SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BANCORP RHODE ISLAND, INC.
---------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
(3) Filing party:
------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------
[BANCORP RHODE ISLAND, INC. LOGO]
April 18, 2003
Dear Shareholder:
You are cordially invited to attend the 2003 Annual Meeting of
Shareholders of Bancorp Rhode Island, Inc. to be held at the Courtyard by
Marriott, 32 Exchange Terrace, Providence, Rhode Island 02903, on
Wednesday, May 21, 2003 at 10:00 a.m.
The official Notice of Annual Meeting, Proxy Statement and Proxy are
included with this letter. The matters listed in the Notice of Annual
Meeting are more fully described in the Proxy Statement. I encourage you to
take the time to review the Proxy Statement.
It is important that your shares be represented and voted at the
Annual Meeting. Accordingly, regardless of whether or not you plan to
attend the meeting, please sign and date the enclosed proxy form and return
it in the enclosed postage paid envelope, so that your shares may be
represented at the meeting. If you decide to attend the meeting you may
revoke your proxy and vote your shares yourself.
Thank you for your consideration. I look forward to seeing you.
Very truly yours,
/s/ Malcolm G. Chace
Malcolm G. Chace
Chairman
BANCORP RHODE ISLAND, INC.
One Turks Head Place
Providence, Rhode Island 02903
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Wednesday, May 21, 2003
To the Shareholders of Bancorp Rhode Island, Inc.:
The Annual Meeting of Shareholders of Bancorp Rhode Island, Inc. (the
"Meeting"), a Rhode Island corporation (the "Company"), will be held at the
Courtyard by Marriott, 32 Exchange Terrace, Providence, Rhode Island on
Wednesday, May 21, 2003, at 10:00 a.m. local time, for the following
purposes:
1. To elect five Class I Directors to serve until 2006 and to
elect Pablo Rodriguez, M.D. as a Class II Director to serve
until 2004;
2. To consider and act upon a proposal to ratify the appointment
of KPMG LLP as independent public accountants for the Company;
and
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The Board of Directors of the Company has fixed the close of business
on April 4, 2003 as the record date for the determination of Shareholders
entitled to receive notice of and to vote at the Meeting or any adjournment
thereof. The stock transfer books will not be closed.
All Shareholders are cordially invited and urged to attend the
Meeting. PLEASE SIGN, DATE AND RETURN THE PROXY EVEN THOUGH YOU PLAN TO
ATTEND THE MEETING. Upon your arrival your proxy will be returned to you if
you desire to revoke it or vote in person. Your attendance in person is
encouraged, but should anything prevent your attendance in person, your
presence by proxy will still allow your shares to be voted.
By Order of the Board of Directors
/s/ Margaret D. Farrell
Margaret D. Farrell, Secretary
April 18, 2003
BANCORP RHODE ISLAND, INC.
One Turks Head Place
Providence, Rhode Island 02903
PROXY STATEMENT
This Proxy Statement is being furnished to the holders of Common
Stock (the "Shareholders") of Bancorp Rhode Island, Inc., a Rhode Island
corporation ("Bancorp"), in connection with the solicitation of proxies by
the Board of Directors of Bancorp for the Annual Meeting of Shareholders of
Bancorp (the "Meeting") to be held at the Courtyard by Marriott, 32
Exchange Terrace, Providence, Rhode Island on Wednesday, May 21, 2003 at
10:00 a.m. local time, and at any adjournments and postponements thereof.
This Proxy Statement and the related proxy form are being mailed on or
about April 18, 2003 to holders of record of Bancorp's Common Stock on
April 4, 2003. As used herein, the "Company" means both Bancorp and Bank
Rhode Island, a Rhode Island financial institution (the "Bank"), the only
significant operating subsidiary of Bancorp.
ACTION TO BE TAKEN UNDER THE PROXY
A proxy for use at the Meeting is enclosed. Subject to such
revocation or suspension, the proxy holders will vote all shares
represented by a properly executed proxy received in time for the Meeting
in accordance with the instructions on the proxy. If no instructions are
specified with regard to the matters to be acted upon, the proxy holders
will vote FOR approval of the proposals set forth in the Notice of Meeting.
Any proxy may be revoked by any Shareholder who attends the Meeting and
gives oral notice of his or her intention to vote in person, without
compliance with any other formalities. In addition, any proxy given
pursuant to this solicitation may be revoked prior to the Meeting by
delivering an instrument revoking it or a duly executed proxy bearing a
later date to the Secretary of Bancorp. The Secretary of Bancorp is
Margaret D. Farrell, and any revocation should be filed with her c/o
Hinckley, Allen & Snyder LLP, 1500 Fleet Center, Providence, Rhode Island
02903.
A proxy may confer discretionary authority to vote with respect to
any matter to be presented at the Meeting which management does not know of
a reasonable time before the date hereof. Management does not know of any
such matter which may come before the Meeting and which would be required
to be set forth in this Proxy Statement or the related proxy form. If any
other matter is properly presented to the Meeting for action, it is
intended that the persons named in the enclosed form of proxy and acting
thereunder will vote in accordance with their best judgment on such matter.
PERSONS MAKING THE SOLICITATION
The Board of Directors of Bancorp is soliciting these proxies.
Bancorp will bear the expense of preparing, assembling, printing and
mailing this Proxy Statement and the material used in the solicitation of
proxies for the Meeting. Bancorp contemplates that proxies will be
solicited principally through the use of the mail, but officers, directors
and employees of the Company may solicit proxies personally or by
telephone, without receiving special compensation therefor. Although there
is no formal agreement to do so, Bancorp may reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding these proxy materials to their principals. In
addition, Bancorp may utilize the services of individuals or companies not
regularly employed by the Company in connection with the solicitation of
proxies, if management of Bancorp determines that this is advisable.
VOTING SECURITIES
Holders of record of Bancorp's Common Stock, par value $.01 per share
(the "Common Stock"), at the close of business on April 4, 2003, the record
date for the Meeting, are entitled to notice of and to vote at the Meeting.
As of the close of business on April 4, 2003, Bancorp had outstanding
3,790,850 shares of Common Stock entitled to vote. Holders of the Common
Stock are entitled to one vote for each share held on the matters properly
presented at the Meeting.
The holders of a majority of the shares entitled to vote, present in
person or represented by proxy, will constitute a quorum for the
transaction of business at the Meeting. A plurality of votes cast is
required to elect the directors. All other proposals to be voted upon at
the Meeting will require the affirmative vote of holders of a majority of
the Common Stock present in person or represented by proxy at the Meeting.
Abstentions are treated as present and entitled to vote and therefore have
the effect of a vote against a matter. A broker non-vote on a matter is
considered not entitled to vote on the matter and thus is not counted in
determining whether a matter requiring approval of a majority of the shares
present and entitled to vote has been approved.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Bancorp's Articles of Incorporation provide that the Board of
Directors shall be divided into three classes, designated as Class I, Class
II and Class III, and as nearly equal as possible. The Board of Directors,
effective October 15, 2002, increased the number of directors from fourteen
to fifteen, of which five are designated as Class I Directors, five as
Class II Directors and five as Class III Directors. On October 15, 2002,
the Board of Directors elected Meredith A. Curren and Bogdan Nowak as Class
I Directors to fill the vacancies created by the resignations of F. James
Hodges and Donald J. Reaves, and elected Pablo Rodriguez, M.D. as a Class
II Director to fill the vacancy created by the increase in the number of
directors. Under Bancorp's Articles of Incorporation, any vacancies on the
Board of Directors may be filled by the Board of Directors for a term of
office continuing only until the next election of directors by the
Shareholders. The current Class I Directors serve until the Meeting, Class
II Directors (other than Pablo Rodriguez, M.D.) serve until the 2004 annual
meeting and Class III directors serve until the 2005 annual meeting.
Directors serve three year terms and until their successors are duly
elected and qualified or until the director's earlier resignation or
removal, provided that a director's term will automatically terminate on
the date of the next annual meeting of Shareholders following such director
attaining age 72. At the Meeting, five Class I Directors are to be elected
to serve until the 2006 annual meeting and until their successors are duly
elected and qualified. In addition to the nominees for Class I Directors
set forth below, Pablo Rodriguez, M.D. is nominated as a Class II Director
to serve until the 2004 annual meeting and his successor is duly elected
and qualified. The Directors of Bancorp also serve as directors of the
Bank. All nominees are currently directors of both Bancorp and the Bank.
Unless authority to do so has been withheld or limited in a proxy, it
is the intention of the persons named as proxies to vote the shares to
which the proxy relates FOR the election of the five nominees named below
to the Board of Directors as Class I Directors and FOR the election of
Pablo Rodriguez, M.D. to the Board of Directors as a Class II Director. If
any nominee named below is not available for election to the Board of
Directors at the time of the Meeting, it is the intention of the persons
named as proxies to act to fill that office by voting the shares to which a
proxy relates FOR the election of such person or persons as may be
designated by the Board of Directors or, in the absence of such
designation, in such other manner as the proxies may in their discretion
determine, unless authority to do so has been withheld or limited in the
proxy. The Board of Directors anticipates that each of the nominees will be
available to serve if elected.
2
The Board of Directors recommends a vote "FOR" the election of the nominees
for election as directors.
The following table sets forth certain information for both the five
nominees for election as Class I Directors and Pablo Rodriguez, M.D., a
nominee for election as a Class II Director (the "Nominees"), and for those
Class II (other than Pablo Rodriguez, M.D.) and Class III Directors whose
terms expire at the annual meetings of Bancorp's Shareholders in 2004 and
2005, respectively.
Year First
Business Experience Became
Name Age During Past 5 Years Director*
----------------------------------------------------------------------------------------------------
NOMINEES FOR CLASS I DIRECTORS (Term to Expire 2006)
Cheryl W. Snead 44 President and Chief Executive Officer of Banneker 1996
Industries, Inc. (manufacturing, assembly and
packaging and logistics management) since 1991.
John A. Yena 62 President of Johnson & Wales University. 1996
Karen Adams 47 Television news anchor for WPRI-TV (Sunrise 2002
Television Corp.) since 1989.
Meredith A. Curren 43 Chief Financial Owner and Principal of Pease & 2002
Curren, Inc. (precious metals) since 1990. Also, a
Trustee of Ocean State Tax Exempt Fund.
Bogdan Nowak 39 President of Rhode Island Novelty, Inc. since 1986 2002
and President of Chemical Light Technologies, Inc.
since 1995.
NOMINEE FOR CLASS II DIRECTOR (Term to Expire 2004)
Pablo Rodriguez, M.D. 47 President of Women's Care, Inc. (medical services) 2003
since 1987.
CLASS II DIRECTORS (Term to Expire 2004)
John R. Berger 59 Business consultant since 1994. Prior thereto, 1997
Executive Vice President and Director of Mergers
and Acquisitions (1993-94) and Executive Vice
President and Chief Investment Officer (1985-93)
for Shawmut National Corporation.
Karl F. Ericson 69 Business consultant and certified public accountant. 1996
From 1970 through 1990, a partner of KPMG LLP.
Margaret D. Farrell 53 Partner of Hinckley, Allen & Snyder LLP 1996
(law firm) since 1981.
3
Year First
Business Experience Became
Name Age During Past 5 Years Director*
----------------------------------------------------------------------------------------------------
Mark R. Feinstein 47 President of Northeast Management, Inc. (video 1996
store franchisee) since 1991.
CLASS III DIRECTORS (Term to Expire 2005)
Anthony F. Andrade 55 President of A&H Composition and Printing and 1996
former President of Universal Press Graphics, Inc.
until his retirement in April 1997.
Malcolm G. Chace 68 Chairman of the Board of Bancorp since its formation 1996
and Chairman of the Board of the Bank since 1996.
Vice President of Gammon Corp. Financial Services
since 1986. Also, a director of Berkshire Hathaway,
Inc.
Ernest J. Chornyei, Jr. 60 Business consultant since February 2000. Prior 1996
thereto, Chairman of the Board of Bradford Dyeing
Association, Inc. (textiles) in Westerly, Rhode Island.
Edward J. Mack II 44 President and owner of Tri-Mack Plastics 2002
Manufacturing Company (engineering, design and
manufacture of custom high performance plastic
parts) since 1990.
Merrill W. Sherman 54 President and Chief Executive Officer of each of 1996
Bancorp and the Bank since each commenced
operation. Also, a director of Providence and
Worcester Railroad Company and the Providence
Journal Co., a subsidiary of Belo Corp. From 1995
through 1996 she was the President of EFC, Inc.
(the Bank's agent in connection with its formation).
--------------------
* The dates of directorship before 2000 reflect the years in which
certain of the directors were elected directors of the Bank, which
was formed in 1996 and became a wholly-owned subsidiary of Bancorp on
September 1, 2000.
General Information About Board of Directors
The Bancorp Board of Directors held seven meetings and the Bank's
Board of Directors held ten meetings during 2002. Karen Adams was the only
Director not to attend 75% of the Bancorp Board meetings; however, Ms.
Adams did attend 75% of both Bancorp and Bank Board meetings in the
aggregate. Both the Bancorp Board and the Bank Board have three standing
committees: the Executive Committee, the Audit Committee and the
Compensation Committee. The Bank also has a Directors' Loan Committee.
Meredith A. Curren, Bogdan Nowak and Pablo Rodriguez, M.D. were elected to
the Board of Directors in October 2002 and, accordingly, attended only one
Board meeting in 2002.
4
The Executive Committee of Bancorp met once and the Executive
Committee of the Bank acted once by written consent during 2002. The
members of the Executive Committees during 2002 were Malcolm G. Chace
(Chairman), Merrill W. Sherman, Karl F. Ericson, Margaret D. Farrell and
John A. Yena. The Executive Committees conduct the affairs and business of
Bancorp or the Bank, as the case may be, between meetings of the respective
Board of Directors, subject to certain limitations set forth in Bancorp's
Articles of Incorporation and the Bank's Agreement to Form.
The Bancorp Compensation Committee met five times and the Bank's
Compensation Committee met six times in 2002. The members of both
Compensation Committees during 2002 were John R. Berger (Chairman), Anthony
F. Andrade, Edward J. Mack II and Pablo Rodriguez, M.D. The Compensation
Committee is responsible for the review and recommendation of the
compensation arrangements for directors and officers and the award of
options under the Company's Incentive and Nonqualified Stock Option Plans.
The Bancorp Audit Committee met five times and the Bank Audit
Committee met five times in 2002. The members of both Audit Committees, all
of whom are independent as defined by the NASDAQ listing standards, are
Karl F. Ericson (Chairman), Ernest J. Chornyei, Jr., Cheryl W. Snead and
Meredith A. Curren. The Audit Committee is responsible for, among other
things, recommending to the Board the selection of independent auditors to
conduct the annual audit of the Company's financial statements, reviewing
the scope of the audit plans of the independent auditor and the Company's
internal auditor, reviewing the scope of the non-audit services provided by
the independent auditor and reviewing the results of the independent and
internal auditors' work to ensure compliance with Company policies, all of
which is set forth in greater detail in the "Report of the Audit
Committee," included in this Proxy Statement. The Bancorp Audit Committee
is governed by a written charter approved by the Board of Directors on
October 17, 2000 and last amended on July 17, 2001.
Compensation of Directors
Directors of the Company (other than Ms. Sherman) receive a combined
annual retainer of $7,500, $5,000 for service as a Bancorp director and
$2,500 for service as a Bank director. Directors of the Company receive
$100 for each Bancorp Board meeting attended, as well as $50 for each
Bancorp Committee meeting attended. In addition, directors of the Company
receive $500 for each meeting of the Bank's Board of Directors, Executive
Committee, Audit Committee or Compensation Committee attended, and $550 for
each Directors' Loan Committee meeting attended.
Under the Amended and Restated Non-Employee Director Stock Plan (the
"Director Plan") approved by the Bank's shareholders at the 1998 annual
meeting and assumed by Bancorp in connection with the reorganization of the
Bank into a holding company structure on September 1, 2000 (the
"Reorganization"), each non-employee director elected at the 1998 meeting
received an option to purchase 1,500 shares of Common Stock, and each new
non-employee director elected thereafter receives an option to purchase
1,000 shares of Common Stock as of the date of election to the Board. In
addition, annual grants of options are made as of the date of each annual
meeting of Shareholders to each non-employee director (other than a
director who is first elected at or within six months of the meeting) to
purchase 500 shares of Common Stock. All options have a ten-year term and
an exercise price equal to the fair market value on the date of grant.
Options may be exercised with cash, Common Stock, or both. Options vest six
months after the grant date, unless automatically accelerated in the event
of death, disability or a change in control.
5
COMMON STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of 5% Beneficial Owners
The following table sets forth information as of April 4, 2003,
regarding the beneficial owners of more than 5% of Bancorp's Common Stock:
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership (a) of Class
------------------------------------------------------------------------------
Malcolm G. Chace (b) 481,288 12.7%
c/o Point Gammon Corporation
One Providence Washington Plaza
Providence, RI 02903
Richard A. Grills 249,995 6.6%
P.O. Box 539
Westerly, RI 02891
Greenwood Partners L.P. (c) 205,684 5.4%
1601 Forum Place, Suite 905
W. Palm Beach, FL 33401
Merrill W. Sherman (d) 241,100 6.1%
c/o Bancorp Rhode Island, Inc.
One Turks Head Place
Providence, RI 02903
Friedman, Billings, Ramsey Group, Inc. 366,300 9.7%
1001 19th Street North
Arlington, VA 22209-1710
--------------------
(a) All information is based upon ownership of record as reflected on the
stock transfer books of Bancorp or as reported on Schedule 13G or
Schedule 13D filed under Rule 13d-1 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
(b) Includes 481,288 shares held by trusts of which Mr. Chace or his
spouse is a co-trustee and has shared voting and investment power.
Mr. Chace disclaims any economic or beneficial interest in 13,175 of
such shares. Also includes 4,500 shares held by Mr. Chace's spouse
and 1,500 shares that may be acquired pursuant to options. Mr. Chace
is a Director of Bancorp.
(c) Arnold Mullen, the general partner of Greenwood Partners, L.P.,
exercises investment and voting power over, and may be deemed to be
the beneficial owner of, the Common Stock held by Greenwood Partners,
L.P. Mr. Mullen owns directly 16,909 shares of Common Stock.
(d) Includes 172,400 shares that may be acquired pursuant to options and
7,700 shares of restricted stock. Ms. Sherman is the President and
Chief Executive Officer and a Director of Bancorp.
6
Security Ownership of Directors and Officers
The following table sets forth certain information regarding the
beneficial ownership of Bancorp's Common Stock as of April 4, 2003 by each
director, each executive officer named in the Summary Compensation Table
appearing on page 10 and all directors and executive officers as a group.
Unless otherwise indicated, each person has sole voting and dispositive
power over the shares indicated as owned by such person.
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership (a) of Class
----------------------------------------------------------------------------------------------------
Karen Adams (b)(c) 1,775 *
Anthony F. Andrade (d) 53,500 1.4%
John R. Berger (d) 5,500 *
Malcolm G. Chace (e) 481,288 12.7%
Ernest J. Chornyei, Jr. (d)(f) 111,500 2.9%
Meredith A. Curren (b) 1,000 *
Karl F. Ericson (d) 12,500 *
Margaret D. Farrell (d)(g) 6,000 *
Mark R. Feinstein (d) 17,000 *
Edward J. Mack II (b) 1,675 *
Bogdan Nowak (b) 12,300 *
Pablo Rodriguez, M.D. (b) 1,000 *
Merrill W. Sherman (h) 241,100 6.1%
Cheryl W. Snead (d) 4,010 *
John A. Yena (i) 8,500 *
James V. DeRentis (j) 23,700 *
Donald C. McQueen (k) 65,375 1.7%
Albert R. Rietheimer (l) 55,225 1.4%
Directors and executive officers as a group (19 persons) (m) 1,107,298 26.9%
--------------------
* Less than one percent.
(a) If applicable, beneficially owned shares include shares owned by the
spouse, children and certain other relatives of the director or
officer, as well as shares held by trusts of which the person is a
trustee or in which he has a beneficial interest and shares
acquirable pursuant to options which are presently or will become
exercisable within 60 days. All information with respect to
beneficial ownership has been furnished by the respective directors
and officers.
(b) Includes 1,000 shares that may be acquired pursuant to options.
(c) Includes 325 shares held by Ms. Adams' spouse.
(d) Includes 3,500 shares that may be acquired pursuant to options.
(e) Includes 481,288 shares held by trusts of which Mr. Chace or his
spouse is a co-trustee and has shared voting and investment power.
Mr. Chace disclaims any economic or beneficial interest in 13,175 of
such shares. Also includes 4,500 shares held by Mr. Chace's spouse
and 1,500 shares that may be acquired pursuant to options.
(f) Includes 108,000 shares held by a trust of which Mr. Chornyei is a
beneficiary.
(g) Includes 500 shares held by a retirement plan of which Ms. Farrell is
a co-trustee.
(h) Includes 172,400 shares that may be acquired pursuant to options and
7,700 shares of restricted stock.
(i) Includes 2,500 shares that may be acquired pursuant to options.
(j) Includes 23,600 shares that may be acquired pursuant to options.
(k) Includes 58,375 shares that may be acquired pursuant to options.
(l) Includes 46,225 shares that may be acquired pursuant to options.
(m) Includes 338,350 shares that may be acquired pursuant to options.
7
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires executive officers and
directors and persons who beneficially own more than ten percent of
Bancorp's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission (the
"SEC") and any national securities exchange on which Bancorp's securities
are registered. Based solely on a review of the copies of such forms
furnished to Bancorp and written representations from the executive
officers and directors, Bancorp believes that during 2002 its executive
officers, directors and greater than ten percent beneficial owners complied
with all applicable Section 16(a) filing requirements, except that one of
Bancorp's directors, Karen Adams failed to file a timely Form 4 in
connection with shares acquired by her spouse.
Audit Committee Report
Management is responsible for the Company's internal controls and
financial reporting process. The independent accountants are responsible
for performing an audit of the Company's consolidated financial statements
in accordance with generally accepted auditing standards and to issue a
report thereon. The Audit Committee's responsibility is to monitor and
oversee these processes.
The Audit Committee's responsibilities focus on two primary areas:
(1) the adequacy of the Company's internal controls and financial reporting
process and the reliability of the Company's financial statements; and (2)
the independence and performance of the Company's internal auditors and
independent auditors. The Audit Committee meets at least quarterly to, as
appropriate, review, evaluate, and discuss with the Company's management
and internal and external auditors the scope of their audit plans, the
results of their work, the Company's financial statements (including
quarterly earnings releases), quarterly reports issued by the Company's
internal auditor, the adequacy and effectiveness of the Company's internal
controls and changes in accounting principles. The Audit Committee
regularly meets privately with both the internal and external auditors,
each of whom has unrestricted access to the Audit Committee.
In connection with these responsibilities, the Audit Committee
reviewed and discussed the Company's audited financial statements for the
fiscal year ended December 31, 2002 with management and the Company's
independent accountants, KPMG LLP. The Audit Committee also discussed with
KPMG LLP the matters required by Statement on Auditing Standards No. 61.
The Audit Committee received from KPMG LLP written disclosures regarding
the firm's independence as required by Independence Standards Board
Standard No. 1, wherein KPMG LLP confirms their independence within the
meaning of the SEC and Independence Standards Board Rules and disclosed the
fees charged for professional services in the fiscal year ended December
31, 2002. The Audit Committee discussed this information with KPMG LLP and
also considered the compatibility of non-audit services provided by KPMG
LLP with maintaining its independence. The Audit Committee also reviewed
KPMG LLP's proposal to act as the Company's external auditor for the year
ending December 31, 2003.
Based on the review of the audited financial statements and these
various discussions, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K, to be filed with the SEC. The Audit
Committee further recommended to the Board of Directors the appointment of
KPMG LLP as the Company's independent
8
auditors for the fiscal year ended December 31, 2003, subject to
ratification by the Shareholders at the 2003 Annual Meeting of
Shareholders.
Audit Committee
KARL F. ERICSON-Chairman
ERNEST J. CHORNYEI, JR. MEREDITH A. CURREN CHERYL W. SNEAD
Audit Fees
Aggregate fees billed by KPMG LLP for professional services rendered
for the audit of the Company's annual financial statements for the fiscal
year ended December 31, 2002 and the reviews of interim financial
statements included in the Company's Quarterly Reports on Form 10-Q for
such year were $146,500.
Financial Information Systems Design and Implementation Fees
No fees were billed by KPMG LLP for financial information systems
design and implementation services during 2002.
All Other Fees
The aggregate fees billed by KPMG LLP for services rendered during
2002, other than the services described above, were $212,936. These
services were for tax returns and other tax related work ($19,350),
information risk management services related to internet security
($94,336), and information system vendor selection related to the Company's
data processing conversion ($99,250). The Audit Committee has determined
that the provision of such services is compatible with maintaining KPMG
LLP's independence.
9
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by
the Company to its Chief Executive Officer and each of its four most highly
compensated executive officers who earned more than $100,000 in salary and
bonus in 2002 (together, the "Named Executive Officers"), for the calendar
years ending December 31, 2002, 2001 and 2000:
Summary Compensation Table
Long Term
Annual Compensation (a) Compensation
----------------------------------------------
Securities
Underlying All Other
Name and Principal Position Year Salary (b) Bonus Options/SARs Compensation
---------------------------------------------------------------------------------------------------
Merrill W. Sherman 2002 $374,037 $215,500 22,750 $13,314 (c)
(President and CEO of both 2001 320,944 157,000 25,200 10,500 (d)
Bancorp and the Bank) 2000 260,204 158,250 29,500 10,408 (d)
Donald C. McQueen 2002 186,766 89,500 7,725 7,901 (c)
(Vice President and Assistant 2001 145,873 52,000 7,800 5,884 (d)
Secretary of Bancorp and 2000 132,517 55,000 10,300 5,589 (d)
Executive Vice President and
Chief Credit and Administrative
Officer of the Bank)
Albert R. Rietheimer 2002 164,054 60,000 6,625 6,192 (c)
(Chief Financial Officer 2001 149,205 52,000 7,800 5,840 (d)
and Treasurer of both Bancorp 2000 135,733 55,000 10,300 5,429 (d)
and the Bank)
James V. DeRentis 2002 143,382 60,000 5,850 5,868 (c)
(Executive Vice President- 2001 120,820 52,000 6,350 4,833 (d)
Retail Banking & Marketing 2000 102,615 41,500 5,200 4,105 (d)
of the Bank)
--------------------
(a) Any perquisites or other personal benefits received from the Company
by the Named Executive Officer were substantially less than 10% of
the individual's cash compensation.
(b) Includes portion of salary deferred under the 401(k) Plan and the
Nonqualified Deferred Compensation Plan.
(c) Amounts paid in 2002 include the Company's contributions under the
Company's 401(k) Plan in the amounts of ($11,000), ($7,645), ($5,936)
and ($5,735) and imputed income resulting from premiums paid by the
Company with respect to split dollar life insurance purchased for
such executives in the amounts of ($2,314), ($256), ($256) and ($133)
for Ms. Sherman and Messrs. McQueen, Rietheimer and DeRentis,
respectively.
(d) Represents the Company's contribution under the 401(k) Plan.
10
Option/SAR Grants in Last Fiscal Year
The following table provides information on option grants in 2002 to
the Named Executive Officers. The Company does not issue stock appreciation
rights.
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration Grant Date
Name Granted Fiscal Year ($/Sh) Date Value (a)
--------------------------------------------------------------------------------------------
Merrill W. Sherman 5,300 (b) 30.76% $19.80 2/11/12 $116,575
2,200 (c) $19.80 2/11/12
15,250 (c) $23.15 5/30/12
Donald C. McQueen 2,500 (d) 10.45% $19.80 2/11/12 39,638
5,225 (e) $23.15 5/30/12
Albert R. Rietheimer 2,150 (d) 8.96% $19.80 2/11/12 33,987
4,475 (e) $23.15 5/30/12
James V. DeRentis 1,850 (d) 7.91% $19.80 2/11/12 30,066
4,000 (d) $23.15 5/30/12
--------------------
(a) Amounts represent the fair value of each option granted and were
estimated as of the date of the grant using the Black-Scholes option-
pricing model with the following weighted average assumptions:
expected volatility of 20%; expected life of 7 years; average risk-
free interest rate of 4.55%; and average Common Stock dividend rate
of 2.44%.
(b) These options are incentive stock options exercisable in four equal
annual installments commencing on February 11, 2002.
(c) These options are nonqualified stock options exercisable in four
equal annual installments commencing on February 11, 2002 and May 30,
2002, respectively.
(d) All of these options are incentive stock options exercisable in five
equal annual installments commencing on February 11, 2002 and May 30,
2002, respectively.
(e) All of these options are nonqualified stock options exercisable in
five equal annual installments commencing on May 30, 2002.
11
Aggregated Option/SAR Exercises in Last Fiscal Year
and Year-End Option/SAR Values
The following table sets forth certain information regarding stock
options exercised during 2002 and currently outstanding options held by the
Named Executive Officer as of December 31, 2002:
Number of Securities Value of
Underlying Unexercised Unexercised
Options/SARs at Fiscal In-the-Money
Shares Acquired Value Year End 2002 Option/SARs($) (a)
Name on Exercise Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
----------------------------------------------------------------------------------------------------------------
Merrill W. Sherman 10,000 $91,200 135,363/37,037 $1,545,733/$214,241
Donald C. McQueen 0 0 41,735/16,640 481,073/117,161
Albert R. Rietheimer 0 0 42,465/15,760 491,826/116,304
James V. DeRentis 0 0 11,990/11,610 125,092/74,771
--------------------
(a) Based on the December 31, 2002 closing sale price of the Common Stock
of $22.86, less the exercise price of the options.
Employment Agreements. The Company entered into employment agreements
with Ms. Sherman and Messrs. McQueen, Rietheimer and DeRentis in December
2000, which provide that during the term of the contract, their base salary
will not be reduced and they will remain eligible for participation in the
Company's executive compensation and benefit programs.
Ms. Sherman's agreement provides for an initial three-year term
expiring December 18, 2003, which automatically renews for successive
three-year terms on each successive one-year anniversary unless either
party has given the other party written notice of election not to extend
the term at least 90 days prior to any anniversary date. In the event Ms.
Sherman's employment is terminated by the Company without cause or Ms.
Sherman terminates her employment for "Good Reason," the Company must pay
her a lump sum severance payment equal to 2.99 times the sum of (i) her
annual base salary as in effect at the time of termination and (ii) an
amount equal to the average executive cash bonus earned by Ms. Sherman in
the two full fiscal years immediately preceding the year in which
termination occurs, and continue to pay for all medical and life insurance
coverage for 36 months. Ms. Sherman is also allowed continued use of the
automobile provided to her in her agreement (with an option to purchase).
In addition, any options which are exercisable on the date of termination
shall not terminate until the earlier of their expiration or three years
after the date of termination. "Good Reason" is defined in Ms. Sherman's
agreement as (i) a significant reduction in the nature or scope of her
duties, responsibilities, authority and powers; (ii) any requirement that
she perform her duties at a location more than 50 miles from where she
currently performs her duties; or (iii) failure of the Company either to
renew the agreement or enter into a new agreement on terms not less
favorable than those existing immediately prior to such nonrenewal (other
than a reduction of fringe benefits required by law or applicable to all
employees generally).
In the event of a "Terminating Event" within one year of a "Change in
Control," Ms. Sherman is entitled to receive as severance an amount equal
to 2.99 times the sum of (i) her annual base salary in effect at the time
of the Change in Control plus (ii) the amount of the largest annual bonus
paid to Ms. Sherman in the three years preceding the Change in Control,
payable in a lump sum. In addition, Ms. Sherman is entitled to receive
continuing medical and life insurance benefits and use of the automobile
provided to her in the agreement (with an option to purchase), for three
years. All options vest upon a Change in Control and remain exercisable for
such three-year period. A "Terminating Event" for this purpose means either
(a) termination of employment for any reason other than for cause or (b)
resigna-
12
tion, death or disability following (i) a Takeover Transaction or (ii) a
Change in Control resulting from a new Board supermajority, in either case,
prior to the first anniversary of the Takeover Transaction or Change in
Control.
The agreements with Messrs. McQueen, Rietheimer and DeRentis were
automatically renewed for another two-year term on December 18, 2002, such
agreements automatically renew for successive two-year terms on each
successive two year anniversary unless either party has given the other
party written notice of election not to renew at least 90 days prior to any
anniversary date. If the Company terminates the employment relationship
without cause or the executive terminates his employment for "Good Reason",
the executive would be entitled to continuance of his base salary and all
medical and life insurance coverage for 18 months following the date of
termination.
Messrs. DeRentis and McQueen forfeit their severance payments in the
event that within one year of the date of termination they accept certain
types of positions as specified in their agreements. "Good Reason" is
defined in the agreements of Messrs. Rietheimer, McQueen and DeRentis as
the Company's failure to renew the agreement on any anniversary date or
enter into a new employment agreement on substantially similar terms.
The agreements with Messrs. McQueen, Rietheimer and DeRentis provide
that in the event of a "Terminating Event" within one year of a Change in
Control, the executive is entitled to receive a severance benefit equal to
two times the sum of (i) his annual base salary in effect at the time of
the Change in Control, and (ii) an amount equal to the average executive
cash bonus earned by the executive in the two full fiscal years preceding
the Change in Control, payable in a lump sum. In addition, each executive
shall continue to receive medical and life insurance coverage for the 24
months commencing on the date of the Terminating Event. A "Terminating
Event" means for this purpose either (a) termination of employment for any
reason other than death, disability or for cause or (b) resignation
following (i) a significant reduction in the nature or scope of the
executive's duties, responsibilities, authority and powers from those
exercised prior to the Change in Control, (ii) a greater than 10% reduction
in the executive's annual base salary or fringe benefits (other than
across-the-board salary reductions or changes in fringe benefit plans),
(iii) a requirement that the executive perform duties at a location more
than 50 miles from the location where such duties were performed prior to
the Change in Control, or (iv) failure of any successor of the Company to
continue the executive's employment on substantially similar employment
terms. If payments under the employment agreements following a Change in
Control are subject to the "golden parachute" excise tax, the Company will
make a "gross-up" payment sufficient to ensure that the net after-tax
amount retained by the executive (taking into account all taxes, including
those on the gross-up payment) is the same as if such excise tax had not
applied.
For purposes of all of the agreements, a "Change in Control" will be
deemed to have occurred if: (1) the Company effectuates a Takeover
Transaction; or (2) the Company commences substantive negotiations with a
third party with respect to a Takeover Transaction, if within 12 months of
the commencement of such negotiations, the Company enters into a definitive
agreement with respect to a Takeover Transaction with any party with which
negotiations were originally commenced; or (3) any election of directors of
the Company (whether by the directors then in office or by the shareholders
at a meeting or by written consent) where a majority of the directors in
office following such election are individuals who were not nominated by a
vote of two-thirds of the members of the Board of Directors immediately
preceding such election; or (4) the Company effectuates a complete
liquidation of Bancorp or the Bank.
A "Takeover Transaction" for this purpose means a (i) reorganization,
merger, acquisition or consolidation of Bancorp or the Bank with, or an
acquisition of Bancorp or the Bank or all or substantially
13
all of Bancorp's or the Bank's assets by, any other bank or corporation, in
which the individuals and entities who were the "beneficial owners" (as
defined in Rule 13d-3 under the Exchange Act) immediately prior to such
reorganization, merger, acquisition or consolidation, do not, following
such reorganization, merger, acquisition or consolidation, beneficially own
more than 50% of the voting power of the corporation resulting from the
reorganization, merger, acquisition or consolidation, (ii) the issuance of
additional shares of Bancorp or the Bank if the individuals or entities who
were the beneficial owners of the outstanding voting securities of Bancorp
or the Bank immediately prior to such issuance do not, following such
issuance, beneficially own securities representing more than 50% of the
voting power of Bancorp or the Bank or (iii) when any person or entity or
group of persons or entities (other than Bancorp or any trustee or other
fiduciary holding securities under an employee benefit plan of Bancorp)
either related or acting in concert becomes the beneficial owner of
securities of Bancorp representing more than 30% of the voting power of all
outstanding shares of voting securities of Bancorp, other than a person who
was already a 30% beneficial owner as of the date on which the executive's
employment with the Company commenced.
401(k) Retirement Plan. The Company maintains a 401(k) Plan which
qualifies as a tax-exempt plan and trust under sections 401 and 501 of the
Internal Revenue Code of 1986, as amended. Generally, Company employees who
are at least 21 years of age and have completed at least one year of
service with the Company, are eligible to participate in the 401(k) Plan.
Under the 401(k) Plan the Company will make matching contributions of up to
4% of an employee's compensation, subject to qualified plan limitations.
These contributions are vested monthly.
Nonqualified Deferred Compensation Plan. The Company maintains a
nonqualified deferred compensation plan under which certain participants
may contribute the amounts they are precluded from contributing to the
Company's 401(k) Plan because of the qualified plan limitations, and
additional compensation deferrals which may be advantageous for personal
income tax or other planning reasons. In addition, under the deferred
compensation plan participants receive an amount of employer matching
contributions that they have lost under the Company's 401(k) Plan as a
result of the nondiscrimination rules applicable to qualified plans. All
amounts contributed by the participant and by the Company under the plan
are immediately vested. Any excess contributions which cannot be
contributed under the 401(k) Plan and which would otherwise be returned to
the participant at the end of the year, plus the amount of any supplemental
deferrals the participant may choose to make, and any matching
contributions provided for under the plan are credited to a deferred
compensation account (a bookkeeping account) which is credited with
interest at a rate equal to the greater of the Baa1 30-year corporate bond
index, or the Company's projected rate of return on average earning assets
as reflected in its budget for such year.
Participants are entitled to receive a distribution of their account
upon retirement, death, disability or termination of employment except that
any amounts attributable to employer contributions under the nonqualified
plan are subject to forfeiture if the participant is terminated for fraud,
dishonesty or willful violation of any law that is committed in connection
with the participant's employment. A participant is eligible to withdraw
amounts credited to the deferred compensation account in the event of
unforeseeable financial hardship.
The amount deferred under the plan is not includible in the income of
the participant until paid and, correspondingly, the Company is not
entitled to a deduction for any liabilities established under the plan
until the amount credited to the participant's deferred compensation
account is paid to him or her.
The amount credited to the deferred compensation account is not
funded or otherwise set aside or secure from the creditors of the Company
and the participant is subject to the risk that deferred compen-
14
sation may not be paid in the event of the Company's insolvency or the
Company is otherwise unable to satisfy the obligation. The plan permits
(but does not require) the Company to establish a grantor trust for the
purpose of funding the plan. If such a trust were created, the corpus of
the trust would, under current federal income tax regulations, have to be
available to creditors of the Company in the event of insolvency or
bankruptcy in order to prevent adverse income tax consequences to the
participant.
Supplemental Executive Retirement Plans. The Company has adopted two
Supplemental Executive Retirement Plans (each a "SERP") for certain of its
senior executives under which participants designated by the Board are
entitled to an annual retirement benefit. Currently, Ms. Sherman and
Messrs. Rietheimer, McQueen and DeRentis (collectively, the "2000 SERP
Participants") are the only participants in the 2000 SERP. The annual
retirement benefit under the 2000 SERP is $250,000 for Ms. Sherman, $50,000
for Messrs. Rietheimer and McQueen and $35,000 for Mr. DeRentis and is
payable upon the later of the executive attaining age 65 or the executive's
retirement. Under the 2002 SERP, effective November 1, 2002, the 2000 SERP
Participants are entitled to a supplemental retirement benefit which, when
added to the annual retirement benefit provided under the 2000 SERP, would
provide an aggregate annual retirement benefit equal to 70% of
compensation, reduced by the employer contribution under the 401(k) plan
and any social security offset. In addition, under the 2002 SERP, the
Company will provide a supplemental annual retirement benefit of $25,000
for six additional senior officers. Under the SERPs, the Company will also
provide a pre-retirement death benefit equal to the projected age 65
accrual balance and a post-retirement death benefit for the participant
equal to the accrual balance at the date of the SERP participant's death,
provided that Ms. Sherman's additional pre-retirement death benefit under
the 2002 SERP is limited to her accrual balance at date of death under the
2002 SERP. The pre-retirement and post-retirement death benefits (other
than Ms. Sherman's additional death benefit under the 2002 SERP) are funded
through life insurance policies on the lives of the SERP participants
purchased and owned by the Bank, which contain a split dollar endorsement
in favor of the SERP participants.
The benefit for each current 2000 SERP Participant is fully vested.
The benefits under the 2002 SERP vest beginning on November 1, 2008
(November 1, 2005 in the case of Ms. Sherman) in 20% increments such that
the accrual balance would be fully vested on November 1, 2012 (November 1,
2008 in the case of Ms. Sherman). Thus, if an executive left at end of the
vesting period, he or she would be 100% vested in their 2002 SERP accrual
balance (i.e., the amount the Company has accrued to reflect the
liability), but not the full benefit, resulting in a reduced retirement
benefit in the event of early retirement. The executive is required to
remain employed at the Company until age 65 to get the full 2002 SERP
benefit. The full benefit will vest immediately upon death or in the event
of a Change in Control. The SERPs are unfunded but provide that upon a
Change in Control, the Company must deposit funds in a trust equal to the
present value of all accrued benefits provided under both SERPs and
thereafter make annual additional deposits to reflect any increases in the
accrued benefits. All benefits are forfeited in the event that the
participant's employment is terminated on account of a criminal act of
fraud, misappropriation, embezzlement or a felony that involves property of
the Company.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board (the "Compensation
Committee") is composed entirely of non-employee directors. From time to
time Ms. Sherman meets with the Compensation Committee to review the
compensation program and make recommendations for executives reporting to
her. The Compensation Committee is charged with the broad responsibility of
seeing that officers and key management personnel are effectively
compensated in a manner which is internally equitable and externally
competitive. The Compensation Committee utilizes a consultant to assist it
in its review and evaluation of the Company's compensation program for
executives and other senior management.
15
Executive Compensation Philosophy. The Company's executive
compensation philosophy seeks to link executive compensation with the
value, objectives, business strategy, management initiatives and financial
performance of the Company. The overall objectives of the program are to
attract and retain highly qualified individuals in key executive positions,
to motivate executives to achieve goals inherent in the Company's business
strategy, and to link executives' and Shareholders' interests. The Company
also seeks to achieve a balance of the compensation paid to a particular
individual and the compensation paid to other executives both inside the
Company and at comparable corporations.
Base Salary. Base salaries for executive officers are substantially
dependent upon the base salaries paid for comparable positions at similar
corporations, the responsibilities of the position held, and the experience
level of the particular executive officer. The Compensation Committee sets
the base salary for executives by reviewing compensation for competitive
positions in the market and the historical compensation levels of the
executives. In 2001, as part of the overall review of the Company's
executive compensation program, salaries of the Company's executives were
increased, effective January 1, 2002, in light of market data, as well as
to reflect promotions and increased responsibilities. The Compensation
Committee generally sought, through these increases, to place such salaries
at the median of the survey group.
Cash Bonus Policy. In keeping with the Company's philosophy to pay
for performance, cash bonuses tied to performance measures represent a
substantial portion of an executive's total compensation opportunity. Under
the cash bonus policy, executive officers of the Company are eligible to
receive bonuses of up to 40% (60% in the case of the Chief Executive
Officer) of their base salaries. All bonuses for executive officers are
determined at the discretion of the Compensation Committee, which annually
establishes specific financial goals and performance criteria for each
executive officer. The Compensation Committee generally seeks to award
bonuses for superior performance that bring total cash compensation to the
75th percentile of the survey group.
Stock Options. Total compensation at the senior executive level also
includes long-term incentives afforded by stock options granted under the
Amended and Restated 1996 Incentive and Nonqualified Stock Option Plan and
the 2002 Incentive and Nonqualified Stock Option Plan. The objectives of
the programs are to align executive and Shareholder long-term interests by
creating a strong and direct link between executive pay and total
Shareholder return, and to enable executives to develop and maintain a
significant, long-term stock ownership position in Bancorp's Common Stock.
Annual grants of stock options reflect the executive's position with the
Company and his or her contributions to the Company and are awarded at a
level of 85% to 115% of the executive's annual salary, which the Company
believes to be competitive with other comparable companies. Options are
granted at fair market value and have three to four year vesting schedules
to encourage key employees to continue in the employ of the Company.
Compensation of Chief Executive Officer. In December 2000, the
Company entered into a three-year employment agreement with Ms. Sherman. In
2001, the Committee set Ms. Sherman's annual base salary at $371,250
effective as of January 1, 2002, subject to annual adjustment thereafter.
Ms. Sherman's base salary was established based upon comparisons with
comparable corporations after review of market data provided by the
Committee's compensation consultant. The substantial increase in Ms.
Sherman's base salary effective January 1, 2002 was intended to bring her
salary in line with the median for chief executives of comparable
institutions. The Committee subsequently increased Ms. Sherman's base
salary to $386,100, effective May 1, 2002, representing a 4% increase as
part of its annual review of executive compensation. Under her employment
agreement, Ms. Sherman is also entitled to a cash bonus under the Company's
cash bonus policy described above. The Committee awarded a bonus of
$215,500 for 2002, representing 93% of Ms. Sherman's maximum bonus
opportunity, in
16
recognition of the strong financial performance of the Company during 2002
and Ms. Sherman's contribution to the Company's growth and profitability.
The Committee also recommended, and the Board approved, increasing the
annual retirement benefit payable to Ms. Sherman under the SERP from
$250,000 to 70% of total compensation (reduced by the employer contribution
under the 401(k) plan and any social security offset) to bring her
retirement benefit in line with retirement benefits provided by comparable
corporations. The increased SERP benefit will vest over five years
beginning on November 1, 2004. Ms. Sherman also received options to acquire
22,750 shares of Common Stock.
Compliance with Internal Revenue Code Section 162(m). Section 162(m)
of the Internal Revenue Code generally disallows a tax deduction to public
companies for compensation over $1 million paid to a company's chief
executive officer and the four other most highly compensated executive
officers at year end. Qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met. The
Committee's policy is to preserve corporate tax deductions by qualifying
compensation paid over $1 million to Named Executive Officers as
performance-based compensation. Nevertheless, maintaining tax deductibility
is but one consideration among many (and is not the most important
consideration) in the design of the compensation program for senior
executives. The Committee may, from time to time, conclude that
compensation arrangements are in the best interest of the Company and its
shareholders despite the fact that such arrangements might not, in whole or
in part, qualify for tax deductibility.
Conclusion. The Committee believes that the compensation program for
executives is competitive and that the program effectively ties executive
compensation to the Company's performance and Bancorp's resultant stock
price performance.
Compensation Committee
JOHN R. BERGER-Chairman
ANTHONY F. ANDRADE EDWARD J. MACK II PABLO RODRIGUEZ, M.D.
Notwithstanding anything to the contrary set forth in any of
Bancorp's previous filings under the Exchange Act that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
foregoing Compensation Committee Report on Executive Compensation and the
following Performance Graph shall not be deemed incorporated by reference
into any such filing.
17
PERFORMANCE GRAPH
The following graph shows changes in the value of $100 invested on
December 31, 1997 through December 31, 2002, in Bancorp's Common Stock, the
S&P 500 Stock Index, and the SNL Financial L.C. New England Bank Index. The
investment values are based on share price appreciation plus dividends paid
in cash, assuming that dividends were reinvested on the date on which they
were paid.
Total Return Performance
Period Ending
--------------------------------------------------------------------
Index 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
--------------------------------------------------------------------------------------------------
Bancorp Rhode Island, Inc. 100.00 98.86 90.60 120.79 170.55 229.79
S&P 500 100.00 128.55 155.60 141.42 124.63 96.95
SNL New England Bank Index 100.00 109.43 102.30 134.90 128.57 96.99
The Board of Directors and its Compensation Committee recognize that
the market price of stock is influenced by many factors, only one of which
is issuer performance. Bancorp's stock price may also be influenced by
market perception, Bancorp in particular and the financial services
industry in general, economic conditions, fluctuating interest rates, and
government regulation and supervision. The stock price performance shown in
the graph is not necessarily indicative of future price performance.
18
TRANSACTIONS WITH MANAGEMENT
The Company has extended loans to certain of its officers, directors,
and principal shareholders, including their immediate families and
affiliated companies ("related parties"). Loans outstanding to related
parties aggregated $6.7 million at December 31, 2002. Loans to related
parties are made in the ordinary course of business under normal credit
terms, including interest rates and collateral, prevailing at the time of
origination for comparable transactions with other persons, and do not
represent more than a normal risk of collectibility or other unfavorable
features.
The law firm of Hinckley, Allen & Snyder LLP, of which Margaret D.
Farrell (a director and Secretary of the Company) is a partner, provides
legal services to the Company. In addition, the spouse of director Edward
J. Mack II is also a partner in Hinckley, Allen & Snyder LLP.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee of the Board of Directors,
the Board has appointed KPMG LLP as independent public accountants for the
2003 fiscal year and hereby requests Shareholders to ratify such
appointment.
The Board of Directors recommends a vote "FOR" the ratification of
the appointment of KPMG LLP as independent public accountants.
Representatives of KPMG LLP will be present at the Meeting and will
have an opportunity to make a statement if they so desire and to respond to
appropriate questions from Shareholders.
OTHER BUSINESS OF THE MEETING
The Board of Directors is not aware of any matters to come before the
Meeting other than those stated in the Proxy Statement. In the event that
other matters properly come before the Meeting or any adjournment thereof,
it is intended that the persons named in the accompanying proxy and acting
thereunder will vote in accordance with their best judgment.
ANNUAL REPORT AND FORM 10-K
The 2002 Annual Report of Bancorp was mailed to Shareholders with
this Proxy Statement. Upon request, Bancorp will furnish without charge a
copy of Bancorp's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, including financial statements, but without exhibits, a
copy of which has been filed with the SEC. It may be obtained by writing to
Investor Relations Department, Bancorp Rhode Island, Inc., One Turks Head
Place, Providence, Rhode Island 02903.
SHAREHOLDER PROPOSALS FOR 2004
Bancorp's next annual meeting is scheduled to be held on May 19,
2004. A Shareholder who wants to have a qualified proposal considered for
inclusion in the Proxy Statement for the Company's 2004 annual meeting of
Shareholders must notify the Secretary of Bancorp not later than December
24, 2003. Shareholder proposals that are to be considered at the 2004
annual meeting but not requested to be included in the Proxy Statement must
be submitted no later than March 19, 2004 and no earlier than December 24,
2003.
19
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
REVOCABLE PROXY
BANCORP RHODE ISLAND, INC.
Proxy Solicited on Behalf of the Board of Directors
for Annual Meeting of
Shareholders to be held May 21, 2003
The undersigned hereby authorizes and appoints Malcolm G. Chace,
Merrill W. Sherman, and Albert R. Rietheimer, and each of them, as proxies
with full power of substitution in each, to vote all shares of Common
Stock, par value $.01 per share, of Bancorp Rhode Island, Inc. (the
"Company") held of record on April 4, 2003 by the undersigned at the
Annual Meeting of Shareholders to be held at 10:00 a.m. local time, on
Wednesday, May 21, 2003, at the Courtyard by Marriott, 32 Exchange Terrace,
Providence, Rhode Island, and at any adjournments or postponements thereof,
on all matters that may properly come before said meeting.
THE DIRECTORS RECOMMEND A VOTE FOR EACH PROPOSAL.
With- For All
For hold Except
PROPOSAL 1 - Election of five Class I Directors with [ ] [ ] [ ]
terms expiring in 2006, and election of Pablo
Rodriguez, M.D. as a Class II Director with a term
expiring in 2004:
Class I Directors Class II Director
----------------- -----------------
Karen Adams Pablo Rodriguez, M.D.
Meredith A. Curren
Bogdan Nowak
Cheryl W. Snead
John A. Yena
INSTRUCTION: To withhold authority to vote for any individual nominee,
mark "For All Except" and write that nominee's name in the space provided
below.
_______________________________________________________________________________
For Against Abstain
PROPOSAL 2 - Ratify the appointment of KPMG LLP [ ] [ ] [ ]
as independent public accountants for the Company.
This proxy when properly executed will be voted (i) as directed above, or,
in the absence of such direction, this proxy will be voted FOR the
specified nominees in Proposal 1 and FOR Proposal 2 and (ii) in accordance
with the judgment of the proxies upon other matters that may properly come
before said meeting or any adjournments or postponements thereof.
---------------------------
Please be sure to sign and date |Date |
this Proxy in the box below. | |
-------------------------------------------------------------------
| |
| |
| |
---Shareholder sign above----------Co-holder (if any) sign above---
-------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
BANCORP RHODE ISLAND, INC.
------------------------------------------------------------------------------
| This Proxy must be signed exactly as the name of the |
| Shareholder(s) appears on this card. |
| |
| Executors, administrators, trustees, etc. should give full title as such. |
| If the signatory is a corporation, please sign full corporate name by duly |
| authorized officer. |
| |
| PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED |
| ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. |
------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
----------------------------------------
----------------------------------------
----------------------------------------