Term Expiring at 2010 Annual Meeting
Thomas J. Drechsler
,
Esq.
47, is a practicing attorney and, since January 2004, a principal in the law firm of Kearney, Drechsler & Awalt, LLC, a Towson, Maryland-based law firm. Prior to 2004, Mr. Drechsler was a principal in the law firm of Carson, Jones-Bateman & Drechsler, P.A. In addition to his legal practice, Mr. Drechsler has served as the Managing Attorney/Principal of the Towson office of Sage Title Group, LLC, a title service business, since October 2007. From May 2002 to September 2007, he served as the Managing Attorney of the Towson office of Universal Settlements, LLC and from January 2000 to May 2002, he was the
Managing Attorney/Principal of Juris Title Company.
Charles E. Wagner, Jr.
, 53, is the Executive Vice President, Chief Lending Officer and Secretary of Slavie Federal Savings Bank. He has served in that capacity since January 2001. From 1987 to December 2000, Mr. Wagner was a Vice President and mortgage officer for Slavie Federal Savings Bank. Prior to 1987, Mr. Wagner served Slavie Federal Savings Bank in a variety of other capacities.
The Board of Directors has determined that Messrs. Stahl and Wise are “independent” as defined under the applicable rules and listing standards of the NASDAQ Stock Market LLC, assuming the rules and listing standards of the NASDAQ Stock Market LLC were applicable to SFSB, Inc. There were no transactions, relationships or arrangements between the directors determined to be independent and SFSB, Inc. or the Bank that are not disclosed under “Certain Relationships and Related Transactions” below.
BOARD MEETINGS AND COMMITTEES
SFSB, Inc.’s Board of Directors meets for regular meetings twice each month and for such special meetings as circumstances may require. The Board of Directors of SFSB, Inc. met 25times during 2007.
The Board of Directors of the Bank meets twice each month. The Board of Directors also holds quarterly meetings, an annual meeting and on an as needed basis, special meetings. The Board of Directors of the Bank met 25 times during 2007. Each director attended at least 75% of the total number of meetings of the Board of Directors and the Board committees of SFSB, Inc. and Slavie Federal Savings Bank, for which he was a member during 2007.
The Board of Directors of SFSB, Inc. has standing Audit, Nominating and Compensation Committees. The Bank also has a number of standing committees, including the Asset & Liability Committee, Audit Committee, Compensation Committee, Executive Loan Review Committee and Nominating Committee. The members of SFSB, Inc.’s and the Bank’s Audit, Compensation and Nominating Committees are the same, and these committees typically hold joint meetings.
SFSB, Inc.’s policy requires that, in the absence of an unavoidable conflict, all directors are expected to attend the annual meeting of SFSB, Inc.’s stockholders. All members of the Board of Directors of SFSB, Inc. attended the 2007 annual meeting.
Audit Committee
SFSB, Inc.’s and the Bank’s Audit Committee members are Messrs. Stahl and Wise. The Board of Directors has determined that each of these individuals is independent, as defined under the rules and regulations of the Securities and Exchange Commission and the applicable rules and listing standards of the NASDAQ Stock Market LLC, assuming the rules and listing standards of the NASDAQ Stock Market LLC were applicable to SFSB, Inc. In addition, the Board of Directors has determined that Mr. Stahl is an “audit committee financial expert” as that term is defined by the rules and regulations of the Securities and Exchange Commission.
The Audit Committee of SFSB, Inc. held five meetings in 2007 and the Audit Committee of the Bank held onemeeting in 2007 which was held simultaneously with a meeting of the Audit Committee of SFSB, Inc. The Audit Committee’s primary responsibilities are to assist the Board of Directors by monitoring: (i) the integrity of SFSB, Inc.’s financial statements; (ii) the independent auditors’ qualifications and independence; (iii) the performance of SFSB, Inc.’s and its subsidiaries’ independent auditors; (iv) SFSB, Inc.’s system of internal controls; (v) SFSB, Inc.’s financial reporting and system of disclosure controls;
and (vi) SFSB, Inc.’s compliance with legal and regulatory requirements.
In addition, the Audit Committee was appointed to oversee treatment of, and any necessary investigation concerning, any employee complaints or concerns regarding SFSB, Inc.’s accounting and auditing matters.
Pursuant to procedures adopted by SFSB, Inc., any employee with such complaints or concerns is encouraged to report them, anonymously if they desire, to the Chair of the Audit Committee for investigation, and appropriate corrective action, by the Audit Committee.
The Audit Committee has adopted a written charter, a copy of which is available in the investor relations section of the Bank’s website at www.slavie.com.
Nominating Committee
SFSB, Inc.’s and the Bank’s Nominating Committee members are Messrs. Drechsler, Brown, Wise, and Wagner. The Board of Directors has determined that Mr. Wise is independent, as defined under the applicable rules and listing standards of the NASDAQ Stock Market LLC, assuming the rules and listing standards of the NASDAQ Stock Market LLC were applicable to SFSB, Inc. The Nominating Committee has adopted a written charter, a copy of which is available in the investor relations section of the Bank’s website at
www.slavie.com
. The Nominating Committee charter provides that the members of the Nominating Committee shall be those members
of the Board of Directors whose terms are not subject to expire at the next annual meeting of stockholders.
The Nominating Committee of SFSB, Inc. held one meeting in 2007 and the Nominating Committee of the Bank held one meeting in 2007 which was held simultaneously with the meeting of the Nominating Committee of SFSB, Inc. The Nominating Committee determines whether the incumbent directors should stand for reelection to the Board of Directors, and identifies and evaluates candidates for membership to the Board of Directors. In the case of a director nominated to fill a vacancy on the Board of Directors due to an increase in the size of the Board of Directors, the Nominating Committee recommends to the Board of Directors the class of directors in which
the director-nominee should serve. The Nominating Committee also conducts appropriate inquiries into the backgrounds and qualifications of possible director candidates and reviews and makes recommendations regarding the composition and size of the Board of Directors.
The Nominating Committee also evaluates candidates for nomination to the Board of Directors who are recommended by a stockholder. Stockholders who wish to recommend individuals for consideration by the Nominating Committee to become nominees for election to the Board may do so by submitting a written recommendation to the Secretary of SFSB, Inc. at 1614 Churchville Road, Bel Air, Maryland 21015. Submissions must include sufficient biographical information concerning the recommended individual, including age, five year employment history with employer names and a description of the employer’s business, whether such individual can read and
understand basic financial statements and a current list of board memberships for the Nominating Committee to consider. A written consent of the individual to stand for election if nominated and to serve if elected by the stockholders must accompany the submission. The Nominating Committee will consider recommendations received by a date not later than 120 calendar days before the date the Company’s proxy statement was released to stockholders in connection with the prior year’s annual meeting for nomination at that annual meeting. The Nominating Committee will consider nominations received beyond that date at the annual meeting subsequent to the next annual meeting.
The Nominating Committee evaluates nominees for directorship recommended by security holders in the same manner in which it evaluates any nominees for directorship. Minimum qualifications include high moral character, mature judgment, familiarity with SFSB, Inc.’s business and industry, independence of thought and ability to work collegially.
In addition to candidates recommended by stockholders, the Nominating Committee identifies potential candidates through various methods, including but not limited to, recommendations from existing directors, customers and employees. In identifying and evaluating candidates for membership on the Board of Directors, the Nominating Committee takes into account all factors it considers appropriate. These factors may include, without limitation: (a) ensuring that the Board of Directors, as a whole, is diverse and consists of individuals with various and relevant career experience, relevant technical skills, industry knowledge and experience, financial
expertise (including, if determined by the Committee to be appropriate, expertise that could qualify a director as an “audit committee financial expert,” as that term is defined by the rules of the Securities and Exchange Commission), local or community ties and (b) minimum individual qualifications, including high moral character, mature judgment, familiarity with the Company’s business and industry, independence of thought and an ability to work collegially. The selection process for new members of the Board of Directors is
7
as follows: (1) the Board of Directors identifies a need to add a new member with specific qualifications or to fill a vacancy on the board, (2) the Committee Chair or other designated Committee member initiates a search seeking input from the Board of Directors and the Company’s management, and may hire a search firm, if necessary, (3) a candidate or slate of candidates that satisfy specific criteria and/or otherwise qualify for membership on the Board, based on the factors described above, are identified and presented to the Committee, and (4) the Chairman of the Board, the Company’s CEO and all or at least one member of the Committee
interviews the prospective candidate(s). The Nominating Committee Chair keeps the full Board of Directors informally informed of the progress, and (5) the Committee meets to consider and approve the final candidate(s) (and conduct additional interviews, if deemed necessary) or recommends a candidate(s) to the full Board of Directors.
Compensation Committee
SFSB, Inc. and the Bank’s Compensation Committee members are Messrs. Brown, Drechsler, Stahl and Wise — the non-employee directors of the Bank. The Board of Directors has determined that Messrs. Stahl and Wise are independent, as defined under the applicable rules and listing standards of the NASDAQ Stock Market LLC, assuming the rules and listing standards of the NASDAQ Stock Market LLC were applicable to SFSB, Inc. The Compensation Committee does not have a charter. The Compensation Committee of SFSB, Inc. held no meetings in 2007 and the Compensation Committee of the Bank held four meetings in 2007.
The Compensation Committee evaluates the performance of executive management, approves performance objectives for executive management and determines executive management’s compensation. The Compensation Committee also reviews current industry practices regarding compensation packages provided to executive management and the Board of Directors, including salary, bonus, stock options and perquisites. The Compensation Committee also determines the compensation to be paid to the Board of Directors. Each year by the first Monday of December, the president submits salary recommendations for executive management, including himself, to the Compensation
Committee for the following year, based on peer report data and the attainment of executive management’s goals and objectives. The Compensation Committee makes the final determination in setting salaries for executive management.
DIRECTOR COMPENSATION
The following table discloses all fees and other payments to each director for the fiscal year ended December 31, 2007.
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Name(1)
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Fees Earned or Paid in Cash
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Restricted Stock Awards(2)(5)
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Stock OptionAwards(3)(5)
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All Other
Compensation(4)
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Total
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J. Benson Brown
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$
|
22,825
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|
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$
|
5,101
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|
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$
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3,689
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$
|
670
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$
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32,285
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Thomas J. Drechsler
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21,725
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|
|
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5,101
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3,689
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—
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30,515
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Robert M. Stahl, IV
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24,575
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5,101
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3,689
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—
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33,365
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James D. Wise
|
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23,525
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5,101
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3,689
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—
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32,315
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(1)
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Table does not include directors who are executive officers of SFSB, Inc. and Slavie Federal Savings Bank, whose compensation is included in the Summary Compensation Table below.
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(2)
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All awards vest in five equal annual installments beginning one year from the date of grant, which was August 23, 2005.
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(3)
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All options have an exercise price of $9.15, the fair market value of our common stock on the date of grant, which was August 1, 2005. All options vest in five equal annual installments beginning one year from the date of grant.
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(4)
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Consists of consulting fees associated with real estate services.
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(5)
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During 2005, the Company granted stock options covering 102,061 shares of common stock to certain employees and directors of the Company. The options were granted at the then fair market value of $9.15 per share, vest over five years and expire 10 years from the date of grant. The company estimated the grant date fair value of each option awarded in fiscal 2005 using the Black-Scholes Option-Pricing model with the following assumptions: dividend yield 0%, risk-free rate interest rate of 4.22%, and expected lives of 7 years. The assumption for the expected volatility was 11.42%. The estimated fair value of each option granted was computed to be $2.53. During the same year, the Company granted 40,824 shares of restricted stock to certain employees and directors of the Company, with a fair market value of $9.40 per share.
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8
The following table provides information about our directors’ outstanding option and stock awards as of December 31, 2007. The amounts shown were granted in 2005 pursuant to the SFSB, Inc. 2005 Stock Option Plan and the SFSB, Inc. 2005 Recognition and Retention Plan:
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Option Awards
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Stock Awards
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Name(1)
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Number of Unexercisable
Options
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Option
Exercise Price
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Option
Expiration Date
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Number of Restricted Stock Awards not Vested
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Market Value
of Shares not Vested
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J. Benson Brown
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4,374
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$
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9.15
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08/01/2015
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1,750
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$
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14,438
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Thomas J. Drechsler
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4,374
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9.15
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08/01/2015
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1,750
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14,438
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Robert M. Stahl, IV
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4,374
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9.15
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08/01/2015
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1,750
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14,438
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James D. Wise
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4,374
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9.15
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08/01/2015
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1,750
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14,438
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(1)
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Table does not include directors who are executive officers of SFSB, Inc. and Slavie Federal Savings Bank, who are included in the Outstanding Equity Awards Table below.
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Pursuant to our Director Compensation Policy, each director of the Bank, including employee directors (Messrs. Logan and Wagner), received $700 for each regular meeting and the Board of Directors’ meeting held on the same date as the Annual Meeting of Stockholders, $75 for each quarterly meeting and an amount determined by the Board of Directors for special meetings. All directors are also eligible for an annual bonus, which is awarded at the discretion of the Board of Directors. In addition, each non-employee director is paid $200 for the first hour of each committee meeting attended and $50 for each additional half-hour, with a $700 maximum
fee per committee meeting. Members of the Loan Committee also receive a monthly fee of $50. Directors are paid for two excused absences from Board and committee meetings. Directors are only paid for additional absences if the absence is for a medical reason. The Board of Directors or the Compensation Committee of the Board of Directors of the Bank may also authorize discretionary payments to one or more directors or the entire Board of Directors as a result of outstanding service. Also, all directors of SFSB, Inc. and the Bank are entitled to reimbursement for reasonable expenses incurred on behalf of SFSB, Inc. and the Bank. During 2007, the Bank paid each director $700 for each special meeting. The Bank paid a performance bonus of $3,000 to each director for the year ended December 31, 2007.
The Director Compensation Policy provides that unless and until SFSB, Inc. becomes actively involved in additional businesses other than owning all the capital stock of the Bank, no separate cash compensation will be paid to the directors of SFSB, Inc. in addition to that paid to them by the Bank in their capacities as directors of the Bank. SFSB, Inc. may determine in the future that such separate cash compensation is appropriate.
The Director Compensation Policy was changed effective January 1, 2008 to increase the fee for regular meetings and the meeting held the day of the annual meeting of stockholders to $850. Further, the fee for the first hour of each committee meeting attended has been increased to $300 ($500 to Chair of the Committee to compensate for additional duties), with an $850 maximum fee per committee meeting ($1,050 to Chair).
The Director Compensation Policy provides that the policy may be changed from time to time.
9
EXECUTIVE COMPENSATION
The following table sets forth, for the years ended December 31, 2007 and 2006, the compensation paid by the Bank to its president and chief executive officer, its chief financial officer and other executive officers of the Bank who received total compensation in excess of $100,000 in 2007. Officers of the Bank are not separately compensated for their services as officers of SFSB, Inc.
Summary Compensation Table
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Name And Principal Position
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Year
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Salary
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Stock Awards(1)
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Option Awards(2)
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All Other
Compensation(3)
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Total
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Philip E. Logan, Chairman, President and
Chief Executive Officer
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2007
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$
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121,000
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$
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29,539
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$
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14,755
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$
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22,198
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$
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187,492
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2006
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$
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121,000
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$
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31,624
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$
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14,755
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$
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19,686
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$
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187,065
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Charles E. Wagner, Jr.,
Executive Vice President,
Chief Lending Officer
and Secretary
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2007
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$
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84,000
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$
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22,309
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$
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11,066
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$
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26,224
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$
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143,599
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2006
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$
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84,000
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$
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23,800
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$
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11,066
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$
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23,928
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$
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142,794
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Sophie T. Wittelsberger,
Vice President and
Chief Financial Officer
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2007
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$
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69,000
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$
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14,732
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$
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7,377
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$
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2,583
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$
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93,692
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2006
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$
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69,000
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$
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15,802
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$
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7,377
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$
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1,234
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$
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93,413
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(1)
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Includes the cost of 11,664, 8,748 and 5,832 shares of restricted stock granted to Messrs. Logan and Wagner, and Mrs. Wittelsberger, respectively, on August 23, 2005, based on a per share value of $8.75 in 2007 and $9.65 in 2006, the closing price of SFSB, Inc.’s common stock on the anniversary dates of the grant. The restricted stock awards vest in five equal annual installments commencing one year from the date of grant, so as of December 31, 2007, two- fifths of the restricted stock awards had vested. Dividends, if any, will be paid on the restricted stock. Also includes for 2007 the cost of 1,106, 848 and 549 allocated shares provided under the Slavie Federal Savings Bank Employee Stock Ownership Plan granted to Messrs. Logan and Wagner, and Mrs. Wittelsberger, respectively, based on a per share value of $8.25, the closing price of SFSB, Inc.’s common stock on December 31, 2007. Also includes for 2006 the cost of 950, 721 and 474
allocated shares provided under the Slavie Federal Savings Bank Employee Stock Ownership Plan granted to Messrs. Logan and Wagner, and Mrs. Wittelsberger, respectively, based on a per share value of $9.60, the closing price of SFSB, Inc.’s common stock on December 29, 2006, the last day the common stock was traded during 2006.
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(2)
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Represents the cost of 29,161, 21,870 and 14,580 options to purchase common stock granted to Messrs. Logan and Wagner, and Mrs. Wittelsberger, respectively, on August 1, 2005. Based on a per share value of $2.53, using the Black-Scholes Option Pricing model with the following assumptions: dividend yield 0%, risk-free interest rate of 4.22%, and expected lives of 7 years. The assumption for the expected volatility was 11.42%. The stock options become exercisable in five equal installments commencing one year from the date of grant.
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(3)
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Includes director fees of $21,125 for Messrs. Logan and Wagner and $4,125 for service rendered as secretary of SFSB, Inc. and the Bank for Mr. Wagner. Also includes matching funds under the Bank’s 401(k) plan of $650, $500and $867 for Messrs. Logan and Wagner and Mrs. Wittelsberger, respectively, term life insurance premiums paid by the Bank of $423, $474and $389 forMessrs. Logan and Wagner and Mrs. Wittelsberger, respectively and a $1,327 performance bonus for Mrs. Wittelsberger.
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Employment Agreements
The Bank had employment agreements in place with each of Philip E. Logan, Charles E. Wagner, Jr. and Sophie T. Wittelsberger, during the year ended December 31, 2007. During December 2006, the directors elected not to renew the employment agreements of Philip E. Logan, Charles E. Wagner, Jr. and Sophie T. Wittelsberger, therefore all management contracts were allowed to lapse by their terms on December 30, 2007. The Compensation Committee’s decision not to approve the extensions of management’s employment agreements was based solely on its analysis of the value of such agreements to the Company and its stockholders as opposed to being a
reflection of management’s performance. Beginning January 1, 2008, our executive officers became employed on an at-will basis and Philip E. Logan, Charles E. Wagner, Jr. and Sophie T.
10
Wittelsberger or the Bank may terminate the employer-employee relationship at any time. The terms of their employment as described below however, other than termination and change-in-control payments, will generally continue on an at-will basis.
Mr. Logan’s employment agreement provided that he would serve as the President and Chief Executive Officer of Slavie Federal Savings Bank. The term of the agreement initially was two years; however, commencing on the first anniversary date of the agreement and continuing on each anniversary date thereafter, the disinterested members of the Board of Directors or a committee of disinterested directors conducted an annual review of Mr. Logan’s performance for purposes of determining whether to extend the agreement an additional year such that the remaining term of the agreement would again be two years. If the directors did not extend the
agreement, then Mr. Logan’s employment agreement would terminate at the end of one year following such anniversary date. Mr. Logan’s employment also would terminate upon the events described below.
The agreement provided for an initial annual base salary of $110,000, subject to annual increases as determined by the Board of Directors. In January 2006, the Compensation Committee increased Mr. Logan’s annual salary, effective January 1, 2006, to $121,000 per year; Mr. Logan’s salary was not increased for 2007, but it was increased to $125,840 per year effective January 1, 2008. Mr. Logan is also eligible to receive an annual bonus as determined by the Compensation Committee. Mr. Logan did not receive a bonus for 2006 or 2007. The agreement also provided that Mr. Logan would be compensated for his attendance at board meetings at the same
rate as other board members. Mr. Logan received a bonus for his services as a director in the amount of $3,000 in 2007.
The agreement could be terminated by the Bank upon Mr. Logan’s death or permanent disability, by Mr. Logan upon his permanent disability, or by mutual written agreement. In addition, Mr. Logan could have terminated the agreement for good reason as described in the agreement, or without good reason upon 60 days prior written notice. The Bank could terminate the agreement for cause as described in the agreement or without cause upon 60 days prior written notice to Mr. Logan.
If Mr. Logan would have terminated the agreement for good reason, or if the Bank would have terminated Mr. Logan’s employment without cause, Mr. Logan would have received severance pay for the remainder of the term as defined in the agreement equal to Mr. Logan’s current base salary. In addition, the Bank would have been obligated to continue to maintain Mr. Logan’s health insurance coverage for the remainder of the term of the agreement.
If Mr. Logan would have been terminated without cause or would have terminated his employment for good reason in connection with or after a change in control (as defined in the agreement), he would have been entitled, instead of the severance payment described above, to a single payment equal to 2.99 times his average annual compensation over the prior five years.
Mr. Wagner’s employment agreement provided that he would serve as the Executive Vice President and Chief Lending Officer of the Bank. The agreement provided for an initial annual base salary of $77,000, subject to annual increases as determined by the Board of Directors. In January 2006, the Compensation Committee increased Mr. Wagner’s annual salary, effective January 1, 2006, to $84,000 per year; Mr. Wagner’s salary was not increased for 2007, but it was increased to $87,360 per year effective January 1, 2008. Mr. Wagner is also eligible to receive an annual bonus as determined by the Compensation Committee. Mr. Wagner did not
receive a bonus for 2006 or 2007. The agreement also provided that Mr. Wagner will be compensated for his attendance at board meetings at the same rate as other board members. Mr. Wagner received a bonus for his services as a director in the amount of $3,000 in 2007.
All of the other terms of Mr. Wagner’s employment agreement were identical to those of Mr. Logan’s employment agreement, except, if Mr. Wagner had been terminated without cause or terminated his employment for good reason in connection with or after a change in control, he would have been entitled to a single payment equal to 2.50 times his average annual compensation over the prior five years.
Mrs. Wittelsberger’s employment agreement provided that she would serve as a Vice President and the Chief Financial Officer of the Bank. The agreement provided for an initial annual base salary of $60,000, subject to annual increases as determined by the Board of Directors. In January 2006, the Compensation
11
Committee increased Mrs. Wittelsberger’s annual salary, effective January 1, 2006, to $69,000 per year; Mrs. Wittelsberger’s salary was not increased for 2007, but it was increased to $71,760 per year effective January 1, 2008. Mrs. Wittelsberger is also eligible to receive an annual bonus as determined by the Compensation Committee. Mrs. Wittelsberger did not receive a bonus for 2006 and received a bonus in the amount of $1,327 for her performance in 2007. All of the other terms of Mrs. Wittelsberger’s employment agreement were identical to those of Mr. Logan’s employment agreement, except, if Mrs. Wittelsberger would have been
terminated without cause or terminated her employment for good reason in connection with or after a change of control, she would have been entitled to a single payment equal to 2.00 times her average annual compensation over the prior five years.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information about unexercised options and stock awards that have not vested outstanding as of December 31, 2007:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
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Option Awards
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Stock Awards
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Name
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Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable(1)
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Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
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Option
Exercise
Price
($)
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Option
Expiration
Date
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Number of
Shares of Stock That Have Not Vested (#)(2)
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Market Value of Shares of Stock That Have Not Vested
|
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Philip E. Logan
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11,664
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17,497
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$
|
9.15
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8/1/2015
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6,999
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$
|
57,742
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Charles E. Wagner, Jr.
|
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|
8,748
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|
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|
13,122
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|
$
|
9.15
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|
8/1/2015
|
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5,249
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$
|
43,304
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|
|
Sophie T. Wittelsberger
|
|
|
5,832
|
|
|
|
8,748
|
|
|
$
|
9.15
|
|
|
|
8/1/2015
|
|
|
|
3,500
|
|
|
$
|
28,875
|
|
|
|
(1)
|
Options become exercisable in five equal installments commencing one year from the date of grant, which for all options shown was August 1, 2005.
|
|
|
(2)
|
Awards vest in five equal installments commencing one year from the date of grant, which for all awards shown was August 23, 2005.
|
Employee Stock Ownership Plan
As part of the reorganization to a federally chartered stock savings bank, the Bank established an Employee Stock Ownership Plan (“ESOP”) for its employees. Employees who are at least 21 years of age with at least one year of employment with Slavie Federal Savings Bank are eligible to participate. The employee stock ownership plan trust borrowed $1,166,300 from SFSB, Inc. and used those funds to purchase 116,630 shares of common stock of SFSB, Inc. Collateral for the loan is the common stock purchased by the ESOP.
Pursuant to the loan documents, the loan will be repaid principally from the Bank’s discretionary contributions to the ESOP with twenty equal annual installments of $58,315 through 2024, bearing interest at the Wall Street Journal prime rate adjusted monthly. Interest is computed on an annual basis. The loan documents provide that the loan may be repaid over a shorter period, without penalty for prepayments.
The shares of common stock purchased by the employee stock ownership plan are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the employee stock ownership plan and shares released from the suspense account in an amount proportional to the repayment of the employee stock ownership plan loan are allocated among employee stock ownership plan participants. Such allocation is based on the ratio of the compensation earned by the employee while a plan participant in the year of allocation to the total compensation earned by all employees while plan participants in the year of allocation. Participants in
the plan are not vested in any amount in their accounts before they have completed five years of service. Upon the completion of five years of service, the account balance of participants within the plan becomes 100% vested. Credit is given for years of service with the Bank’s mutual predecessor prior to the adoption of the ESOP. A participant’s interest in his account under the plan also fully vests in the event of termination of service due to a participant’s normal retirement, death, disability, or upon a change in control (as defined in the ESOP). Vested benefits are payable in the form of common stock and/or cash at SFSB, Inc.’s option.
12
The Bank’s contributions to the ESOP are discretionary, subject to the loan terms and tax law limits. Therefore, benefits payable under the ESOP cannot be estimated. Pursuant to SOP 93-6, we are required to record compensation expense each year in an amount equal to the fair market value of the shares released from the suspense account. In the event of a change in control (as defined in the ESOP), the ESOP will terminate and participants will become fully vested in their account balance, which will be paid to them.
Messrs. Drechsler, Logan and Wise serve as trustees of the ESOP. Under the ESOP, the trustees generally must vote all shares allocated to the participants’ accounts in accordance with the instructions of the participants. Unallocated shares and allocated shares for which the participants do not give voting instructions are generally voted by the trustees. Voting with respect to allocated and unallocated shares is subject to the requirements of applicable law and the fiduciary duties of the trustees.
The employee stock ownership plan is subject to the requirements of the Employee Retirement Income Security Act of 1974, and the regulations of the Internal Revenue Service and the Department of Labor.
Information Regarding Executive Officers Who are Not Directors and Key Employees
Executive Officers
Sophie T. Wittelsberger,
48, is a Vice President and the Chief Financial Officer of Slavie Federal Savings Bank. She has served as a Vice President since January 2001 and as Chief Financial Officer since June 2005. Mrs. Wittelsberger joined Slavie Federal Savings Bank in June 1997 as the Controller.
Key Employees
Gary E. Barnoff,
54, is a Vice President — Branch Operations and Business Development at Slavie Federal Savings Bank. He has served in that capacity since October 2005 when Mr. Barnoff joined Slavie Federal Savings Bank. From July 2003 to October 2005, Mr. Barnoff served as Assistant Vice President for Mercantile County Bank. Mr. Barnoff served as Director of Development for The Boys & Girls Clubs of Harford County from August 1999 to July 2003. From January 1996 to January 2000, Mr. Barnoff was President and Owner of Hawk Specialties, an advertising specialty/promotional products company. Prior to that Mr. Barnoff served as
Vice President — Regional Sales Manager for First Union National Bank through acquisitions of First Fidelity Bank and Bank of Baltimore from September 1974 to January 1996.
Michael Tagg
, 45, is a Vice President — Commercial Lending at Slavie Federal Savings Bank. He has served in that capacity since February 2007 when Mr. Tagg joined Slavie Federal Savings Bank. From December 1992 to January 2007, Mr. Tagg served as Assistant Vice President — Loan Originations and Community Reinvestment Officer for Valley Bank of Maryland. Prior to that Mr. Tagg was a Banking Center Manager for Loyola Federal Savings Bank.
Lauren M. Rebbel
, 28, is a Certified Financial Planner
TM
and Vice President of Slavie Financial Services. She has served in that capacity since June 2007 when Ms. Rebbel joined Slavie Federal Savings Bank. From June 2004 to June 2007, Ms. Rebbel served as Financial Advisor and CFP® for Ferris, Baker Watts. Prior to that Ms. Rebbel served as Financial Advisor and Retirement Planning Specialist with Morgan Stanley.
James T. Nichols
, 53, is a Vice President — Commercial Lending at Slavie Federal Savings Bank. He has served in that capacity since November 2007 when Mr. Nichols joined Slavie Federal Savings Bank. From March 2004 to November 2007, Mr. Nichols served as Vice President — Controller of Richland Homes, Inc. Prior to that Mr. Nichols served as Vice President Team Leader — Commercial Real Estate Lending Department of Farmers and Mechanics Bank, which through mergers became Citizens National Bank, a Mercantile Bank & Trust Corp affiliate.
The officers of SFSB, Inc. and Slavie Federal Savings Bank are elected annually by the respective Boards of Directors following the annual meeting of stockholders and serve for terms of one year or until their successors are duly elected and qualified except where a longer term is expressly provided in an employment contract duly authorized and approved by the Board of Directors.
13
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, SFSB, Inc.’s directors and executive officers and persons holding more than ten percent of its outstanding shares of common stock are required to report their ownership and changes in such ownership to the Securities and Exchange Commission and SFSB, Inc. Based solely on its review of the copies of such reports, SFSB, Inc. believes that, for the year ended December 31, 2007, all Section 16(a) filing requirements applicable to SFSB, Inc.’s officers, directors and greater than ten percent shareholders were complied with on a timely basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the ordinary course of business, Slavie Federal Savings Bank makes loans available to its directors and officers. These loans are made in the ordinary course of business on substantially the same terms, including interest rate and collateral, as comparable loans to unrelated borrowers. Federal regulations permit Slavie Federal Savings Bank to make loans to executive officers and directors at reduced rates or different terms than those offered to the general public if the loan is made under a program generally available to all other employees and does not give preference to any executive officer or director over any other employee. Currently,
Slavie Federal Savings Bank does not have a special loan program for employees.
Loans made to directors or executive officers must be approved by a majority of disinterested members of the loan committee and ratified by a majority of disinterested members of the Board of Directors of the Bank. Management believes that the loans to directors and officers neither involve more than the normal risk of collectibility nor present other unfavorable features. As of December 31, 2007, there were a total of twelve loans outstanding to directors and officers with a total balance of $1,867,000.
Since August 2003, Mr. Brown has provided Slavie Federal Savings Bank with real estate consulting services. In addition, Mr. Drechsler currently serves as the Bank’s general counsel through Kearney, Drechsler & Awalt, LLC of which Mr. Drechsler is a 33% owner. Through other firms, Mr. Drechsler has served as the Bank’s general counsel since 2000. During the years 2006 and 2007, the Bank’s payments to Mr. Brown and Mr. Drechsler’s law firm did not exceed the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years.
Through Sage Title Group, LLC and, prior to September 30, 2007, Universal Title, LLC, Mr. Drechsler also provides settlement related services to the Bank’s borrowers in connection with loans originated by the Bank. In those circumstances, Sage Title Group, LLC (formerly Universal Title, LLC) is compensated by the borrower. For the years ended December 31, 2007 and 2006, amounts paid by borrowers to Universal Title, LLC and Sage Title Group LLC for those services did not exceed the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years.
Our Board of Directors does not believe that our transactions with Mr. Brown or Mr. Drechsler are material to our operations. Our Board of Directors also believes that the terms of these transactions are no less favorable to the Bank or SFSB, Inc. than those that could be obtained from unaffiliated third parties.
14
PROPOSAL II
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has ratified and confirmed the Audit Committee’s selection of Beard Miller Company LLP as SFSB, Inc.’s Independent Registered Public Accountant for 2008, subject to ratification by the stockholders. Beard Miller Company LLP has served as Slavie Federal Savings Bank’s Independent Registered Public Accountant since 2003 and is considered by the Audit Committee and management to be well qualified. No qualified opinions have been issued during such engagement.
A representative of Beard Miller Company LLP will be present at the Annual Meeting to respond to appropriate questions and to make a statement if he or she desires to do so.
A majority of votes cast at the meeting is required for approval of this proposal. Abstentions and broker non-votes will have no effect on the vote for this proposal.
The Board of Directors recommends that stockholders vote “FOR” the ratification of the appointment of Beard Miller Company LLP as Independent Registered Public Accountant for 2008.
If the stockholders fail to ratify this appointment, the Audit Committee will reconsider whether to retain Beard Miller Company LLP and may retain that firm or another firm without resubmitting the matter to SFSB, Inc.’s stockholders. Even if the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a different Independent Registered Public Accountant at any time during the year if it determines that such change would be in SFSB, Inc.’s best interests and in the best interests of our stockholders.
AUDIT COMMITTEE REPORT
The Audit Committee has (1) reviewed and discussed SFSB, Inc.’s audited financial statements with SFSB, Inc.’s management and representatives of Beard Miller Company LLP, Independent Registered Public Accountant; (2) discussed with Beard Miller Company LLP all matters required to be discussed by SAS No. 61, as modified or supplemented; and (3) has received the written disclosures and the letter from Beard Miller Company LLP required by Independence Standards Board Standard No. 1, as modified or supplemented and has discussed with Beard Miller Company LLP the independence of Beard Miller Company LLP. Based on its review and discussions, the
Audit Committee recommended to the Board of Directors that the audited financial statements for the year ended December 31, 2007 be included in SFSB, Inc.’s Annual Report on Form 10-K for the last fiscal year.
Audit Committee:
|
|
By:
|
Robert M. Stahl,
Chairman
James D. Wise
|
15
Audit and Non-Audit Fees
The following table presents fees for professional audit services rendered by Beard Miller Company LLP for the audit of SFSB, Inc.’s annual consolidated financial statements for the years ended December 31, 2007 and 2006, and fees billed for other services rendered by Beard Miller Company LLP during those periods.
|
|
|
|
|
|
|
|
|
Year Ended
December 31
|
|
|
|
2007
|
|
2006
|
|
Audit Fees(1)
|
|
$
|
53,904
|
|
|
$
|
53,200
|
|
|
Audit Related Fees(2)
|
|
|
400
|
|
|
|
—
|
|
|
Tax Fees(3)
|
|
|
9,946
|
|
|
|
5,800
|
|
|
All Other Fees
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
64,250
|
|
|
$
|
59,000
|
|
|
|
(1)
|
Audit Fees consist of fees billed for professional services rendered for the audit of the SFSB, Inc.’s consolidated annual financial statements and review of the interim consolidated financial statements included in quarterly reports, and services that are normally provided by Beard Miller Company LLP in connection with statutory and regulatory filings or engagements.
|
|
|
(2)
|
Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of SFSB, Inc.’s consolidated financial statements and are not reported under “Audit Fees.”
|
|
|
(3)
|
Tax Fees consist of fees billed for professional services rendered for federal and state tax compliance, tax advice and tax planning.
|
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditor
Before the accountant is engaged by SFSB, Inc. or the Bank to render any audit or non-audit services, the engagement is approved by SFSB, Inc.’s audit committee.
SHAREHOLDER COMMUNICATIONS
If you would like to contact SFSB, Inc.’s Board of Directors, including a committee of the Board of Directors, you may send an email to c.wagnerslavie.com, or write to the following address:
Board of Directors
c/o Corporate Secretary
SFSB, Inc.
1614 Churchville Road
Bel Air, Maryland 21015
The Secretary will compile all communications and submit them to the Board of Directors or the individual Directors on a periodic basis. Communications may be made anonymously and/or confidentially.
SHAREHOLDER PROPOSALS
In order to be included in the proxy materials for SFSB, Inc.’s 2009 Annual Meeting, shareholder proposals submitted to SFSB, Inc. in compliance with SEC Rule 14a-8 (which concerns shareholder proposals that are requested to be included in a company’s proxy statement) must be received in written form at SFSB, Inc.’s corporate offices on or before December 15, 2008. In order to curtail controversy as to compliance with this requirement, shareholders are urged to submit proposals to the Secretary of SFSB, Inc. by Certified Mail — Return Receipt Requested.
In addition to any other applicable requirements, for nominations for election to the Board of Directors outside of the procedures established in the charter of the Nominating Committee of SFSB, Inc. and even if the proposal is not to be included in the proxy statement, pursuant to SFSB, Inc.’s bylaws, the shareholder must give notice in writing to the Secretary of SFSB, Inc. at least 15 days prior to the date of the annual meeting. For the 2008 annual meeting, such notice must be received by the Secretary of SFSB, Inc. by April 30, 2008.
16
Pursuant to SFSB, Inc.’s bylaws, stockholder proposals at the annual meeting (other than nominations), even if the proposal is not to be included in the proxy statement, will only be considered at the annual meeting if the stockholder submits notice of the proposal to the Secretary of SFSB, Inc. at least five days prior to the date of the annual meeting. The notice must contain (a) a brief description of the proposal desired to be brought before the annual meeting, and (b) the business, as well as the name and address of such stockholder and the class and number of shares which are owned of record by such stockholder. For the 2008 annual
meeting, such notice must be received by the Secretary of SFSB, Inc. by May 10, 2008.
ANNUAL REPORT
A copy of SFSB, Inc.'s annual report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission, including financial statements and the schedules thereto, will be furnished by management to any beneficial owner of its securities without charge upon receipt of a written request from such person. Requests in writing should be directed to SFSB, Inc. c/o Corporate Secretary, 1614 Churchville Road, Bel Air, Maryland 21015. Each request must set forth a good faith representation that, as of April 4, 2008, the record date for the Annual Meeting, the person making the request was a beneficial owner of securities
entitled to vote at such meeting.
OTHER BUSINESS
The management of the SFSB, Inc. does not intend to present any other matters for action at the Annual Meeting, and the Board of Directors has not been informed that other persons intend to present any matters for action at the Annual Meeting. However, if any other matter should properly come before the Annual Meeting, the persons named in the accompanying form of proxy intend to vote thereon, pursuant to the proxy, in accordance with their judgment of the best interest of SFSB, Inc.
By order of the Board of Directors
/s/ Philip E. Logan
Philip E. Logan,
President,
Chief Executive Officer and Chairman of the Board
April 14, 2008
17