SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934.
(Amendment No. )
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Filed by a Party other than the Registrant [ ]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
COMMUNITY FIRST BANCORPORATION
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(Name of Registrant as Specified In Its Charter)
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[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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COMMUNITY FIRST BANCORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
The Annual Meeting of the Shareholders of Community First
Bancorporation will be held at the Seneca Office of Community First Bank, 449
Highway 123 Bypass, Seneca, South Carolina, on Tuesday, April 24, 2007, at 1:30
p.m., for the following purposes:
(1) To elect three directors to each serve a three-year term; and
(2) To act upon other such matters as may properly come before the meeting
or any adjournment thereof.
You are only entitled to notice of and to vote at the meeting if you
were a shareholder of record at the close of business on March 1, 2007. In order
that the meeting can be held, and a maximum number of shares can be voted,
whether or not you plan to be present at the meeting in person, please fill in,
date, sign and promptly return the enclosed form of proxy. The Company's Board
of Directors unanimously recommends a vote FOR approval of all of the proposals
presented.
Returning the signed proxy will not prevent a record owner of shares
from voting in person at the meeting.
Our 2007 Proxy Statement and 2006 Annual Report to Shareholders are
enclosed with this notice.
By Order of the Board of Directors
March 31, 2007 Frederick D. Shepherd, Jr.
President
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COMMUNITY FIRST BANCORPORATION
449 Highway 123 ByPass
Seneca, South Carolina 29678
(864) 886-0206
PROXY STATEMENT
We are providing this proxy statement in connection with the
solicitation of proxies by the Board of Directors of Community First
Bancorporation for use at our Annual Meeting of Shareholders to be held at 1:30
p.m. on Tuesday, April 24, 2007 in Community First Bank's Seneca Office, 449
Highway 123 Bypass, Seneca, South Carolina. Throughout this Proxy Statement, we
use terms such as "we", "us", "our" and "our Company" to refer to Community
First Bancorporation, and terms such as "you" and "your" to refer to our
shareholders.
A Notice of Annual Meeting is attached to this Proxy Statement, and a
form of proxy is enclosed. We first began mailing this proxy statement to our
shareholders on or about March 31, 2007. We are paying the costs of this
solicitation. The only method of solicitation we plan to use, other than this
proxy statement, is personal contact, including contact by telephone or other
electronic means, by our directors and regular employees, who will not be
specially compensated for their services.
ANNUAL REPORT
The Annual Report to Shareholders covering our fiscal year ended
December 31, 2006, including financial statements, is enclosed with this proxy
statement. The Annual Report to Shareholders does not form any part of the
material for the solicitation of proxies.
VOTING PROCEDURES
Voting
If you hold your shares of record in your own name, you can vote your
shares by marking the enclosed proxy form, dating it, signing it, and returning
it to us in the enclosed postage-paid envelope. If you are a shareholder of
record, you can also attend the Annual Meeting and vote in person. If you hold
your shares in street name with a broker or other nominee, you can direct your
vote by submitting voting instructions to your broker or nominee in accordance
with the procedure on the voting card provided by your broker or nominee. If you
hold your shares in street name, you may attend the Annual Meeting, but you may
not vote in person without a proxy appointment from a shareholder of record.
Revocation of Proxy
If you are a record shareholder and execute and deliver a proxy, you have
the right to revoke it at any time before it is voted by delivering to Frederick
D. Shepherd, Jr., President, Community First Bancorporation, 449 Highway 123
Bypass, Seneca, South Carolina 29678, or by mailing to Mr. Shepherd at Post
Office Box 459, Seneca, South Carolina 29679, an instrument which by its terms
revokes the proxy. If you are a record shareholder, you may also revoke your
proxy by delivering to us a duly executed proxy bearing a later date. Written
notice of your revocation of a proxy or delivery of a later dated proxy will be
effective when we receive it. Your attendance at the Annual Meeting will not in
itself constitute revocation of a proxy. However, if you are a record
shareholder and desire to do so, you may attend the meeting and vote in person
in which case the proxy will not be used. If you hold your shares in street name
with a broker or other nominee, you may change or revoke your proxy instructions
by submitting new voting instructions to the broker or other nominee.
Quorum and Method of Counting Votes
At the close of business on March 1, 2007, there were outstanding
2,972,418 shares of our common stock (no par value). Each share outstanding will
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be entitled to one vote upon each matter submitted at the meeting. You are only
entitled to notice of and to vote at the meeting if you were a stockholder of
record at the close of business on March 1, 2007 (the "Record Date").
A majority of the shares entitled to be voted at the annual meeting
constitutes a quorum. If a share is represented for any purpose at the annual
meeting by the presence of the registered owner or a person holding a valid
proxy for the registered owner, it is deemed to be present for purposes of
establishing a quorum. Therefore, valid proxies which are marked "Abstain" or
"Withhold" and shares that are not voted, including proxies submitted by brokers
that are the record owners of shares (so-called "broker non-votes"), will be
included in determining the number of votes present or represented at the annual
meeting. If a quorum is not present or represented at the meeting, the
shareholders entitled to vote, present in person or represented by proxy, have
the power to adjourn the meeting from time to time. If the meeting is to be
reconvened within thirty days, we will not give any notice of the reconvened
meeting other than an announcement at the adjourned meeting. If the meeting is
to be adjourned for thirty days or more, we will give notice of the reconvened
meeting as provided in the Bylaws. At any reconvened meeting at which a quorum
is present or represented, any business may be transacted that might have been
transacted at the meeting as originally noticed.
If a quorum is present at the Annual Meeting, directors will be elected
by a plurality of the votes cast by shares present and entitled to vote at the
annual meeting. "Plurality" means that if there are more nominees than positions
to be filled, the individuals who receive the largest number of votes cast for
the positions to be filled will be elected as directors. Cumulative voting is
not permitted. Votes that are withheld or that are not voted in the election of
directors will have no effect on the outcome of election of directors. If a
quorum is present, all other matters that may be considered and acted upon at
the Annual Meeting will be approved if the number of shares of our common stock
voted in favor of the matter exceeds the number of shares of our common stock
voted against the matter.
Actions to be Taken by the Proxies
Our Board of Directors selected the persons named as proxies. When the
form of proxy enclosed is properly executed and returned, the shares that it
represents will be voted at the meeting. Unless you otherwise specify therein,
your proxy will be voted "FOR" the election of the persons named in this Proxy
Statement as the Board of Directors' nominees for election to the Board of
Directors. In each case where you have appropriately specified how the proxy is
to be voted, it will be voted in accordance with your specifications. Our Board
of Directors is not aware of any other matters that may be presented for action
at the Annual Meeting of Shareholders, but if other matters do properly come
before the meeting, the persons named in the proxy intend to vote on such
matters in accordance with their best judgment.
SHAREHOLDER PROPOSALS
If you wish to submit proposals for the consideration of the shareholders
at the 2008 Annual Meeting, you may do so by mailing them in writing to
Frederick D. Shepherd, Jr., President, Community First Bancorporation, Post
Office Box 459, Seneca, South Carolina 29679, or by delivering them in writing
to Mr. Shepherd at our main office, 449 Highway 123 Bypass, Seneca, South
Carolina 29678. You must send or deliver such written proposals in time for us
to receive them prior to December 1, 2007, if you want us to include them, if
otherwise appropriate, in our proxy statement and form of proxy relating to that
meeting. If we do not receive notice of a shareholder proposal prior to February
14, 2008, the persons named as proxies in the proxy materials relating to that
meeting will use their discretion in voting the proxies when the proposal is
raised at the meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The table below shows information as of March 1, 2007 about our common
stock owned by directors and executive officers. Other than as shown in the
table below, no persons are known to us to be beneficial owners of 5% or more of
our common stock. Except as otherwise indicated in the footnotes to the table,
to the knowledge of management, all shares are owned directly with sole voting
power.
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Name and Amount and Nature
Address of 5% owners of Beneficial Ownership(1) % of Class
-------------------- ----------------------- ----------
Larry S. Bowman, M.D. 97,787(2) 3.0%
Seneca, S.C.
William M. Brown 105,607(3) 3.2%
Salem, S.C.
Robert H. Edwards 114,280(4) 3.6%
Walhalla, S.C.
Blake L. Griffith 148,595(5) 4.5%
Walhalla, S.C.
John R. Hamrick 119,268(6) 3.6%
Seneca, S.C.
James E. McCoy 122,988(7) 3.7%
Walhalla, S.C.
Frederick D. Shepherd, Jr. 290,249(8) 8.8%
449 Highway 123 Bypass
Seneca, S.C. 29678
Gary V. Thrift 79,980(9) 3.1%
Seneca, S.C.
James E. Turner 202,217(10) 6.1%
P. O. Box 367
Seneca, S.C. 29679
Charles L. Winchester 149,133(11) 4.5%
Sunset, S.C.
All Directors, nominees
and executive officers
as a group (10 persons) 1,245,636(12) 40.6%
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(1) Includes for each non-employee director 27,436 shares subject to currently
exercisable options.
(2) Includes 37,908 shares jointly owned with Mary M. Bowman, Dr. Bowman's
wife; 15,208 shares owned by Mary M. Bowman; 1,618 shares owned by Dr.
Bowman's daughter; and 10,667 shares held as trustee for Dr. Bowman's
children.
(3) Includes 3,446 shares owned by Annie B. Brown, Mr. Brown's wife.
(4) Includes 227,323 shares jointly owned with Ruth D. Edwards, Mr. Edward's
wife; 6,763 shares owned by Ruth D. Edwards; 10,202 shares owned by Robert
H. Edwards LLC; and 1,576 shares owned by Mr. Edwards' daughter.
(5) Includes 17,707 shares owned by Susan P. Griffith, Mr. Griffith's wife; and
103,293 shares jointly owned with Susan P. Griffith.
(6) Includes 2,318 shares jointly owned with Frances R. Hamrick, Mr. Hamrick's
wife; 5,166 shares owned by Mr. Hamrick's IRA; 987 shares held as trustee
for Mr. Hamrick's daughters; 5,922 shares owned by Mrs. Hamrick's IRA; and
2,510 shares owned by Mr. Hamrick's daughters.
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(7) Includes 95,552 shares jointly owned with Charlotte B. McCoy, Mr. McCoy's
wife. Of the total shares beneficially owned by Mr. McCoy, 67,330 have been
pledged as security.
(8) Includes presently exercisable options to purchase 77,703 shares. Of the
total shares beneficially owned by Mr. Shepherd, 74,443 have been pledged
as security.
(9) Includes 19,229 shares held as guardian for Mr. Thrift's children; and
52,544 shares owned by Catherine Thrift, Mr. Thrift's wife.
(10) Includes 20,554 shares owned by Patricia S. Turner, Mr. Turner's wife.
(11) Includes 42,403 shares jointly owned with Joan O. Winchester, Mr.
Winchester's wife; 3,146 shares owned by Joan O. Winchester; and 1,872
shares held as custodian for Mr. Winchester's grandchildren.
(12) Includes presently exercisable options to purchase 249,509 shares.
ELECTION OF DIRECTORS
At the Annual Meeting, three directors are to be elected to hold office
for the next three years. Pursuant to our bylaws, our Board of Directors acts as
a nominating committee. Our Board has nominated Robert H. Edwards, Blake L.
Griffith and Gary V. Thrift each to serve a three year term with their terms
expiring at the annual meeting of shareholders in 2010. Directors serve until
their successors are elected and qualified to serve. The nominees are currently
serving as our directors. Any other nominations must be made in writing and
delivered to the President of the Company in accordance with the procedures set
forth below under "MANAGEMENT OF THE COMPANY - Committees of the Board of
Directors - Nominating Committee."
The persons named in the enclosed form of proxy intend to vote for the
election of Messrs. Edwards, Griffith and Thrift as directors. Unless you
indicate a contrary specification, your proxy will be voted FOR each such
nominee. In the event that a nominee is not available by reason of any
unforeseen contingency, the persons acting under the proxy intend to vote for
the election, in his stead, of such other person as our Board of Directors may
recommend. Our Board of Directors has no reason to believe that any nominee will
be unable or unwilling to serve if elected.
MANAGEMENT OF THE COMPANY
Directors
The table below shows as to each of our directors and director nominees
his name, positions he holds with us, the period during which he has served as
our director, and his business experience for the past five years. Terms shown
include service as a director of Community First Bank prior to our acquiring it
in 1997. Our directors serve until the annual meeting for the year indicated or
until their successors are elected and qualified.
Positions with Director Business Experience
Name (and age) the Company Since for the Past Five Years
-------------- ----------- ----- -----------------------
Nominees for re-election to our Board of Directors for terms of office
to continue until the Annual Meeting of Shareholders in 2010 are:
Robert H. Edwards (76) Director 1989 President of Edwards Auto Sales.
Walhalla, S.C.
Blake L. Griffith (71) Director 1995* President of Griffith Properties, LLC since
Walhalla, S.C. September 1998; formerly President and Chief
Executive Officer of Next Day Apparel, Inc.
Gary V. Thrift (46) Director 1995** President, Thrift Development Corporation
Seneca, S.C. (general contractor), since February 1996; Vice
President, Thrift Group, Inc. (building
supplies), since July, 2001.
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Members of our Board of Directors whose terms of office will continue
until the Annual Meeting of Shareholders in 2008 are:
James E. McCoy (69) Chairman of our Board 1989 Plant Manager of Timken Company.
Walhalla, S.C. of Directors
James E. Turner (70) Director 1989 Chairman of the Board of Turner's
Seneca, S.C. Jewelers, Inc.
Charles L. Winchester (66) Director 1989 President, Winchester Lumber Company, Inc. of
Sunset, S.C. Salem, South Carolina; Vice President, Boones
Lumber Company.
Members of our Board of Directors whose terms of office will continue
until the Annual Meeting of Shareholders in 2009 are:
Larry S. Bowman, M.D. (58) Vice Chairman of our 1989 Orthopedic surgeon with Blue Ridge Orthopedic
Seneca, S.C. Board of Directors Association, P.A.
William M. Brown (61) Director and 1989 President and Chief Executive Officer of
Salem, S.C. Secretary Lindsay Oil Company, Inc.
John R. Hamrick (59) Director 1989 President of Lake Keowee Real Estate, Inc.;
Seneca, S.C. President of John Hamrick Real Estate.
Frederick D. Shepherd, Jr. (66) Director, President, 1989 President, Chief Executive Officer, Chief
Seneca, S.C. Chief Executive Financial Officer and Treasurer of Community
Officer, Chief First Bank since 1989; President, Chief
Financial Officer Executive Officer, Chief Financial Officer and
and Treasurer Treasurer of the Company since May, 1997.
*Mr. Griffith previously served on the Board of Directors from 1989 to 1993.
**Mr. Thrift previously served on the Board of Directors from 1989 to 1992.
Neither our principal executive officer nor any of our directors are
related by blood, marriage or adoption in the degree of first cousin or closer.
Executive Officer
Frederick D. Shepherd, Jr., our Chief Executive Officer and Chief
Financial Officer, is our only executive officer. Information about Mr. Shepherd
is set forth above under the caption "--Directors."
GOVERNANCE MATTERS
Director Independence
Our Board of Directors has determined that none of Messrs. Bowman,
Brown, Edwards, Griffith, Hamrick, McCoy, Thrift, Turner, or Winchester has a
relationship which, in the opinion of our Board of Directors, would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director, and that each such director is independent as defined in The
Nasdaq Stock Market, Inc. Marketplace Rules, as modified or supplemented (the
"Nasdaq Rules"). As disclosed under "Certain Relationships and Related
Transactions" our independent directors and some of their affiliates from time
to time have loan and deposit relationships with our Bank. These relationships
are not considered by our Board to compromise their independence.
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Meetings of the Board of Directors and Director Attendance at the Annual Meeting
of Shareholders
During the last full fiscal year, ending December 31, 2006, our Board
of Directors met 13 times, including regular and special meetings. Each director
attended at least 75% of the total number of meetings of our Board of Directors
and committees of which he was a member.
We encourage, but do not require, our directors to attend annual
meetings of shareholders. Last year, all of our directors attended the annual
meeting of shareholders.
Committees of our Board of Directors
Nominating Committee
Our Board of Directors does not have a separate nominating committee.
Rather, our entire Board of Directors acts as nominating committee. Based on our
size, the small geographic area in which we do business and the desirability of
directors being a part of the communities we serve and familiar with our
customers, our Board of Directors does not believe we would derive any
significant benefit from a separate nominating committee. Mr. Shepherd is the
only member of our Board of Directors who is not independent as defined in the
Nasdaq Rules. We do not have a Nominating Committee charter.
Audit Committee
We have an Audit Committee established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934. The Audit Committee is
responsible for seeing that audits of our financial statements are conducted
annually. An independent registered public accounting firm is employed for that
purpose by our Board of Directors upon recommendation of the Audit Committee.
Reports on these audits are reviewed by the Committee upon receipt and a report
thereon is made to the Board at its next meeting. Our Audit Committee is
comprised of Messrs. Edwards, Hamrick, Thrift and Winchester, each of whom is
independent as defined in the Nasdaq Rules. The Audit Committee met four times
in 2006. The Audit Committee does not have a written charter.
Compensation Committee
We have a Compensation Committee that makes recommendations to our
Board of Directors concerning director compensation and compensation of Mr.
Shepherd, our Chief Executive and Chief Financial Officer and the Chief
Executive Officer and Chief Financial Officer of our Bank. The final decisions
as to Mr. Shepherd's compensation are made by the full Board of Directors. Mr.
Shepherd negotiates his compensation with the Compensation Committee on a
regular basis, and makes recommendations relating thereto. The Committee may
take these recommendations into consideration in setting his compensation. Mr.
Shepherd does not, however, meet with the full Board of Directors to discuss his
compensation. The Compensation Committee does not delegate its authority to any
other persons. However, the Committee does delegate responsibility for
administering parts of our compensation programs to our Human Resources
Department. The Board has not engaged a compensation consulting firm to assist
it in setting Mr. Shepherd's compensation. The Compensation Committee is
comprised of Messrs. McCoy (chair), Brown, Bowman and Winchester, each of whom
is independent as defined in the Nasdaq Rules. The Compensation Committee met
three times in 2006. The Compensation Committee does not have a written charter.
Director Nomination Process
In recommending director candidates, our Board takes into consideration
such factors as it deems appropriate based on our current needs. These factors
may include diversity, age, skills such as understanding of banking and general
finance, decision-making ability, inter-personal skills, experience with
businesses and other organizations of comparable size, community activities and
relationships, and the interrelationship between the candidate's experience and
business background, and our other Board members' experience and business
background, as well as the candidate's ability to devote the required time and
effort to serve on the Board.
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Our Board will consider for nomination by the Board director candidates
recommended by shareholders if the shareholders comply with the following
requirements. If you wish to recommend a director candidate to our Board for
consideration as a Board of Directors' nominee, you must submit in writing to
our Board the recommended candidate's name, a brief resume setting forth the
recommended candidate's business and educational background and qualifications
for service, and a notarized consent signed by the recommended candidate stating
the recommended candidate's willingness to be nominated and to serve. This
information must be delivered to our Chairman of the Board at our address and we
must receive it no later than January 15 in any year for a person to be
considered as a potential Board of Directors' nominee at the Annual Meeting of
Shareholders for that year. Our Board may request further information if it
determines a potential candidate may be an appropriate nominee. Our Board will
give director candidates recommended by shareholders that comply with these
requirements the same consideration that our Board's candidates receive.
Our Board will not consider director candidates recommended by
shareholders as potential Board of Directors' nominees if we receive the
shareholder recommendations later than January 15 in any year. However,
shareholders may also nominate director candidates as shareholder nominees for
election at the annual meeting, but no person who is not already a director may
be elected at an annual meeting of shareholders unless that person is nominated
in writing not less than 14 days nor more than 50 days prior to the meeting.
Such nominations, other than those made by or on behalf of the existing
management of the Company, must be made in writing and must be delivered or
mailed to the President of the Company, not less than 14 days prior to any
meeting of shareholders called for the election of Directors. Such notification
must contain the following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the total number of shares of
our common stock that will be voted for each proposed nominee; (d) the name and
residence address of the notifying shareholder; and (e) the number of shares of
our common stock owned by the notifying shareholder. The presiding officer of
the meeting may disregard nominations not made in accordance with these
requirements, and upon his instructions, the vote tellers will disregard all
votes cast for each such nominee.
Shareholder Communications with the Board of Directors
If you wish to send communications to our Board of Directors, you
should mail them addressed to the intended recipient by name or position in care
of: Corporate Secretary, Community First Bancorporation, 449 Highway 123 Bypass,
Seneca South Carolina 29678. Upon receipt of any such communications, our
Corporate Secretary will determine the identity of the intended recipient and
whether the communication is an appropriate shareholder communication. Our
Corporate Secretary will send all appropriate shareholder communications to the
intended recipient. An "appropriate shareholder communication" is a
communication from a person claiming to be a shareholder in the communication
the subject of which relates solely to the sender's interest as a shareholder
and not to any other personal or business interest.
In the case of communications addressed to the Board of Directors, our
Corporate Secretary will send appropriate shareholder communications to the
Chairman of the Board. In the case of communications addressed to the
independent or outside directors, our Corporate Secretary will send appropriate
shareholder communications to the Chairman of our Audit Committee. In the case
of communications addressed to committees of the board, our Corporate Secretary
will send appropriate shareholder communications to the Chairman of such
committee if a committee exists, or to the Chairman of the Board if no committee
exists.
MANAGEMENT COMPENSATION
Compensation Discussion and Analysis
Overview of Executive Officer Compensation
Mr. Shepherd is our only executive officer. Our Board of Directors sets
executive officer compensation, based on recommendations of our Compensation
Committee, which negotiates regularly with Mr. Shepherd. We have historically
followed an informal policy of providing Mr. Shepherd with a total compensation
package consisting of salary, bonuses or incentive compensation, insurance and
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other benefits, and stock options. The Committee's objectives in setting Mr.
Shepherd's compensation are:
o to set salary and benefits and award options, at competitive
levels designed to encourage Mr. Shepherd to perform at his
highest level in order to increase earnings and value to
shareholders;
o where appropriate, to award bonuses and/or incentive
compensation, and increase salary to reward Mr. Shepherd for
performance; and
o to retain Mr. Shepherd as our Chief Executive Officer.
Compensation is designed to reward Mr. Shepherd both for his personal
performance and for performance of our Company with respect to growth in assets
and earnings, expansion and increases in shareholder value. The Committee makes
its decisions about allocations between long-term and current compensation,
allocations between cash and non-cash compensation, and allocations among
various forms of compensation, in its discretion based on its subjective
assessment of how these allocations will best meet our overall compensation
goals outlined above.
Components of Executive Compensation
During 2006, executive compensation consisted primarily of two key
components: base salary and short-term incentive compensation. The Board did not
award options to Mr. Shepherd in 2006. We also provide various additional
benefits to Mr. Shepherd, including health, life and disability insurance, an
automobile allowance, and perquisites. For 2006, base salary comprised
approximately 75% of Mr. Shepherd's total compensation, short-term incentive
compensation comprised approximately 4% of Mr. Shepherd's compensation, and
perquisites and other benefits not provided to other employees comprised
approximately 14% of Mr. Shepherd's compensation. The Committee based its
decision to allocate Mr. Shepherd's compensation in this manner on its
subjective assessment of how such allocation would meet our goals of remaining
competitive and of linking compensation to our corporate performance and his
individual performance.
Factors Considered in Setting Compensation
Use of Market Surveys and Peer Group Data
To remain competitive in the executive workforce marketplace, we
believe it is important to consider comparative market information about
compensation paid to executive officers of other financial institutions in our
market area. We want to be able to retain Mr. Shepherd as our executive officer
and, to do so, we must be able to compensate him at a level that is competitive
with compensation offered by other companies in our business and geographic
marketplace that seek similarly skilled and talented executives. Accordingly, we
take into consideration publicly available information about compensation paid
to executive officers at other financial institutions in our market area in
making our decisions about Mr. Shepherd's compensation. However, we do not
attempt to maintain a certain target percentile within a peer group or otherwise
rely on that information to determine Mr. Shepherd's compensation.
We believe the financial institutions we include in our
considerations are an appropriate group to use for compensation comparisons
because they align well with our asset levels, the nature of our business and
workforce, and the talent and skills required for successful operations.
Other Factors Considered
In addition to considering compensation paid to executive officers of
other financial institutions in our market area, we considered Mr. Shepherd's
knowledge, skills, scope of authority and responsibilities, job performance and
tenure with us as an executive officer, and his long history in the banking
industry. Mr. Shepherd has over 40 years of experience as a banker. He was an
original organizer of our Bank and our holding company, and has served as Chief
Executive Officer and Chief Financial Officer of each since their organization.
The Committee believes that Mr. Shepherd has demonstrated that he has been to a
large extent responsible for our growth and success to date, and that it is
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appropriate to compensate him accordingly. The Committee also considered
recommendations from Mr. Shepherd in setting his compensation.
We review our compensation program and levels of compensation paid to
Mr. Shepherd annually and make adjustments based on the foregoing factors as
well as other subjective factors.
Timing of Executive Compensation Decisions
Annual salary reviews and adjustments, bonus and short-term incentive
compensation awards, and option awards are routinely made each year at the first
regularly scheduled Board meeting. The Committee does not time any form of
compensation award, including equity-based awards, to coincide with the release
of material non-public information.
Base Salary and Short-term Incentive Compensation
We believe it is appropriate to set Mr. Shepherd's base salary at a
reasonable level that will provide him with a predictable income base on which
to structure his personal budget. As noted above, in setting salary, the
Committee reviews market data about salaries paid to executives of other
financial institutions. The Committee also takes into consideration the overall
condition of our Company, its level of success in recent years and its goals and
budget for the current year, and Mr. Shepherd's personal performance in
furthering our goals. The Committee then makes a subjective determination of the
amount at which to set Mr. Shepherd's salary. Historically, the salary set for
Mr. Shepherd has been at approximately the midpoint of the market survey data,
as was the case in 2006.
The Committee sets short-tem incentive compensation for Mr. Shepherd
taking into account our overall success as measured by increases in net income
relative to the prior year and increases in market share as evidenced by growth
in total assets. In 2004, the Committee implemented a short-term incentive
compensation plan to be effective for each of 2004, 2005, 2006 and 2007, subject
to amendment at the Committee's discretion. Under this plan, Mr. Shepherd's
annual short-term incentive compensation was divided into two components: a
profit component and a growth component. The profit component provides for an
annual incentive payment to Mr. Shepherd of an amount equal to 10% of any
increase in our net annual profit (earnings) over the prior year. The growth
component is in addition to the profit component, and is based on the growth of
our assets for the calendar year as follows: if we have greater than 7% but less
than 10% growth, Mr. Shepherd would be entitled to short-term incentive
compensation of $10,000; if we have greater than 10% but less than 15% growth,
Mr. Shepherd would be entitled to short-term incentive compensation of $15,000;
if we have greater than 15% growth, Mr. Shepherd would be entitled to short-term
incentive compensation of $20,000. There was no increase in our net annual
profit in 2006, and, accordingly, Mr. Shepherd did not receive short-term
incentive compensation based on the profit component for 2006. The growth in our
assets for 2006 was $33,197,000, which was 10.4 % growth over 2005. Mr. Shepherd
was, therefore, awarded short-term incentive compensation based on the growth
component of $15,000. Our Compensation Committee believes these are appropriate
methods of providing short-term incentive compensation to Mr. Shepherd in that
both components closely align his incentive compensation with our success.
Stock Options
The Committee sets stock option awards at levels believed appropriate
to advancing our goal of retaining Mr. Shepherd, as well as levels believed to
appropriately align Mr. Shepherd's interests with the interests of our
shareholders. Since options are granted with exercise prices set at fair market
value of our common stock on the date of grant, Mr. Shepherd can only benefit
from the options if the price of our stock increases. The Committee does not
award options to Mr. Shepherd every year, and did not do so in 2006.
The Committee did, however, recommend, and the Board approved, grants
to each director, other than Mr. Shepherd, of options to purchase 2,000 shares.
The Committee believes that periodic grants of stock options to directors also
helps align the interests of directors more closely with those of shareholders,
and believes the benefits of grants of moderate numbers of options outweigh the
costs. The Committee also took into account the fact that cash compensation to
our directors is very modest.
9
Other Benefits
We provide Mr. Shepherd with insurance benefits provided to all other
employees and make contributions to our 401(k) plan on his behalf on the same
basis as contributions are made for all other employees. We also provide
split-dollar life insurance for Mr. Shepherd and reimburse him for the taxes on
such insurance. In addition, we pay Mr. Shepherd director's fees for his service
on our Board and the Board of our Bank.
We also pay country club dues for Mr. Shepherd, and provide him with an
automobile for business and personal use. The Committee has determined that
these benefits play an important role in Mr. Shepherd's business development
activities on our behalf.
All of the foregoing other elements of compensation awarded to Mr.
Shepherd were set at levels believed to be competitive with other financial
institutions of similar size in South Carolina.
Some of the more common executive benefits we do not provide to Mr.
Shepherd include employment and change of control arrangements, pension benefits
and nonqualified deferred compensation arrangements.
2007 Executive Compensation
The Compensation Committee has begun preliminary consideration of a
number of possible changes to Mr. Shepherd's compensation arrangements and
benefits for 2007, but has not yet made any definitive decisions about such
possible changes. The Committee may decide to retain the services of a
compensation consultant to assist it in its deliberations. At present, the
compensation arrangements applicable to Mr. Shepherd's 2006 compensation remain
in effect for 2007.
Tax and Accounting Considerations
We expense salary, bonus and incentive compensation and benefit costs
as they are incurred for tax and accounting purposes. Salary, bonus and
incentive compensation, and some benefit payments are taxable to the recipient
as ordinary income. The tax and accounting treatment of the various elements of
compensation is not a major factor in our decision making with respect to
compensation.
Security Ownership Guidelines and Hedging
We do not have any formal security ownership guidelines for Mr.
Shepherd or our directors, but they all own a significant number of shares, and
are among our largest shareholders. We do not have any policies regarding our
executive officer's or directors' hedging the economic risk of ownership of our
shares.
Financial Restatement
The Board of Directors does not have a policy with respect to adjusting
retroactively any cash or equity based incentive compensation paid to our
executive officer where payment was conditioned on achievement of certain
financial results that were subsequently restated or otherwise adjusted in a
manner that would reduce the size of an award or payment, or with respect to
recovery of any amount determined to have been inappropriately received by an
individual executive. If such a restatement were ever to occur, the Board would
expect to address such matters on a case-by-case basis in light of all of the
relevant circumstances.
Compensation Committee Report
The Compensation Committee, has reviewed and discussed the "Compensation
Discussion and Analysis" included in this Proxy Statement with management of our
Company. Based on that review and discussion, the Board recommended that the
"Compensation Discussion and Analysis" be included in our 2006 Annual Report on
Form 10-K and in this Proxy Statement.
Larry S. Bowman, M.D. James E. McCoy (Chair)
William M. Brown Charles L. Winchester
10
Compensation Committee Interlocks and Insider Participation
The members of our Compensation Committee in 2006 were Messrs. McCoy
(chair), Brown, Bowman and Winchester, none of whom is a current or former
officer of our Company.
Summary Compensation Table
The following table provides information about compensation awarded to,
earned by or paid to Frederick D. Shepherd, our Chief Executive Officer and
Chief Financial Officer, for his services during 2006. Mr. Shepherd is our only
executive officer. We did not award any options or other equity compensation to
Mr. Shepherd in 2006. We do not currently provide any defined benefit or
actuarial pension plans or any non-tax qualified deferred compensation plans.
Name Year Salary Non-Equity All Total
and ($) Incentive Plan Other ($)
Principal Compensation Compen-
Position ($) sation
($)(1)
--------- ---- -------- ------------ ------- --------
Frederick D. Shepherd, Jr. 2006 $255,000 $15,000 $68,764 $338,764
President, Chief
Executive Officer and
Chief Financial Officer
(1) Includes our 2006 contributions to the Bank's 401(k) Plan, premiums
for medical insurance, disability insurance and life insurance,
directors' fees, automobile allowance and other benefits in the
amounts shown:
Gross up for
Taxes on
Director's Club Life
401(k) Medical Disability Life Fees Automobile Dues Insurance
------ ------- ---------- ---- ---- ---------- ---- ---------
$7,500 $3,310 $648 $27,143 $9,300 $2,425 $4,626 $13,812
2006 Grants Of Plan-Based Awards
The following table provides information about compensation potentially
payable under Mr. Shepherd's 2006 short-term incentive compensation arrangement.
We did not grant any stock options or other equity-based compensation to Mr.
Shepherd in 2006.
Name Grant Estimated Future Payouts
Date Under Non-Equity Incentive
Plan Awards
Threshold Target Maximum
($) ($) ($)
------- ---------- ------ -------
Frederick D. Shepherd, Jr. 1/15/04 $10,000 $15,000 $20,000
The dollar amounts shown above represent the awards that could have
been paid to Mr. Shepherd under the growth in assets component of his short-term
incentive compensation arrangement if our performance criteria for 2006 were
met. As shown in the "Non-Equity Incentive Plan Compensation" column of the
Summary Compensation Table, the amount actually paid was the $15,000 target
amount. In addition, if we had had an increase in net annual profit in 2006, Mr.
Shepherd would have been entitled to 10% of that increase. We did not have any
increase in net annual profit in 2006, so Mr. Shepherd did not receive any award
under this component of his short-term incentive compensation arrangement.
Further information about Mr. Shepherd's short-term incentive compensation
arrangement is provided above in the section "--Compensation Discussion and
Analysis - Base Salary and Short-Term Incentive Compensation."
11
Outstanding Equity Awards At 2006 Fiscal Year-End
The following table provides information, on an award-by-award basis,
about options to purchase shares of our common stock Mr. Shepherd held at the
end of 2006. We have not granted any other equity based awards to Mr. Shepherd.
All of these options have vested.
Option Awards
Name Number Number Equity Option Option
of of Incentive Exercise Expiration
Securities Securities Plan Price Date
Underlying Underlying Awards: ($)
Unexercised Unexercised Number
Options Options of
(#) (#) Securities
Exercisable Unexercisable Underlying
Unexercised
Unearned
Options
(#)
-------------- ----------- ------------- -------- ----------
Frederick D. Shepherd, Jr. 16,215 -0- -0- $5.63 2/19/08
6,486 5.70 6/18/08
11,351 12.33 2/26/09
2,948 12.21 10/16/10
7,020 12.82 1/1/11
2,808 11.75 12/20/11
9,359 12.34 1/1/12
7,640 13.32 4/10/14
7,277 14.02 4/28/15
6,615 17.23 5/26/15
Death Benefits -- Split-Dollar Life Insurance
We provide Mr. Shepherd with a life insurance policy and have entered
into a Split-Dollar Insurance Agreement with him relating thereto. Mr. Shepherd
is the owner of the policy. Upon his death, the agreement requires payment to
his designated beneficiary of proceeds equal to greater of (a) the cash value of
the policy as of the date to which premiums have been paid, or (b) the aggregate
premiums paid by him pursuant to the agreement. Any remaining amount of proceeds
are required to be paid to us. Any indebtedness on the policy or any
indebtedness secured by the cash value of the policy must first be deducted from
the proceeds payable to Mr. Shepherd's beneficiary. Policy dividends are
required to be applied to purchase additional paid-up life insurance. We are
required to pay a portion of the annual premiums equal to the value of the
economic benefit attributable to the life insurance protection provided to us
under the split-dollar agreement, calculated in accordance with rulings of the
Internal Revenue Service. If Mr. Shepherd had died as of December 29, 2006, his
beneficiary would have been entitled to a lump sum cash payment of $500,000
under the agreement.
The foregoing is merely a summary of the Split-Dollar Life Insurance
Agreement, and is qualified in its entirety by reference to the agreement
itself, which is filed with the Securities and Exchange Commission. This summary
does not create any rights in any person.
12
2006 Option Exercises And Stock Vested
Mr. Shepherd did not exercise any stock options during 2006 and no
stock awards vested in 2006.
Retirement and Nonqualified Deferred Compensation Plans
We do not currently provide any retirement or pension plans (other than
our 401(k) plan) or any defined contribution or other plans that provide for
deferral of compensation on a basis that is not tax-qualified.
1989 Stock Option Plan and 1998 Stock Option Plan
We have adopted two stock option plans, both of which have been
approved by our shareholders. The 1989 Stock Option Plan reserved 431,735 shares
of our common stock for issuance to eligible employees upon exercise of options.
The 1998 Stock Option Plan reserved 617,720 shares of our common stock for
issuance to our eligible employees and directors upon exercise of options. Under
both plans, our Board of Directors or a committee appointed by our Board of
Directors, determines the persons to whom options will be granted and sets the
terms of the options within the parameters of the plans. At December 31, 2006,
under the 1989 Plan, options to purchase 43,932 shares of our common stock were
outstanding, all of which were exercisable. These options have an average
exercise price of $5.28 per share. The 1989 Plan had a ten year term and has,
therefore, terminated. Although options may still be exercised under the 1989
Plan, no further options may be granted under the 1989 Plan. At December 31,
2006, under the 1998 Plan, options to purchase 428,988 shares of our common
stock were outstanding, all of which were exercisable, and 159,831 shares
remained available for grant. These options have an average exercise price of
$12.74 per share.
The numbers of shares and average prices in this section have been
retroactively adjusted to reflect stock dividends and splits effective through
December 31, 2006.
COMPENSATION OF DIRECTORS
We pay our directors fees of $700 for each meeting of the Board of
Directors attended. All of our directors are also directors of our Bank, and the
Bank pays its directors $600 for each monthly meeting of the Bank's board of
directors attended. We do not pay, and the Bank does not pay, retainer fees or
committee fees. All non-employee directors also receive an annual grant under
the 1998 Stock Option Plan of options to purchase 2,000 shares of the Company's
common stock at an exercise price equal to the market value at the date of
grant.
The table below provides information about compensation we paid to each
of our directors for their service to the Company and the Bank in 2006.
Information about director's fees we paid to Mr. Shepherd is provided in the
Summary Compensation Table.
2006 Director Compensation
Name Fees Option Total
Earned Awards ($)
or ($)(1)
Paid in
Cash
($)
--------------------- ------ ------- -------
Larry S. Bowman, M.D. $9,300 $20,790 $30,090
William M. Brown $9,300 20,790 30,090
Robert H. Edwards $9,300 20,790 30,090
Blake L. Griffith $9,300 20,790 30,090
John R. Hamrick $9,300 20,790 30,090
James E. McCoy $9,300 20,790 30,090
Gary V. Thrift $9,300 20,790 30,090
James E. Turner $9,300 20,790 30,090
Charles L. Winchester $9,300 20,790 30,090
13
(1) The assumptions made in valuation of option awards are set forth in Note A
to our audited financial statements for the year ended December 31, 2006, which
are included in our Form 10-K for the year ended December 31, 2006 and in our
2006 Annual Report to Shareholders. The amounts shown in these columns are the
dollar amounts we recognized in connection with the option grants for financial
statement reporting purposes with respect to the fiscal year in accordance with
FAS 123(R), and do not represent dollar amounts payable to the directors. The
grant date fair value of these option awards calculated in accordance with FAS
123(R) was $9.90 per share. As of December 31, 2006, each director held
currently exercisable options to purchase 27,436 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Bank, in the ordinary course of its business, makes loans to,
accepts deposits from, and provides other banking services to our directors,
officers, principal shareholders, and their associates. Loans are made on
substantially the same terms, including rates and collateral, as those
prevailing at the time for comparable transactions with other persons and do not
involve more than the normal risk of collectibility or present other unfavorable
features. Rates paid on deposits and fees charged for other banking services,
and other terms of these transactions, are also the same as those prevailing at
the time for comparable transactions with other persons. Our Bank expects to
continue to enter into transactions in the ordinary course of business on
similar terms with our directors, officers, principal stockholders, and their
associates. The aggregate dollar amount of loans outstanding to such persons at
December 31, 2006 was $6,238,430. During 2006, $1,119,779 of new loans were made
and repayments totaled $2,720,782. None of such loans have been on non-accrual
status, 90 days or more past due, or restructured at any time.
We generally do not enter into other non-banking types of business
transactions or arrangements for services with our directors, officers,
principal shareholders or their associates.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, our
directors, executive officers and certain individuals are required to report
periodically their ownership of our common stock and any changes in ownership to
the Securities and Exchange Commission. Based on a review of Section 16(a)
reports available to us and written representations of the persons subject to
Section 16(a), it appears that all such filings were made on a timely basis,
except the Company has failed to file on behalf of each director two Forms 4
with respect to grants of stock options; and the Company has failed to file on
behalf of Mr. Winchester one Form 4 with respect to one other transaction.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Board has again selected J. W. Hunt and Company, LLP, Certified
Public Accountants with offices in Columbia, South Carolina, to serve as our
independent registered public accounting firm for 2007. We expect that
representatives from this firm will be present and available to answer
appropriate questions at the annual meeting, and will have the opportunity to
make a statement if they desire to do so.
Fees Paid to Independent Auditors
Set forth below is information about fees billed by our independent
auditors for audit services rendered in connection with our consolidated
financial statements and reports for the years ended December 31, 2006 and 2005,
and for other services rendered during such years, on our behalf and on behalf
of our Bank, as well as all out-of-pocket expenses incurred in connection with
these services, which have been billed to us.
Audit Fees
Audit fees include fees billed for professional services rendered for
the audit of our consolidated financial statements and review of our interim
condensed consolidated financial statements included in our quarterly reports,
and services that are normally provided by our independent auditors in
connection with statutory and regulatory filings or engagements, and attest
services, except those not required by statute or regulation. For the years
ended December 31, 2006 and 2005, respectively, J. W. Hunt and Company, LLP
billed us an aggregate of $48,750 and $43,050 for audit fees.
14
Audit-Related Fees
Audit-related fees include fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of our consolidated financial statements and are not reported under "Audit
Fees". These services would include employee benefit plan audits, attest
services that are not required by statute or regulation, and consultations
concerning financial accounting and reporting standards. For the years ended
December 31, 2006 and 2005, respectively, J. W. Hunt and Company, LLP did not
bill us for any audit-related fees.
Tax Fees
Tax fees include fees for tax compliance/preparation and other tax
services. Tax compliance/preparation fees include fees billed for professional
services related to federal and state tax compliance. Fees for other tax
services include fees billed for other miscellaneous tax consulting and
planning. For the years ended December 31, 2006 and 2005, respectively, J. W.
Hunt and Company, LLP, billed us an aggregate of $6,750 and $7,250 for tax fees.
All Other Fees
All other fees would include fees for all services other than those
reported above. For the years ended December 31, 2006 and 2005, J. W. Hunt and
Company, LLP, did not bill us for any other fees.
In making its decision to recommend appointment of J. W. Hunt and
Company, LLP as our independent auditors for the fiscal year ending December 31,
2007, our Audit Committee considered whether services other than audit and
audit-related services provided by that firm are compatible with maintaining the
independence of J. W. Hunt and Company, LLP.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors
Our Audit Committee pre-approves all audit and permitted non-audit
services (including the fees and terms thereof) provided by our independent
auditors, subject to limited exceptions for non-audit services described in
Section 10A of the Securities Exchange Act of 1934, which are approved by the
Audit Committee prior to completion of the audit. The Committee may delegate to
one or more designated members of the Committee the authority to pre-approve
audit and permissible non-audit services, provided such pre-approval decision is
presented to the full Committee at its next scheduled meeting.
General pre-approval of certain audit, audit-related and tax services
is granted by our Audit Committee. The Committee subsequently reviews fees paid.
Specific pre-approval is required for all other services. During 2006, all audit
and permitted non-audit services were pre-approved by the Committee.
AUDIT COMMITTEE REPORT
The Audit Committee of our Board of Directors has reviewed and
discussed with our management our audited financial statements for the year
ended December 31, 2006. Our Audit Committee has discussed with our independent
auditors, J. W. Hunt and Company, LLP, the matters required to be discussed by
Statement on Accounting Standards No. 61, as amended (AICPA, Professional
Standards, Vol. 1 AU section 380), as adopted by the Public Company Accounting
Oversight Board in Rule 3200T. Our Audit Committee has also received the written
disclosures and the letter from J. W. Hunt and Company, LLP, required by
Independence Standards Board Standard No. 1, (Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees), as adopted by
the Public Company Accounting Oversight Board in Rule 3600T, and has discussed
with J. W. Hunt and Company, LLP, their independence. Based on the review and
discussions referred to above, our Audit Committee recommended to our Board of
Directors that the audited financial statements be included in our Annual Report
on Form 10-K for the year ended December 31, 2006 for filing with the Securities
and Exchange Commission.
Robert H. Edwards Gary V. Thrift
John R. Hamrick Charles L. Winchester
15
OTHER MATTERS
Our Board of Directors knows of no other business to be presented at
the meeting of shareholders. If matters other than those described herein should
properly come before the meeting, the persons named in the enclosed form of
proxy intend to vote at such meeting in accordance with their best judgment on
such matters.
INCORPORATION BY REFERENCE
Neither the Compensation Committee Report nor the Audit Committee
Report shall be deemed to be filed with the Securities and Exchange Commission,
nor deemed incorporated by reference into any of our prior or future filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, except to the extent we specifically incorporate such
information by reference.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
You may obtain copies of our Annual Report on Form 10-K required to be
filed with the Securities and Exchange Commission for the year ended December
31, 2006, free of charge by requesting such form in writing from Frederick D.
Shepherd, Jr., President, Community First Bancorporation, Post Office Box 459,
Seneca, South Carolina 29679. You may also download copies from the Securities
and Exchange Commission website at http://www.sec.gov.
16
PROXY
COMMUNITY FIRST BANCORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS - TUESDAY, APRIL 24, 2007
Frederick D. Shepherd or Benjamin L. Hiott, or either of them, with
full power of substitution, are hereby appointed as agent(s) of the undersigned
to vote as proxies for the undersigned at the Annual Meeting of Shareholders to
be held on April 24, 2007, and at any adjournment thereof, as follows:
1. ELECTION OF [ ] FOR all nominees listed [ ] WITHHOLD
DIRECTORS TO below (except any I have AUTHORITY
HOLD OFFICE written below) to vote for all nominees
FOR THREE below
YEAR TERMS
Blake L. Griffith, Robert H. Edwards and Gary V. Thrift
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL(S) WRITE THE
NOMINEE'S(S') NAME(S) ON THE LINE BELOW.
--------------------------------------------------------------------------------
2. And, in the discretion of said agents, upon such other business as may
properly come before the meeting, and matters incidental to the conduct of
the meeting. (Management at present knows of no other business to be
brought before the meeting.)
THE PROXIES WILL BE VOTED AS INSTRUCTED. IF NO CHOICE IS INDICATED WITH RESPECT
TO A MATTER WHERE A CHOICE IS PROVIDED, THIS PROXY WILL BE VOTED "FOR" SUCH
MATTER.
Please sign exactly as name appears below. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title. If more than one
trustee, all should sign. All joint owners must sign.
Dated: ------------------- ---------------------------------------
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