PROPOSAL 1—ELECTION OF DIRECTORS
Your Board of Directors currently is composed of
twelve
members, each elected annually for a one-year term or until his or her successor is qualified.
The Board of Directors is nominating twelve individuals for election to the Board at this year’s annual meeting
.
The Board of Directors has nominated for election
,
James E. Berry, II, Thomas D. Berry, John Cohlmia, David S. Crockett Jr.,
Steven C. Davis, Patrice Douglas,
Mark W. Funke, James M. Johnson, Larry J. Lanie,
James M. Morris II,
Kayse M. Shrum,
D.O.,
and Russell W. Teubner, all of whom currently are directors, each to serve for a term of one year
or
until his or her successor is elected and qualified.
Each nominee must be elected by a plurality of shares voted in this election. The individuals named as proxies on your proxy card will vote for the election of each nominee unless you withhold authorization. Abstentions and broker non-votes will not have any effect on this proposal.
Each shareholder voting in the election of directors is entitled to cumulate his or her votes
for the election of directors
by multiplying the number of shares of common stock owned of record by the shareholder on the Record Date by the number of directors to be elected. Each shareholder is then entitled to cast his or her total cumulated votes for one nominee or distribute his or her votes among any number of the nominees being voted on at the Annual Meeting. In order to cumulate votes, shareholders
of record
must attend the meeting and vote in person or make arrangements with their own prox
y attending the meeting on their behalf
.
If you are a beneficial owner whose shares are held of record by a broker, you must obtain
a
legal proxy
to vote those shares
from your broker in order to attend the meeting and vote in person to cumulate votes.
Each nominee has agreed to serve for a one-year term, if elected. If any nominee is unable to stand for election at this Annual Meeting, the Board may either (i) reduce its size or (ii) nominate an alternate candidate, in which case the proxies will be voted for the alternate candidate.
Your Board recommends a vote “FOR” these directors.
Director Nominees
Following are brief descriptions of the business experience of our director nominees, and of additional factors, including special skills, knowledge, and experience, of non-officer directors that support their nomination. The nominees also satisfy the minimum criteria for nomination established by
the
Governance Committee
of our Board of Directors
. For additional information regarding nomination criteria, please see “
Governance Committee
” on page
9
.
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James E. Berry II
|
Director Since 1998
|
Mr. Berry, age
7
1
, is the current owner of
Stillwater Martial Arts, Cowboy Berry Minerals, and
Pizza West in Stillwater, O
klahoma
. He has a B.S. in finance/money and banking from Oklahoma State University. From 1973 to 1988, Mr. Berry was a stockbroker in Oklahoma City with a major Wall Street firm. He is a past President of the United States Chess Federation.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr. Berry should be re-elected to the Board include his:
k
nowledge of Oklahoma markets; experience as a small business owner, investor,
U.S. Army veteran,
and securities professional; significant ownership of Southwest common stock;
knowledge of the banking industry
;
and
continuing director education focusing on corporate governance at Harvard Business School, Stanford University, and Wharton.
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Thomas D. Berry
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Director Since 1981
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Mr. Berry, age 7
3
, has been a professional auctioneer since 1970 and has conducted over 2,200 successful auctions, marketing several classes of assets, including real estate, equipment, estate property, business liquidation property, mineral rights, firearms, antiques, coin collections, sports memorabilia, restaurant equipment, exotic animals and seized property. Mr. Berry is an active real estate broker and is also actively involved in the
e
nergy business in Oklahoma. He serves as a Director of a private energy company and as the President of T.D. Berry Investment Co., Inc. Mr. Berry earned his B.A. degree in Public Law from Oklahoma State University and served six years in the U.S. military. He is a native of Oklahoma and resides in Stillwater, Oklahoma.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr. Berry should be re-elected to the Board include his:
knowledge of Oklahoma markets;
experience as a business owner
and investor;
and knowledge of the b
anking industry.
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John Cohlmia
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Director Since 2006
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Mr. Cohlmia, age 5
4
, was appointed as a director of the Company on July 27, 2006. He has been a director of Bank SNB since August 2003. Mr. Cohlmia is a
r
eal
e
state
b
roker and owner of
Newmark Grubb
Levy
Strange
Beffort of Oklahoma City, Oklahoma.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr. Cohlmia should be re-elected to the Board include his: c
urrent service as Chairman of the Compensation Committee; knowledge of Oklahoma markets;
and
experience in commercial real estate brokerage.
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David S. Crockett Jr.
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Director Since 2006
|
Mr. Crockett, age
7
2
, who has an MBA,
is Vice-President of Stonetex Oil Corp., and is independently active in oil and gas exploration with various partners.
He obtained his CPA designation in 1969 and holds permits to practice in both Texas and Oklahoma. Mr. Crockett is a member of the American Institute of Certified Public Accountants, the Texas Society of CPAs, the Dallas Estate Planning Council, and the Petroleum Accounting Society.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr. Crockett should be re-elected to the Board include his: s
ervice as the designated Audit Committee financial expert; training and experience in finance and accounting; experience as owner of an independent accounting firm; knowledge of Dallas, TX area markets;
knowledge of the energy industry
and
experience as an investor.
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Steven C. Davis
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Director Since 2015
|
Mr. Davis, age 5
8
, has practiced law in Oklahoma City, Oklahoma since 1983 and is presently a partner of Hartzog Conger Cason & Neville, an Oklahoma City law firm. He
is also a Certified Public Accountant and
had been a director of First Commercial Bancshares, Inc. and First Commercial Bank from 1996 through 2015, where he
was the chairman of the board of directors from 2003 through 2015 and
also served as chairman of both the audit committee and the budget and compensation committee, and as a member of the strategic planning committee.
Mr. Davis is also the immediate past chairman of the board of trustees of the Oklahoma City Community Foundation, where he continues to serve as a trustee and as a member of the investment committee, and is involved in other civic and investment activities.
He is also involved in the ownership and o
p
eration of se
ve
ral businesses in the
agriculture,
technology and manufacturing sectors.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr. Davis should be re-elected to the Board include his: legal expertise; knowledge of our geographical banking markets
; and knowledge of the banking industry.
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Patrice Douglas
|
Director
Since 2015
|
Ms. Douglas, age 5
4
, is
the
President of Emerging Markets of Premier Consulting Partners, a financial services company, as well as
an
attorney with the law firm of Latham Wagner Steele and Lehman
, where she is Of Counsel
. Ms. Douglas currently serves as a member of the board of directors of
Avondale Acquisition Corp
.,
ACP Sheet Metal Compa
ny,
and UR Special Ministries
.
She previously was a Commissioner at the Oklahoma Corporation Commission, where she served as Vice-Chairman from February 2014 to January 2015 and as Chairman from August 2012 to February 201
4.
Her prior professional experience includes service as an Executive Vice President of First Fidelity Bank from 2008 to 2011, and as President, Greater OKC Metro Market, of SpiritBank from 2004 to 2008.
Ms.
Douglas was elected Mayor of the City of Edmond
, Oklahoma
in April 2009 and served for two consecutive terms. Ms. Douglas earned a Bachelor of Science degree in computer information systems from Oklahoma Christian University in 1983, and graduated from the University of Oklahoma College of Law in 1987. Ms. Douglas was the recipient of the Kate Barnard Award for Outstanding Public Service in Oklahoma, she is a three-time finalist for the Journal Record’s Woman of the Year, and has been named Oklahoma Christian University’s Distinguished Alumni for the College of Business. Ms. Douglas was also the recipient of the Energy Visionary Policy Leadership Award in October 2013. Additional experience, qualifications, attributes or skills that led to the conclusion Ms. Douglas should be
re-
elected to the Board include her:
legal expertise;
knowledge of Oklahoma markets; and knowledge of the banking industry.
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Mark W. Funke
|
Director Since 2012
|
Mr. Funke, age
6
1
, was appointed President and Chief Executive Officer of Southwest effective October
1, 2012. Mr. Funke is actively engaged in the community and in national banking affairs.
He currently serves on the American Bankers Association Government Relations Council.
Previously
,
he served for 28 years with Bank of Oklahoma
, most recently as Oklahoma City Market President and Manager of Government Relations
. He serves on the board
s
of the Greater Oklahoma City Chamber of Commerce and
the Oklahoma State Chamber of Commerce
, where he is Treasurer
and
serves on
its
executive committee. He also serves on the boards of Allied Arts Foundation,
OKC Community Foundation
, Oklahoma Health Center Foundation, YMCA of Oklahoma City
,
Oklahoma Medical Research Foundation
and the Research Institute for Economic Development
.
Mr. Funke also
serves on the Government Relations Council for the Oklahoma Banker’s Association.
Mr. Funke also serves on the board of United Way of Central Oklahoma
. He served as
city-wide Campaign Chair in 2010. He is a graduate of Leadership Oklahoma City Class VII and Leadership Oklahoma Class VIII. Mr. Funke was awarded the Paragon award in 2002 by Leadership Oklahoma City, the Urban Pioneer award in 2008 from Oklahoma City’s Plaza District Association and the John Kirkpatrick Award from The Lyric Theatre in 2009.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr. Funke should be re-elected to the Board include his:
s
ervice as our President and Chief Executive Officer; knowledge of our geographical banking markets;
and
knowledge of
the
banking industry.
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James M. Johnson
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Director Since 2006
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Mr. Johnson, age 5
8
, has an MBA from Emory University and is a self-employed small business owner. He previously served for fourteen years as a supervisory analyst, financial analyst, and examiner of financial institutions with the federal Office of Thrift Supervision and its predecessor.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr. Johnson should be re-elected to the Board include his: c
urrent service as Chairman of the Directors
’ Credit
Committee
of Bank SNB
; training and experience as a federal financial institution regulator; business and finance training;
and
experience as a small business owner.
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Larry J. Lanie
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Director Since 2012
|
M
r. Lanie, age 7
4
, retired on March 31, 2012 as President and Chief Executive Officer of FB Bancorp and Farm Bureau Bank, where he served since they were organized in 1998. He has 4
7
years of banking experience
,
including service as President and Chief Executive Officer of USAA Federal Savings Bank from 1983 through 1986, where he established its nationwide banking operations. He is a graduate of Oklahoma State University and is a member of the Board of Governors of the Oklahoma State University Foundation.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr. Lanie should be re-elected to the Board include his c
urrent service as Chairman of the Audit Committee
; knowledge of our geographical banking markets; and knowledge of
the
banking industry
.
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James M. Morris II
|
Director Since 2014
|
Mr. Morris, age 6
5
,
graduated from Oklahoma State University with a BS degree in Business Administration in 1973. He joined John Hancock Financial Services in 1973 and was appointed CEO of John Hancock’s Boston, MA based distribution system in May of 1999. In that role, Mr. Morris was in charge of sales and marketing for all life, annuity and long term care products. He also served as Chairman and CEO of John Hancock’s broker dealer, Signator Investors, Inc., as well as Chairman of Essex Co. and Essex National Securities, Inc. Mr. Morris retired in April 2004.
Since retirement, Mr. Morris has invested in various closely held businesses, including Choice Capital Partners,
River Ranch Resources
LLC, Aspen Junction LLC, and InforcePro Corporation. He currently serves on the boards of directors of the Oklahoma Medical Research Foundation and the South Central US Chapter of the Multiple Sclerosis Society and is a recipient of the Maureen Reagan award for his work with the Alzheimer
’
s Association
.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr.
Morris
should be
re-
elected to the Board include his
current service as Chairman of the Governance Committee;
investment and financial expertise
; knowledge of
Oklahoma
markets; and knowledge of the
financial services and banking industries
.
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Kayse M. Shrum, D.O.
|
Director Since 201
6
|
Dr. Shrum, age
4
4
, earned her Doctor of Osteopathic Medicine degree from the OSU College of Osteopathic Medicine in 2001. She joined the medical school faculty at OSU Center for Health Sciences in 2002 and was named provost of the OSU Center for Health Sciences and dean of OSU College of Osteopathic Medicine in 2011. In 2013, she was promoted to her current position as president of OSU Center for Health Sciences. Dr. Shrum also holds the George Kaiser Family Foundation Chair in Medical Excellence and Service and the Saint Francis Health System Endowed Chair of Pediatrics and Professor of Pediatrics. She is active in a variety of professional and charitable organizations. She serves as chair-elect of the American Osteopathic Board of Pediatrics and as Vice President of the Oklahoma Osteopathic Association. She is a member of the boards of
the Children’s Hospital Foundation at Saint Francis,
Mercy Kids
Ministry, Health Partners of Oklahoma, Oklahoma State University Medical Authority and Trust, and OSU Center for Health Systems Innovation, and serves on the PLICO Medical Malpractice Advisory Board.
Dr. Shrum was named a finalist for the Journal Record’s 2015 Woman of
the
Year award and was inducted into Connors State College Athletic Hall of Fame in 2013. She received the Oklahoma Osteopathic Association’s Outstanding & Distinguished Service Award in 2014 and the Tulsa Mayor’s Commission on the Status of Women’s Pinnacle Award for Health in 2012. Additional experience, qualifications, attributes or skills that led to the conclusion Dr. Shrum should be
re-
elected to the Board include her: knowledge of the healthcare industry and knowledge of Oklahoma markets.
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Russell W. Teubner
|
Director Since 2000
|
Mr. Teubner, age
60
, has been Chairman of the Board since January 1, 2013.
He is the founder and CEO of HostBridge Technology, LLC, a computer software company. The Stillwater Chamber of Commerce honored him as Citizen of the Year in 1992, Small Business Person of the Year in 1991-92, and Small Business Exporter of the Year in 1992-93. In 1993, he received the Outstanding Young Oklahoman award given annually by the Oklahoma Jaycees. In 1997, Oklahoma State University (OSU) named Mr. Teubner as a recipient of
its
Distinguished Alumni award. During 1996 and 1997 he served on the Citizen's Commission on the Future of Oklahoma Higher Education. In 1998, he was inducted into the OSU College of Business Hall of Fame. Currently, he serves on the board of the OSU
Research Foundation and its commercialization subsidiary, Cowboy Technology
. Mr. Teubner is a past director
of
the Oklahoma City branch of the Federal Reserve Bank of Kansas City.
Additional experience, qualifications, attributes or skills that led to the conclusion Mr. Teubner should be re-elected to the Board include his:
current
service as Chairman of the Board of Directors; experience in the computer software industry; experience as an officer of a public company; entrepreneurial and consulting experience; and continuing director education focusing on corporate governance, compensation and audit committee matters, among others, at MIT, Harvard Business School, and Wharton.
EXECUTIVE OFFICERS
The following paragraph contains certain information about our executive officers other than Mr. Funke, whose biographical information is included under the heading “Director Nominees” above.
Joe T. Shockley, Jr.
, age 6
5
, has served as the Company’s Executive Vice President and Chief Financial Officer since December 1, 2012
.
Prior to joining the Company, Mr. Shockley served as the Executive Vice President and Chief Financial Officer of BancFirst Corporation and as Corporate Secretary and a member of the Board of Directors of BancFirst from 1996 until his resignation on November 14, 2012. He also worked at Boatmen’s First National Bank of Oklahoma, where he served as the Tulsa Region President and Chief Financial Officer from 1991 to 1996 and as the Controller, Senior Financial Officer, and Executive Vice President from 1980 to 1991.
From 2009 to 201
6
,
Mr. Shockley
served o
n the board of directors of PLICO, Inc., a medical liability insurance company in Oklahoma City, OK, where he
also s
erve
d
as the Chairman of the Audit Committee and as a member of the Executive Committee.
Mr. Shockley is a Certified Public Accountant. He served as Manager-Banking of Billups, Arnn & Mascho, CPAs from 1976 to 1980 and as Senior Auditor of Arthur Andersen & Co. from 1973 through 1976. Mr. Shockley earned his BBA degree in Accounting from the University of Oklahoma in 1973. Mr. Shockley is a member of the American Institute of CPAs
,
the Oklahoma Society of CPAs
, and Financial Executives International
.
Priscilla Barnes
, age
60
, has served as the Company’s Senior Executive Vice President and Chief Operating Officer, reporting to the President and Chief Executive Officer, since March 29, 2012. Ms. Barnes previously served as Executive Vice President and Chief Credit Officer for the Company, Bank SNB, and Bank of Kansas, beginning in July 2011, and Executive Vice President, Regulatory Risk Management. Ms. Barnes joined Bank SNB in 2005. She has thirty-
six
years of bank experience, including service as a banker, bank director, and federal banking regulator. Ms. Barnes was an Oklahoma State University Regent’s Distinguished Scholar and attended the Graduate School of Banking in Madison, Wisconsin.
Brent Bates
, age
4
2
, has served as the Company’s Executive Vice President and Chief Credit Officer since March 29, 2012. He previously served as
Senior Vice President and Senior Credit Officer of
Bank SNB
. From
2003 until joining us in September 2011, Mr. Bates held various credit-related positions at Arvest Bank, Oklahoma City, OK, including Vice President and Manager of Commercial Credit Analysis, Commercial Workout Officer, and Senior Loan Review Officer. He also served nearly five years as a safety and soundness bank examiner for the Federal Reserve Bank of Kansas City as well as the Texas Department of Banking. Mr. Bates earned a bachelor’s degree in finance from the University of Oklahoma and graduated with honors from the Graduate School of Banking at Boulder, Colorado.
James D. Bygland
,
age 5
5
, has served as the Company’s Executive Vice President and Chief Information Office
r
since July 11, 2013. Mr. Bygland manages aspects of the Information Technology, Deposit Operations, and Loan Operations Departments. From 1998 until joining us in July 2013, Mr. Bygland served as Chief Information Officer/Executive Vice President of West Coas
t Bancorp, Lake Oswego, Oregon.
Mr. Bygland brings a successful and diverse background to our
C
ompany. In addition to his information technology responsibilities, Mr. Bygland managed deposit operations, electronic banking, retail customer call center, commercial customer support, loss prevention, project management and facilities. A graduate of the University of Nebraska, he has previously worked for major information technology and banking provide
r
s including Information Technology Inc., Fiserv, Sheshunoff Outsourcing Centers and Sheshunoff Consulting.
Gregg S. Jaynes
, age 5
3
, has served as the Company’s Executive Vice President and Chief Human Resources Officer since April
1,
2014. Prior to joining the Company, Mr. Jaynes served as the Chief Human Resources Officer of F&M Bancorporation for three years and spent 16 years as Senior Vice President of Human Resources at BOK Financial. Mr. Jaynes has 3
1
years of
Human Resources
experience
with various financial institutions and a large insurance company. He began his career as a teller
in the Washington, DC area, has a Bachelor of Science degree in Business Administration from Waynesburg University in Pennsylvania
and
is a Certified Compensation Professional.
He has participated as a volunteer with charity organizations including Habitat for Humanity, United Way and A New Leaf.
Rusty LaForge
, age
4
2
, has served as the Company’s
Executive Vice President and General Counsel since April 2, 2012. He most recently was an attorney with McAfee & Taft A Professional Corporation, serving as the practice group leader for the firm’s Banking and Financial Institutions practice group, where he concentrated on regulatory and transactional matters affecting banks, bank holding companies, and other financial firms. His career experience includes service as director of investor relations for Guaranty Financial Group and Guaranty Bank, Austin, Texas from May 2007 to August 2009, and as an attorney in the financial services section of the Bracewell & Giuliani LLP law firm. Mr. LaForge earned a bachelor’s degree in accounting from Oklahoma State University in 1998, and graduated from the University of Oklahoma College of Law in 2002. Mr. LaForge is a certified public accountant and currently serves on the Parks Subcommittee of the Oklahoma City MAPS 3 Citizens Advisory Board, the Foundation for Oklahoma City Public Schools’ Board of Directors, the Oklahoma State University Foundation’s Board of Governors, the Oklahoma State University School of Accounting’s Advisory Board, and
has served as a commissioner on the Uniform Law Commission since his appointment by Oklahoma governor Mary Fallin, in 2011.
BOARD MEETINGS AND COMMITTEES
Our
Board conducts its business through meetings of the Board and of its committees. The Board
generally
meets monthly and may have additional special meetings. The Board
met
1
6
times
during 201
6
. Each directo
r in office on December 31, 201
6
attended more than 75% of the total
number of meetings held
while such director was in office
in 201
6
of the Board and the committees on which he or she served.
The Board of Directors believes it is important for all directors to attend the
A
nnual
M
eeting of shareholders in order to show their support for Southwest and to provide an opportunity for shareholders to express any concerns to them.
We have
adopted a policy that all directors should attend each annual meeting of shareholders unless they are unable to attend by reason of personal or family illness or pressing matters. Each director in office on the date
of the meeting attended the 201
6
a
nnual
m
eeting.
BOARD LEADERSHIP STRUCTURE AND ROLE IN RISK OVERSIGHT
Separate Chairman of the Board and Chief Executive Officer
The position of Southwest’s Chairman of the Board and the office of its President and Chief Executive Officer are held by different persons. The Chairman of the Board, Russell W. Teubner, is an independent director and became Chairman on January 1, 2013, after twelve years of service on the Board. He is a me
mber of the Governance
Committee
and an ex officio, non-voting member of the
Audit and
Compensation Committee
s
.
The duties of the Chairman of the Board include providing strategic leadership and guidance; presiding at the meetings of the Board and executive sessions of independent directors; calling executive sessions and special meetings of the Board; establishing agendas for meetings of the Board and independent directors with advice from senior management and outside advisers; advising and consulting with the President and Chief Executive Officer, other executive officers, including
our
senior risk officers, and the chairmen of the Audit, Compensation, and other Southwest standing committees regarding strategies, risks, opportunities, and other matters.
The President and Chief Executive Officer, Mark W. Funke, was appointed to those offices effective October 1, 2012. He is
our p
rincipal management officer, with responsibility for supervision of
our
executive and senior management and
our
operations
and the operations of our
subsidiaries. His duties include developing strategic and tactical initiatives in consultation with other members of executive management and the Chairman of the Board; making recommendations regarding other members of executive management to the Board; and implementing approved strategic and tactical plans and initiatives.
We think separation of the two offices is the appropriate leadership structure for Southwest. We believe the division of duties is especially appropriate as legal and regulatory requirements applicable to the Board and its committees continue to expand, and help provide the appropriate levels of communication between the Board of Directors and executive management for Board oversight of Southwest and its management.
Risk Oversight and the Board
The Board of Directors as a whole is ultimately responsible for risk management oversight of Southwest. It is assisted by its committees, including the Audit Committee
,
the Compensation Committee,
and the Governance Committee,
whose duties are described below, as well
as other committees, such as
(i)
the
Directors
’
Credit
Committee
of Bank SNB
,
our subsidiary bank,
which is responsible for oversight of
Bank SNB’s
credit policies and risks
,
(ii) t
he Company’s management-level Risk Management Committee, that meets at least quarterly and reports directly to the Audit Committee
, and (iii) the Special Projects Committee, which
was formed in 2016 and was responsible for reviewing and analyzing strategic alternatives available to us and which ultimately approved and recommended our pending merger with Simmons First National Corporation
(“Simmons”)
. While other Board-appointed committees may have primary oversight of certain risks, the Audit Committee is charged with oversight of all risks on an enterprise wide basis
. These committees regularly provide reports of their activities and conclusions to the full Board for discussion and acceptance.
The Chairman of the Board and the President and Chief Executive Officer address risk matters at the regular Board meetings. In addition to Mr. Funke, other members of senior management, including senior risk officers, regularly provide reports directly to the Board of Directors in the Board meetings.
Audit Committee
Our
Audit Committee has adopted a written charter, which has been approved by the Board of Directors. A copy of this charter is available on the governance area
of
our
website
—www.oksb.com
. Current members are David S. Crockett Jr.,
Steven C. Davis, Patrice Douglas,
Larry J. Lanie (Chairman)
and Kayse M. Shrum
, D.O.
.
Russell W. Teubner
, Chairman of the Board of Directors, is an ex officio, non-voting member of the Audit Committee
. The
Audit C
ommittee met
21
times in 201
6
.
The Audit Committee of the Board oversees and reports to the Board of Directors regarding accounting and financial reporting processes, the audits of the financial statements, the qualifications and independence of the registered public accounting firm engaged to provide independent audits and related services, and the performance of the internal audit function and independent registered public accounting firm, and performs the other duties of the committee specified by federal securities laws and regulations, the Federal Deposit Insurance Act and related regulations (the “FDIA”), the listing standards of the NASDAQ Stock Market, Inc. (the “Listing Standards”), enterprise risk management, and its charter. In addition, the committee, as directed by the Board, investigates and reports to the Board with respect to specific matters involving financial reporting, financial accounting, conflicts of interest, internal controls, and compliance with laws and regulations relating to such matters. The committee, in its capacity as a committee of the Board, is directly responsible for the appointment, compensation, retention, evaluation, termination, and oversight of the work of any independent auditor employed by Southwest for the purpose of preparing or issuing an audit report or related work. The independent registered public accounting firm reports directly to the committee. The committee is responsible for the resolution of any disagreements between management of Southwest and the independent registered public accounting firm regarding financial reporting. All members of the committee are “independent” as defined in applicable law, regulations of the SEC, the FDIA, and the Listing Standards. Members of the committee also meet all other applicable requirements of the SEC, FDIA, and the Listing Standards for financial, accounting, or related expertise.
The Board has determined that Mr. Crockett qualifies as an audit committee financial expert under the Listing Standards and applicable securities regulations.
Under SEC regulations and Southwest policy, the identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liability greater than those to which he or she otherwise is subject as a member of the Audit Committee and the Board of Directors.
Compensation Committee
Our
Compensation Committee charter
has been approved by the Board of Directors and is
available
in the governance section
of
our
website
—www.oksb.com
.
Current m
embers
are John Cohlmia (Chairman), James M. Johnson, and
James M. Morris II
. Russell W. Teubner, Chairman of the Board of Directors, is an ex officio, non-voting member of the Compensation Committee. All members
of the committee are independent directors within the meaning of the Listing Standards, and may not have any interlocks of the type described below. The
Compensation C
ommittee met
5
times in 201
6
.
The Compensation Committee of the Board
(i)
reviews and makes recommendations to
our
Board
with respect to (a) our compensation policies and programs, (b) Chief Executive Officer (“CEO”) compensation, (c) CEO recommendations about other executive officers’ compensation, (d) director compensation, (e) employment agreements, including change-in-control agreements, and (f) the risks associated with our incentive compensation plans, (ii)
assists in developing and determining
executive management incentive plan awards and stock based awards to eligible officers;
(iii)
performs the other duties of the committee specified by federal banking and securities laws and regulations and the Listing Standards
,
and
(iv)
as directed by the Board, investigates and reports to the Board with respect to specific matters involving compensation and benefits.
The committee is advised by an independent third-party compensation consulting firm and by Southwest
’s
outside legal counsel. The committee may delegate to the appropriate officers of Southwest the responsibility for executing and delivering agreements and documents approved by the committee. The C
EO
is not present during deliberation of his compensation by the committee or the Board. The compensation of other Named Executive Officers is
recommended by the CEO and the committee and ultimately
determined by a vote of the independent directors in connection with the annual budget process.
Compensation Committee Interlocks
None of the members of the Compensation Committee has ever been an officer or an employee of the Company or its subsidiaries. During the fis
cal year ended December 31, 201
6
, none of our executive officers served on the board of directors, or on the compensation committee of the board of directors, of any entities whose executive officers serve on our Board.
Governance Committee
Our
Governance Committee serves as its standing nominating committee. The committee’s charter has been approved by the Board of Directors and is available in the governance section
of
our
website
www.oksb.com. Current members of the Governance Committee are
James M. Morris II (Chairman),
James M. Johnson,
and Russell W. Teubner. All members of the committee are independent directors within the meaning of the Listing Standards. The
Governance
Committee met
3
times in 201
6
.
The
Governance C
ommittee is responsible for recommending to the Board of Directors whether or not to nominate each director whose term expires at the next annual meeting of shareholders and for identifying and recommending to the Board of Directors persons to be nominated as new directors of Southwest. In fulfilling these duties
,
the
Governance
Committee considers whether or not the director meets the minimum criteria for Board membership based upon the director’s honesty, integrity, reputation in his or her community, existence of any actual or potential conflicts of interest, past service as director, and other factors it deems appropriate. In addition to the minimum standards, the
Governance
Committee intends to ensure that at least one director has the knowledge, training, and experience to qualify as an audit committee financial expert. The
Governance
Committee also may consider other knowledge, training, experience, ownership
of
our
common stock, and other factors
when making recommendations for nominees to the Board of Directors
. The
Governance
Committee’s decisions are made based on the person’s expected contributions to the Board of Directors in furtherance of the interests of shareholders and regardless of gender, race, ethnicity, national origin, age, or religion.
The Governance Committee is also responsible for considering persons recommended for nomination as directors by shareholders, other directors, and officers. It is
our
policy that no shareholder nomination or recommendation need be considered unless the committee determines, in its good faith discretion, that (i) the manner and substance of the recommendation or nomination and the related information and materials provided in connection with the recommendation or nomination comply with the procedural and substantive requirements of
our
Certificate of Incorporation
and
Bylaws, and state and federal law, and (ii) if elected, the person recommended or nominated may lawfully serve on the Board. Shareholders may submit recommendations for director candidates for consideration by the Governance Committee to the Secretary by first class mail. Please also see “Shareholder Proposals and Communications” on page
33
of this Proxy Statement.
DIRECTOR INDEPENDENCE
The Board of Directors has affirmatively determined that all Directors
and Director Nominees
other than Mr. Funke are independent under the Listing Standards. Those independent directors are:
|
|
|
|
|
|
|
|
|
|
|
|
James E. Berry II
|
Steven C. Davis
|
James M. Morris II
|
|
|
Thomas D. Berry
|
Patrice Douglas
|
Kayse M. Shrum, D.O.
|
|
|
John Cohlmia
|
James M. Johnson
|
Russell W. Teubner
|
|
|
David S. Crockett, Jr.
|
Larry J. Lanie
|
|
Director Independence Standards
In general, an independent director means a person, other than a person having a relationship that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In addition, the following persons are not independent:
(i)
A person who is now or during the last three years has been an officer or employee of Southwest or of any parent or subsidiary of Southwest;
(ii)
A person who accepted, or who has a family member who accepted, any payments in excess of $120,000 from Southwest or any parent or subsidiary of Southwest during the current fiscal year or in any of the three preceding fiscal years, excluding the following payments:
(A)
Compensation for Board or committee service;
(B)
Payments arising solely from investment in Southwest’s securities (e.g. dividends);
(C)
Compensation to a family member who is a “non-executive employee”;
(D)
Benefits under a tax-qualified retirement plan or “non-discretionary compensation”; and
(E)
Loans permitted under Section 13(k) of the Securities Exchange Act of 1934 (the “Act”), which, in general, include loans made in accordance with regulations governing loans between banks and their directors.
(iii)
A director who is a family member of a person who is, or at any time during the past three years was, employed as an executive officer by Southwest or of any parent or subsidiary of Southwest;
(iv)
A director who is, or who has a family member who is, a partner, controlling shareholder, or executive officer of any organization to which Southwest made, or from which Southwest received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more, other than (i) payments arising solely from investments in Southwest’s securities, or (ii) payments under non-discretionary charitable contribution matching programs;
(v)
A person who is, or who has a family member who is, an executive officer of another entity at which any of the executive officers of Southwest have served on the compensation committee of the other entity; or
(vi)
A person who is, or who has a family member who is, a current partner of Southwest’s outside auditor, or who was a partner or employee of Southwest’s outside auditor who worked on Southwest’s audit at any time during the past three years.
Additional Independence Standards for Members of the Audit Committee
Each member of the Audit Committee must meet the independence standards summarized above. In addition, none of the following
is
considered independent for purposes of Audit Committee membership:
(i)
A person who currently accepts, directly or indirectly, any consulting, advisory, or other compensatory fee from Southwest or from any subsidiary of Southwest, other than fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with Southwest if such compensation is not contingent in any way on continued service with Southwest or any subsidiary of Southwest; or
(ii)
A person who is an affiliated person of Southwest or any subsidiary of Southwest. Affiliated persons are persons who directly or indirectly control Southwest, including, but not limited to, persons who are executive officers of Southwest or a subsidiary of Southwest, a director who is also an employee of Southwest or a subsidiary of Southwest, and a general partner or management member of a subsidiary of Southwest. Affiliated persons do not include persons who do not beneficially own 10% or more of any class of voting securities of Southwest or a subsidiary of Southwest and who are not executive officers of Southwest or a subsidiary of Southwest.
The Board of Directors of Bank SNB,
an Oklahoma state banking corporation
(“Bank SNB”),
our
banking subsidiary, also has determined that each member of Bank SNB’s Audit Committee, which has the same membership as
our
Audit Committee, is independent of management, based upon consideration of whether the director is or has been an officer or employee of Bank SNB or any of its affiliates; serves or served as a consultant, advisor, promoter, underwriter, legal counsel, or trustee of or to Bank SNB or any of its affiliates; is a relative of an officer or other employee of Bank SNB or any of its affiliates; holds or controls or held or controlled, direct or indirect financial interest in Bank SNB or any of its affiliates; or has outstanding extensions of credit from Bank SNB or any of its affiliates, among other factors the Board deems relevant. A director is not considered independent of management if such director is, or has been within the preceding year, an officer or employee of Bank SNB or any of its affiliates, or owns or controls, or has owned or controlled within the preceding year, securities representing 10% or more of any outstanding class of voting securities of Bank SNB.
Additional Independence Standards for Members of the Compensation Committee
Each member of the Compensation Committee must meet the independence standards summarized above. In addition, no member of the Compensation Committee may accept, directly or indirectly, any consulting, advisory or other compensatory fee from Southwest or any subsidiary thereof.
Executive Sessions
Independent directors have regularly scheduled meetings at which only independent directors are present.
These executive sessions are held following every regularly scheduled Board meeting.
In 201
6
, there were
12
executive sessions of the Board of Directors.
Executive sessions are presided
over
by the Chairman of the Board, who is an independent director.
DIRECTOR COMPENSATION
During 201
6
, the independent members of our Board of Directors received the following cash compensation:
• an annual retainer of $
20
,000;
• a meeting fee of $750 per Board meeting and $300 per Committee meeting if held on the same d
ay as a Board
meeting and $600 if the Committee meeting is not held on the same day as a Board meeting;
• an additional annual retainer of $1
3,000
for the Chairman of the Board;
• an additional annual retainer of $6,000 for the Chairman of the Audit Committee;
• an additional annual retainer of $4,500 for the Chairman of the Compensation Committee;
• an additional annual retainer of $4,500 for the Chairman of the Governance Committee;
and
• an additional annual retainer of $4,500 for the Chairman of
Bank SNB’s
Directors
’
Credit
Committee
.
Mark Funke, our President and CEO, does not receive any fees for serving on our Board of Directors.
Our directors are also eligible to receive non-incentive stock options and other stock based awards under our 2008 Stock Based Award Plan. We believe equity compensation is an important part of director compensation. Equity grants appropriately link the directors to the shareholders they represent. Director equity grants are awarded in December of the year in which the service was performed to appropriately link the payment and disclosure of director compensation amounts to the year in which the service was performed. As such, on
December
20
, 201
6
, we granted restricted stock awards of
543
shares
to each of Messrs. James E. Berry, II, Thomas D. Berry, Cohlmia, Crockett,
and
J
ohnson,
and Ms. Douglas and
Dr.
Shrum and 693 shares to each of Messrs. Davis,
Lanie,
Morris
,
and
Teubner
. These grants were made for 2016 board service and have a one-year, time-based vesting requirement attached to the grant. Messrs. Davis, Lanie, Morris
,
and Teubner were each granted an additional 150 shares compared to the other directors for their service on the Special Projects Committee of the Board for 2016.
The Special Projects Committee performed significant work related to the pending merger and as such, the participants on this committee received additional equity grants for 2016.
The closing market price of our common stock on the day of grant was $
29.10
per share.
The following table summarizes compensation for each person who was a member of Southwest’
s Board of directors during 201
6
.
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|
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|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or Paid in Cash
|
|
Stock Awards (1)
|
|
Total
|
|
|
James E. Berry, II
|
|
$36,800
|
|
$15,801
|
|
$52,601
|
|
|
Thomas D. Berry
|
|
36,200
|
|
15,801
|
|
52,001
|
|
|
John Cohlmia
|
|
43,700
|
|
15,801
|
|
59,501
|
|
|
David S. Crockett, Jr.
|
|
40,700
|
|
15,801
|
|
56,501
|
|
|
Steven C. Davis
|
|
44,300
|
|
20,166
|
|
64,466
|
|
|
Patrice Douglas
|
|
43,850
|
|
15,801
|
|
59,651
|
|
|
James M. Johnson
|
|
48,800
|
|
15,801
|
|
64,601
|
|
|
Larry J. Lanie
|
|
56,600
|
|
20,166
|
|
76,766
|
|
|
James M. Morris II
|
|
48,500
|
|
20,166
|
|
68,666
|
|
|
Kayse M. Shrum, D.O.
|
|
26,083
|
|
15,801
|
|
41,885
|
|
|
Russell W. Teubner
|
|
67,200
|
|
20,166
|
|
87,366
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amounts shown in this column reflect the dollar amounts of the aggregate grant date fair value of restricted stock awards granted in 2016 for the named Directors in accordance with SEC rules.
|
We annually conduct a peer group compensation analysis of
our
director compensation
package
. The compensation review utilizes the same peer group as the annual executive compensation review (the specific peers are identified later in this document). This market compensation study is conducted by
Blanchard Consulting Group,
the Compensation Committee’s independent third party consultant
. The
study reviews such items as total director compensation, average director compensation, board structure, board and committee meeting fees, number of board and committee meetings, committee and board chair fees, and breaks down cash and equity compensation
components
as a percentage of total compensation. The Compensation Committee utilizes the findings from this study to assess the appropriateness of its current director compensation practices
as
compared to peer
group market data
and banking industry best practices
. We do not make decisions based solely on these market studies. We believe it is appropriate to review the competitive marketplace and then make decisions based on
our
philosophy,
current situation and need
s that are unique to
our organization
.
We
generally target
to have our
director compensation
be
between the 50
th
and 75
th
percentiles of
our
peers for an average director. However, portions of
the
director compensation
package
are dependent on the number of meetings that are held
and
service on the various committees
. Thus,
we acknowledge that director compensation may be higher or lower
in certain years
based on the board or
various
committees
’
meeting needs for that year. Our general philosophy surrounding director compensation is that
we pay fo
r the time and expertise of our
qualified
independent directors.
COMMON STOCK OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
The shares of our common stock that were beneficially owned on the Record Date by each person who
is a director nominee or
was a director or
NEO
on that date
and by
all directors
and
executive officers as a group
are shown below
.
|
|
|
|
|
|
|
|
|
Name
|
|
Amount and Nature of Beneficial Ownership (1)
|
|
Percentage of Shares Outstanding (2)
|
|
|
Mark W. Funke
|
|
232,340
|
|
1.24%
|
|
|
Joe T. Shockley, Jr.
|
|
47,577
|
|
*
|
|
|
Priscilla Barnes
|
|
33,784
|
|
*
|
|
|
Brent Bates
|
|
19,398
|
|
*
|
|
|
Rusty LaForge
|
|
22,650
|
|
*
|
|
|
James E. Berry, II
|
|
200,013
|
|
1.07%
|
|
|
Thomas D. Berry
|
|
77,861
|
|
*
|
|
|
John Cohlmia
|
|
15,330
|
|
*
|
|
|
David S. Crockett, Jr.
|
|
16,255
|
|
*
|
|
|
Steven C. Davis
|
|
235,554
|
|
1.26%
|
|
|
Patrice Douglas
|
|
1,068
|
|
*
|
|
|
James M. Johnson
|
|
16,163
|
|
*
|
|
|
Larry J. Lanie
|
|
10,643
|
|
*
|
|
|
James M. Morris II
|
|
38,643
|
|
*
|
|
|
Kayse M. Shrum, D.O.
|
|
543
|
|
*
|
|
|
Russell W. Teubner
|
|
187,680
|
|
1.00%
|
|
|
All Directors and Executive Officers as a Group (18 persons)
|
|
1,190,047
|
|
6.37%
|
|
|
|
|
|
|
|
|
|
* Less than one percent of shares outstanding
|
|
|
|
|
|
(1)
|
Beneficial ownership is defined by rules of the SEC and includes shares that the person has or shares voting or investment power over and shares that the person has a right to acquire within 60 days from March 1, 2017.
|
|
(2)
|
In calculating the percentage ownership of each named individual and the group, the number of shares outstanding includes any shares that the person or the group has the right to acquire within 60 days of March 1, 2017.
|
OWNERS OF MORE THAN 5% OF SOUTHWEST’S COMMON STOCK
Beneficial owners of more than 5% of the common stock are required to file certain ownership reports under the federal securities laws. The following table shows the common stock beneficially owned by persons who have filed these reports reporting beneficial ownership that exceeds 5% of
our
out
standing common stock on March
1
, 201
7
.
|
|
|
|
|
|
|
|
|
Name
|
|
Amount and Nature of Beneficial Ownership (1)
|
|
Percentage of Shares Outstanding (2)
|
|
|
Dimensional Fund Advisors LP
|
(3)
|
1,569,665
|
|
8.40%
|
|
|
Endeavour Capital Advisors Inc.
|
(4)
|
1,376,796
|
|
7.37%
|
|
|
BlackRock Inc.
|
(5)
|
1,326,036
|
|
7.10%
|
|
|
The Banc Funds Company
|
(6)
|
1,135,282
|
|
6.0
7
%
|
|
|
Polaris Capital Management, LLC
|
(7)
|
1,061,345
|
|
5.68%
|
|
|
|
|
|
|
|
|
(1)
|
Beneficial ownership is defined by rules of the SEC and includes shares that the person has or shares voting or investment power. A decision to disclaim beneficial ownership or to include shares held by others is made by the shareholder, not by Southwest.
|
|
(2)
|
Calculated by Southwest based upon shares reported as beneficially owned by the listed persons and shares of Southwest common stock outstanding on March 1, 2017.
|
|
(3)
|
The address of Dimensional Fund Advisors LP is Building One, 6300 Bee Cave Road, Austin, TX 78746.
|
|
(4)
|
The address of Endeavour Capital Advisors Inc. is 410 Greenwich Avenue, Greenwich, CT 06830.
|
|
(5)
|
The address of BlackRock Inc. is 55 East 52nd Street, New York, NY 10022.
|
|
(6)
|
The address of The Banc Funds Company is 20 North Wacker Drive, Chicago, IL 60606.
|
|
(7)
|
The address of Polaris Capital Management, LLC is 121 High Street, Boston, MA 02110.
|
COMPENSATION DISCUSSION AND ANALYSIS
Overview
This Compensation Discussion and Analysis describes our compensation philosophy, components, goals, processes, and methodologies for determining executive compensation for our
NEOs
.
The Compensation Committee, our CEO, and the full Board of Directors have important roles in the process of establishing executive officer compensation. The Compensation Committee regularly engages a compensation consulting firm to provide independent compensation advice
, relevant
market data
,
and
detailed
analysis
of such data
. The independent third-party consultants are engaged by and report directly to the Compensation Committee and do not perform other work for us or our management outside of compensation consulting services.
The Compensation Committee monitors the results of the advisory “say-on-pay” proposal vote and incorporates such results as one of many factors considered in connection with the discharge of its responsibilities, although no such factor is assigned a quantitative weighting.
A
vast
majority (
approximately 87%
) of our
shareholder
s
approved the compensation program
s
described in our proxy statement in 201
6
;
therefore
,
the Compensation Committee did not implement
any significant
changes to our executive compensation program
s during the 201
6
calendar year. Any changes made during the 201
6
calendar year are disclosed in this section
.
For compensation details, p
lease refer to the Summary Compensation Table, which summarizes compensation
earned by or awarded to our Named Executive Officers
for the last three years, and to the detailed compensation disclosures under the heading “Executive Compensation” beginning on
page
23
.
Philosophy and Guiding Principles
We recognize that the ability to retain and recruit
highly-qualified
executive officers is critical to the achievement of our annual and long range goals. Our executive compensation philosophy is intended to
accomplish the following:
|
|
"
|
|
Maintain a compensation program that will enable the Company to attract and retain top level talent that will support the
Company
’s current
and long-term
goals.
|
|
|
"
|
|
Provide incentive opportunities (both cash and equity) for executive leadership that will be strongly tied to the performance of the organization.
|
|
|
"
|
|
Have a compensation program that balances the needs for long-term earnings, a high quality balance sheet that emphasizes
strong
credit quality and assets, and
positive
shareholder returns.
|
|
|
"
|
|
Promote retention and long-term value within executive leadership by having a significant portion of compensation paid in equity that vests over time and is linked to the long-term return provided to shareholders.
|
The Compensation Committee believes in a pay for performance culture that incorporates a balance between driving performance and not promoting excessive risk taking.
O
ur incentive programs for the CEO and
other
NEOs
are designed to
have the appropriate balance between short-term and long-term rewards
. Additionally,
we focus on ensuring
that our compensation programs contain appropriate risk
profile
s (i.e., they do not promote excessive risk taking that could be detrimental to our long-term financial health).
We have performed risk reviews on our incentive compensation programs and will continue to conduct
periodic
risk reviews in future years. Our Compensation Committee has determined that our current incentive compensation programs do not promote excessive, inappropriate, or unnecessary risk taking that could be detrimental to our long-term health.
Our Compensation Committee believes it is important to have a portion of the
NEO
s’ compensation linked to the long-term performance of the Company and
to
shareholder
returns
. We want our
NEOs
to be shareholders of the Company and we want their compensation to have a variable portion that is tied to the long-term success of our organization. We believe granting and using equity compensation is an appropriate method to link
executive compensation
to shareholder
returns
. Because we want our NEOs to be shareholders, we impose significant
minimum equity holding requirements
on our NEOs.
Our CEO is required to hold equity in the Company
equal in value to
at least three (3) times his annual base salary. Our
NEO
s, other than our CEO
,
are required to hold equity in the Company
equal
in value
to
at least one (1) time
s
the
NEO’s annual base salary
.
We intend that total compensation and each of its components be market competitive and consistent with our short and long-term performance goals.
The Compensation Committee annually reviews compensation data from a public peer group of approximately twenty similar
ly
asset sized
and geographically located
banking organizations and supplements this peer group data with banking survey compensation data. The specific peer group uti
lized in 201
6
is provided later in this document. This market data is provided by the Committee’s independent compensation consultants. The Committee uses this market data to understand the competitive environment, but ultimately makes decisions based on the current needs and compensation philosophy of
the Company
.
Compensation of our CEO
and NEOs
has a portion that
is
c
ontingent upon
both
our
annual and long-term performance.
The CEO does not participate in the deliberation of his compensation, but provides recommendations for the other
NEO
s to the Compensation Committee.
The components of total compensation are (a) base
salary
compensation, (b) annual cash incentive compensation, (c)
equity
incentive compensation in the form of stock based awards, and (d) executive
retirement programs
and perquisites. A detailed discussion of each of these individual compensation components begins in the bullet points below.
|
|
"
|
|
Base S
alaries
– From a long-term perspective the Company targets the
median (
50th percentile
)
of the market for base salaries
of NEOs who are fully functioning and performing in
their
respective roles
. However, the philosophy
in recent years has been
for
the Company
to
pay above the
median for NEO
base salaries as the Company has needed to attract
and retain
a
l
eadership team
with the ability to
drive
the Company
to meet its
long-term goals for performance and shareholder returns
.
|
|
|
"
|
|
Cash I
ncentives
– The Company believes annual cash incentives/bonuses should be a part of the total compensation package. These cash awards should be based primarily on Company performance at the executive level, but some individual/department components
may
be utilized where appropriate. The
current
cash incentive
amounts are designed to be
market competitive, but are not designed to provide large “upside” for short-term performance.
|
|
|
"
|
|
Equity Incentives
–
The Company
believes strongly in the use of
e
quity incentive compensation. The primary equity vehicle that is used
currently
at the executive leadership level is restricted stock with multi-year vesting requirements. The Company wants executive leadership to be rewarded for providing long-term value and returns to shareholders. The equity
-based
incentive goals should be primarily Company focused. The Company also wants to drive retention and long-term value amongst the
NEOs so v
esting requirements and
ownership
requirements are a part of the equity incentive plan.
The Company
believes in providing above market equity awards for above market performance
and market competitive awards for at market performance
.
|
|
|
"
|
|
Retirement Programs & Perquisites
– Currently, the Company does not place a large emphasis in the areas of retirement compensation or perquisites.
The Company offers a
401(k)
/qualified profit sharing plan
and
a
voluntary deferred compensation program, but they are not a
primary
focus for executive compensation.
Although retirement programs and perquisites currently represent only a small portion of the total executive compensation package, t
his could change in the future.
We maintain employment agreements for Mr. Funke and Mr. Shockley, and change-in-control agreements for the other NEOs, which are discussed in more detail later in th
is Compensation Discussion
and A
nalysis.
|
Further, steps have also been taken to ensure executives’ interests are aligned with shareholders’ interests by instituting stock ownership requirements and clawback provisions
. Both policies were in place for the entire 201
6
calendar year
. The Board may make exceptions to these principles
if it is determined to be necessary/appropriate.
(See “Board of Directors and Compensation Committee Discretion; Adjustments” on page
19
.)
We and our subsidiaries are equal employment opportunity employers.
Base Salary Compensation (Salary)
The base salary of our
NEO
s is typically reviewed annually
during
the first quarter
, and any changes are made effective on
April
1
st
. Base salary compensation is intended to provide a predictable and stable source of income over the year but is subject to increase or decrease at the discretion of the Board.
The base salary of ou
r CEO is approved by the Board
based upon the recommendation of the Compensation Committee. The base salary
levels
of our other NEOs
are established
based upon the recommendations of our CEO
and the Compensation Committee approves these base salaries
in connection with approval of the annual budget. The Compensation Committee and the CEO utilize the data from our independent consulting reports
and consider
the executive’s responsibilities, qualifications, experience, performance, and internal pay equity when making decisions.
The long-term goal of the Compensation Committee is to maintain the annual base salary level for the CEO and
other
NEOs at a level comparable to the median of the peer group/market data
. However, in recent years the Compensation Committee has deemed it appropriate in certain situations to provide a salary level above the peer group
median level to attract
and retain
executive
s.
The intent of the Compensation Committee is that the executives
with above market annual
base salar
ies w
ill not
receive significant base salary increases until
the
peer group market data, internal performance, and Company growth supports such increases.
The Compensation Committee determined that no NEO base salary increases would be made in 2016 after taking into account the Company’s financial performance
in
2015 and the level of the NEOs
’
base salaries compared to our peer
s. The peer
group
comparisons showed that our base salaries were above peer median levels for the CEO and most NEOs and therefore did not warrant any adjustments.
Ms. Barnes’ base salary was reduced by approximately 8.63% in 2016
as a result of her changing role within the
organization and
her base salary compared with
peer data.
The table
on the following page d
iscloses the specific salary adjustments for each NEO.
Base salaries and adjustments for our
NEO
s
during 201
6
are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary (1)
|
|
Increase
|
|
|
Name and Position
|
|
2016
|
|
2015
|
|
Amount
|
|
Percentage
|
|
|
Mark W. Funke
|
|
$465,000
|
|
$465,000
|
|
$-
|
|
0.00%
|
|
|
President and
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
Joe T. Shockley, Jr.
|
|
309,000
|
|
309,000
|
|
-
|
|
0.00%
|
|
|
Executive Vice President and
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
Priscilla Barnes
|
|
309,750
|
|
339,000
|
|
(29,250)
|
|
(
8.63
)
%
|
|
|
Senior Executive Vice President and
|
|
|
|
|
|
|
|
|
|
|
Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
Brent Bates
|
|
244,000
|
|
244,000
|
|
-
|
|
0.00%
|
|
|
Executive
Vice President and
|
|
|
|
|
|
|
|
|
|
|
Chief Credit Officer
|
|
|
|
|
|
|
|
|
|
|
Rusty LaForge
|
|
241,500
|
|
241,500
|
|
-
|
|
0.00%
|
|
|
Executive
Vice President and
|
|
|
|
|
|
|
|
|
|
|
General Counsel
|
|
|
|
|
|
|
|
|
|
(1)
|
Effective at year-end
|
|
|
|
|
Annual Cash and
Equity
Incentive
Compensation
The Compensation Committee considers annual cash and equity incentive compensation critical to the alignment of executive compensation with the creation of shareholder value. Cash incentives could consist of annual cash incentives or discretionary cash bonuses. Equity incentive
compensation
could consist of
grants of
stock appreciation rights, restricted stock, performance shares or stock options.
It has been our practice in recent years to award the equity portion of the incentive award in the form of restricted stock. This meets with current bank
ing industry best practices and is consistent with
prevalence data
included in the analytical peer
reviews
provided by Blanchard
.
Equity incentive compensation is designed to focus executives on our long-term success, as reflected
by goals that focus on
increases to our stock price, growth in our earnings per share
, maintenance of a high
-
quality balance sheet that emphasize
s
solid credit quality and assets,
and other elements
that may vary from year to year
.
Chief Executive Officer
Annual Incentive Compensation
Pursuant to the terms of the employment agreement with
our CEO,
Mark W. Funke, 50% of the CEO’s annual bonus opportunity (which is
currently
defined as 100% of his base salary)
is
subject to the following specific performance conditions:
(1)
the Company and Bank SNB not having a
Classified Asset Ratio greater than
35
%
at year
end
.
(2) the
Company and
Bank
SNB
not
being
under any memorandum of understanding or formal agreement with any regulator; and
(3) Total
s
hareholder
r
eturn for the applicable calendar year
falling withi
n the top twenty-fifth (25
th
) percentile
(i.e. above the 75
th
percentile)
of total shareholder returns for banks in a mutually agreed upon peer group; provided, however, with respect to any applicable calendar year, if the only criterion precluding payment of the portion of the Annual Bonus subject to these conditions is this
t
otal
s
hareholder
r
eturn condition and the Company
t
otal
s
hareholder
r
eturn for the calendar year
is between the top twenty-fifth (i.e. 75
th
percentile ranking) and top
fiftieth (50
th
) percentile, then a percentage of the portion of the Annual Bonus subject to these conditions will be payable. The percentage payable shall be four percent (4%) multiplied by the number of whole numbers above the
top
fiftieth (50
th
) percentile ranking that the Company achieves for its
t
otal
s
hareholder
r
eturn.
201
6
Results:
For 201
6
,
the
Classified Asset Ratio
criteria
was met, there were no MOUs or formal agreements with regulators, and our total shareholder return was in the
top 25
th
percentile
(specifically the 87
th
percentile)
of total shareholder returns for the agreed upon peer group, which means that all
three
criteria specified in Mr. Funke’s employment agreement were met. As a
result
, Mr. Funke earned 100% of this half of his annual bonus opportunity based on meeting these criteria, which resulted in a payout of $232,500
.
The remaining 50% of the CEO’s
2016
annual bonus opportunity
was
subject to such performance
measures
as may be established by the Compensation Committee
under the ELT Incentive Plan (see more detailed discussion of the ELT Incentive Plan under “Named Executive Officers (Excluding CEO)
”
below)
.
For 201
6
,
the Compensation Committee determined that this 50% would be broken down as follows
(with each metric having a threshold, target, and maximum performance level defined)
:
|
|
(1)
|
|
2
0
% was based on net income levels
(shown later)
;
|
|
|
(2)
|
|
1
0
% was based on criticized and classified asset levels (
not disclosed for confidentiality purposes
);
|
|
|
(3)
|
|
10%
was
based on the Company’s efficiency ratio
(shown later)
;
|
|
|
(4)
|
|
7.5% was based on personal goal
s
established by the Compensation Committee with a maximum rati
ng
of 100%; and
|
|
|
(5)
|
|
2.5% based on the Company’s total shareholder return measured against an agreed upon peer group
.
|
In order for any bonuses to be paid under the ELT Incentive Plan, the Company must meet certain minimum hurdles based on net income and credit quality (see discussion under “Named Executive Officers (Excluding CEO)” below). These same thresholds applied to the 50% of Mr. Funke’s annual bonus opportunity that was based on the same performance measures established by the Compensation Committee under the ELT Incentive Plan.
The Company
met the minimum net income and credit quality “hurdles” for 2016 to allow incentive payouts to be made. However, the Company
did not achieve the threshold net income
level
fo
r 201
6
under the
ELT I
ncentive
P
lan
and
,
as a result, no amounts were paid
for
under
this metric
, which represented a total potential payout of 20% of the portion of Mr. Funke’s award based on the ELT Incentive Plan performance measures
. The
criticized and classified asset levels
fell between the ma
ximum performance level
and the
target
performance level,
which resulted in the
payment of $37,456, or 81% of the total amount that could be earned
under this metric.
The efficiency ratio fell between the
target
performance level and the threshold performance level, which resulted in the payment of $12,788, or 28% of the total amount that could be earned under this metric. The Company’s total shareholder return
exceeded maximum
as measured against the Company’s peer group, which resulted in Mr. Funke earning $11,625, or 100% of the total amount that could be earned under this metric.
The personal goals were determined to be achieved at a rating of 100%, which resulted in
$34,875, or
1
0
0% of
the total amount that could be earned under this metric.
The
Compensation Committee determined that Mr. Funke met his
personal goal
metric
based on his leading the Company through
the successful
negotiation and execution
of
the
merger agreement
with Simmons
.
201
6
CEO Annual Incentive Compensation Payout:
As described above, Mr. Funke earned a total
$329,243, or approximately 7
1
% of his base salary in annual performance-based incentive compensation in 201
6
. The amount was paid in early 201
7
and was paid 60% in the form of restricted stock with a three-year cliff vest and 40% in cash.
Performance Stock Awards
Total Shareholder Return
Pursuant to the terms of our employment agreement with our CEO, Mark W. Funke, on February 26, 2013, Mr. Funke was granted a one-time performance award entitling him to earn up to 138,600 shares of Company common stock through December 31, 2016 based upon the total shareholder return of the Company. The table below sets forth the number of shares that
can be earned in each year during the performance period,
in addition to the prior level of shares earned, upon reaching each additional specified total shareholder return target:
|
|
|
|
Total Shareholder Return
|
Performance Shares Earned
|
|
20%
|
3,850
|
|
30%
|
7,700
|
|
40%
|
11,550
|
|
50%
|
15,400
|
|
60%
|
19,250
|
|
70%
|
23,100
|
|
80%
|
26,950
|
|
90%
|
30,800
|
Total shareholder return is measured from August 30, 2012, the date of Mr. Funke’s employment agreement. Once a particular total shareholder return performance measure has been met, Mr. Funke is not eligible to earn the performance shares again even if the Company achieves successive total shareholder returns at or above the threshold level in successive years. Performance shares that are earned are issued and held in escrow subject to a three-year vesting period based on Mr. Funke’s continued employment.
2013 Performance Results:
In
2013
, a
s a result of the Company’s 53% total shareholder return from the date of Mr. Funke’s employment agreement through the release of financial results for the fourth quarter of 2013, Mr. Funke earned the maximum 34,650 shares that he was able to earn in 2013 under this total shareholder return measure (3,850 shares for reaching 20%, plus 7,700
shares for reaching 30%, plus 11,550 shares for reaching 40%, plus 15,400 shares for reaching 50%, which total
ed
38,500 shares, but
the total number of performance shares issuable to Mr. Funke based on total shareholder return was capped at 34,650 shares for 2013 per his employment agreement
)
.
2014 Performance Results:
For 2014, the Company achieved 45% total shareholder return from the date of Mr. Funke’s employment agreement through the release of financial results for
the
fourth quarter
of
2014. As such, no additional shares were earned
by Mr. Funke under this total shareholder return measure
in
2014.
2015 Performance Results:
For 2015, the Company achieved 4
9
% total shareholder return from the date of Mr. Funke’s employment agreement through the release of financial results for the fourth quarter of 2015. As such, no additional shares were earned beyond the shares that were already earned for 2013 performance as described above and in the 2014 and 2013 proxy statements. Thus, no shares were earned by Mr. Funke under this total shareholder return measure in 2015.
2016 Performance Results:
For 2016, the Company achieved
approximately 158
% total shareholder return from the date of Mr. Funke
’s employment agreement through
the release of financial results for the fourth quarter of 2016. As a result of
t
h
is
total shareholder return
calculation, combined with prior year results
, Mr. Funke earned
an additional
103,950 performance shares, which were 100% of the remaining performance shares available under this award
. The 103,950 performance shares earned consist of
3,850
shares
for the remaining portion of the 50% total shareholder return that was capped in 2013, 19,250 shares for reaching
a
60%
total shareholder return
, 23,100 shares for reaching
a
70%
total shareholder return
, 26,950 shares for reaching
a
80%
total shareholder return
,
and
30,800 shares for reaching
a
90%
total shareholder return
.
Return on Average Equity
Pursuant to the terms of his employment agreement, on February
2
3
, 201
6
Mr. Funke was granted an annual performance stock award entitling him to earn up to 14,400 shares of the Company’s common stock based on the Company’s return on average equity
in 201
6
. The table below sets forth the number of shares that will be earned upon reaching specified return on average equity targets:
|
|
|
|
Return on Average Equity
|
Performance Shares Earned
|
|
7.0%
|
3,600
|
|
7.5%
|
5,400
|
|
8.0%
|
7,200
|
|
8.5%
|
9,000
|
|
9.0%
|
10,800
|
|
9.5%
|
12,600
|
|
10.0%
|
14,400
|
201
6
Performance Results:
Performance shares that are earned are issued and held in escrow subject to a three-year vesting period based on Mr. Funke’s continued employment. The Company’s return on average equity for 201
6
was
below 7.0
%
;
therefore, Mr. Funke
did not
earn
any
performance shares for 201
6
under this return on average equity measure.
Name
d
Executive Officers (Excluding CEO)
In late 2012, the Compensation Committee approved our Senior Management Incentive Plan.
This plan was first utilized in calendar year 2013. In 2015, the plan was renamed the Executive Leadership Team Incentive Plan (“ELT Incentive Plan”). The ELT Incentive Plan is based upon performance during a calendar year. The Company’s Chief Executive Officer selects the employees who are eligible to participate in the ELT Incentive Plan each year. The Company’s NEOs (excluding the CEO) are all ELT Incentive Plan Participants.
The ELT Incentive Plan provides annual incentive awards to eligible Plan Participants based on the achievement of a combination of predetermined Company, department, and/or individual performance criteria. The specific goals, weightings and award opportunity levels at threshold, target, and maximum for each plan participant are determined annually by the Compensation Committee of the Board with advice provided by the CEO, and subject to approval by the Board.
No awards are payable under the ELT Incentive Plan unless the Company meets a minimum
(i.e. “hurdle”)
net income performance level. In addition, no awards
are
made with respect to any Company-wide performance criteria unless a minimum credit quality metric is also met. The Compensation Committee required that both a minimum net income and a minimum credit quality “hurdle” be included in the ELT Incentive Plan. The net income hurdle ensures incentives are only paid if the Company can afford to pay them and the credit quality hurdle places an appropriate emphasis on credit quality. The Compensation Committee wants to reward ELT Incentive Plan Participants for strong Company financial performance, but it also wants to ensure that the
financial
performance is
generated
within a strong credit environment. If the Company credit quality ratios fall below acceptable levels, the
Company-wide portion of the potential award (which constitutes
85
% of the total award potential of the ELT Incentive Plan) will not be earned/paid. This requires the Company’s executive management to balance the
pursuit of
earnings with the need for good credit quality. If the minimum credit quality performance metric is not met, participants may still be eligible to receive payouts related to their department, discretionary, and/or individual performance objectives, so long as the Company achieves the minimum net income performance in the given year. Payouts under this plan are also only made if the Company i
s
not subject to any formal supervisory action or memorandum of understanding (MOU) related to asset quality, earnings, or capital.
For 201
6
, the minimum net income performance level was set at $1
6.0
million and the minimum credit quality metric provided that criticized and classified assets as a percentage of capital could not exceed a maximum percentage
(not disclosed for confidentiality purposes)
. Both the minimum net income performance level and the minimum credit quality metric were met in 201
6
. Additionally, the Company was not under any supervisory action or MOU.
Award amounts payable to participants achieving performance objectives are calculated as a proportion of threshold, target, and maximum award levels. Each participant earns a payout percentage that is multiplied by his/her eligible salary level to create the actual incentive award amount. For 201
6
, the threshold payout percentage was 0%, the target payout percentage was 50%, and
the
maximum payout percentage was 100% of eligible salary. The performance objectives are weighted such that a certain percentage of the total potential award is payable for meeting each specific performance criteria. For 201
6
, each ELT Incentive Plan Participant’s award was weighted such that
80
% of the total potential award was tied to Company-wide performance objectives
, 1
5
% was tied to personal performance objectives,
and 5% of the total potential award was tied to
C
ompany performance versus peer.
The following table describes the Company-wide threshold, target and maximum award levels, and the actual performance level, applicable to all ELT Incentive Plan Participants in 201
6
, which included each of the NEOs other than the CEO. Any awards earned under this portion of the ELT Incentive Plan may be paid up to 50% in the form of restricted stock at the discretion of the Compensation Committee and the remainder will be paid in cash. For 201
6
, the
Compensation
Committee decided to pay
the awards
50% in restricted stock and 50% in cash for each of the ELT Incentive Plan participants which included all NEOs except for the CEO.
2016 ELT Incentive Plan Goals Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-Wide Goal Weight
|
|
Criteria
|
|
Threshold
|
|
Target
|
|
Max
|
|
Actual Performance
|
|
40%
|
|
Net Income
|
|
$19,530,000
|
|
$21,700,000
|
|
$26,040,000
|
|
$18,395,000
(Below Threshold – no payment)
|
|
20%
|
|
Criticized & Classified Assets as a % of Capital
|
|
(1)
|
|
(1)
|
|
(1)
|
|
Between Target and Max
|
|
20%
|
|
Efficiency Ratio
|
|
66%
|
|
64%
|
|
62%
|
|
64.9%
(Between Threshold and Target)
|
|
15%
|
|
Personal Goals
|
|
50%
|
|
75%
|
|
100%
|
|
Max for each NEO
|
|
5%
|
|
Company TSR vs. Peer
|
|
40%
|
|
50%
|
|
60%
|
|
87%
(Above Max)
|
|
(1)
|
The Company does not disclose information regarding amounts of criticized and classified assets. Such information is highly confidential and would put the Company in a competitive disadvantage if it were disclosed to the public.
|
In total for 201
6
, the ELT Incentive Plan participants
each
earned approximately
42
% of
their
salar
ies
under the 201
6
ELT Incentive Plan. These results were between
threshold and target
performance levels for each of the NEOs (excluding the CEO). The earned amounts were paid during the first quarter of 201
7
. The number of restricted stock grants was based on the dollar amount earned under the ELT Incentive Plan divided by the share price on the date of grant
(February 21, 2017)
. The cash portion of the ELT Incentive Plan
(including discretionary bonuses as discussed below)
was paid on
March 2, 2017
.
201
6
Additional NEO Discretionary Bonuses:
In addition to the previously described ELT Incentive Plan awards,
each
NEO (excluding the CEO) also received an additional discretionary cash bonus
in
2016. The
discretionary bonuses w
ere
as follows:
Mr. Shockley $46,350, Ms. Barnes $46,463, Mr. Bates $36,600, and Mr. LaForge $36,225. These discretionary cash bonuses
equaled
15% of
each NEO’s
base
salary for 2016.
Based upon the CEO’s recommendation, the Compensation
Committee determined that it
was appropriate for 2016 to provide additional discretionary cash bonuses to each NEO
to reward the team for leading the Company through the successful negotiation and execution of the merger agreement with Simmons.
Retirement Programs and Perquisites
Retirement programs
and perquisites are
a part
of competitive total compensation. We intend to provide benefits and perquisites that are competitive
. Our
NEO
s are eligible to participate in the benefit plans generally available to our employees, including our tax qualified 401(k) and profit sharing plan. In addition, the Bank SNB Elective Non-Qualified Deferred Compensation Plan (the “2013 Nonqualified Deferred Compensation Plan”
or the “Plan”
) is an unfunded, nonqualified deferred compensation plan designed to allow a select group of management or highly compensated employees (each a “Participant” and collectively, the “Participants”) of the Company or Bank SNB to save for retirement on a tax-deferred basis.
The 2013 Nonqualified Deferred Compensation Plan became effective on December 20, 2012 and the initial Plan year was the 2013 calendar year. Participants in the Plan may elect to defer a portion of their upcoming plan year compensation
. The Plan does not provide for an employer contribution
.
Amounts deferred under the 2013 Nonqualified Deferred Compensation Plan are credited to bookkeeping accounts maintained for each Participant and are credited or debited with the Participant’s proportionate share of any gains or losses attributable to the earnings indices selected by the Participant. The earnings indices are notional investments for earnings and include the following options: (a) an account bearing interest at an annual rate, adjusted each calendar quarter, equal to the greater of (i) one percentage point (1.00%) less than the annualized average interest rate earned (non-taxable equivalent) by Bank SNB on average interest-earning assets for the previous calendar quarter, as calculated in good faith by Bank SNB, or (ii) zero percent (0%); and (b) the common stock of the Company.
The earnings indices are to be used for measurement purposes only and amounts deferred under the 2013 Nonqualified Deferred Compensation Plan will not represent any actual investment made on the Participants’ behalf. The amount required to be paid under the 2013 Nonqualified Deferred Compensation Plan is equal to the elective deferrals made by each Participant, as adjusted for the hypothetical gains or losses based on the earnings indices selected by the Participant.
Participants must select one of the following options as to the time of payment of all amounts deferred for all Plan years under the 2013 Nonqualified Deferred Compensation Plan: (a) the Participant's separation from service; (b) the date the Participant attains seventy-two (72) years of age; or (c) the later of: (i) the Participant's Separation from Service, or (ii) a specific date not later than the date on which the Participant will attain 72 years of age.
Participants must also select one of the following options as to form of payment of all amounts deferred f
or all Plan years under the 2013
Nonqualified Deferred Compensation Plan: (a) a single lump sum; (b) equal monthly installments over a five (5) year period; (c) equal monthly installments over a ten (10) year period; or (d) equal monthly installments over a fifteen (15) year period.
In 201
6
, Mr. Funke and Mr. Shockley were the only
NEO
s w
ho were Participants in the 2013
Nonqualified Deferred Compensation Plan.
We
also offer a 401(k) p
lan that is intended to supplement the employee’s personal savings and social security. All employees, including
our executive officers
, are generally eligible for the 401(k) plan.
E
xecutive o
fficers
participate in the 401(k) plan on the same basis as other employees.
T
he 401(k) plan enable
s
employees to save for retirement through a tax-advantaged combination of employee and Company contributions and to provide employees the opportunity to directly manage their retirement plan assets through a variety of investment options. The 401(k) plan allows eligible employees to elect to contribute
up to
90
% of their eligible compensation, up to the annual IRS dollar limit. Eligible compensation generally means all wages, salaries and fees for services paid by us.
In 2016, we
contribute
d
50% of each employee’s contributions up to a maximum of 4%
.
Board of Directors and Compensation Committee Discretion; Adjustments
Additional performance bonuses, stock options, and other stock-based awards may be made within the discretion of the Compensation Committee and the Board of Directors. The Compensation Committee also may consider other factors, and may change the basis of assessing our performance in the future, based upon our annual or longer-term goals.