations and firms were made in the ordinary course of business, did not
involve more than the normal risk of collectablity or present other unfavorable
features, and were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the same time for comparable loans
with persons not related to the Bank.
No
director of the Bank or the Bancorp had an aggregate amount of unsecured
indebtedness to the Bank in excess of fifteen percent of the Bank's equity
capital account during the period of January 1, 2009 through December 31,
2009.
During the year 2009, Patricia C.
Delaney, a director of the Bancorp, was retained as General Counsel for the
Bancorp and the Bank and was paid approximately $218,626 for legal services
rendered.
Barry M. Seigerman, a director of the
Bancorp is employed on a part time basis by Bank of Smithtown Insurance Agents
and Brokers, Inc. The compensation paid to Mr. Seigerman is reported
in Table IX column (e).
Except as described above, none of the
directors or officers of the Bank or the Bancorp, or the corporations or firms
with which such individuals are associated, currently maintains or has
maintained within the last fiscal year any significant business or personal
relationship with the Bank or the Bancorp other than such as arises by virtue of
such individual's or entity's position with and/or ownership interest in the
Bank or the Bancorp.
Susan Intrieri, the spouse of Thomas J.
Stevens was paid $128,732 as her base salary and incentive compensation in
2009. Ms. Intrieri was awarded 625 shares of restricted stock in 2009
which are subject to the same restrictions and vesting schedule as the
restricted stock awarded to the executive officers. Ms. Intrieri
participates in the Bank’s Employee Stock Ownership Plan, 401K Plan and medical
and group term life insurance programs on the same basis as all other employees
of the Bank. Ms. Intrieri is also among the group of Bank employees
(including the executive officers) for whom the Bank has provided additional
life insurance pursuant to the Bank Owned Life Insurance (“BOLI”) policy which
is more fully explained in footnote 4 to Table I-A herein.
Bradley E. Rock, Jr. (the son of Mr.
Rock) was paid $126,321 as his base salary and incentive compensation in 2009.
Mr. Rock, Jr. participates in the Bank’s Employee Stock Ownership Plan, 401K
Plan and medical and group term life insurance programs on the same basis as all
other employees of the Bank. Mr. Rock is also among the group of bank
employees (including the executive officers) from whom the Bank has provided
additional life insurance pursuant to the BOLI policy which is more fully
explained in footnote 4 to Table I-A herein
The Board of Directors reviews and
approves or disapproves all transactions, including but not limited to,
financial transactions, arrangements and relationships with (i) any director or
officer of the Bank or the Bancorp or any corporation or firm or other entity
with which such individual is associated, or immediate family member of such
individual and (ii) any shareholder of more than five percent of Common Shares
or such shareholder’s immediate family member if such shareholder or family
member has a material interest in the transaction. All such
transactions must be reviewed by the Board regardless of the dollar amount
involved. The executive officer in charge of the department of the
Bank or its subsidiaries that is involved in the transaction is responsible for
presenting the information about the transaction to the Board of
Directors. If the executive officer is personally involved in the
transaction, another executive officer gathers and presents the necessary
information about the transaction to the Board of Directors. If a
member of the Board of Directors is involved in the transaction, such director
does not take part in the Board’s discussions, deliberations and determination.
The compensation paid to Bradley E. Rock, Jr. is discussed in executive session
by the Compensation Committee and the full Board without any participation by
his father.
The policy and procedures for approval
of a transaction described above are not in writing and are evidenced in the
minutes of the meetings of the Board of Directors.
SHAREHOLDER
PROPOSALS AND NOMINATIONS
Shareholder proposals to be included in
the Proxy Statement and the Proxy for the 2011 Annual Meeting must be received
by the Secretary of the Board of Directors by November 12, 2010.
Notice of shareholder proposals to be
presented at the 2011 Annual Meeting must be received by the Secretary of the
Board of Directors by January 26, 2011.
If a shareholder desires to recommend
an individual as a nominee for director to the Board of Directors, the
shareholder shall mail the recommendation to the Secretary of the Board of
Directors. The recommendation must include the name, address
(business and personal), age and occupation of the nominee and the number of
shares of stock of the Bancorp owned by the nominee. The
recommendation must also include such other information regarding the nominee as
may reasonably be required by the Bancorp.
COMMUNICATIONS
WITH THE BOARD OF DIRECTORS
Shareholders may communicate with the
members of the Board of Directors by mailing their communications to the
Bancorp’s Secretary, Judith Barber, at Smithtown Bancorp, Inc., 100 Motor
Parkway, Suite 160, Hauppauge, New York 11788. All communications
addressed to the attention of a particular director shall be forwarded to the
director by the Bancorp’s Secretary.
PROPOSAL
NO.3
SHAREHOLDER
PROPOSAL
TO
DECLASSIFY THE BOARD OF DIRECTORS
Gerald Armstrong, 910 Sixteenth Street,
No. 412, Denver, Colorado 80202-2917, has submitted the following proposal for
inclusion in our proxy statement, and has notified us of his intent to present
this proposal for consideration at the Annual Meeting. Mr. Armstrong has advised
us that he is the beneficial owner of 165 Common Shares. In accordance with SEC
regulations, the text of Mr. Armstrong’s proposal is printed verbatim
below.
Resolution
That the
shareholders of Smithtown Bancorp, Inc. request its Board of Directors to take
the steps necessary to eliminate classification of terms of the Board of
Directors to require that
all
Directors stand
for election annually. The Board declassification shall be completed
in a manner that does not affect the unexpired terms of the previously-elected
Directors.
Statement
of Gerald Armstrong
The
current practice of electing only one-third of the directors for three-year
terms is not in the best interest of the corporation or its
shareholders. Eliminating this staggered system increases
accountability and gives shareholders the opportunity to express their views on
the performance of each director annually. The proponent believes the election
of directors is the strongest way that shareholders influence the direction of
any corporation and our corporation should be no exception.
As a
professional investor, the proponent has introduced the proposal at several
corporations which have adopted it. In others, opposed by the board
or management, it has received votes in excess of 70% and is likely to be
reconsidered favorably.
The
proponent believes that increased accountability must be given our shareholders
whose capital has been entrusted in the form of share investments especially
during these times of great economic challenge.
Arhur
Levitt, former Chairman of The Securities and Exchange Commission said, “In my
view, it’s best for the investor if the entire board is elected once a
year. Without annual election of each director, shareholders have far
less control over who represents them.”
While
management may argue that directors need and deserve continuity, management
should become aware that continuity and tenure may be best assured when their
performances as directors is exemplary and is deemed beneficial to the best
interests of the corporation and its shareholders.
The
proponent regards as unfounded the concern expressed by some that annual
election of all directors could leave companies without experienced directors in
the event that all incumbents are voted out by shareholders.
In the
unlikely event that shareholders do vote to replace all directors, such a
decision would express dissatisfaction with the incumbent directors and reflect
the need for change.
If you
agree that shareholders may benefit from greater accountability afforded by
annual election of
all
directors, please
vote “FOR” this proposal.
Board
of Directors’ Response
The
Board of Directors unanimously recommends a vote AGAINST the proposal for the
following reasons:
The Board of Directors has carefully
considered the proposal submitted by Mr. Armstrong and recommends that
shareholders vote against the proposal. The Board believes it is not in the
shareholders’ best interests to declassify the Board and to have annual
elections of each director.
Our current “staggered board” board
structure has been in place since 1984, when it was approved by a vote of more
than 90% of the shareholders. The Board of Directors continues to believe that
this structure benefits the Bancorp and the shareholders by providing
continuity, stability, experience and greater ability to protect shareholder
value in a potential hostile takeover.
Under the current board structure,
there are always six directors who have served a minimum of three years on the
board at any given time. The prior experience of those who are fulfilling their
terms and the continuity of their service allows the Board to more effectively
plan and implement the Bancorp’s long-term objectives. Retaining two-thirds of
the directors each year also results in more stability and efficiency in
operation which would not be the case if an entirely new board could be elected
each year because it ensures that there are always at least six directors
serving who are familiar with the operations of the Bancorp as well as it’s
industry, business and long-term strategies.
All
members of the Board owe fiduciary duties of care and loyalty to the Bancorp and
the shareholders, regardless of when they are elected or the length of their
term. Therefore, a director’s accountability to the Bancorp and the shareholders
is the same whether he or she is elected for a one year term or a three year
term. What is greater, however, under our current board structure, is the
commitment that is required of each director serving on the Board. The Board
believes that the three year commitment currently required of each director
elected to the Board results in having the most dedicated candidates serving on
the Board and eliminates those who are less committed or aligned with the long
term interests of the Bancorp and our shareholders.
The Board
also believes that the current board structure provides the shareholders with an
effective defense to a variety of takeover tactics that can be used to deprive
shareholders of the ability to get a full and fair price for all of their shares
in the context of a change in control. Since it is not possible to replace a
majority of directors or elect an entirely new board at a single meeting,
potential acquirers may be more likely to negotiate with the Board to effect
such a change. In the course of such negotiations, the Board would have more
opportunity to evaluate the adequacy and fairness of the acquirer’s proposal and
develop other means of maximizing shareholder value, and ultimately, more
leverage to successfully negotiate the best outcome for the
shareholders. Although the existence of a classified board will not
preclude an unwanted takeover, it prevents a potential acquirer from gaining
control of the Bancorp in one meeting and thereby encourages a potential
acquirer to negotiate with the Board. It also affords the incumbent directors a
better chance to realize more favorable terms for the shareholders in a takeover
situation.
Approval
of Mr. Armstrong’s proposal would not eliminate the classification of the Board.
Elimination of the classification of the Board would require an amendment to the
Bancorp’s Certificate of Incorporation, which amendment would require the
affirmative vote of 80% of the shareholders entitled to vote on such a proposal.
The Board would only consider proposing such an amendment if it believed it was
in the best interest of our shareholders. At the present time, the Board has
concluded that the current staggered board structure continues to promote the
best interests of the shareholders.
Accordingly, the Board of Directors
recommends a vote
AGAINST
Proposal
No.3
OTHER
BUSINESS
So far as
the Board of Directors of the Bancorp now knows, no business other than that
referred to herein will be transacted at the Annual Meeting. The
persons named in the Board of Directors' Proxies may, in the absence of
instructions to the contrary, vote upon all matters presented for action at the
Annual Meeting according to their best judgment.
Dated:
March 12, 2010
|
SMITHTOWN
BANCORP, INC.
|
|
/s/ Bradley E.
Rock
|
|
Bradley
E. Rock
|
|
Chairman
of the Board
|
APPENDIX
A
CHARTER
of
the
GOVERNANCE
and NOMINATING COMMITTEE
of the
Board of Directors
of Smithtown
Bancorp
Section
1.
Membership
. The
Governance and Nominating Committee shall consist of at least four
Directors. At least three members of the Committee shall be present
at a meeting to constitute a quorum. All members of the Committee
shall be “independent directors” as defined in National Association of
Securities Dealers (“NASDAQ”) listing standards and such other pertinent legal
and/or regulatory standards applicable at the time.
Section
2.
Meetings
. The
Committee shall meet at such times and places as it deems
advisable. Written agendas shall be prepared for each meeting, and
minutes of the meetings shall be maintained.
Section
3.
Chairman
. If
the Chairman of the Board of Directors is an “independent director” as defined
by the pertinent legal and/or regulatory standards applicable at the time, he or
she shall serve as Chairman of the Governance and Nominating
Committee. If the Chairman of the Board of Directors is not an
“independent director” and the Board of Directors has elected a Lead Director,
then the Lead Director shall serve as Chairman of the Governance and Nominating
Committee. In any other event, the Board of Directors, in its
discretion, may elect a Chairman of the Governance and Nominating
Committee. The Chairman, when present, shall preside at all meetings
of the Committee.
Section
4.
Committee
Duties
. The Committee shall: (1) on an annual
basis, or more frequently if needed, collect and analyze such information it
deems necessary to formulate recommendations to the Board of Directors with
regard to which Directors are “independent” as defined by the pertinent legal
and/or regulatory standards applicable at the time; (2) identify and evaluate
the qualifications of candidates for vacant positions on the Board of Directors
and recommend nominees to the Board; (3) make recommendations to the Board with
regard to who should comprise the members of all Board Committees, and the
Chairmen of those Committees; and, (4) in its discretion, consider any and all
other matters pertaining to corporate governance and make such recommendations
to the Board as it shall deem appropriate.
Section
5.
Board Nomination
Process.
The Committee may receive nominations for vacancies
on the Board of Directors from members of the Board of Directors and
stockholders of the corporation. The Committee shall gather information on a
prospective nominee from the person making the nomination, from the Committee
members own knowledge of the prospective nominee, from the knowledge of other
Board members and from interviewing the prospective nominee, if desired. The
Committee may retain the services of a third-party search firm to learn of
prospective nominees or to obtain additional information about a prospective
nominee, if desired. The Committee shall review and discuss the
prospective nominee’s ability to meet the qualifications and standards
established by the corporation to be a member of the Board of Directors. The
Committee shall be responsible for making recommendations to the full Board of
Directors as to the individuals who should be nominated or elected by the Board.
The Board shall approve a nominee by a vote of a majority of the independent
directors.
Section
6.
Evaluation of Board
Nominees.
In identifying and evaluating prospective nominees,
the Committee shall be guided by the qualifications of directors set forth in
the By-Laws of the corporation with regard to citizenship and stockholder
status. The Committee shall also consider the age of a prospective nominee,
which may be not less than 21 and not more than 72 years of age. The Committee
may also consider the prospective nominee’s ability to meet the applicable legal
and/or regulatory standards for “independent director”, the prospective
nominee’s ability to represent the interests of the stockholders of the
corporation, and the prospective nominee’s ability to dedicate sufficient time
and attention to the diligent performance of his or her duties.
Section
7.
Evaluation of Audit
Committee Members.
The Committee shall review on an annual
basis whether the directors who are currently serving on the Audit Committee or
may serve on the Audit Committee are outside directors (meaning that the
director is not currently employed or in the previous fiscal year been employed
by Bank of Smithtown or any of its affiliates) and are independent of
management. In making its evaluation the Committee should determine if such
directors meet the qualifications for “independent director” as are set forth in
NASDAQ listing standards and Rule 10A-3 of the Securities Exchange Act of
1934. The Committee shall also review and determine whether at least
one of the directors serving on the committee has the accounting or related
financial management expertise to satisfy the Securities and Exchange
Commission’s requirements for an “audit committee financial
expert”.
APPENDIX
B
CHARTER
for
the
Audit
Committee
of the
Board of Directors
of Bank of
Smithtown
Section
1.
Membership
. The
Audit Committee shall consist of at least four Directors, including the Chairman
of the Board if there be one who is not an officer of the Bank. At
least three members of the Committee shall be present at a meeting to constitute
a quorum. All members of the Committee shall be “independent
directors” and “independent of management”, and at least one member of the
Committee shall be an “audit committee financial expert” as such terms are
defined by the pertinent legal and/or regulatory standards applicable at the
time. The determination of whether a Committee member is an “independent
director”, an “audit committee financial expert” and “independent of management”
shall be made annually by the Board of Directors based upon the determinations
and recommendations of the Governance and Nominating Committee.
Section
2.
Meetings
. The
Committee shall meet at least once each quarter at such times and places as it
may choose. The Committee may meet more frequently as it deems
advisable. Written agendas shall be prepared for each meeting, and
minutes of the meetings shall be maintained.
Section
3.
Internal
Auditor
. The Committee shall be directly responsible for the
appointment, compensation and oversight of the work of the Bank’s Internal
Auditor. The Committee may hire one or more employees to perform this
function or may retain an accounting firm for this purpose. In the
event one or more employees perform the internal audit function, the employee(s)
shall report to the Committee regarding audit matters and to the Chief Executive
Officer of the Bank regarding administrative matters. In the event one or more
employees perform the internal audit function, the Bank’s officers may make
recommendations to the Committee with respect to the hiring, firing, discipline,
performance reviews, promotion and compensation of such employees, but the full
authority with respect to all of these matters rests with the
Committee. In the event that the Committee retains an accounting firm
to perform the internal audit function, it shall be a different firm than the
firm selected by the Committee to perform the independent audit
function. The Committee may adopt a policy that defines the purpose
of the internal audit activity and the authority and responsibilities of the
persons performing the internal audit work. The Committee shall meet
with the Internal Auditor at least once each quarter to monitor progress with
the internal audit program and schedule, to review the Internal Auditor’s
written reports and management’s responses thereto, and to discuss any other
relevant matters pertaining to the internal audit program.
Section
4.
Independent
Auditor
. The Committee shall be directly responsible for the
appointment, compensation and oversight of the work of the Bank’s Independent
Auditor. The accounting firm selected to perform the independent
audit function shall report directly to the Committee. The Committee
is charged with resolving any disagreements between management and the
Independent Auditor regarding financial reporting or any other
matters. The accounting firm that is retained by the Committee to
perform the independent audit function may not, at the same time, perform any of
the following non-audit services for the Bank or its holding company or any
other subsidiary owned by the Bank or its holding company:
|
·
|
Bookkeeping
or other services related to the accounting records or financial
statements of the Bank.
|
|
·
|
Financial
information systems design and
implementation.
|
|
·
|
Appraisal
or valuation services, fairness opinions or contribution-in-kind
reports.
|
|
·
|
Internal
audit services.
|
|
·
|
Management
functions or human resources.
|
|
·
|
Broker
or dealer, investment advisor or investment banking
services.
|
|
·
|
Legal
services and expert services unrelated to the
audit.
|
|
·
|
Any
other service determined by regulation to be
impermissible.
|
Other
non-audit services, such as tax services, can be performed by the Independent
Auditor, but only with the prior approval of the Committee and disclosure to
investors. Each year the Committee shall receive from the Independent
Auditor a formal written statement delineating all relationships between the
Independent Auditor and the Bank consistent with Independence Standards Board
Standard 1.
The
Committee shall monitor the progress of the work of the Independent Auditor and
shall meet with the Independent Auditor at least once each year to discuss the
firm’s findings. The Independent Auditor must make timely reports to
the Committee during the audit process concerning: (1) critical
accounting policies and practices to be used in the audit; (2) all alternative
treatments of financial information within generally accepted accounting
principles (GAAP) discussed with management, including the ramifications of such
treatment and the treatment preferred by the Independent Auditor; and (3) all
other material written communications between the Independent Auditor and
management, such as any management letter or schedule of unadjusted
differences.
Section
5.
Outside
Advisors
. The Committee may retain independent counsel and
outside advisors.
Section
6.
Committee
Funding
. The Bank shall provide for appropriate funding, as
determined by the Audit Committee, for payment of compensation to the Bank’s
auditors and to any advisors retained by the Committee.
Section
7.
Treatment of
Complaints
. Any complaints received by management regarding
accounting, internal accounting controls or auditing matters shall be referred
to the Audit Committee. Employees shall be informed in the Employee
Handbook of how they can communicate directly with the Audit Committee, in a
confidential and/or anonymous manner if they so choose, regarding questionable
accounting, internal accounting controls or auditing matters. The
Committee may take such steps to evaluate, investigate and/or respond to such
complaints as it deems appropriate under the circumstances.
Revocable
Proxy
Smithtown
Bancorp, Inc.
|
Annual
Meeting of Shareholders
May
6, 2010
|
|
|
|
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Please
mark as
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1.
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To
elect three directors:
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Withhold
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For
All
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|
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indicated
in this
x
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For
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All
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Except
|
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example
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o
|
o
|
o
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Nominees:
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For
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Against
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Abstain
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(01) Patrick
A.
Given (02) Robert
W. Scherdel
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3.
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Shareholder
proposal on declassification of the Board of Directors.
|
o
|
o
|
o
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|
|
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The
Board recommends a vote
FOR
All Nominees
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The
Board recommends a Vote
AGAINST
Proposal No. 3
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Instructions:
To withhold authority to vote for any nominee(s), mark
“
For All
Except
”
and write that nominee(s
’
) name(s) or
number(s) in the space provided below.
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4.
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To
transact such other business as may properly come before the meeting and
any adjournment
thereof.
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For
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Against
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Abstain
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Unless
otherwise specified, this Proxy will be voted
FOR
the election of the
nominated directors,
FOR
Proposal No.2 and
AGAINST
Proposal
No.3 above and in the discretion of the persons in whose favor this Proxy
is granted upon matters that may properly come before the
meeting.
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2.
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Approval
of the appointment of Crowe Horwath LLP, as independent Auditors
for the year ending December 31, 2010
|
o
|
o
|
o
|
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Mark
here if you plan to attend the meeting
|
o
|
|
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|
|
|
|
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The
Board recommends a vote
FOR
Proposal No.
2
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Mark
here for address change and note change
|
o
|
|
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Please
be sure to date and sign
|
|
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This
instruction card in the box below.
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Please
sign exactly as your name(s) appear(s)
hereon.
|
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Shareholder
Signature
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Joint Shareholder Signature
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Date
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______________________
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Date
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______________________
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***
IF YOU WISH TO PROVIDE YOUR INSTRUCTIONS TO VOTE BY TELEPHONE OR INTERNET,
PLEASE READ THE INSTRUCTIONS BELOW
***
|
FOLD
AND DETACH HERE IF YOU ARE VOTING BY MAIL
PROXY
VOTING INSTRUCTIONS
Stockholders
of record have three ways to vote:
|
2.
|
By
Telephone (using a Touch-Tone Phone);
or
|
A
telephone or Internet vote authorizes the named proxies to vote your shares in
the same manner as if you marked, signed, dated and returned this
proxy. Please note telephone and Internet votes must be cast prior to
3 a.m. May 6, 2010. It is not necessary to return this proxy if you
vote by telephone or Internet.
Vote
by Telephone
Call
Toll-Free on a Touch-Tone Phone anytime prior to
3
a.m., May 6, 2010
1-866-287-9708
|
|
Vote
by Internet
Anytime
prior to
3
a.m., May 6, 2010 go to
https://www.proxyvotenow.com/smtb
|
Please
note that the last vote received, whether by telephone, Internet or by mail,
will be the vote counted.
ON-LINE
ANNUAL MEETING MATERIALS:
http://www.snl.com/irweblinkx/FinancialDocs.aspx?IID=100654
|
Your
Vote is important!
REVOCABLE
PROXY
Smithtown
Bancorp, Inc.
ANNUAL
MEETING OF SHAREHOLDERS
May
6, 2010
10:00
a.m.
THIS
PROXY IS SOLICATED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned shareholder of Smithtown Bancorp, Inc., revoking all proxies
heretofore given with respect to the shares represented herewith, hereby
constitutes and appoints Linda Laglenne,
Augusta
Kemper
and Raffaela Romanelli or any of them, the true and lawful
attorneys, agents and proxies of the undersigned, with full power of
substitution for and in the name, place and stead of the undersigned, with all
the powers which the undersigned would possess if personally present, to vote
all common shares of Smithtown Bancorp, Inc., held of
record by the undersigned on March 8, 2010, at the Annual Meeting of
Shareholders of Smithtown Bancorp, Inc., to be held at Sheraton Long Island
Hotel, 110 Motor Parkway, Hauppauge, New York 11788, on May 6, 2010, at 10:00
a.m., or any adjournment thereof.
PLEASE
COMPLETE, DATE, SIGN, AND MAIL THIS INSTRUCTION CARD PROMPTLY IN
THE
ENCLOSED
POSTAGE-PAID ENVELOPE OR PROVIDE YOUR INSTRUCTIONS TO VOTE VIA THE
INTERNET
OR BY TELEPHONE.
(Continued,
and to be marked, dated and signed, on the other side)
FOLD
AND DETACH HERE
SMITHTOWN
BANCORP, INC. – ANNUAL MEETING MAY 6, 2010
YOUR
VOTE IS IMPORTANT
Annual
Meeting Materials are available on-line at:
http://www
.s
nl.com/irweblinkx/FinancialDoc
s.
aspx?IID=100654
You
can vote in one of three ways:
|
1.
|
Call
toll free
1-866-287-9708
on a Touch-Tone Phone. There is
NO CHARGE
to you for
this call.
|
or
|
2.
|
Via
the Internet at
https://www.proxyvotenow.com/smtb
and follow the instructions.
|
or
|
3.
|
Mark,
sign and date your proxy card and return it promptly in the enclosed
envelope.
|
PLEASE
SEE REVERSE SIDE FOR VOTING INSTRUCTIONS
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