By casting your vote in any of the ways listed above, you are authorizing the individuals listed on the proxy to vote your shares in accordance with your instructions.
If you have additional questions about this Proxy Statement or the annual meeting or would like additional copies of this document or our
20122014 Annual Report on Form 10-K, please contact: Rodger A. McHargue, Secretary, First Financial Corporation, One First Financial Plaza, P.O. Box 540, Terre Haute, Indiana 47808, (812) 238-6000.
PROPOSAL 1: ELECTION OF DIRECTORS
The board of directors as of the
20132015 annual meeting of shareholders will consist of ten members, divided into three classes of approximately equal size that are elected for staggered three-year
terms.Theterms. The board believes this structure helps to maintain continuity and stability and ensures we have directors serving on the board who have substantial knowledge of the Corporation, all of which the board believes facilitates long-term value for our shareholders.
Three directors are to be elected.
W. Curtis Brighton,Thomas T. Dinkel, Norman L. Lowery, and William
R. Krieble, and Ronald K. RichhaveJ. Voges have each been nominated for a term of three years and until their respective successors have been elected and qualified. They are all members of the present board of directors. If, at the time of this annual meeting, any nominee is unable or declines to serve, the discretionary authority provided in the proxy may be exercised to vote for a substitute or substitutes.
Each of the nominees has consented to being named as a nominee in this proxy statement, and is expected to serve if elected. The board of directors has no reason to believe that any substitute nominee or nominees will be required.
Name, Age, Principal Occupation(s) and
Business Experience
Nominated for a term expiring in 2016:
|
W. Curtis Brighton,Age 59
|
Mr. Brighton joined the Board in 2004 and is a current member of the Corporation’s Enterprise Risk Management, Loan Review, and Loan Policy and Procedures Committees as well as the Bank’s Loan Committee. Mr. Brighton is the president of Templeton Coal Company, Inc. Prior to this, Mr. Brighton held the positions of president and general counsel for Hulman and Company. Mr. Brighton has been the general manager of Lynch Coal Operators Reciprocal Association since 1985 and was a private practice attorney for 12 years. He serves on the boards of Templeton Coal Company, Inc., Deep Vein Coal Company, Inc., Princeton Mining Company, Inc., R.J. Oil Company, Inc., Union Hospital, Inc. and Lynch Coal Operators Reciprocal Association. Mr. Brighton earned a B.S. degree in Business Administration from Indiana State University and a Doctor of Jurisprudence degree from Drake University.
|
William R. Krieble,Age 65
|
Mr.Krieble joined the Board in 2009 and serves on the Bank’s Loan and Community Reinvestment Act Committees. Mr. Krieble also serves on the Corporation’s Enterprise Risk Management and Affirmative Action Committees. Mr. Krieble retired after 41 years of service to the State of Indiana where he most recently served as the program director for the Division of Disability and Rehabilitative Services of the State of Indiana. He received his B.S. and M.S. degrees from Indiana State University.
|
Ronald K. Rich,Age 74
|
Mr. Rich joined the Board in 2005 and serves as the Chairman of the Governance and Nominating Committee. He is a member of the Corporation’s Compensation and Employee Benefits, Enterprise Risk Management and Audit Committees. Mr. Rich also is a member of the Bank’s Loan Committee. Mr. Rich also serves as the Lead Independent Director. Mr. Rich has been a financial representative for Northwestern Mutual Financial Network since 1963. He holds CLU and CHFC designations from American College. |
Directors whose terms expire in 2015:
|
Thomas T. Dinkel, Age 62
|
Mr. Dinkel joined the Board in 1989 and serves on the Corporation’s Audit and Loan Review Committees. He also serves on the Bank’s Community Reinvestment Act, Investment Services and Loan Committees. Mr. Dinkel has been the president and chief executive officer of Sycamore Engineering, Inc, Dinkel Associates, Sycamore Building Corporation and Dinkel Telekom since 1986 and has held various positions at Sycamore Engineering since 1966. Mr. Dinkel serves on the board of Rose Hulman Institute of Technology and is chairman of the business administration and compensation committees. Additionally, he serves on the facilities, investment management, president evaluation, executive and student affairs committees of the board of Rose Hulman. He earned his B.S. degree from Rose Hulman Institute of Technology.
|
Norman L. Lowery, Age 66
|
Mr. Lowery joined the Board in 1989. He serves on the Corporation’s Acquisition, Affirmative Action, Disaster Recovery, Disclosure, Executive, Enterprise Risk Management, Loan Policy and Procedures, Loan Review and Strategic Planning Committees. Mr. Lowery also serves on the Bank’s Asset Liability and Community Reinvestment Act Committees. Mr. Lowery is the Vice Chairman and Chief Executive Officer of First Financial Corporation, serving since 1996 and 2004 respectively. He is also the President and Chief Executive Officer of First Financial Bank, serving since 1996. Prior to joining First Financial Corporation, Mr. Lowery was a partner in the law firm of Wright, Shagley and Lowery where he practiced for 19 years. Mr. Lowery is a member of the boards of Lynch Coal Operators Reciprocal Association, Indiana State University, the Regional Board of Ivy Tech Community College, the Terre Haute Economic Development Corp. and the Terre Haute Chamber of Commerce. He received a B.S. degree in Political Science from Indiana State University and a Doctor of Jurisprudence degree from Indiana University.
|
William J. Voges, Age 58
|
Mr. Voges joined the Board in 2008 and serves on the Corporation’s Compensation and Employee Benefits, Governance and Nominating Committees as well as the Bank’s Loan Committee. Mr. Voges has served as chief executive officer and chairman of the Root Company since 1996 and as general counsel since 1990. Prior to joining the Root Company, he was a partner in the Fink, Loucks, Sweet, and Voges law firm for 9 years. Mr. Voges also served on the board for Consolidated-Tomoka Land Company (a public company listed on the NYSE-AMEX under the symbol CTO) from 2001 to 2012, where he has served as Chairman from 2009 to 2011, and on the audit, executive and corporate governance committees. He also has prior experience on the boards of several financial institutions. Mr. Voges received his B.S. in Business Administration from Stetson University and his Doctor of Jurisprudence degree from Stetson College of Law.
|
Directors whose terms expire in 2014:
|
B. Guille Cox, Jr., Age 67
|
Mr. Cox has served on the Board of First Financial Corporation since 1987 and is the Chairman of the Bank’s Trust Committee. He also serves on the Bank’s Investment and Loan Committees as well as the Corporation’s Governance and Nominating Committees. Mr. Cox has been a Senior Partner in the Law Firm Cox, Zwerner, Gambill & Sullivan since 1980. He also serves on the boards of Hendrich Title Company and Katzenbach Inc. As a Rose Hulman Institute of Technology board member, Mr. Cox serves on the executive and investment committees. Mr. Cox received a B.S. degree in Physics from MIT and a Doctor of Jurisprudence degree from Harvard Law School.
|
Anton H. George, Age 53
|
Mr. George joined the Board in 1987 and is Chairman of the Corporation’s Audit and Compensation and Employee Benefits Committees. He also serves on the Bank’s Loan Committee. Mr. George is the president of Vision Investments, LLC and Vision Enterprises Global, LLC. Mr. George is the past president and chief executive officer of the Indianapolis Motor Speedway and Hulman and Company. He also is a current director of Vectren Corporation. Mr. George earned a B.S. degree in Business Administration from Indiana State University.
|
Gregory L. Gibson, Age 50
|
Mr. Gibson joined the Board in 1994 and serves on the Corporation’s Loan Review Committee as well as the Bank’s Loan Committee. Mr. Gibson is the president of ReTec, Inc. and serves on the boards of Rose Hulman Institute of Technology and Saint Mary-of-the-Woods College. Mr. Gibson has also served on the Indiana Judicial Commission and is currently serving on the Indiana Port Commission as well as the board of directors for the Methodist Health Foundation in Indianapolis. He holds a B.S. degree from Rose Hulman Institute of Technology.
|
Virginia L. Smith, Age 65
|
Ms. Smith joined the Board in 1987 and serves on the Corporation’s Loan Review, Loan Policy and Procedures, Affirmative Action, and Executive Committees as well as the Bank’s Loan Committee. Ms. Smith has been the president of Princeton Mining Company, Inc. since 1990. She also serves on the boards of Deep Vein Coal Company Inc., Princeton Mining Company Inc., R.J. Oil Company Inc. and the Sheldon Swope Art Museum. Ms. Smith received a B.S. degree in Education from Indiana State University and a B.S. in Business Administration from Saint Mary-of-the-Woods College.
|
Nominated for a term expiring in 2018:
Thomas T. Dinkel, Age 64
Mr. Dinkel joined the Board in 1989 and is the Chairman of the Corporation’s Audit Committee and serves on the Loan Review Committee. He also serves on the Bank’s Community Reinvestment Act, Investment Services, Operations and Loan Committees. Mr. Dinkel has been the president and chief executive officer of Sycamore Engineering, Inc., Dinkel Associates, Sycamore Building Corporation and Dinkel Telekom since 1986 and has held various positions at Sycamore Engineering since 1966. Mr. Dinkel serves on the board of trustees of Rose Hulman Institute of Technology, and is chairman of its business administration, facilities and compensation committees. Additionally, he serves on the investment management (endowment), president evaluation, executive board of affairs and student affairs committees of the board of Rose Hulman. He earned his B.S. degree from Rose Hulman Institute of Technology.
Norman L. Lowery, Age 68
Mr. Lowery joined the Board in 1989 and has served as its Vice Chairman since 1996. He serves on the Corporation’s Acquisition, Affirmative Action, Disaster Recovery, Disclosure, Executive, Enterprise Risk Management, Loan Policy and Procedures, Loan Review and Strategic Planning Committees. Mr. Lowery also serves on the Bank’s Asset Liability, Community Reinvestment Act and Loan Committees. Mr. Lowery is the Chief Executive Officer and President of the Corporation, serving in those positions since 2004, and 2013 respectively, and the Vice Chairman, President and Chief Executive Officer of the Bank, serving since 1996. Prior to joining the Corporation, Mr. Lowery was a partner in the law firm of Wright, Shagley and Lowery where he practiced for 19 years. Mr. Lowery serves on the boards of Lynch Coal Operators Reciprocal Corporation, Indiana State University, the Terre Haute Economic Development Corp. and the Terre Haute Chamber of Commerce. He is the brother-in-law of Virginia L. Smith, a current director, and father of Norman D. Lowery, the Chief Operating Officer of the Corporation and the Bank. He received a B.S. degree in Political Science from Indiana State University and a Doctor of Jurisprudence degree from Indiana University.
William J. Voges, Age 60
Mr. Voges joined the Board in 2008 and is the Chairman of the Corporation’s Compensation and Employee Benefits Committee, and serves on the Governance and Nominating Committee as well as the Bank’s Loan Committee. Mr. Voges has served as chief executive officer and chairman of the Root Company, a private investment company, since 1996 and as general counsel since 1990. Prior to joining the Root Company, he was a partner in the law firm of Fink, Loucks, Sweet & Voges for nine years. Mr. Voges also served on the board for Consolidated-Tomoka Land Company, a publicly traded diversified real-estate operating company (NYSE MKT: CTO), from 2001 to 2012, where he served as Chairman from 2009 to 2011 and on the audit, executive and corporate governance committees. He also has prior experience on the boards of several financial institutions. Mr. Voges received his B.S. in Business Administration from Stetson University and his Doctor of Jurisprudence degree from Stetson College of Law.
Directors whose term expires in 2017
B. Guille Cox, Jr., Age 69
Mr. Cox has served on the Board since 1987 and serves as the Chairman of the Boards of Directors of the Corporation and the Bank. He also is the Chairman of the Bank’s Trust Committee and serves on the Bank’s Investment and Loan Committees as well as the Corporation’s Governance and Nominating Committee. Mr. Cox has been a senior partner in the law firm of Cox, Zwerner, Gambill & Sullivan LLP since 1980. He also serves on the boards of Hendrich Title Company and Katzenbach Inc. As a Rose Hulman Institute of Technology board member, Mr. Cox serves on the executive and investment committees. Mr. Cox received a B.S. degree in Physics from MIT and a Doctor of Jurisprudence degree from Harvard Law School.
Anton H. George, Age 55
Mr. George joined the Board in 1987 and serves on the Corporation’s Audit, Compensation and Employee Benefits, and Executive Committees. He also serves on the Bank’s Loan Committee. Mr. George is the president of Vision Investments, LLC, an import sales and distribution company. Mr. George is the past president and chief executive officer of the Indianapolis Motor Speedway and its parent Hulman & Company. He also serves on the board of directors at Vectren Corporation, a publicly traded energy holding company (NYSE:VVC), and is a member of its Nominating and Corporate Governance and Compensation and Benefits Committees. He also serves on the boards of Princeton Mining Company, Deep Vein Coal Company and R.J. Oil Company, Inc. Mr. George earned a B.S. degree in Business Administration from Indiana State University.
Gregory L. Gibson, Age 52
Mr. Gibson joined the Board in 1994 and serves on the Corporation’s Loan Review Committee and the Governance and Nominating Committee as well as the Bank’s Loan Committee. Mr. Gibson is the president of ReTec Corporation, a waste management consulting business, and is involved in other business ventures. Mr Gibson serves on the board of trustees of Rose Hulman Institute of Technology and on the board of trustees of Saint Mary-of-the-Woods College. Mr. Gibson has also served on the Indiana Judicial Commission and is currently serving as vice chairman of the Indiana Port Commission as well as the board of directors for the Methodist Health Foundation in Indianapolis. He holds a B.S. degree from Rose Hulman Institute of Technology.
Virginia L. Smith, Age 67
Ms. Smith joined the Board in 1987 and serves on the Corporation’s Loan Review, Loan Policy and Procedures, Affirmative Action, and Executive Committees as well as the Bank’s Loan Committee. Ms. Smith has been the president of Princeton Mining Company, Inc., one of our largest shareholders, since 1990 and also serves on its board of directors. She also serves on the boards of Deep Vein Coal Company, Inc., R.J. Oil Company, Inc., Lynch Coal Operators Reciprocal Corporation and the Swope Art Museum. She is a sister-in-law of Mr. Lowery. Ms. Smith received a B.S. degree in Education from Indiana State University and a B.S. in Business Administration from Saint Mary-of-the-Woods College.
Directors whose term expires in 2016:
W. Curtis Brighton,Age 61
Mr. Brighton joined the Board in 2004 and is a current member of the Corporation’s Audit, Enterprise Risk Management, Loan Review, and Loan Policy and Procedures Committees as well as the Bank’s Loan Committee. Mr. Brighton is the president of Templeton Coal Company, Inc. Prior to this, Mr. Brighton held the positions of president and general
counsel for Hulman & Company. Mr. Brighton has been the general manager of Lynch Coal Operators Reciprocal Corporation since 1985 and was a private practice attorney for 12 years. He serves on the boards of Templeton Coal Company, Inc., Union Hospital, Inc. and Lynch Coal Operators Reciprocal Corporation. Mr. Brighton earned a B.S. degree in Business Administration from Indiana State University and a Doctor of Jurisprudence degree from Drake University.
William R. Krieble,Age 67
Mr. Krieble joined the Board in 2009 and serves on the Bank’s Loan and Community Reinvestment Act Committees. Mr. Krieble also serves on the Corporation’s Compensation and Employee Benefits, Enterprise Risk Management and Affirmative Action Committees. Mr. Krieble retired after 41 years of service to the State of Indiana where he most recently served as the program director for the Division of Disability and Rehabilitative Services of the State of Indiana. He received his B.S. and M.S. degrees from Indiana State University.
Ronald K. Rich,Age 76
Mr. Rich joined the Board in 2005 and serves as the Chairman of the Governance and Nominating Committee. He is a member of the Corporation’s Compensation and Employee Benefits and Enterprise Risk Management Committees. Mr. Rich also is a member of the Bank’s Loan Committee. Mr. Rich also serves as the Lead Independent Director. Mr. Rich has been a financial representative for Northwestern Mutual Financial Network since 1963. He holds CLU and CHFC designations from The American College.
Recommendation of the Board of Directors
Our board of directors unanimously recommends that you vote “FOR” W. Curtis Brighton, William R. Krieble, and Ronald K. Rich, the persons nominated by the Governance and Nominating Committee to be elected as directors.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THOMAS T. DINKEL, NORMAN L. LOWERY AND WILLIAM J. VOGES, THE PERSONS NOMINATED BY THE GOVERNANCE AND NOMINATING COMMITTEE TO BE ELECTED AS DIRECTORS.
The Governance and Nominating Committee believes that
well functioningwell-functioning boards consist of a diverse collection of individuals that bring a variety of complementary skills. Although the board of directors does not have a formal policy with regard to the consideration of diversity in identifying directors, diversity is one of the factors that the Governance and Nominating Committee may, pursuant to its
committee charter, take into account in identifying director candidates. The Governance and Nominating Committee generally considers each director eligible for nomination in the broad context of the overall composition of our board of directors with a view toward constituting a board that, as a body, possesses the demonstrated senior leadership and management experience to oversee our business. The Committee has historically sought directors that bring broad and varied skills and knowledge from retail and wholesale businesses, legal, financial and government.
The experience, qualifications, attributes, or skills that led the Governance and Nominating Committee to conclude that each of the members of the board of directors nominated by the Governance and Nominating Committee should serve on the board are generally described below:
Mr. Brighton’s history as a private practice attorney provides the Board with an enhanced legal and regulatory perspective.
B. Guille Cox, Jr.
Having served on
Mr. Cox’s long-standing tenure provides the Board
of the Corporation since 1987, Mr. Cox provideswith a historical perspective of both the Corporation and the
industry for our Board.industry. His legal practice provides the Board with
counselinsight on legal issues as well as issues in our markets.
As a business owner and an entrepreneur, Mr. Dinkel provides an understanding of small business which makes up much of our lending base. His vast experience as a contractor also provides us with key
insight ininsights concerning our
expansion efforts.facilities and facility maintenance.
Mr. George’s experience on various boards of directors provides valuable advice on governance issues. As an established Midwest entrepreneur, Mr. George has significant knowledge of the markets in which we operate.
As a businessman and entrepreneur
Mr. Gibson hasinvolved in a variety of business
interests. Thisventures, Mr. Gibson provides the Board with invaluable
knowledgeinsight into
these segments ofindustries and markets in which we and our clients
and the markets.do business. As a developer, Mr. Gibson provides counsel
foron market expansion. His service on
Boardsvarious commissions and boards also provides valuable political and governance perspectives.
Mr. Krieble’s long service to the State of Indiana provides the Board with valuable political and governmental perspectives.
As
President and Chief Executive Officer, Mr. Lowery is intimately familiar with
First Financial Corporation, itsour business, our customers and
itsour employees, and
he provides the Board with valuable leadership, particularly through his keen insight into the industry and the markets we serve. His legal background also provides a critical element with respect to governance and regulatory issues affecting the Corporation and the Bank. Mr. Lowery also provides valuable counsel to the Board with respect to our strategic initiatives.
Mr. Rich’s long service in the financial and insurance industries brings specific knowledge of matters affecting the Corporation’s insurance subsidiary and its insurance matters. Mr. Rich also possesses valuable insight regarding our markets and our various client bases.
Ms.
Smith’s service as president of a local retail companySmith provides the Board with valuable insight regarding our market area. Also, as a female business leader, she provides important perspectives on women-owned businesses.
Mr. Voges’ past service on the boards of financial institutions provides additional perspectives of the issues facing our Board. His legal background, coupled with his past experience, provides tremendous value on legal, governance and regulatory matters. Mr. Voges also complements the Board with his keen strategic insight.
ADDITIONAL
information about the Board of directorsINFORMATION ABOUT THE BOARD OF DIRECTORS
During the year ended December 31,
2012,2014, the Board of Directors of the Corporation met
1918 times. Each director attended more than 75% of the aggregate of (i) all meetings of the Board held while he or she was a director and (ii) all meetings of committees on which he or she served during the period that he or she served on the committee. Although the Corporation has no formal policy on director attendance at annual meetings of shareholders, they are encouraged to attend such meetings. All directors attended the
20122014 Annual Meeting of Shareholders.
The Board of Directors has established a number of committees which facilitate the administration and oversight of the Corporation. Among these committees are the Governance and Nominating, Audit, and Compensation and Employee Benefits Committees.
Governance and Nominating Committee. Members consist of B. Guille Cox, Jr., Gregory L. Gibson, Ronald K. Rich (Chairman) and William J. Voges. The Board of Directors has determined that Messrs. Cox, Gibson, Rich and Voges are independent under the rules of the NASDAQ Global Select Market. The Governance and Nominating Committee met threetwo times during 2012.2014.
The primary objectives of the Governance and Nominating Committee are to assist the Board of Directors byin developing and recommending corporate governance policies and guidelines for the Corporation and by identifying, evaluating and nominating persons for election to the Board of Directors and appointment to the committees of the Board. A copy of the Governance and Nominating Committee Charter is available on the Corporation’s web site atwww.first-online.com on the “Investor Relations” page under the link “Governance Documents.” The Governance and Nominating Committee identifies director nominees through a combination of referrals, including referrals from management, existing Board members and shareholders. Other than the director qualifications and independence standards established in our Corporate Governance Guidelines, the Governance and Nominating Committee currently does not maintain any formal criteria for selecting directors and
maywill take into consideration
sucha variety of factors and criteria
as it deems
appropriate.appropriate, with a view toward constituting a board that possesses the demonstrated senior leadership and management experience to oversee our business. However, in reviewing qualifications for prospective nominees to the Board, the Governance and Nominating Committee generally will take into consideration, among other matters, a candidate’s experiences, skills, expertise, diversity, personal and professional integrity, character, business judgment, time available to serve, dedication, conflicts of interest and ability to oversee the Corporation’s business and affairs. The Governance and Nominating Committee does not evaluate nominees proposed by shareholders any differently than other nominees to the Board.
Audit Committee. Members consist of Thomas T. Dinkel (Chairman), Anton H. George (Chairman), Thomas T. Dinkel and Ronald K. Rich.W. Curtis Brighton. The Board of Directors has determined that Messrs. George, Dinkel and RichBrighton are independent under SEC Rule 10A-3 and the rules of the NASDAQ Global Select Market. The Audit Committee met 4four times during 2012.2014.
The primary objectives of the Audit Committee are to assist the Board of Directors in its oversight of the following matters:
| · | The integrity of our financial statements. |
| · | The qualifications and independence of our independent registered public accounting firm. |
��
| · | The performance of our internal audit function and independent registered public accountants. |
| · | Our compliance with certain applicable legal and regulatory requirements. |
| · | Our system of disclosure controls and system of internal controls regarding finance, accounting and legal compliance. |
The integrity of our financial statements;
The qualifications and independence of our independent registered public accounting firm;
The performance of our internal audit function and independent registered public accountants;
Our compliance with certain applicable legal and regulatory requirements; and
Our system of disclosure controls and system of internal controls regarding finance, accounting and legal compliance.
In addition, among other responsibilities, the Audit Committee reviews the Corporation’s accounting functions, the adequacy and effectiveness of the internal controls and internal auditing methods and procedures. A copy of the Audit Committee charter is available on the Corporation’s website atwww.first-online.com on the “Investor Relations” page under the link “Governance Documents.” The Board of Directors has determined that each member of the Audit Committee is financially sophisticated under the applicable NASDAQ rules. The Board of Directors selected the members of the Audit Committee based on the Board’s determination that they are fully qualified to monitor the performance of management, the public disclosures by the Corporation of its financial condition and performance, our internal accounting operations and our independent registered public accountants. In addition, the Audit Committee has the ability on its own to retain independent accountants or other advisors whenever it deems appropriate.
The Board of Directors has determined that
none of its members currently meets the
Corporation currently does not have a director who qualifies as a “financialdefinition of an “audit committee financial expert” under federal securities laws. To be considered
a “financialan “audit committee financial expert,” an individual’s past experience generally must include experience in the preparation or audit of comparable public company financial statements, or the supervision of someone in the preparation or audit of comparable public company financial statements.
While it might be possible to recruit a person who meets these qualifications of a “financial expert,” theThe Board has determined that in order to
best fulfill
all the functions of our Board and our Audit Committee, each member of
ourthe Board and
ourthe Audit Committee
including any “financial expert,” should ideally understand community banking and
understand the
local markets in which the Corporation
operates, and
the Bank do business. Accordingly, potential candidates who have such attributes in addition to having the experience necessary to qualify as “audit committee financial experts” are limited. Further, the Board believes that
itthe addition of an “audit committee financial expert” is not
innecessary at this time given the
best interestslevel of
our Corporation to nominate as a director someone who does not have allfinancial knowledge and experience the
experience, attributes and qualifications we seek.current members of the Audit Committee possess.
Compensation and Employee Benefits Committee.Members Members consist of Anton H. George, (Chairman), Ronald K. Rich, William R. Krieble and William J. Voges.Voges (Chairman). The Board of Directors has determined that Messrs. George, Rich, Krieble and Voges are independent under the rules of the NASDAQ Global Select Market. The Compensation and Employee Benefits Committee met 3three times in 2012.2014.
The primary objective of the Compensation and Employee Benefits Committee is to review and approve the Corporation’s compensation strategy and the compensation of our named executive officers and senior management. In addition, among other responsibilities, the Compensation and Employee Benefits Committee administersestablishes guidelines and oversees the administration of executive compensation plans of the Corporation.and arrangements, as well as certain employee benefit plans. A copy of the charter of the Compensation and Employee Benefits Committee is available on the Corporation’s website atwww.first-online.com on the “Investor Relations” page under the link “Governance Documents.” Compensation of Directors
The goal of our director compensation package is to attract and retain qualified candidates to serve on the Board of Directors. In setting compensation, the Board considers compensation levels of directors of other financial institutions of similar size. Each director of the Corporation is also a director of First Financial Bank, N.A. (the “Bank”), the lead subsidiary bank of the Corporation. The non-employee directors receive director fees from both the Corporation and the Bank. During
2012,2014, nonemployee directors received a
$40,000.00$40,000 retainer from the Corporation and a
$5,000.00$5,000 retainer from the Bank. During
2012,2014, each non-employee director of the Corporation and the Bank received a fee of $750 for each board meeting attended for the Corporation and the Bank, respectively.
In addition, Mr. Cox received a fee of $5,000 in connection with his services as Chairman of the Board.
Non-employee directors also receive a fee for each meeting attended of the Audit Committee of $1,000, the Compensation and Employee Benefits Committee of $1,000, the Governance and Nominating Committee of $500 and the Loan Committee of the Bank of
$300.$500. No non-employee director served as a director of any other subsidiary of the Corporation.
Employee directors receive no compensation for their service on the Boards or Committees of the Corporation and the Bank.
The table below summarizes the compensation paid by the Corporation to each non-employee director for the fiscal year ended December 31,
2012.20122014.
2014 DIRECTOR COMPENSATION TABLE
| | | | | | | | | |
| | Fees Earned or | | | | | | | |
Name | | Paid in Cash | | | | | | Total | |
| | | | | | | | | | | | |
W. Curtis Brighton | | $ | 75,000 | | | | (1 | ) | | $ | 75,000 | |
B. Guille Cox | | | 76,600 | | | | | | | | 76,600 | |
Thomas Dinkel | | | 79,300 | | | | | | | | 79,300 | |
Anton H. George | | | 79,600 | | | | | | | | 79,600 | |
Gregory L. Gibson | | | 72,600 | | | | | | | | 72,600 | |
William H. Krieble | | | 75,600 | | | | (1 | ) | | | 75,600 | |
Ronald K. Rich | | | 82,700 | | | | | | | | 82,700 | |
Virginia L. Smith | | | 81,300 | | | | | | | | 81,300 | |
William J. Voges | | | 79,300 | | | | (1 | ) | | | 79,300 | |
|
| | | | | | | | | | |
| | Fees Earned or | | | | |
Name | | Paid in Cash | | | | Total |
W. Curtis Brighton | | $ | 78,000 |
| | | | $ | 78,000 |
|
B. Guille Cox | | 82,000 |
| | | | 82,000 |
|
Thomas Dinkel | | 82,000 |
| | | | 82,000 |
|
Anton H. George | | 82,500 |
| | | | 82,500 |
|
Gregory L. Gibson | | 73,500 |
| | | | 73,500 |
|
William H. Krieble | | 77,500 |
| | | | 77,500 |
|
Ronald K. Rich | | 84,500 |
| | | | 84,500 |
|
Virginia L. Smith | | 74,500 |
| | | | 74,500 |
|
William J. Voges | | 80,000 |
| | | | 80,000 |
|
| |
(1) | Members of the Board of Directors have the ability to defer a portion of their director fees under the First Financial Corporation 2005 Directors’ Deferred Compensation Plan.Plan, which closed to new participants in 2011. During 2014, Messrs. Brighton and Voges participated in this plan. For a more detailed discussion of this plan, see the narrative immediately following these footnotes.footnotes. |
First Financial Corporation Directors’ Deferred Compensation Plan.Directors of the Corporation and the Bank may participate in the First Financial Corporation 2005 Directors’ Deferred Compensation Plan. Under this plan, a director may defer up to $6,000 of his or her director’s fees each year over a five-year period provided that the director timely submits a deferral election to the Corporation. The amount of deferred fees is used to purchase an insurance product, of which the Corporation is the beneficiary, that funds benefit payments. An amount equal to the face amount of the policy will be paid to the director in addition to an amount equal to the tax savings the Corporation will receive by obtaining the proceeds from the policy on a tax-free basis. Payment will be made to the director in 120 monthly installments beginning on the first day of the month after the earlier of the director’s 65th birthday or death. Each year from the initial date of deferral until payments begin, the Corporation accrues a non-cash expense which will equal, in the aggregate, the amount of the payments to be made to the director over the ten-year period. If a director fails for any reason, other than death, to serve as a director during the entire five-year period, or the director fails to attend at least 12 regular or special meetings of the Board each year, the amount of benefits paid will be prorated appropriately. For 2012,2014, the allocated cost of the deferred directors’ fees was $141,680.76.$137,964. This plan was closed to new participants in 2011. Director Stock Ownership Guidelines
The Board of Directors believes that directors more effectively represent the Corporation’s shareholders
whose interests they are charged with protecting, if they are shareholders themselves. Therefore, the Board has adopted
director stock ownership guidelines applicable to all
directors. All directors,
are requiredother than Norman L. Lowery, who is subject to
the stock ownership guidelines for executive officers discussed under “Compensation Discussion and Analysis.” Under the guidelines, directors must own a number of shares of the Corporation’s common stock equal in value to three times their annual Corporation retainer for services as a director. Directors are expected to
complybe in compliance with the
stock ownership guidelines
as soon as practicable and in no eventnot later than five years after the date of their initial election or appointment as a director of the Corporation. In the case of individuals who were directors when the
current guidelines became effective, compliance is required within five years of the effective date. Additionally, directors may not dispose of shares of Corporation stock until they have satisfied the guidelines.
Presently, seven of our nine non-employee directors have met their stock ownership levels under these guidelines.
Hedging and similar monetization transactions by a director or an executive officer can lead to a misalignment between the objectives of that director or executive officer and the objectives of our shareholders. Accordingly, all directors, officers and employees are prohibited from engaging in hedging or monetization transactions with respect to the securities of the Corporation.
Compensation Committee Interlocks and Insider Participation
During
2012 and as of the date of this Proxy Statement,2014 none of the members of the Compensation and Employee Benefits Committee was or is an officer or employee of the Corporation, and no executive officer of the Corporation served or serves on the compensation committee (or
any other
board committee
performing equivalent functions) or
on the board of directors
performing a similar function) of any company that employed or employs any member of the Corporation’s Compensation and Employee Benefits
CommitteeCommittee. In addition, no executive officer of the Corporation served or
serves on the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any company one of whose executive officers serves on our Board of
Directors.Directors, except for Norman D. Lowery, the Chief Operating Officer, who is a member of the board of directors of Princeton Mining Company for which Virginia Smith, one of our directors, serves as President.
Certain Relationships and Related Transactions
Certain family relationships exist among the directors and executive officers of the Corporation.
Donald E. Smith (the Chairman of the Board and President of the Corporation) is the father of Virginia L. Smith (a director of the Corporation), and is the father-in-law of Norman L. Lowery (the Vice Chairman,
President, and Chief Executive Officer of the Corporation and the
President and Chief Executive Officer of First Financial Bank)
andis the
grandfatherfather of Norman D. Lowery (the Chief Operating Officer of
First Financial Bank N.A.). Norman D. Lowery is also the
sonCorporation and the Bank) and the brother-in-law of
NormanVirginia L.
Lowery.Smith (a director of the Corporation and the Bank). There are no arrangements or understandings between any of the directors and executive officers pursuant to which any of them have been selected for their respective positions.
The Audit Committee is responsible for approving any transactions between the Corporation or its subsidiaries and any related party, including loans or extensions of credit and any sale of assets or other financial transactions. Directors and executive officers of the Corporation and their associates were customers of, and have had transactions with, the Corporation and its subsidiaries in the ordinary course of business during 2012.2014. Comparable transactions may be expected to take place in the future. During 2012,2014, various directors and executive officers of the Corporation and their respective associates were indebted to the subsidiary banks from time to time. These loans were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing at the time for similar transactions with other persons not related to the Corporation and did not involve more than the normal risk of collectability or present other unfavorable features. Loans made to directors and executive officers
that are
in compliance withsubject to federal banking regulations
and thereby are exempt from the insider loan prohibitions included in the Sarbanes-Oxley Act of 2002.
Related party transactions are evaluated on a case-by-case basis in accordance with the applicable provisions of the Articles of Incorporation and the Code of Business Conduct and Ethics of the
Corporation.Corporation (the “Code of Ethics”).
The provisions of the Articles of Incorporation apply to contracts or transactions between the Corporation and (i) any director; or (ii) any corporation, unincorporated association, business trust, estate, partnership, trust, joint venture, individual or other legal entity in which any director has a material financial interest. The provisions of the Code of
Business Conduct and Ethics apply to the directors, officers and employees of the Corporation.
The Articles of Incorporation provide that contracts or transactions between the Corporation and any of the persons described above are valid for all purposes, if the material facts of the contract or transactions and the director’s interest were disclosed or known to the Board of Directors, a committee of the Board of Directors with authority to act thereon, or the shareholders entitled to vote thereon, and the Board of Directors, such committee or such shareholders authorized, approved or ratified the contract or transaction.
The Code of
Business Conduct and Ethics provides that directors, officers and employees of the Corporation must make business decisions for the Corporation free of conflicting influences. Such persons are expected to avoid situations that may lead to real or apparent material conflicts between such person’s
self interestself-interest and their duties or responsibilities as a director, officer or employee of the Corporation.
The Senior Compliance Officersenior compliance officer or other designated individual is responsible for annually reaffirming compliance with the Code of Business Conduct and Ethics by the directors, officers and employees of the Corporation.
During 2012, Platolene 500, Inc., an indirect subsidiary of Deep Vein Coal Company, Inc., received payments for providing fuel and services to First Financial Bank N.A. in the amount of approximately $196,005.06.
Donald E. Smith
(theserved as President and Chairman of the Board
and Presidentof Directors of the
Corporation) is a DirectorCorporation until April 17, 2013, at which point he began serving as President and Chairman
Emeritus. In this role, Mr. Smith focused on public relations and business development for the Bank. Mr. Smith retired from these duties and from the Corporation and the Bank effective March 1, 2014. Mr. Smith is the father of
Platolene 500. Virginia L. Smith
(the daughter of Mr. Smith and
a director of the
Corporation), and Sarah J. Lowery, the daughter of Mr. Smith and wifefather-in-law of Norman L.
Lowery (the Vice Chairman and Chief Executive Officer of the Corporation), each own a 27% equity interest in Deep Vein Coal Company, Inc. and serve as President and Chief Operating Officer and Vice President, respectively, of Platolene 500, Inc.Lowery.
The Corporation aspires to the highest ethical standards for its employees, officers and directors and remains committed to the interests of its shareholders. The Corporation believes it can achieve these objectives with a plan for corporate governance that clearly defines responsibilities, sets high standards of conduct and promotes compliance with the law. The Board of Directors has adopted policies and procedures designed to foster the appropriate level of corporate governance. Certain of these procedures are discussed below.
Consideration of Director Candidates
The Board of Directors seeks directors who represent a variety of backgrounds and experiences which will enhance the quality of the Board’s deliberations and decisions. When searching for new candidates, the Governance and Nominating Committee considers the evolving needs of the Board and searches for candidates who will fill any current or anticipated gaps. The Governance and Nominating Committee generally considers, among other matters, a candidate’s experiences, skills, expertise, diversity, personal and professional integrity, character, business judgment, time available to serve, dedication, conflicts of interest and ability to oversee the Corporation’s business and affairs. The Governance and Nominating Committee does not have a formal diversity policy; however, both the Board and the Governance and Nominating Committee believe it essential that Board members represent diverse experiences and viewpoints. The Governance and Nominating Committee considers the entirety of each candidate’s credentials. With respect to directors who are nominated for re-election, the Governance and Nominating Committee also considers such director’s previous contributions to the Board.
Board Leadership Structure and Lead Independent Director
Our Board of Directors regularly reviews and assesses the effectiveness of our leadership structure and will implement any changes as it deems appropriate. In February 2013, the Board of Directors established the size of the Board at
10,ten, effective as of the 2013 annual meeting of shareholders.
Our
We have determined our Chairman of the Board
also serves as ourto be independent. Our President and
our Chief Executive Officer is also a director. The Board has separated the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. The Chief Executive Officer is responsible for setting the strategic direction for the Corporation and the day-to-day leadership and performance of the Corporation, while the Chairman provides guidance to the Chief Executive Officer and sets the agenda for Board meetings and presides over meetings of the full Board.
Eight of our Directors are considered independent under the requirements of the NASDAQ Global Select Market. The Board of Directors has appointed the Chairman of our
Governance and NominatingCommittee, Ronald K. Rich, to serve as our lead independent directorLead Independent Director to preside at all meetings of the independent directors. As lead independent director,Lead Independent Director, Mr. Rich acts as a liaison between the Board and the Chief Executive Officer. He also develops the agendas for the executive sessions. The independent directors met four times during 2012.2014.
We believe that the separate responsibilities of, and coordination between, our Chairman, Chief Executive Officer and our
lead independent directorLead Independent Director enhances our Board of Directors’ oversight of communications with our shareholders and is an effective leadership structure for our circumstances. Our Board of Directors also believes that the separately defined roles of the Chairman, Chief Executive Officer and
lead independent directorLead Independent Director provide for effective corporate governance and enable the Chief Executive Officer to focus his time and energy on operating and managing the Corporation while leveraging the experiences and perspectives of the Chairman and Lead Independent Director.
We recognize that no single leadership model is right for all companies and at all times. Our Board recognizes that, depending on the circumstances, other leadership models might be appropriate at some point and our Board of Directors periodically reviews its leadership structure in this regard.
Our Board of Directors has an active role, as a whole and also at the committee level, in overseeing management of the Corporation’s risks. The Board regularly reviews information regarding the Corporation’s financial results, operations and liquidity, as well as the risks associated with each. The Audit Committee oversees management of the Corporation’s financial risks, including the oversight of our internal audit function and potential conflicts of interest. The Compensation and Employee Benefits Committee is responsible for overseeing the management of risks relating to the Corporation’s executive compensation plans and arrangements. The Governance and Nominating Committee manages risks associated with the independence of the Board of Directors. The
Director’s Enterprise Risk Management Committee
advises and
assiststhe Enterprise Risk Management Committee advise and assist the Board in its oversight and management of enterprise risk. The Enterprise Risk Management Committee is
comprisedcomposed of Board members W. Curtis Brighton, William R. Krieble and Ronald K. Rich, the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, the Chief Credit Officer, Chief Risk Officer, the
Compliance Officer, the Director of Branch Banking, the heads of
Legal, Operations, Human Resources, Loan Review, Auditing, Information Technology,
a Senior Attorney, the Security Officer, IT Cyber Security Analyst, and representatives from The Morris Plan Company of Terre Haute and Forrest Sherer Insurance. The
Director’s Enterprise Risk Management Committee is
composed of Board members W. Curtis Brighton (Chairman), William R. Krieble, and Ronald K. Rich who are responsible for, among other matters, coordinating risk management issues with other Board and management level committees as well as establishing and maintaining effective policies, procedures and practices for identifying, measuring and mitigating enterprise risk. The Enterprise Risk Management Committee
receivesand the Director’s Enterprise Risk Management Committee receive regular reports from management and
meetsmeet no less
frequently than quarterly to discuss matters relating to the management of the various components of enterprise risk, including credit, interest rate, liquidity, compliance, technology, transaction, reputation and strategic risks. While each committee is responsible for evaluating certain risks and overseeing the management of these risks, the entire Board of Directors is regularly informed about such risks through committee reports.
The Board of Directors has determined that a majority of the members of the Board, including Messrs. Cox, Krieble, Rich, George, Dinkel, Voges, Brighton and Gibson, are independent, as independence is defined under revised listing standards of the NASDAQ Global Select Market applicable to the Corporation.
Corporate Governance Guidelines
The Board of Directors has adopted Corporate Governance Guidelines containing general principles regarding the functions of the Board of Directors and its committees. The Governance and Nominating Committee periodically reviews the Corporate Governance Guidelines and will recommend changes to the Board as it deems appropriate. A copy of the Corporate Governance Guidelines is available on the Corporation’s web site atwww.first-online.com
on the “Investor Relations” page under the link “Governance Documents”.
The Board of Directors has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to all of the Corporation’s directors, officers and employees, including its principal executive officer, principal financial officer, principal accounting officer and controller. The Corporation intends to disclose any amendments to the Code of Ethics by posting such amendments on its website. In addition, any waivers of the Code of Ethics for directors or executive officers of the Corporation will be disclosed in a report on Form 8-K filed with the Securities and Exchange Commission. A copy of the Code of Ethics is available on the Corporation’s web site atwww.first-online.com
on the “investor“Investor Relations” page under the link “Governance Documents”.
Communications with Independent Directors
Any shareholder who desires to contact the Chairman of the Board of Directors, the Lead Independent Director or the other members of the Board of Directors, or who desires to make a recommendation of a director candidate for consideration by the Governance and Nominating Committee, may do so electronically by sending an email to the following address: directors@ffc-in.com. Alternatively, a shareholder can contact the Chairman of the Board, Lead Independent Director, Chairman of the Governance and Nominating Committee or the other members of the Board by writing to: First Financial Corporation, One First Financial Plaza, P.O. Box 540, Terre Haute, Indiana 47808.
The Governance and Nominating Committee will consider any candidate submitted by a shareholder in the manner described above. Communications received electronically or in writing are distributed to the Chairman of the Board, Lead Independent Director, Chairman of the Governance and Nominating Committee or the other members of the Board as appropriate depending on the facts and circumstances outlined in the communication received. For example, if any complaints regarding accounting, internal accounting controls and auditing matters are received, then they will be forwarded by the Secretary to the Chairman of the Audit Committee for review.
For further information, including electronic versions of our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation and Employee Benefits Committee Charter, and Governance and Nominating Committee Charter, please contact the Secretary of the Corporation, Rodger A. McHargue, First Financial Corporation, One First Financial Plaza, P.O. Box 540, Terre Haute, Indiana 47808, (812) 238-6000, or visit our website atwww.first-online.com on the “Investor Relations” page under the link “Governance Documents.” REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter adopted by the Board of Directors, the Audit Committee of the Board assisted the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Corporation. All of the members of the Audit Committee are independent, as defined in the Corporation’s listing requirements. During
2012,2014, the Audit Committee met
4four times, and the Audit Committee chair, as representative of the Audit Committee, discussed the interim financial information contained in each quarterly earnings announcement with management and the independent
auditorspublic accounting firm prior to public release.
In discharging its oversight responsibility as to the audit process, the Audit Committee obtained from the independent auditorspublic accounting firm a formal written statement describing all relationships between the auditorsindependent public accounting firm and the Corporation that might bear on the auditors’independent public accounting firm’s independence consistent with Independence Standardsapplicable requirements of the Public Company Accounting Oversight Board Standard No. 1, “Independence Discussions(United States) regarding the independent public accounting firm’s communications with the Audit Committees,”Committee concerning independence, and has discussed with the auditorsindependent public accounting firm any relationships that may impact theirits objectivity and independence and satisfied itself as to the auditors’independent public accounting firm’s independence. The Audit Committee also discussed with management, the internal auditors and the
independent
auditorspublic accounting firm the quality and adequacy of the Corporation’s internal controls and the internal audit function’s organization, responsibilities, budget and staffing. The Audit Committee reviewed both with the independent and internal auditors
theirits audit plans, audit scope and identification of audit risks.
The Audit Committee discussed and reviewed with the independent
auditorspublic accounting firm all communications required by
generally accepted auditing standards
of the Public Company Accounting Oversight Board, including
those described in Statement onthe matters required to be discussed by Auditing
StandardsStandard No.
61, as amended,16, “Communication with Audit Committees,” and, with and without management present, discussed and reviewed the results of the independent
auditors’public accounting firm’s examination of the financial statements. The Audit Committee also discussed the results of the internal audit examinations.
The Audit Committee reviewed and discussed the audited financial statements of the Corporation as of and for the year ended December 31,
2012,2014, with management and the independent
auditors.public accounting firm. Management represented to the Audit Committee that the Corporation’s financial statements as of and for the year ended December 31, 2014 were prepared in accordance with accounting principles generally accepted in the United States. Management has the
primary responsibility for the preparation of the Corporation’s
internal controls and financial statements and the independent
auditors havepublic accounting firm has the responsibility for
performing an independent audit of our consolidated financial statements in accordance with the
examinationstandards of
those statements.the Public Company Accounting Oversight Board.
Based on the above-mentioned review and discussions with management and the independent
auditors,public accounting firm, the Audit Committee recommended to the Board that the Corporation’s audited financial statements be included in its Annual Report on Form 10-K for the year ended December 31,
2012,2014, for filing with the Securities and Exchange
Commission.Commission |
| |
| Members of the Audit Committee |
| |
| Thomas T. Dinkel, Chairman |
| Anton H. George Chairman |
| Thomas T. Dinkel |
| Ronald K. RichW.Curtis Brighton |
EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Summary
5 Year Shareholder Return.
EXECUTIVE SUMMARY
2014 Performance Highlights
Financial Highlights.Economic growth in most of the markets in which we do business continued to be sluggish during 2014, as there was little population or business growth and unemployment rates continued above state and national averages. Notwithstanding the challenges presented by these formidable headwinds, we were able to deliver another year of solid financial performance by continuing our steady, disciplined approach. Our 2014 performance was highlighted by:
a 7.10% increase in net income to $33.8 million, the second best year in our history;
a 7.59% increase in diluted earnings per share (EPS);
increased dividends for the 26th consecutive year;
strong asset quality, as non-performing loans at year end were 1.76% of total loans, down from 2.19% at the end of 2013;
a 5.25% increase in book value per share to $30.46 at year end from $28.94 at year end 2013;
a 2.09% growth in shareholders’ equity to $394.2 million; and
a stock repurchase program which returned an additional $13.6 million to shareholders in 2014.
2014 Compensation Decisions
Our Compensation and Employee Benefits Committee made the following decisions affecting the 2014 compensation of our CEO and other named executive officers.
Base Salaries.We made modest base salary increases in 2014, in line with our company-wide salary increase budget of approximately 3%. However, at our CEO’s recommendation, his salary increase was less than 1%, reflecting his desire to free up part of the salary increase budget for merit raises elsewhere in the organization.
Short-Term Incentive Compensation. Under our short-term incentive compensation plan (“STIP”), we used six Corporation-wide performance measures - net income, efficiency ratio, non-performing loans, delinquencies, loan growth, and deposit growth - to assess performance of our CEO. For our other NEOs, bank and controllable departmental measures were used in place of the loan quality measures where appropriate. As shown in the table on pages 21-22, our above target performance on each of the income, expense and loan quality-related metrics, offset by below target results in the growth metrics, resulted in STIP payouts of slightly below target for our CEO and other NEOs.
Long-Term Incentive Compensation. We make awards under our long-term equity incentive plan (“LTIP”) in February of each year to our CEO and other NEOs based how we have performed against certain performance measures over the prior three-year period. For 2013, we used four measures -return on assets, return on equity, tangible book value and EPS growth rate - to assess performance. We made awards in February 2014 based on performance through 2013. As discussed in the proxy statement for last year’s meeting, our February 2014 awards reflected above-target performance in each of these categories. We continued to use these performance measures in 2014. As shown in the table on page 23, we achieved above target performance in each of these categories over the three-year period ending in December 2014, resulting in LTIP awards of approximately 103% of target in February 2015.
2014 CEO Compensation
The graph below representstotal direct compensation (base salary, STIP and LTIP) of our CEO in 2014 was slightly less than his total direct compensation in 2013, and his 2013 total direct compensation was less than his 2012 total direct compensation. The Committee believes these levels of total direct compensation align with our overall performance in those years as measured against our goals.
Notwithstanding the five-yearreduction in total returndirect compensation, the 2014 total compensation of our CEO reported in the Summary Compensation Table on page 27 shows a substantial increase from the total compensation reported for 2013. The increase is due to the amount reported as the year-to-year increase in the actuarial value of accumulated retirement benefits under our long-standing pension plans primarily attributable to continued service and the effects of changes in interest rates and mortality assumptions, and does not reflect awarding of additional compensation by the Committee. The increase in present value is not a current cash payment, nor does it represent incremental compensation awarded to our CEO by the Committee.
Pay-for-Performance Pay Practices
We continue to maintain the following pay practices, which we believe enhance our pay-for-performance philosophy and further align our executives’ interests with those of our shareholders:
|
| | |
WE DO HAVE THIS PRACTICE | | WE DO NOT HAVE THIS PRACTICE |
Tie a significant portion of executive compensation, over 50% in the case of our CEO, to our performance metrics in the form of “at-risk” compensation. Incentive award metrics that are objective and tied to key company performance metrics. Grant equity awards based on performance and vest those equity awards over three years to promote retention Compensation recoupment “claw-back” policy. Anti-hedging policy. Double trigger change in control severance. Share ownership guidelines (for executives and directors). | | Non-performance based incentive awards. Hedging transactions by executive officers or directors. Excise tax gross-ups in our CEO’s Employment Agreement. Automatic renewal (“evergreen”) provisions in our CEO’s Employment Agreement. |
Shareholder’s 2014 Advisory Approval of the Corporation’s stock relative to the Russell 2000 and the SNL Index of Banks $1 - $5 Billion. The five-year total return forExecutive Compensation
At our
stock during this time was 23.73%. During the same period, the return2014 annual meeting, we held a non-binding advisory vote on
the Russell 2000 Index was 19.09% and the SNL Index of Banks $1 - $5 Billion actually had a negative return of 24.22%
| | | | | Period Ending | | | | |
Index | | 12/31/07 | | | 12/31/08 | | | 12/31/09 | | | 12/31/10 | | | 12/31/11 | | | 12/31/12 | |
First Financial Corporation | | | 100.00 | | | | 148.59 | | | | 113.77 | | | | 135.04 | | | | 131.74 | | | | 123.73 | |
Russell 2000 Index | | | 100.00 | | | | 66.21 | | | | 84.20 | | | | 106.82 | | | | 102.36 | | | | 119.09 | |
SNL U.S. Bank $1B-$5B | | | 100.00 | | | | 82.94 | | | | 59.45 | | | | 67.39 | | | | 61.46 | | | | 75.78 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2012 Overview. In 2012 the Corporation delivered solid financial performance with net income of $32.8 million, the second highest in the history of the Corporation. This increase was in part driven by a 9.78% increase in net interest income to $108.9 million. The return on assets for 2012 was 1.13%. During 2012 the Corporation integrated its largest acquisition to date completing the purchase and assumption of Freestar Bank N.A. Also during 2012 the Corporation opened four new de novo branches in southern Indiana expanding into three new markets. The Corporation ended the year with $2.9 billion in assets. The compensation of our executive team in 2012 reflected this performance consistent with our compensation philosophy discussed below.
Elements of Executive Compensation. Our executive compensation system uses various elements to achieve our compensation objectives, including the following:
Compensation Type | Form | Terms |
Cash | ·Salary
·Annual incentive compensation
| Salary increases are awarded as allocations from the salary pool set by the Compensation Committee and the Board
Awards are eligible to be earned upon meeting certain performance goals (net income, return on assets, return on equity, etc.)
|
Equity | ·Restricted Stock | Awards are eligible to be earned upon meeting certain 3-year average performance goals (net income, return on assets, return on equity, etc.). After earned, awards are subject to a 3-year vesting schedule.
|
Tax-Qualified Retirement
Plans
| ·Offset ESOP/
Pension Plan
| The Pension Plan provides each participant with a benefit which is offset by the benefit provided by the ESOP. To the extent the ESOP benefit is greater than the Pension Plan benefit, no Pension Plan benefit will be paid. |
Deferred Compensation | ·Executive Supplemental
Retirement Plan
·Executive’s Deferred
Compensation Plan
| The Executive Supplemental Retirement Plan and Executive’s Deferred Compensation Plan provide supplemental retirement benefits to help recompense for benefits reduced due to IRS rules under the Pension Plan and ESOP, respectively. Amounts payable under the Deferred Compensation Plan will offset amounts payable under the Supplemental Retirement Plan. To the extent the benefit under the Deferred Compensation Plan is greater than the Supplemental Retirement Plan, no Supplemental Retirement Plan benefit will be paid. |
Other | ·Perquisites | The Bank sponsors a life insurance program for the named executive officers other than Messrs. Smith and Clary.
|
Other Key Compensation Program Features | ·Clawback of incentive compensation
·No excise tax gross ups
·No automatic extension of employment agreement
·Executives share ownership guidelines
|
CEO Pay. The Compensation Committee considered the following in determining the compensation of our Chief Executive Officer:
| · | First Financial Bank N.A.’s 2012 net income was $29.9 million and the net income of the Corporation was $32.8 million. |
| · | The Bank’s Return on Assets and Return on Equity were 1.07% and 8.88% respectively. The Corporation’s Return on Assets and Return on Equity were 1.13% and 9.02% respectively. |
| · | The Corporation’s three-year average earnings per share growth rate was 14.41%. |
| · | The Corporation’s five-year total shareholder return at year end was 23.73%, 4.64% higher than the Russell 2000’s return of 19.09%. |
| · | Under the 2011 Short-Term Incentive Plan, Mr. Lowery achieved a performance level just below target. |
| · | Under the 2011 Omnibus Equity Incentive Plan, Mr. Lowery achieved a performance level above target. |
Other Executive Paynamed executive officers. This type of vote is commonly referred to as “Say-On-Pay”. The Compensation Committee consideredAt the following in determiningmeeting, approximately 83% of the represented shares voted to approve the compensation of our other named executive officers:
| · | First Financial Bank N.A.’s 2012 net income was $29.9 million. |
| · | The Bank’s Return on Assets and Return on Equity were 1.07% and 8.88% respectively. |
| · | The Corporation’s three-year average earnings per share growth rate was 14.41%. |
| · | The Corporation’s five-year total shareholder return at year end was 23.73%, 4.64% higher than the Russell 2000’s return of 19.09%. |
| · | Under the 2011 Short-Term Incentive Plan, Named Executive Officers achieved a performance level just below target. |
| · | Under the 2011 Omnibus Equity Incentive Plan, Named Executive Officers achieved a performance level of maximum. |
officers.
Through their 2014 advisory vote, our shareholders responded favorably to the changes we made in 2013 to the performance measures used under the STIP and for LTIP awards and the pay-for-performance they produced. This design of our STIP and LTIP awards continued in 2014.
The Compensation Committee has considered the vote of our shareholders as a part of its review of the Corporation’s overall executive compensation program, including the appropriateness of the compensation philosophy, our objectives, and the level of compensation provided to the NEOs. Based on the 2014 vote, and analysis of these factors, the Compensation Committee has determined our Executive Compensation Philosophy,
The Committee’s discussed below, and the application of the philosophy is appropriate.
INTRODUCTION
This Compensation Discussion and Analysis describes the Corporation’s executive compensation policiesprogram as it relates to the five executive officers (“named executive officers” or “NEOs”) included on the compensation tables beginning on page 27. For 2014, our named executive officers and their positions were:
Norman L. Lowery - Chief Executive Officer and President, First Financial Corporation and First Financial Bank, N.A. (our “CEO”).
Rodger A. McHargue - Chief Financial Officer, First Financial Corporation and First Financial Bank, N.A.
Norman D. Lowery - Chief Operations Officer, First Financial Corporation and First Financial Bank, N.A.
Steven H. Holliday - Chief Credit Officer, First Financial Corporation and First Financial Bank, N.A.
Karen L. Milienu - Director of Branch Banking, First Financial Bank, N.A.
The following pages describe our executive compensation philosophy, the principal components of our executive compensation program, how our program reflects our compensation philosophy, and the roles played by different persons in establishing and evaluating the various components of our executive compensation program. Our discussion provides important context for the compensation tables that follow and, therefore, should be read in conjunction with those tables.
COMPENSATION PHILOSOPHY
The Compensation and Employee Benefits Committee (“Compensation Committee”) is responsible for determining our executive compensation philosophy and the establishment, implementation, and monitoring of our executive compensation program. The Compensation Committee is composed entirely of independent Directors as determined under the rules of the NASDAQ Global Select market.
Our goal is to maintain a competitive, balanced compensation program that rewards our named executive officers for current year performance and for the creation of long-term shareholder value, without exposing the Corporation to unreasonable risk, including credit, interest rate, liquidity, reputation, compliance, and transaction risk. We seek to:
Attract, motivate, and retain highly-qualified, talented executives who are designedfocused on the long-term best interests of our shareholders;
Drive performance relative to our financial goals, balancing short-term operational objectives with long-term strategic goals;
Link the interests of our executives with those of our shareholders;
Establish corporate, departmental, and individual goals consistent with our strategic plan and budget that provide the basis for the annual and long-term metrics used to measure our success and the value that we create for shareholders;
Reward our executives for Corporation, Bank and individual performance;
Align compensation and variable incentives with measurable, objective, business results and appropriate risk management; and
Allow flexibility in responding to changing laws, accounting standards, and business needs as well as the constraints and dynamic conditions in the markets in which we do business.
The Compensation Committee believes our executive compensation program has achieved its intended results. The Committee believes we have provided, and continue to provide, levels of compensation appropriately linked to the short and long-term contributions made by our CEO and NEOs and the financial results achieved. We also believe we are competitive with the pay practices of other financial institutions of comparable size and are able to attract and retain highly qualified persons as named executive officers,executives who make substantial contributions to provide competitive levelsour success. Finally, our program aligns our executives’ interests with those of our shareholders through a strong link between higher compensation and the attainment of pre-established objective performance goals.
TOTAL DIRECT COMPENSATION AND ITS COMPONENTS
To encourage our executives to execute our business plan and create shareholder value, we seek to align each executive’s compensation with our short-term and long-term financial goals. We focus on total direct compensation, which is the sum of base salary, short-term incentives, and long-term equity-based incentives. Our total direct compensation is weighted heavily toward results, particularly for our CEO and NEOs, with a substantial portion of direct total compensation “at risk.”
The following table shows the principal components of total direct compensation for our CEO and other NEOs, and the percentages of total direct compensation represented by the base salary and target STIP and LTIP amounts. |
| | | | |
Component and Percentage of Total Direct Compensation (“TDC”) | | Role | | Comments |
Base Salary
CEO: 48.7% of TDC
NEOs: 57.1 to 69.0% of TDC | | Fixed cash compensation based on competitive pay levels, the executive’s performance, level of responsibility and experience to facilitate the acquisition and retention of talented, experienced management. | | In 2014, base salaries were adjusted in line with our 3% salary increase budget, although at our CEO’s recommendation, his salary increase was less than 1%, freeing up dollars for increases elsewhere in the organization. |
Short-Term Incentive (STIP)
CEO: 22.5% of TDC
NEOs: 17.2% to 20.0% of TDC | | Annual variable compensation payable in cash based on the achievement of pre-established, objective, corporate or bank performance goals to reward execution and performance which support and drive shareholder value. | | Performance measures for 2014 required greater net income than 2013 and performance achievement of our annual plan to earn target payouts. |
Long-Term Incentive (LTIP)
CEO: 29.0% of TDC
NEOs: 13.8 to 22.9 % of TDC | | Equity compensation awarded in February of each year based on the achievement of pre-established, long-term, objective, performance goals to align the executive’s compensation with the prudent management of the Corporation’s assets and earnings growth objectives. | | LTIP awards are determined based on long-term performance and made in the form of restricted stock that vests over three years of continued service. Subjecting the award to a three-year vesting period further aligns executives’ compensation with long-term shareholder interests and mitigates risk. |
The total direct compensation described in the table above reflects the Compensation Committee’s pay decisions relating to base salary and to the named executive officersvariable, at-risk pay earned for performance through the end of the year. For our CEO, actual total direct compensation was $1,311,301 and $1,386,008 for performance through 2014 and 2013, respectively. These amounts are not the total compensation reported in the Summary Compensation Table (SCT) on page 27. The amounts in the SCT reflect LTI awards, made in the particular year, but based on prior year’s performance (the SCT table amount for stock awards in 2014 reflects the February 2014 award based on 2013 performance). The total compensation shown in the SCT also includes amounts related to rewardincreases in the named executive officersactuarial value of long-standing retirement plans, primarily attributable to continued service and the effect of changes in interest rates and mortality assumptions, and not the awarding of additional compensation by the Committee.
2014 COMPENSATION FOR EXECUTIVES
Elements of Compensation
The principal elements of each NEO’s compensation are base salary, STIP, LTIP, and other benefits. Although the Compensation Committee has not adopted a formula for achieving individualallocating a NEO’s compensation among its various components, it believes that a significant portion of each NEO’s compensation should be based on performance and that the percentage of total compensation at risk should increase with the NEO’s total compensation and responsibilities with the Corporation.
Base Salary.Base salary is the fixed component of total cash compensation. The Compensation Committee attempts to set base salaries for achieving performancea particular executive position at a level that recognizes the executive’s contributions and importance to the organization, and will facilitate the attraction and retention of a skilled management team. The Compensation Committee reviews market data in establishing base salaries, but it does not tie its determinations to a particular benchmark. Among the third-party compensation surveys that the Compensation Committee may review are the Crowe Horwath Financial Institutions Compensation Survey (consisting of a survey for Indiana, Illinois, and the Midwest), the American Bankers Association Compensation and Benefits Survey and other compensation data surveys for banking and finance.
The starting point for determining any adjustments to a NEO’s base salary is the annual increase in the Corporation’s annual salary pool approved by the full Board of Directors. Individual base salary increases for all employees, including the NEOs, are awarded as allocations from that salary pool. In establishing the amount of the Corporationpool, the Compensation Committee and the Board of Directors consider general economic conditions (such as a whole. Additionally, the policies seek to provide a vehicle for the Committee to evaluateinflation and measurerecessionary factors), the performance of the Corporation and the executivesBank, and other sources of information, such as surveys referred to in the preceding paragraph.
The Compensation Committee adjusts the base salary of a NEO only after reviewing his or her performance over the past fiscal year. The Compensation Committee’s review focuses on the NEO’s attainment of objective performance goals established by the Compensation Committee, supervisory skills, dependability, initiative, skill level, and overall value to the Corporation. The Compensation Committee considers all of these factors as a whole, without giving a pre-established weighting to any particular factor, and determines any adjustment to the NEO’s base salary.
For 2014, the Board of Directors approved a salary pool increase of 3%. Our CEO’s base salary was increased $5,000 to $630,297, a less than one percent increase from 2013, reflecting our CEO’s desire to free up part of the pool for merit raises elsewhere in the organization. The base salaries for Messrs. McHargue, N.D. Lowery and Holliday and Ms. Milienu were $195,909, $200,000, $200,000 and $150,000 respectively, reflecting increases ranging from 3% to 5% over 2013.
Short-Term Incentive Compensation. The Compensation Committee makes annual incentive awards to named NEOs and other management employees pursuant to the STIP. Each year, the Compensation Committee establishes and approves an objective performance goal for a number of Corporation, Bank or departmental performance measures, the relative weight accorded to each performance goal, and a target award for each executive officer. The amount earned under the STIP will depend on the NEO’s target award, which is stated as a percentage of base salary, and the extent of the Corporation’s, Bank’s or department’s achievement against the goals established for the year. For 2014, these criteria were established by the Compensation Committee and communicated to our NEOs in February 2014. Target awards for 2014 were 46.4% for our CEO, 35% for Messrs. McHargue, Norman D. Lowery and Holliday, and 25% for Ms. Milienu.
In analyzing financial measures and determining the performance goals for the year, the Compensation Committee spends significant time reviewing the Corporation’s annual strategic plan and budget which were approved by the Board of Directors in November or December of the preceding year. The Compensation Committee establishes a target performance goal for performance measures determined by the Committee to be important to the Corporation’s, the Bank’s or a department’s overall performance for the coming year. The performance goal for each of performance measure is intended to be a stretch goal, achievable through sustained execution of the strategic plan. The Committee assigns weights to each of performance measures, with areas of focus for achieving greater overall performance assigned higher weightings. To focus management on sustaining its continued, disciplined execution and continuing earnings growth, more weight was assigned to income and expense-related measures.
The amount of STIP award earned is determined based on the overall score achieved. The overall score is the sum of the weighted scores achieved for each of the performance measures. The weighted score is based on the score for the particular performance measure multiplied by the weight assigned to that measure. A score of 100% is earned for a performance measure by achieving the target performance goal for that measure. A score above or below 100% is earned for performance above or below the goal. The amount of the STIP earned is determined by multiplying the overall score (the sum of the performance scores for the performance measures) times the executive’s target bonus amount. No STIP award is earned if the overall score is less than 80%. The maximum overall score is 125% for the CEO and 120% for the other NEOs.
The table below reports the performance measures (“Measure”), target performance goals (“Goal”), our results (“Actual”), the level of achievement against the goal (% of Goal), the weightings (“Weight”), and the resulting score for the CEO and other NEOs (“Score”) under the Short-Term Incentive Plan. For our CEO, Mr. Norman Lowery, the performance measures relate to Corporation-wide performance; the performance measures for the other NEOs are tied to Bank and/or departmental performance. The amount of STIP earned in 2014 by each executive officer reflects the overall score multiplied by his or her target bonus and is set forth in the Non-Equity Incentive Plan column of the SCT.
|
| | | | | | | | | | | | | | | | | | | | | | |
Measure | | Level | | N.L. Lowery | | McHargue | | N.D. Lowery | | Holliday | | Milienu |
Net Income | | Goal | | $ | 32,007 |
| | $ | 28,335 |
| | $ | 28,335 |
| | $ | 28,335 |
| | $ | 28,335 |
|
| | Actual | | $ | 33,772 |
| | $ | 30,214 |
| | $ | 30,214 |
| | $ | 30,214 |
| | $ | 30,214 |
|
| | % of Goal | | 105.51 | % | | 106.63 | % | | 106.63 | % | | 106.63 | % | | 106.63 | % |
| | Weight | | 50.00 | % | | 40.00 | % | | 40.00 | % | | 20.00 | % | | 20.00 | % |
| | Score | | 52.76 | % | | 42.65 | % | | 42.65 | % | | 21.33 | % | | 21.33 | % |
Efficiency Ratio | | Goal | | 65.89 | % | | 66.15 | % | | 66.15 | % | | — |
| | — |
|
| | Actual | | 61.74 | % | | 64.59 | % | | 64.59 | % | | — |
| | — |
|
| | % of Goal | | 106.72 | % | | 102.42 | % | | 102.42 | % | | — |
| | — |
|
| | Weight | | 25.00 | % | | 20.00 | % | | 20.00 | % | | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Score | | 26.68 | % | | 20.48 | % | | 20.48 | % | | — |
| | — |
|
Non-Performing Loans | | Goal | | 2.50 | % | | — |
| | — |
| | 2.50 | % | | — |
|
| | Actual | | 2.42 | % | | — |
| | — |
| | 2.42 | % | | — |
|
| | % of Goal | | 103.31 | % | | — |
| | — |
| | 103.31 | % | | — |
|
| | Weight | | 7.50 | % | | — |
| | — |
| | 10.00 | % | | — |
|
| | Score | | 7.75 | % | | — |
| | — |
| | 10.33 | % | | — |
|
Delinquency | | Goal | | 1.65 | % | | — |
| | — |
| | 1.57 | % | | — |
|
| | Actual | | 1.14 | % | | — |
| | — |
| | 1.05 | % | | — |
|
| | % of Goal | | 144.30 | % | | — |
| | — |
| | 149.52 | % | | — |
|
| | Weight | | 7.50 | % | | — |
| | — |
| | 10.00 | % | | — |
|
| | Score | | 10.82 | % | | — |
| | — |
| | 14.95 | % | | — |
|
Loan Growth | | Goal | | 6.51 | % | | 6.59 | % | | 6.59 | % | | 6.59 | % | | — |
|
| | Actual | | (0.68 | )% | | (0.72 | )% | | (0.72 | )% | | (0.72 | )% | | — |
|
| | % of Goal | | — | % | | — | % | | — | % | | — | % | | — |
|
| | Weight | | 5.00 | % | | 5.00 | % | | 5.00 | % | | 20.00 | % | | — |
|
| | Score | | — | % | | — | % | | — | % | | — | % | | — |
|
Deposit Growth | | Goal | | 8.78 | % | | 9.06 | % | | 9.06 | % | | — |
| | 9.06 | % |
(Product Growth for Ms. Milienu) | | Actual | | 3.48 | % | | 3.54 | % | | 3.54 | % | | — |
| | 3.54 | % |
| | % of Goal | | 39.56 | % | | 39.06 | % | | 39.06 | % | | — |
| | 39.06 | % |
| | Weight | | 5.00 | % | | 5.00 | % | | 5.00 | % | | — |
| | 20.00 | % |
| | Score | | 1.98 | % | | 1.95 | % | | 1.95 | % | | |
| | 7.81 | % |
Departmental Controllable Income | | Goal | | — |
| | $ | 30,153 |
| | $ | 3,765 |
| | $ | 43,025 |
| | $ | 14,302 |
|
(Expense for Mr. Lowery) | | Actual | | — |
| | $ | 30,211 |
| | $ | 3,362 |
| | $ | 42,665 |
| | $ | 14,014 |
|
($ in millions) | | % of Goal | | — |
| | 100.19 | % | | 111.99 | % | | 99.16 | % | | 97.98 | % |
| | Weight | | — |
| | 30.00 | % | | 30.00 | % | | 15.00 | % | | 20.00 | % |
| | Score | | — |
| | 30.06 | % | | 33.60 | % | | 14.87 | % | | 19.60 | % |
Net Charge-Offs | | Goal | | — |
| | — |
| | — |
| | 0.24 | % | | 0.93 | % |
(Return on Assets for Ms. Milienu) | | Actual | | — |
| | — |
| | — |
| | 0.21 | % | | 1.03 | % |
| | % of Goal | | — |
| | — |
| | — |
| | 114.29 | % | | 110.75 | % |
| | Weight | | — |
| | — |
| | — |
| | 10.00 | % | | 20.00 | % |
Loan Spread | | Score | | — |
| | — |
| | — |
| | 11.43 | % | | 22.15 | % |
(Return on Equity for Ms. Milienu) | | Goal | | — |
| | — |
| | — |
| | 3.17 | % | | 7.87 | % |
| | Actual | | — |
| | — |
| | — |
| | 3.15 | % | | 8.17 | % |
| | % of Goal | | — |
| | — |
| | — |
| | 99.37 | % | | 103.81 | % |
| | Weight | | — |
| | — |
| | — |
| | 15.00 | % | | 20.00 | % |
| | Score | | — |
| | — |
| | — |
| | 14.91 | % | | 20.76 | % |
| | TOTAL | | 99.99 | % | | 95.15 | % | | 98.69 | % | | 87.82 | % | | 91.65 | % |
Long-Term Incentive Compensation.We use long-term, incentive compensation to strengthen the alignment between the interests of our executive officers and our shareholders. Our LTIP is an essential tool for attracting, retaining, and motivating talented executive officers. We make LTIP awards under our shareholder-approved First Financial Corporation 2011 Equity Incentive Plan. The LTIP award made to an executive officer will depend on the NEO’s target award, which is stated as a percentage of base salary, and the extent of the Corporation’s or Bank’s performance during the preceding three years against the goals established by the Compensation Committee. The LTIP award target for awards made in February 2014 based on performance through 2013, and in February 2015 based on performance through 2014, were 60.0% for our CEO, 40% for Messrs. McHargue, Norman D. Lowery and Holliday, and 20.0% for Ms. Milienu.
The performance measures chosen by the Committee are those where strong, steady performance should equate to long-term shareholder value. Since 2013, the Committee has used four performance measures on which to base LTIP awards:
return on assets, return on equity, tangible book value and earnings per share (EPS). The Committee establishes a performance goal for each of these measures based on the Corporation’s strategic plan and budgets, and weights the goals based on the Committee’s assessment of the relative importance of the measure to overall shareholder value. The amount of an executive officer’s LTIP award is based on the overall score achieved and the officer’s LTIP award target. LTIP awards are made in restricted stock having value equal to the LTIP award earned. The restricted stock vests in three equal installments beginning on December 31 of the year of the grant and the following two years. The Committee believes the use of performance criteria for determining the size of the LTIP award, followed by a three-year vesting schedule, reinforces the long-term incentive and retention purpose of the LTIP award while establishing an appropriate balance of risk and incentive compensation in accordance with the Guidance on Sound Incentive Compensation Policies issued by the Federal Reserve, the FDIC, the OCC, and OTC in 2010.
For 2014, the long-term incentive performance measures remained the same as in 2013. The table below reports the performance measures (“Measure”), target performance goal (“Goal”), our results (“Actual”), the level of those evaluations.achievement against the goal (% of Goal), the weightings (“Weight”), and the resulting score for the CEO and other NEOs (“Score”) for the LTIP awards made in February 2015 based on performance through the end of 2014. For our CEO, Mr. Norman Lowery, the performance measures relate to Corporation-wide performance. For the other NEOs, the performance measures, other than earnings per share growth, are tied to Bank performance. The individual goals establishedamount of LTIP earned in 2014 by each executive officer reflects the overall score multiplied by his or her target LTIP award. In accordance with SEC disclosure rules, the LTIP award based on 2014 performance will be reported in 2016 proxy statement. The amount of LTIP awarded in February 2014, based on 2013 performance, is set forth in the strategicStock Awards column in the SCT.
|
| | | | | | | | | | | | | | | | | |
Measure | | Level | | N.L. Lowery | | McHargue | | N.D. Lowery | | Holliday | | Milienu |
3 Year | | Goal | | 1.07 | % | | 0.99 | % | | 0.99 | % | | 0.99 | % | | 0.99 | % |
Average | | Actual | | 1.10 | % | | 1.02 | % | | 1.02 | % | | 1.02 | % | | 1.02 | % |
Return on | | % of Goal | | 102.80 | % | | 103.03 | % | | 103.03 | % | | 103.03 | % | | 103.03 | % |
Assets | | Weight | | 20.00 | % | | 20.00 | % | | 20.00 | % | | 20.00 | % | | 20.00 | % |
| | Score | | 20.56 | % | | 20.61 | % | | 20.61 | % | | 20.61 | % | | 20.61 | % |
| | | | | | | | | | | | |
3 Year | | Goal | | 8.49 | % | | 8.35 | % | | 8.35 | % | | 8.35 | % | | 8.35 | % |
Average | | Actual | | 8.52 | % | | 8.39 | % | | 8.39 | % | | 8.39 | % | | 8.39 | % |
Return on | | % of Goal | | 100.35 | % | | 100.48 | % | | 100.48 | % | | 100.48 | % | | 100.48 | % |
Equity | | Weight | | 15.00 | % | | 15.00 | % | | 15.00 | % | | 15.00 | % | | 15.00 | % |
| | Score | | 15.05 | % | | 15.07 | % | | 15.07 | % | | 15.07 | % | | 15.07 | % |
| | | | | | | | | | | | |
| | Goal | | $26.82 | | $26.82 | | $26.82 | | $26.82 | | $26.82 |
Tangible | | Actual | | $28.26 | | $28.26 | | $28.26 | | $28.26 | | $28.26 |
Book | | % of Goal | | 105.37 | % | | 105.37 | % | | 105.37 | % | | 105.37 | % | | 105.37 | % |
Value | | Weight | | 30.00 | % | | 30.00 | % | | 30.00 | % | | 30.00 | % | | 30.00 | % |
| | Score | | 31.61 | % | | 31.61 | % | | 31.61 | % | | 31.61 | % | | 31.61 | % |
| | | | | | | | | | | | |
3 Year | | Goal | | $2.43 | | $2.43 | | $2.43 | | $2.43 | | $2.43 |
Earnings | | Actual | | $2.47 | | $2.47 | | $2.47 | | $2.47 | | $2.47 |
Per Share | | % of Goal | | 101.51 | % | | 101.51 | % | | 101.51 | % | | 101.51 | % | | 101.51 | % |
Growth | | Weight | | 35.00 | % | | 35.00 | % | | 35.00 | % | | 35.00 | % | | 35.00 | % |
| | Score | | 35.53 | % | | 35.53 | % | | 35.53 | % | | 35.53 | % | | 35.53 | % |
| | Overall | | | | | | | | | | |
LTIP Award | | Score | | 102.75 | % | | 102.82 | % | | 102.82 | % | | 102.82 | % | | 102.82 | % |
Retirement Benefits.We believe retirement and other post-employment benefits can be a powerful motivational tool for attracting and retaining key executives.
Our three qualified retirement plans are the First Financial Corporation 401(k) Savings Plan (“Savings Plan”), the First Financial Corporation Stock Ownership Plan (“ESOP”), and the First Financial Corporation Employees’ Pension Plan (“Pension Plan”).
401(k) Savings Plan. The Savings Plan allows eligible employees to contribute a portion of their compensation on a before-tax basis. Participants may direct the investment of their plan and budgetaccounts among a diversified range of investment options. For those participants who are not eligible for future benefit accruals under the Pension Plan, the Corporation may, in its discretion, match the participant’s contributions (up to 4% of compensation) and make non-matching contributions.
ESOP. The Corporation and its participating subsidiaries and affiliates may make contributions to the Bank are also utilizedESOP in setting compensation levelsthe form of Corporation stock or cash to be invested primarily in Corporation stock. The amount of any contributions is determined by the Board of Directors of the named executive officers.Corporation. The Committee seeks to compensatevalue of a participating employee’s benefit under the named executive officers through a blend of both short and long-term compensation.The Compensation Committee’s Process for Setting Compensation
The Compensation and Employee Benefits Committee (the “Committee”) is responsible for evaluating and establishing compensation levels and compensation programs for our named executive officers. The Committee has established a range of plans and programs which are intended to encourage current year performance and create long-term shareholderESOP depends on the value without exposing the Corporation to excessive amounts of risk associated with the financial services industry. The Committee considers material “operational” risks of the shares of Corporation including: credit risk, interest rate risk, liquidity risk, reputation risk, compliance risk, transaction riskstock and any other amounts allocated to his or her account.
Pension Plan. The Pension Plan is a defined benefit plan that provides each participant with a benefit based on the added potential for loss that could result from anyparticipant’s compensation and service, which is then offset by the value of the compensation plansparticipant’s benefit under the ESOP. This type of arrangement is commonly referred to as a floor-offset arrangement. Future accruals under the Pension Plan were frozen for participants at the end of 2012, except for certain long-service, retirement-eligible or programs provided to all employees. The Committee also charges the Corporation’s General Auditor with performing a risk assessmentother employees who were grandfathered at that time. Each of the incentive compensation program. Upon review of these risksour CEO and the report of the General Auditor, the Committee determines on an annual basis that the Corporation’s compensation arrangements and policies do not encourage excessive risk-taking.The compensation programs for our named executive officers are reviewed on an annual basis to ensure that total compensation levels and benefits are competitive. With respect to theother named executive officers, other than Mr. Holliday, continue to accrue benefits under the ChairmanPension Plan.
Internal Revenue Code limits on the amount of benefits which may be earned under qualified plans can result in highly paid individuals, such as our executive officers, receiving a substantially lower benefit (as a percentage of compensation) than other participating employees. We have adopted nonqualified retirement plans to make-up for these benefit reductions. Information relating to qualified and nonqualified plans accompanies the “Pension Benefits” table and the “Nonqualified Deferred Compensation” table on pages 29-30.
Perquisites.The Corporation provides very limited perquisites to executive officers; however, it does sponsor a life insurance program for the named executive officers of the BoardBank. Under the life insurance program, the Bank purchased a whole life insurance policy on behalf of, and pays the premiums on behalf of, each executive officer of the Bank. The policy is owned by the individual and is intended to be fully paid at age 65 for those who were 55 or older, and at age 60 for those who were less than 55 years of age at the time the individual joined the Bank.
The Process for Setting Executive Compensation
Role of the Compensation Committee
Each year, the Compensation Committee reviews our executive compensation program to assure that the program and the compensation for each NEO are consistent with our compensation philosophy and, specifically, that a substantial portion of our NEOs’ compensation is paid only if pre-established objective performance goals are met or exceeded. In exercising its duties, the Compensation Committee considers all elements of our executive compensation program, as well as individual performance, Corporation and Bank performance, and market compensation considerations.
The Compensation Committee determines the appropriate allocation of each NEO’s potential compensation among base salary, short-term incentive compensation, long-term incentive compensation, and other components. Based on our strategic plan and budget, the Compensation Committee sets the appropriate goals and measures under the short-term and long-term incentive components of the program and communicates those goals and measures to covered NEOs in February. Each year, the Compensation Committee also reviews our performance compared to short-term and long-term objectives, reviews our executive officer pay practices, evaluates risks associated with our executive compensation program, and approves all awards under our short-term and long-term incentive plans. The Compensation Committee reports its decisions to the Board of Directors.
Role of Company Personnel
Each year, prior to any adjustments in compensation, our Chief Executive Officer
provides the
Compensation Committee
reviewswith a review of our strategic and
compares individualfinancial performance
with respectand the compensation and performance of all executive officers other than himself. He also develops recommendations regarding the compensation of those executive officers and presents his recommendations to
individual goals, department goalsthe Compensation Committee for review and
approval. The Compensation Committee generally requests information relevant to its determinations from Corporation
goals. Because the Chairman of the Board andpersonnel, including our Chief Financial Officer. However, no executive officer other than our Chief Executive Officer
have greater responsibility for the overall operations of the Corporation, theattends Compensation Committee
reviews and compares the following with respect to their compensation: | · | the performance of the Corporation and the Bank compared to previous years and to the budget; |
| · | past compensation levels for these officers; |
| · | competitive compensation levels; and |
| · | total shareholder return. |
meetings. The
Compensation Committee
considers information from a variety of sources, including its compensation consultant, regarding the appropriate mix and levels of the major components of compensation discussed below. The major components ofinvites our
compensation programs are comprised of the following elements, which are described in more detail below: | · | short-term cash incentive awards; |
| · | performance-based equity awards; and |
| · | employment and post-employment benefits. |
Our Chief Executive Officer Norman L. Lowery, is invited to attend Committee meetings at which it discusses the compensation actions involving ourof executive officers other than himself. Our Chief Executive Officer does not attend the Chairmanportion of Compensation Committee meetings at which his compensation is discussed, nor does he make recommendations regarding his own compensation. The Corporation’s Human Resources Management provides information and other support to our Chief Executive Officer and the CEO are discussed. Mr. Lowery assistsCompensation Committee in connection with the Compensation Committee’s deliberations.
Role of Outside Consultants
The Compensation Committee
by making recommendations for compensation of our named executive officers other than himself and the Chairman. Mr. Lowery excuses himself and does not participate in any meetings of the Committee at which either his or the Chairman’s compensation is
discussed. Our other executive officers do not participate in any meetings of the Committee or in establishing the compensation of executive officers.The Committee has authorityauthorized to retain its own advisors, including compensation consultants. Inadvisors. From time to time since April 2010, the Compensation Committee retaineduses the services of Grant Thornton LLP as its independent compensation consultant. Grant Thornton has not performed any other services for the Corporation or Bank, except for certain services related to information technology security testing. In connection with its retention of Grant Thornton, the Compensation Committee determined that no conflict of interest existed that would impair the ability of Grant Thornton to serve as a compensation consultant to assist the Compensation Committee.
Grant Thornton
did not perform any services for management and interactedinteracts with members of management only under the
Compensation Committee’s oversight and with the knowledge and permission of the
Compensation Committee chair. Grant Thornton’s duties included
the review and design of a short-term incentive
compensation plan,
the design of a long-term incentive plan for key executive officers,
a review of director compensation, and
the confirmation of the competitiveness of total compensation for certain executive
officers based on a market study of 31 financial institutions with asset ranges between $2 billion and $4.5 billion.officers. In
connection with Grant Thornton’s recommendations, the Board adopted the 2011 Short Term Incentive Compensation Plan and the 2011 Omnibus Equity Incentive Plan which was approved by our shareholders at our 2011 annual meeting and is described below under the heading “2011 Omnibus Equity Incentive Plan.”In 2012 the Committee again retained Grant Thornton to consult with the Committee regarding current compensation practices.2014, Grant Thornton provided a banking industry update, a regulatory update on compensation and corporate governance topics, and other topics related to First Financialthe Corporation and its compensation plans.
In connection with its retention
Assessment of Grant Thornton,Incentives for Excessive Risk-Taking
Each year, the Committee
determined that no conflict of interest exists that would impairevaluates the
ability of Grant Thornton to serve as a compensation consultant for the Committee.Components of Executive Compensation
The Committee uses several tools to compensate and motivate executive officers to achieve the Corporation’s goals.
| · | Base Salary.Base salary is a fixed component of total cash compensation and is intended to reward executive officers for their past performance and to facilitate the attraction and retention of a skilled and experienced management team. The Committee considers several factors in establishing base salaries: |
| o | Salary Pool.The Committee establishes, and the Board of Directors approves, a total “pool” for salaries for each fiscal year, typically expressed as a percentage increase over the prior year’s total aggregate base salaries. Individual base salary increases for all employees, including the named executive officers, are awarded as allocations from the salary pool. In establishing the amount of the pool, the Committee and the Board of Directors considers general economic conditions (such as inflation and recessionary factors), the performance of the Corporation and the Bank and other sources of information such as third-party compensation surveys, including the Crowe Horwath Financial Institutions Compensation Survey (consisting of a survey for Indiana, Illinois, and the Midwest), the Delves Group Bank Cash Compensation Survey, the Compensation Data Surveys for Banking and Finance, the American Bankers Association Compensation and Benefits Survey, and surveys provided by AON-Hewitt, The Hay Group, The Conference Board, Mercer and Towers Watson. |
| o | Consultant Input. In 2012, the Committee retained Grant Thornton to confirm that total compensation for select positions was competitive. As discussed above, Grant Thornton provided the Committee with market trend information, data and recommendations regarding the alignment of pay and performance. Grant Thornton also recommended that the base pay element of total compensation be used as the platform for the determination of total compensation. |
| o | Third Party Data Sources. The Committee does not use any third-party data sources, including information provided by Grant Thornton, for benchmarking the size of the salary pool, the size of base salaries or any other element of compensation for the named executive officers. Rather, such sources are reviewed and considered by the Committee in order to stay abreast of current compensation practices, levels and structures and thereby better inform its compensation decisions. The Committee considers all sources of information together and utilizes its members’ experience and judgment in determining the amount of the pool for base salary increases. |
| o | Rewarding Performance Rather than Longevity. With respect to individual executive officers, annual increases to base salaries are awarded based on the idea that an increase should reward performance and not longevity. Executive officers whose performance may justify an increase could receive a greater allocation from the pool as a base salary increase than do executive officers who have not performed as well during the prior year. Executive officers who have exceeded job expectations may, in the discretion of the Committee, be awarded a base salary increase which is greater than the amount which would be otherwise dictated by the size of the pool. Conversely, executive officers who did not meet job expectations may, in the discretion of the Committee, receive little or no percentage increase in base salary. |
| o | Analysis of Individual Performance. More specifically, base salary for a named executive officer is determined after the officer’s performance is reviewed by the Committee. This review includes an analysis of the performance of the Corporation and the Bank and an analysis of the individual’s performance during the past fiscal year, with a focus on the officer’s goal attainment; supervisory skills; dependability; initiative; overall skill level; and overall value to the Corporation. The Committee has not attempted to rank or otherwise assign relative weights to the factors that it considers. The Committee considers all of the factors as a whole and collectively makes its decision with respect to base salaries in light of the factors that each of the members considers important. |
| o | Determinations for the Chairman and the CEO. With respect to the determination of the base salary increase for the Chairman of the Board and President and for the Chief Executive Officer, the Committee reviews and considers the factors and third-party data sources discussed above. In determining the base salary increase for the Chief Executive Officer, the Committee also considers the terms of Mr. Lowery’s employment agreement, which requires a minimum annual base salary of $620,297. Under the terms of the employment agreement, prior to a Change in Control (as discussed below in “Potential Payment Upon Termination or Change in Control of the Corporation”), the Committee only may decrease the base salary awarded to Mr. Lowery if the operating results of the Bank are significantly less favorable than those for the fiscal year ending December 31, 2010 and the Bank makes similar decreases in the base salary it pays to other executive officers of the Bank. Additional information concerning Mr. Lowery’s employment agreement is provided below under “Employment Agreement with Norman L. Lowery.” |
The Committee has not established a policy or a specific formula for determining the amount or relative percentage of total compensation which should be derived by the named executive officers from their base salary. Rather, the Committee considers all of the information available to it and utilizes its members’ experience and judgment in determining the amount of the base salaries of the named executive officers.
| · | Incentive Compensation.The Corporation’s cash incentive programs are intended to align employees’ goals with the Corporation’s revenue and earnings growth objectives. The programs consist of the following: |
| o | 2011 Short-Term Incentive Compensation Plan. The Corporation sponsors the First Financial Corporation 2011 Short-Term Incentive Compensation Plan (the “2011 STIP”). Awards under the 2011 STIP are based upon the specific “award amount” for each individual specified. Under the 2011 STIP, threshold performance incentives must be met in order for an award to be earned. Payouts for each of the named executive officers equal 80% of the respective target award for performance at threshold, 100% of the respective target award for performance at target, and 125% or 120% for tiers 1 and 2 respectively, of the respective target award for maximum performance. The Committee spends a significant amount of time analyzing financial measures and determining the level of performance required to receive threshold, target and maximum annual incentive payouts. The Committee established the performance incentives in amounts which it believes to be achievable given a sustained effort on the part of the named executive officers and which require increasingly greater effort to achieve the target and superior objectives. The annual incentive opportunities for each of the named executive officers are based upon weighted performance measures which are determined by the Committee based upon its assessment of what is important to the Corporation’s and the Bank’s overall performance and within the scope of control of the respective named executive officers. The award calculation interpolates the interval between target and threshold or target and maximum. The aggregate result is used to determine the amount earned for each.Payment of any earned awards under the 2011 STIP will be made within 75 days after the end of the calendar year provided the employee is still employed on that date. |
| o | 2011 Omnibus Equity Incentive Plan.We believe that equity-based compensation is a means of creating a long-term link between the compensation provided to executive officers and other key management personnel with gains realized by the shareholders. We believe it is essential to our future to have this flexibility in order to attract, retain and motivate our executive officers and other key employees who make significant contributions to our success and allow them to share in that success. At the 2011 annual meeting the Corporation’s shareholders approved the First Financial Corporation 2011 Equity Incentive Plan (the “2011 EIP”) which provides for awards of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and long-term cash incentives. |
| · | Employment and Post-Employment Benefits.The Committee believes that retirement and other post-employment benefits can be a powerful motivational tool for executives. The programs of this type used by the Committee include the following: |
| o | 401(k) Savings Plan. The First Financial Corporation Employees’ 401(k) Savings Plan (the “Savings Plan”) is a qualified salary reduction plan within the meaning of Code Section 401(k) available to substantially all of the employees of the Corporation and its subsidiaries. Under the Savings Plan all eligible employees may elect to have a portion of their compensation deferred and contributed to their individual accounts under the Savings Plan. Participants direct the investment of their Savings Plan account. |
| o | ESOP and Pension Plan.The Corporation sponsors the First Financial Corporation Employee Stock Ownership Plan (the “ESOP”) and the First Financial Corporation Employees’ Pension Plan (the “Pension Plan”) for the benefit of substantially all of the employees of the Corporation and its subsidiaries. These plans together constitute a “floor offset” retirement program, so that the Pension Plan provides each participant with a minimum benefit which is offset by the benefit provided by the ESOP. Under the terms of the ESOP, the Corporation and subsidiaries and affiliates who participate in the ESOP may contribute Corporation stock or cash which will be primarily invested in Corporation stock. The amount of contributions, when they are made, is determined by the Board of Directors of the Corporation. Under the terms of the Pension Plan, the monthly guaranteed minimum benefit under the Pension Plan is reduced by the monthly benefit derived from the vested portion of the participant’s ESOP account balance, calculated by the actuary for the Pension Plan as a single life annuity. Unless the participant elects an alternate form of benefit under the Pension Plan, the normal retirement benefit, if any, payable under the Pension Plan, will begin at the later of the participant’s retirement or age 65 and be paid monthly for as long as the participant lives. The Pension Plan allows for an early retirement benefit equal to a participant’s accrued benefit, determined before the reduction for the monthly ESOP benefit, reduced by 1/180 for each full month for the first five years and 1/360 for each full month for the next five years that the commencement of benefit payments precedes the participant’s normal retirement date. Mr. Clary is eligible for early retirement under the Pension Plan. |
| o | First Financial Corporation 2001 and 2005 Long-Term Incentive Plans.The Corporation sponsors the First Financial Corporation 2001 Long-Term Incentive Plan (the “2001 Plan”), effective January 1, 2001, and the First Financial Corporation 2005 Long-Term Incentive Plan (the “2005 Plan”), effective January 1, 2005, which are unfunded, nonqualified plans of deferred compensation for directors and certain executive officers. The 2001 Plan was frozen effective December 31, 2004 to exempt all amounts under the 2001 Plan from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The Board adopted the 2005 Plan as a replacement plan, effective January 1, 2005. The terms of the 2005 Plan comply with the requirements of Code Section 409A and related guidance. The 2005 Plan terminated on December 31, 2009 according to the stated term. Payments under the 2001 and 2005 Plans generally do not begin until the earlier of January 1, 2015, or the January 1 immediately following the year in which the participant reaches age 65. Payment may also be made upon death, disability, change in control or termination for other than cause. Mr. Smith began receiving payment of his benefits in January 2010 and Mr. Lowery began receiving payments of his benefits in January 2012. Payments are in cash only and are generally made in 180 equal consecutive monthly installments. |
| o | Executive Supplemental Retirement Plan. The First Financial Corporation Executive Supplemental Retirement Plan (the “ESRP”) provides supplemental retirement benefits for a select group of management or highly compensated employees to help recompense the employees for benefits reduced due to the imposition of Code limitations on benefits under the Pension Plan. Amounts payable under the ESRP are offset by amounts payable under the First Financial Executives’ Deferred Compensation Plan. The ESRP was frozen effective December 31, 2004 to exempt all amounts under the ESRP from Code Section 409A. The Board adopted the First Financial Corporation 2005 Executive Supplemental Retirement Plan (the “2005 ESRP”) as a replacement plan, effective January 1, 2005, to comply with Code Section 409A. Amounts payable under the ESRP will be offset by amounts payable under the First Financial Corporation Executives’ Deferred Compensation Plan (the “EDC Plan”) and amounts payable under the 2005 ESRP will be offset by amounts payable under the First Financial Corporation 2005 Executives’ Deferred Compensation Plan (the “2005 EDC Plan”). |
| o | Executives’ Deferred Compensation Plan.The EDC Plan permits a select group of management or highly compensated employees to elect to defer compensation from the employers without regard to the limitations imposed by the Code on the amount of compensation which may be deferred. The EDC Plan also provides for a supplemental ESOP benefit which is equal to the amount of the benefit a participant would have been allocated under the ESOP if not for the limitations imposed by the Code on the ESOP. Amounts payable under the supplemental ESOP portion of the EDC Plan will offset amounts payable under the ESRP. The EDC Plan was frozen effective December 31, 2004 to exempt all amounts accrued under the EDC from Code Section 409A. The Board adopted the 2005 EDC Plan as a replacement plan, effective January 1, 2005, to comply with Code Section 409A. Amounts payable under the 2005 EDC Plan will offset amounts payable under the 2005 ESRP. |
| o | Perquisites. The Corporation provides very limited perquisites to executive officers; however, it does sponsor a life insurance program for the named executive officers of the Bank other than Messrs. Smith and Clary. Under the life insurance program, the Bank purchased a whole life insurance policy on behalf of, and pays the premiums on behalf of, each executive officer of the Bank. The policy is owned by the individual and is intended to be fully paid at age 65 for those who were 55 or older, and at age 60 for those who were less than 55 years of age at the time the individual joined the Bank. |
Executive Compensation for2012
In 2012, the Committee reviewed individual and company performance as well as expected trends in executive compensation in the banking industry. That review included the following:
| · | Corporate Performance.In 2012 the Corporation delivered solid financial performance with net income of $32.8 million, the second highest in the history of the Corporation. This increase was in part driven by a 9.78% increase in net interest income to $108.9 million. The return on assets for 2012 was 1.13%. During 2012 the Corporation integrated its largest acquisition to date completing the purchase and assumption of Freestar Bank N.A. Also during 2012 the Corporation opened four new de novo branches in southern Indiana expanding into three new markets. The Corporation ended the year with $2.9 billion in assets. |
| · | Grant Thornton.As discussed above, in 2012, the Committee retained Grant Thornton to confirm that total compensation for select positions was competitive. As discussed previously, Grant Thornton provided the Committee with market trend information, data and recommendations regarding the alignment of pay and performance. Grant Thornton also recommended that the base pay element of total compensation be used as the platform for the determination of total compensation. After reviewing the third-party data sources and information from Grant Thornton, the Committee established a pool for 2012 of 2.9% over the prior year’s total aggregate base salaries. |
Based on its review, the Committee determined the following:
| · | Base Salaries Consistent with Pool. For 2012, the Committee did not exercise its discretion to award a named executive officer either (1) a base salary increase of greater than the pool for exceeding performance expectations or (2) no salary increase for failing to meet minimum performance expectations. |
| · | 2011 Short-Term Incentive Compensation Plan. Awards under the 2011 STIP are based upon the specific “award amount” for each individual specified. Threshold performance incentives must be met in order for an award to be earned. There are four tiers of participants, with a different award amount specified for each tier. The first tier for 2012 consisted of Mr. Smith and Mr. Norman L. Lowery; the second tier consisted of Messrs. McHargue, Clary and Norman D. Lowery; the third and fourth tier consisted of other senior officers. The award amounts were established after discussions with, and receipt of advice from, the Corporation’s consultant, Grant Thornton. |
The annual incentive opportunities for each of the named executive officers are based upon weighted performance measures which are determined by the Committee.For awards made in 2012 which are payable in 2013 and awards made 2013 which are payable in 2014material operational risks to the extent they are earned, the performance measures were/are weighted as follows:
| | Net Income | | | Return on Assets | | | Return on Equity | | | Contribution to Income | | | Total Loan Growth | | | Asset Quality | | | Net Charge-offs | | | Loan Spread | |
Donald E. Smith | | | 33.33 | % | | | 33.33 | % | | | 33.34 | % | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Norman L. Lowery | | | 33.33 | % | | | 33.33 | % | | | 33.34 | % | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rodger A. McHargue | | | 33.33 | % | | | 33.33 | % | | | 33.34 | % | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thomas S. Clary | | | 10.00 | % | | | 10.00 | % | | | 10.00 | % | | | 15.00 | % | | | 20.00 | % | | | 10.00 | % | | | 10.00 | % | | | 15.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Norman D. Lowery | | | 33.33 | % | | | 33.33 | % | | | 33.34 | % | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
These 2012 performance measures are compared to goalCorporation, which includes credit, interest rate, liquidity, reputation, compliance, and weighted accordingly. The goals for each of these executive officers are shown in the following table. Donald E. Smith’s goals are based on the performance of First Financial Corporation. Messrs N.L. Lowery, McHargue, N.D. Lowery, and Clary’s goals are based on the performance of First Financial Bank.
Measure | | Level | | | Smith | | | NL Lowery | | | McHargue | | | ND Lowery | | | Clary | |
| | | Threshold | | | $ | 26,226 | | | $ | 24,472 | | | $ | 24,472 | | | $ | 24,472 | | | $ | 24,472 | |
Net Income | | | Target | | | $ | 32,783 | | | $ | 30,590 | | | $ | 30,590 | | | $ | 30,590 | | | $ | 30,590 | |
| | | Maximum | | | $ | 40,979 | | | $ | 38,238 | | | $ | 36,708 | | | $ | 36,708 | | | $ | 36,708 | |
| | | Actual | | | $ | 32,812 | | | $ | 29,931 | | | $ | 29,931 | | | $ | 29,931 | | | $ | 29,931 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Threshold | | | | 0.89 | % | | | 0.86 | % | | | 0.86 | % | | | 0.86 | % | | | 0.86 | % |
Return on | | | Target | | | | 1.11 | % | | | 1.07 | % | | | 1.07 | % | | | 1.07 | % | | | 1.07 | % |
Assets | | | Maximum | | | | 1.39 | % | | | 1.34 | % | | | 1.28 | % | | | 1.28 | % | | | 1.28 | % |
| | | Actual | | | | 1.13 | % | | | 1.07 | % | | | 1.07 | % | | | 1.07 | % | | | 1.07 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Threshold | | | | 7.26 | % | | | 7.39 | % | | | 7.39 | % | | | 7.39 | % | | | 7.39 | % |
Return on | | | Target | | | | 9.07 | % | | | 9.24 | % | | | 9.24 | % | | | 9.24 | % | | | 9.24 | % |
Equity | | | Maximum | | | | 11.34 | % | | | 11.55 | % | | | 11.09 | % | | | 11.09 | % | | | 11.09 | % |
| | | Actual | | | | 9.02 | % | | | 8.88 | % | | | 8.88 | % | | | 8.88 | % | | | 8.88 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Threshold | | | | — | | | | — | | | | — | | | | — | | | $ | 33,612 | |
Contribution | | | Target | | | | — | | | | — | | | | — | | | | — | | | $ | 42,015 | |
to Income | | | Maximum | | | | — | | | | — | | | | — | | | | — | | | $ | 50,418 | |
| | | Actual | | | | — | | | | — | | | | — | | | | — | | | $ | 40,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Threshold | | | | — | | | | — | | | | — | | | | — | | | | 15.14 | % |
Total Loan | | | Target | | | | — | | | | — | | | | — | | | | — | | | | 18.93 | % |
Growth | | | Maximum | | | | — | | | | — | | | | — | | | | — | | | | 22.72 | % |
| | | Actual | | | | — | | | | — | | | | — | | | | — | | | | 14.19 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Threshold | | | | — | | | | — | | | | — | | | | — | | | | 1.60 | % |
Asset | | | Target | | | | — | | | | — | | | | — | | | | — | | | | 2.00 | % |
Quality | | | Maximum | | | | — | | | | — | | | | — | | | | — | | | | 2.40 | % |
(30 Day +) | | | Actual | | | | — | | | | — | | | | — | | | | — | | | | 2.14 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Threshold | | | | — | | | | — | | | | — | | | | — | | | | 0.33 | % |
Net | | | Target | | | | — | | | | — | | | | — | | | | — | | | | 0.41 | % |
Charge- | | | Maximum | | | | — | | | | — | | | | — | | | | — | | | | 0.49 | % |
offs | | | Actual | | | | — | | | | — | | | | — | | | | — | | | | 0.37 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Threshold | | | | — | | | | — | | | | — | | | | — | | | | 2.50 | % |
Total Loan | | | Target | | | | — | | | | — | | | | — | | | | — | | | | 3.12 | % |
Spread | | | Maximum | | | | — | | | | — | | | | — | | | | — | | | | 3.74 | % |
| | | Actual | | | | — | | | | — | | | | — | | | | — | | | | 3.15 | % |
| · | 2011 Omnibus Equity Incentive Plan (“2011 EIP”).Threshold performance measures must be met before the Committee considers making an award under the 2011 EIP. Potential award amounts for each of the named executive officers equal 80% of the respective target award for performance at threshold, 100% of the respective target award for performance at target, and 150% or 125% for tiers 1 and 2 respectively, of the respective target award for maximum performance. Messrs. Smith and Norman L. Lowery are tier 1 participants; whereas Messrs. McHargue, Clary and Norman D. Lowery are tier 2 participants. The Committee spends a significant amount of time analyzing financial measures and determining the level of performance required to receive threshold, target and maximum annual incentive payouts. The Committee established the performance measures in amounts which it believes to be achievable given a sustained effort on the part of the named executive officers and which require increasingly greater effort to achieve the target and maximum objectives. |
For awards made for 2012 performance period, the performance measures were weighted as follows for each of the named executive officers, based on the Committee’s assessment of what is important to the Corporation’s and the Bank’s overall performance and within the scope of control of the respective executive officers:
3 Year Average NetIncome | 3 Year Average Return onAssets | 3 Year Average Return onEquity | 3 Year Average EPSGrowth Rate |
25% | 25% | 25% | 25% |
Performance measures are compared to goal and weighted accordingly. The goals for each of the named executive officers at the various performance levelstransaction risk as well as the actual performance levels are listed inadded potential for loss that could result from any of our compensation programs. The Committee also charges the table below. Donald E. Smith’s goals are basedCorporation’s General Auditor with performing a risk assessment of the incentive compensation program. Based on a review of these risks and the performancereport of First Financial Corporation. Messrs N.L. Lowery, McHargue, N.D. Lowery, and Clary’s goals are based on the performance of First Financial Bank except for Three Year average Earnings Per Share growth which is based on the performance of First Financial Corporation.
Measure | | Level | | Smith | | | NLLowery | | | McHargue | | | NDLowery | | | Clary | |
3 Year | | Threshold | | $ | 25,904 | | | $ | 23,134 | | | $ | 23,134 | | | $ | 23,134 | | | $ | 23,134 | |
Average | | Target | | $ | 32,380 | | | $ | 28,917 | | | $ | 28,917 | | | $ | 28,917 | | | $ | 28,917 | |
Net Income | | Maximum | | $ | 48,570 | | | $ | 43,376 | | | $ | 36,146 | | | $ | 36,146 | | | $ | 36,146 | |
| | Actual | | $ | 32,684 | | | $ | 30,388 | | | $ | 30,388 | | | $ | 30,388 | | | $ | 30,388 | |
| | | | | | | | | | | | | | | | | | | | | | |
3 Year | | Threshold | | | 0.92 | % | | | 0.90 | % | | | 0.90 | % | | | 0.90 | % | | | 0.90 | % |
Average | | Target | | | 1.15 | % | | | 1.13 | % | | | 1.13 | % | | | 1.13 | % | | | 1.13 | % |
Return on | | Maximum | | | 1.73 | % | | | 1.70 | % | | | 1.41 | % | | | 1.41 | % | | | 1.41 | % |
Assets | | Actual | | | 1.24 | % | | | 1.20 | % | | | 1.20 | % | | | 1.20 | % | | | 1.20 | % |
| | | | | | | | | | | | | | | | | | | | | | |
3 Year | | Threshold | | | 7.38 | % | | | 7.56 | % | | | 7.56 | % | | | 7.56 | % | | | 7.56 | % |
Average | | Target | | | 9.22 | % | | | 9.45 | % | | | 9.45 | % | | | 9.45 | % | | | 9.45 | % |
Return on | | Maximum | | | 13.83 | % | | | 14.18 | % | | | 11.81 | % | | | 11.81 | % | | | 11.81 | % |
Equity | | Actual | | | 9.57 | % | | | 9.62 | % | | | 9.62 | % | | | 9.62 | % | | | 9.62 | % |
| | | | | | | | | | | | | | | | | | | | | | |
3 Year Avg | | Threshold | | | 6.03 | % | | | 6.03 | % | | | 6.03 | % | | | 6.03 | % | | | 6.03 | % |
Earnings | | Target | | | 7.54 | % | | | 7.54 | % | | | 7.54 | % | | | 7.54 | % | | | 7.54 | % |
Per Share | | Maximum | | | 11.31 | % | | | 11.31 | % | | | 9.43 | % | | | 9.43 | % | | | 9.43 | % |
Growth | | Actual | | | 14.41 | % | | | 14.41 | % | | | 14.41 | % | | | 14.41 | % | | | 14.41 | % |
In February 2013,General Auditor, the Committee has determined to make awards of restricted stock based onthat the Corporation’s performance against the 2012 performance measures discussed above. Because these awards of restricted stock were granted in 2013, they arecompensation arrangements and policies do not reflected in the 2012 Summary Compensation or Grants of Plan Based Awards Tables but will be included in the tables in 2013.
The Committee met in February 2013 and determined the above performance measures in aggregate had been met at the maximum level of performance for Messrs. McHargue, N. D. Lowery, and Clary, and at the target level for Messrs. Smith and N. L. Lowery. As a result, restricted stock awards were granted to the following executive officers on February 5, 2013 subject to becoming vested in one-third increments over a three-year period commencing on December 31, 2013, December 31, 2014 and December 31, 2015, respectively. The Committee determined the number of restricted shares subject to an award by dividing the dollar amount of the award calculated based on the achievement of the foregoing performance goals and dividing that amount by the mean between the highest and lowest quoted selling prices of the Corporation’s common stock as of the day the award is granted. Below is a table which identifies the calculation of the award of restricted stock to named executive officers. The 2011 EIP does not permit issuance of fractional shares, so, pursuant to the terms of the 2011 EIP, the number of restricted shares awarded was rounded down to the nearest whole number.
Name | | Dollar Amountof Award | | | Stock Price onFebruary 5, 2013 | | | Number of Shares ofRestricted Stock Awarded | |
Donald E. Smith | | $ | 151,188.83 | | | $ | 30.55 | | | | 4,948 | |
Norman L. Lowery | | $ | 459,532.09 | | | $ | 30.55 | | | | 15,041 | |
Rodger A. McHargue | | $ | 94,913.00 | | | $ | 30.55 | | | | 3,106 | |
Thomas S. Clary | | $ | 93,745.00 | | | $ | 30.55 | | | | 3,068 | |
Norman D. Lowery | | $ | 92,815.50 | | | $ | 30.55 | | | | 3,038 | |
encourage excessive risk-taking.
Share Ownership and Retention Guidelines and Prohibition on Hedging
Share ownership and retention guidelines help to foster a focus on long-term growth. The Board of Directors has adopted stock ownership guidelines applicable to our named executive officers.
Our named executive officers areUnder those guidelines, our CEO is required to own a number of shares of the Corporation’s common stock equal in value to $500,000,
for Messrs. Smith and
Norman L. Lowery, and $150,000 for all other
named executive officers.NEOs are required to own a number of shares equal in value to $150,000. Except for purposes of exercising statutory diversification rights under the ESOP,
our covered
employeesexecutives may not dispose of shares until they have satisfied the guidelines. Covered
employeesexecutives are expected to comply with the guidelines as soon as practicable, and in no event later than five years after the date they become a covered
employee.executive. In the case of individuals who were covered
employeesexecutives when the guidelines became effective, compliance is required within five years of the effective date. Messrs.
Donald E. Smith, Norman L. Lowery,
andMcHargue, Norman D. Lowery,
Holliday and Ms. Milienu currently meet
these requirements.The named executive officersthe guidelines.
Our NEOs and directors are prohibited from engaging in hedging or monetization transactions with respect to the securities of the Corporation.
Tax Deductibility Cap on Executive Compensation
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1 million paid to each of a company’s chief executive officer and certain other highly compensated executive officers. Qualifying performance-based compensation
willis not
be subject to
thethis deduction
limit if certain requirements are met. Itlimit. While it is the Committee’s objective to
maximizeavoid the deduction limitations of Code Section 162(m), compensation paid may not be deductible because it exceeds the limitations or does not meet the “performance-based or other requirements for deductibility under Section 162(m)
to the extent consistent with the Committee’s assessment of the interests of the Company and its shareholders..
Executive Compensation Recovery Policy
We can recover or “claw back” all or a portion of an incentive compensation payment which was based on erroneous data due to our material noncompliance with any financial reporting requirement under securities laws which resulted in an accounting restatement. The claw back
will applyapplies to incentive compensation described above which was paid within three years preceding the date of the accounting restatement. In that instance, the participant is required to repay the excess amount which would not have been paid to the participant but for the accounting restatement.
Results of Say-on-Pay Vote at 2012 Annual Meeting
At the Corporation’s 2012 annual meeting of shareholders, the Corporation held a nonbinding advisory vote on our named executive officer compensation (commonly referred to as “Say-on-Pay”). At the meeting, approximately 81% of the represented shares voted to approve the Corporation’s executive compensation programs, approximately 5% voted against, less than 1% abstained from voting and approximately 14% constituted broker non-votes.
The Compensation and Employee Benefits Committee has considered the results of the vote and feedback received from shareholders as part of its review of the Corporation’s overall executive compensation program, including the appropriateness of the compensation philosophy and objectives, the role of the Committee and executive officers in setting compensation, the elements used to achieve the compensation philosophy and objectives and the levels of compensation provided to the named executive officers. Based upon an analysis of these factors, the Committee determined the Corporation’s executive compensation philosophy and the application of this philosophy is appropriate.
Compensation Committee Report
The Compensation and Employee Benefits Committee of the Corporation has reviewed and discussed
thethis Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with management and, based on such review and
discussions,discussion, the Committee
(i) is satisfied that the Compensation Discussion and Analysis represents the philosophy, intent and actions of the Committee with regard to executive compensation, and (ii) recommended to the Board
of Directors that the Compensation Discussion and Analysis be included in this Proxy
Statement on Schedule 14A.Statement. |
| |
| Members of the Compensation and Employee Benefits Committee: |
|
William J. Voges, Chairman Anton H. George Chairman |
| William R. Krieble (since February, 2015) Ronald K. Rich |
| William J. Voges |
| |
2014 Summary Compensation Table
The following table sets forth the compensation awarded to, earned by, or paid to the chief executive officer, the chief financial officer and the three most highly compensated executive officers other than the chief executive officer and the chief financial officer (collectively, the
“Named"Named Executive
Officers”Officers") during the years ended December 31,
2012, 20112014, 2013 and
2010.2012 SUMMARY COMPENSATION TABLE
Name and Principal Position | | Year | | | Salary ($) | | | ($) | | | Non-Equity Incentive Plan Compensation (2) ($) | | | Change in Pension Value And Nonqualified Deferred Compensation Earnings (3) ($) | | | All Other Compensation (4) ($) | | | Total ($) | |
Donald E. Smith, | | | 2012 | | | | 200,000 | | | | 638,938 | | | | 91,137 | | | | — | | | | — | | | | 930,075 | |
Chairman of the Board | | | 2011 | | | | 712,129 | | | | — | | | | 419,685 | | | | — | | | | — | | | | 1,131,814 | |
and President | | | 2010 | | | | 697,801 | | | | — | | | | 727,991 | | | | — | | | | — | | | | 1,425,792 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Norman L. Lowery, | | | 2012 | | | | 607,615 | (5) | | | 531,563 | | | | 275,845 | | | | 658,135 | | | | 85,538 | (7) | | | 2,158,696 | |
Vice Chairman of the Board | | | 2011 | | | | 598,049 | | | | — | | | | 337,276 | | | | 976,461 | | | | 48,938 | | | | 1,960,724 | |
and Chief Executive Officer | | | 2010 | | | | 583,890 | | | | — | | | | 600,444 | | | | 203,171 | | | | 34,325 | | | | 1,421,830 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rodger A. McHargue, | | | 2012 | | | | 189,826 | (5) | | | 92,306 | | | | 65,004 | | | | 148,717 | | | | 6,992 | (7) | | | 502,845 | |
Chief Financial Officer, | | | 2011 | | | | 184,612 | | | | — | | | | 77,537 | | | | 154,452 | | | | 3,477 | | | | 420,078 | |
First Financial Bank, N.A. and | | | 2010 | | | | 163,425 | | | | — | | | | 119,769 | | | | 15,714 | | | | 3,477 | | | | 302,385 | |
First Financial Corporation | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thomas S. Clary, | | | 2012 | | | | 187,690 | (6) | | | 91,103 | | | | 61,813 | | | | 125,434 | | | | 5,795 | | | | 471,835 | |
Chief Credit Officer, | | | 2011 | | | | 185,492 | | | | — | | | | 58,495 | | | | 152,386 | | | | 3,174 | | | | 399,547 | |
First Financial Bank, N.A. | | | 2010 | | | | 180,684 | | | | — | | | | 129,408 | | | | 57,559 | | | | 5,198 | | | | 372,849 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Norman D. Lowery, | | | 2012 | | | | 185,631 | | | | 90,466 | | | | 63,568 | | | | 115,998 | | | | 11,309 | (7) | | | 466,972 | |
Chief Operations Officer, | | | 2011 | | | | 180,937 | | | | — | | | | 75,991 | | | | 90,414 | | | | 7,385 | | | | 354,727 | |
First Financial Bank, N.A. and | | | 2010 | | | | 173,389 | | | | — | | | | 121,735 | | | | 1,499 | | | | 7,296 | | | | 303,919 | |
First Financial Corporation | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Salary | | | | Stock Awards (1) | | Non-Equity Incentive Plan Compensation (2) | | Change in Pension Value And Nonqualified Deferred Compensation Earnings (3) | | All Other Compensation (4) | | | | Total |
Name and Principal Position | | Year | | ($) | | | | ($) | | ($) | | ($) | | ($) | | | | ($) |
Norman L. Lowery, | | 2014 | | 630,297 |
| | | | 417,894 |
| | 292,417 |
| | 1,233,378 |
| | 83,428 |
| | | | 2,657,414 |
|
Chief Executive Officer, | | 2013 | | 626,097 |
| | | | 459,532 |
| | 282,017 |
| | — |
| | 75,862 |
| | | | 1,443,508 |
|
First Financial Bank, N.A. and | | 2012 | | 607,615 |
| | | | 531,563 |
| | 275,845 |
| | 658,135 |
| | 85,538 |
| | | | 2,158,696 |
|
First Financial Corporation | | | | |
| | | | |
| | |
| | |
| | |
| | | |
|
|
Rodger A. McHargue, | | 2014 | | 201,209 |
| | (5) | | 87,332 |
| | 67,005 |
| | 324,486 |
| | 8,403 |
| | | | 688,435 |
|
Chief Financial Officer, | | 2013 | | 196,191 |
| | | | 94,913 |
| | 68,823 |
| | 34,472 |
| | 11,278 |
| | | | 405,677 |
|
First Financial Bank, N.A. and | | 2012 | | 189,826 |
| | | | 92,306 |
| | 65,004 |
| | 148,717 |
| | 6,992 |
| | | | 502,845 |
|
First Financial Corporation | | | | |
| | | | |
| | |
| | |
| | |
| | | |
|
|
Steven H. Holliday, | | 2014 | | 200,200 |
| | (6) | | 85,173 |
| | 61,472 |
| | — |
| | 14,022 |
| | | | 360,867 |
|
Chief Credit Officer, | | 2013 | | 190,565 |
| | | | — |
| | 54,578 |
| | — |
| | 13,281 |
| | | | 258,424 |
|
First Financial Bank, N.A. | | 2012 | | 78,506 |
| | | | — |
| | 62,000 |
| | — |
| | 7,532 |
| | | | 148,038 |
|
Norman D. Lowery, | | 2014 | | 200,000 |
| | | | 85,463 |
| | 69,079 |
| | 207,812 |
| | 14,028 |
| | | | 576,382 |
|
Chief Operations Officer, | | 2013 | | 191,014 |
| | | | 92,816 |
| | 67,351 |
| | 3,442 |
| | 16,349 |
| | | | 370,972 |
|
First Financial Bank, N.A. and | | 2012 | | 185,631 |
| | | | 90,466 |
| | 63,568 |
| | 115,998 |
| | 11,309 |
| | | | 466,972 |
|
First Financial Corporation | | | | |
| | | | |
| | |
| | |
| | |
| | | |
|
|
Karen L. Milienu, | | 2014 | | 150,000 |
| | | | 32,570 |
| | 34,368 |
| | 195,604 |
| | 3,810 |
| | | | 416,352 |
|
Director of Branch Banking, | | 2013 | | 145,590 |
| | | | 31,127 |
| | 37,811 |
| | 17,717 |
| | 3,245 |
| | | | 235,490 |
|
First Financial Bank, N.A | | 2012 | | 141,487 |
| | | | 17,778 |
| | 43,479 |
| | — |
| | 600 |
| | | | 203,344 |
|
| |
(1) | The amounts in this columnrepresent the aggregate grant date fair values of the restricted stock awarded in 2014, 2013 and 2012 for 2011based on prior years’ performance, determined pursuant to FASB ASC Topic 718. These amounts do not reflect whether the recipient will realize a financial benefit from the awards (such as becoming vested over the three-year graded vesting period). The grant date fair values have been determined based on the assumptions and methodologies set forth in the Corporation’s 20122014 Form 10-K (note 16). |
| |
(2) | The amounts in this column reflect amounts earned under the 2011 STIP on December 31, 2012 which will be paid within 75 days of the end of the performance period provided the employee is employed on the date the award is paid. The 2011 STIP is discussed in detail in the “Compensation Discussion and Analysis” section of this Proxy Statement.STIP. |
| |
(3) | The amounts in this column do not reflect amounts paid. The amounts reflect the actuarial increase in the present value of the named executive officers’ benefits under the Pension Plan and our nonqualified defined benefit plans (“ESRP” and “2005 ESRP”), determined using interest rate and mortality rate assumptions consistent with those used in the Corporation’s financial statements andstatements. |
| |
(4) | For 2014, includes amounts which(i) the premiums paid by the Corporation pursuant to a life insurance program for named executive officer may not be entitled to receive because suchofficers of $4,895 for Norman L. Lowery, $3,477 for Mr. McHargue, $4,140 for Mr. Holliday, $683 for Mr. Norman D. Lowery and $600 for Ms. Milienu; (ii) amounts are not vested. Becausecontributed by the ESOP and the Pension Plan constitute a “floor offset” retirement program, this column represents amounts that are required to be paidCorporation under the Pension Plan because they are not offset by the named executive officer’s ESOP benefit. |
| (4) | 2005 non-qualified defined contribution plan (“2005 EDC”), which were $48,370 for Norman L. Lowery, $441 for Mr. McHargue, and $802 for Norman D. Lowery; (iii) dividends on restricted stock which were $20,753 for Norman L. Lowery, $4,148 for Mr. McHargue, $1,297 for Mr. Holliday, $4,060 for Mr. Norman D. Lowery and $1,311 for Ms. Milienu; and (iv) miscellaneous perquisites of less than $10,000. Allocations to the named executive officer’s respective account in the ESOP for 2012,2014, which are properly includedwould be includable in this column, were not calculable as of the date of this Proxy Statement. Such amounts for 20112013 were as follows: $13,203 for Mr. Smith; $13,203$12,713 for Mr. Norman L. Lowery; $12,877$12,713 for Mr. McHargue; $13,203for Mr. Clary; and $13,197$12,713 for Mr. Norman D. Lowery.Lowery; and $9,314 for Ms. Milienu. |
| |
(5) | Includes $4,800 for service as a director of Portfolio Management Specialist A (a subsidiary of the Bank), Portfolio Management Specialist B (an indirect subsidiary of the Bank) and Global Portfolio Limited Partnership (an indirect subsidiary of the Bank). |
subsidiary of the Bank), and $500 for service as a director of FFB Risk Management Company, Inc. (a subsidiary of the Corporation).
| |
(6) | Includes $200 for service as a manager of First Financial Real Estate LLP (a real estate investment trust of the bank)Bank). |
| (7) | Includes (i) the premiums paid by the Corporation pursuant to a life insurance program for named executive officers, (ii) amounts contributed by the Corporation under the 2005 EDC, which were $73,127 for Norman L. Lowery, $3,515 for Mr. McHargue, $2,051 for Mr. Clary, and $3,876 for Norman D. Lowery, and (iii) dividends on restricted stock. |
Grants of Plan-Based Awards
The following table sets forth the plan-based grants during the fiscal year ended December 31, 2012,2014, consisting of opportunities for cash awards made under the 2011 STIPShort-Term Incentive Compensation Plan (the “2011 STIP”) and equity grants under the 2011 EIP,Omnibus Equity Incentive Plan (the “2011 EIP”), which isare discussed in more detail in the “Compensation Discussion and Analysis” section of this Proxy Statement.GRANTS OF PLAN-BASED AWARDS FOR 2012
Name | | Grant Date | | Plan Name | | Estimated Payouts Under Non-Equity Incentive Plan Awards ($) (1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards ($) (2) | | | Grant Date Fair Value ($) (3) | |
Donald E. Smith | | | | 2011 STIP | | | 91,137 | | | | | | | | | |
| | 2/5/2013 | | 2011 EIP | | | | | | | 151,189 | | | | 30.55 | |
| | | | | | | | | | | | | | | | |
Norman L. Lowery | | | | 2011 STIP | | | 275,845 | | | | | | | | | |
| | 2/5/2013 | | 2011 EIP | | | | | | | 459,532 | | | | 30.55 | |
| | | | | | | | | | | | | | | | |
Rodger A. McHargue | | | | 2011 STIP | | | 65,004 | | | | | | | | | |
| | 2/5/2013 | | 2011 EIP | | | | | | | 94,913 | | | | 30.55 | |
| | | | | | | | | | | | | | | | |
Thomas S. Clary | | | | 2011 STIP | | | 61,813 | | | | | | | | | |
| | 2/5/2013 | | 2011 EIP | | | | | | | 93,745 | | | | 30.55 | |
| | | | | | | | | | | | | | | | |
Norman D. Lowery | | | | 2011 STIP | | | 63,568 | | | | | | | | | |
| | 2/5/2013 | | 2011 EIP | | | | | | | 92,815 | | | | 30.55 | |
___________________
|
| | | | | | | | | | | | | | | | |
| | | | | Estimated Payouts Under Non-Equity Incentive Plan Awards (1) | All Other Stock Awards: Number of Shares of Stock or Units (2) | Closing Market Price on Grant Date ($/sh) | Grant Date Fair Value of Stock Awards (3) ($) |
Name | | Grant Date | | Plan Name | Threshold ($) | Target ($) | Maximum ($) |
Norman L. Lowery | | | | 2011 STIP | 233,840 |
| 292,458 |
| 365,572 |
| | | |
| | 2/1/2014 | | 2011 EIP | |
| | | 12,990 |
| 32.17 |
| 417,894 |
|
Rodger A. McHargue | | | | 2011 STIP | 56,338 |
| 70,423 |
| 84,508 |
| | | |
| | 2/1/2014 | | 2011 EIP | |
| | | 2,714 |
| 32.17 |
| 87,332 |
|
Steven H. Holliday | | | | 2011 STIP | 56,000 |
| 70,000 |
| 84,000 |
| | | |
| | 2/1/2014 | | 2011 EIP | |
| | | 2,647 |
| 32.17 |
| 85,173 |
|
Norman D. Lowery | | | | 2011 STIP | 56,000 |
| 70,000 |
| 84,000 |
| | | |
| | 2/1/2014 | | 2011 EIP | |
| | | 2,656 |
| 32.17 |
| 85,463 |
|
Karen L. Milienu | | | | 2011 STIP | 33,750 |
| 37,500 |
| 41,250 |
| | | |
| | 2/1/2014 | | 2011 EIP | |
| | | 1,012 |
| 32.17 |
| 32,570 |
|
| |
(1) | The amounts in this columnthese columns represent the threshold, target and maximum fiscal year 20122014 awards available under the 2011 STIP.To receive a payout under the 2011 STIP, a participant must remain employed with the Corporation through the date payment is made, which is within 75 days of the end of the performance period, (exceptexcept in the case of death, disability, retirement, termination without cause or a terminationresignation for good reason, which terms are defined in the 2011 STIP).STIP. The amounts in these columns represent award opportunities; the actual amount of the award earned for 2014 for each named executive officer is included under the column “Non-Equity Incentive Plan Compensation” of the Summary Compensation Table. |
| |
(2) | The awardsamounts in this column represent performance-based restricted stock awards madegranted in 20132014 based on performance during 2012.For the fiscal year 2012, thethree-years ending in 2013. The shares vest in three substantially equal installments on December 31, of 2013, 2014, 2015 and 2015.2016. Vesting is contingent upon the executive officers remaining employed during the required service period.period, unless employment terminates due to death, disability, termination, by the Corporation without cause, resignation for good reason, or retirement (each as defined in the 2011 EIP), in which case the restricted stock award vests in full. No automatic acceleration of vesting occurs upon a change in control. Award recipients are entitled to dividends on the restricted shares during the vesting period. |
| |
(3) | The grant date fair market value of the performance-based restricted stock awards reported in this column is the grant date value of the awards as determined under FASB ASC Topic 718. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| | Stock Awards | |
Name | | Number of Shares or Units of Stock that Have Not Vested (1) (#) | | | Market Value of Shares or Units of Stock that Have Not Vested ($) | |
Donald E. Smith | | | 11,550 | | | | 349,272 | |
Norman L. Lowery | | | 9,609 | | | | 290,576 | |
Rodger A. McHargue | | | 1,668 | | | | 50,440 | |
Thomas S. Clary | | | 1,647 | | | | 49,805 | |
Norman D. Lowery | | | 1,635 | | | | 49,442 | |
_______________
Outstanding Equity Awards at Fiscal Year-End
|
| | | | | | | |
| | Stock Awards |
Name | | Number of Shares of Stock that have Not Vested (1) | | Market Value of Shares of Stock that have Not Vested |
Norman L. Lowery | | 13,674 |
| | $ | 487,068 |
|
Rodger A. McHargue | | 2,846 |
| | 101,375 |
|
Norman D. Lowery | | 2,784 |
| | 99,166 |
|
Steven H. Holliday | | 1,765 |
| | 62,869 |
|
Karen L. Milienu | | 1,015 |
| | 36,154 |
|
| |
(1) | This award represents performance-basedThese shares represent restricted stock which was awarded on February 3, 2012 as earned based on performance during 2011. The restricted shares willawards that vest in installments on December 31, 20132015 and December 31, 20142016, provided the executive is still employed on such date.date(s). In the event of involuntary termination due to death, disability, termination without cause or resignation for good reason, or upon retirement after age 65, the awards will vest in full. No automatic acceleration of vesting occurs upon a change in control. |
OPTION EXERCISES AND STOCK VESTED IN 2012
| | Stock Awards | |
Name | | Number of Shares Acquired on Vesting (#) | | | Value Realized on Vesting ($) | |
Donald E. Smith | | | 5,774 | | | | 174,606 | |
Norman L. Lowery | | | 4,804 | | | | 145,273 | |
Rodger A. McHargue | | | 834 | | | | 25,220 | |
Thomas S. Clary | | | 823 | | | | 24,888 | |
Norman D. Lowery | | | 817 | | | | 24,706 | |
| |
(2) | The market value is based on $35.62 per share, the closing price for our stock on December 31, 2014. |
Option Exercises and Stock Vested in 2014
|
| | | | | | | |
| | Stock Awards |
Name | | Number of Shares Acquired on Vesting | | Value Realized on Vesting |
Norman L. Lowery | | 14,149 |
| | $ | 503,987 |
|
Rodger A. McHargue | | 2,773 |
| | 98,774 |
|
Norman D. Lowery | | 2,716 |
| | 96,744 |
|
Steven H. Holliday | | 882 |
| | 31,417 |
|
Karen L. Milienu | | 838 |
| | 29,850 |
|
Pension Benefits
The table below shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each
such named executive officer, under the Pension Plan, the ESRP, and the 2005 ESRP. The
benefits werepresent value was based upon the accrued benefit as of December 31, 2014 and determined using interest rate and mortality rate assumptions consistent with those used in the Corporation’s financial
statements andstatements. The amounts shown do not reflect amounts actually paid or payable to the named executive officer. Benefits are not payable as a lump
sum; theysum but are generally paid as a monthly annuity for the life of the retiree.
PENSION BENEFITS
Name | | Plan Name | | Number of Years Credited Service | | | Present Value of Accumulated Benefit ($) (1) | | | Payments During Last Fiscal Year | |
Donald E. Smith | | Qualified Pension Plan | | | 43 | | | | — | (2) | | | — | |
| | | | | | | | | | | | | | |
Norman L. Lowery | | Qualified Pension Plan | | | 16 | | | | 1,145,413 | (3) | | | — | |
| | ESRP | | | 16 | | | | 797,147 | (4) | | | — | |
| | 2005 ESRP | | | 16 | | | | 1,651,234 | (4) | | | — | |
| | | | | | | | | | | | | | |
Rodger A. McHargue | | Qualified Pension Plan | | | 17 | | | | 364,357 | (3) | | | — | |
| | 2005 ESRP | | | 17 | | | | 7,013 | | | | — | |
| | | | | | | | | | | | | | |
Thomas S. Clary | | Qualified Pension Plan | | | 10 | | | | 530,761 | (3)(5) | | | — | |
| | 2005 ESRP | | | 10 | | | | — | | | | — | |
| | | | | | | | | | | | | | |
Norman D. Lowery | | Qualified Pension Plan | | | 20 | | | | 214,900 | (3) | | | — | |
| | 2005 ESRP | | | 20 | | | | 2,498 | | | | — | |
|
| | | | | | | | | | | | | |
Name | | Plan Name | | Number of Years Credited Service | | Present Value of Accumulated Benefit ($)(1) | | | | Payments During Last Fiscal Year |
Norman L. Lowery | | Qualified Pension Plan | | 19 |
| | 1,416,586 |
| | (2) | | — |
|
| | ESRP | | 19 |
| | 982,725 |
| | (3) | | — |
|
| | 2005 ESRP | | 19 |
| | 2,317,426 |
| | (3) | | — |
|
Rodger A. McHargue | | Qualified Pension Plan | | 21 |
| | 707,566 |
| | (2) | | — |
|
| | 2005 ESRP | | 21 |
| | 22,762 |
| | (3) | | — |
|
Steven H. Holliday | | Qualified Pension Plan | | 3 |
| | — |
| | | | — |
|
| | 2005 ESRP | | 3 |
| | — |
| | | | — |
|
Norman D. Lowery | | Qualified Pension Plan | | 25 |
| | 403,681 |
| | (2) | | — |
|
| | 2005 ESRP | | 25 |
| | 23,894 |
| | (3) | | — |
|
Karen L. Milienu | | Qualified Pension Plan | | 17 |
| | 414,389 |
| | (2) | | — |
|
| |
(1) | The calculation of present value of accumulated benefit assumes a discount rate of 4.05%3.95% and mortality based on the 20122014 IRS Current Liability Tables. Benefits are not payable as a lump sum; they are generally paid as a monthly annuity for the life of the retiree. |
| (2) | Mr. Smith is not entitled to a benefit from the Pension Plan because the value of his ESOP benefit exceeds the value of his Pension Plan benefit pursuant to the floor offset arrangement. |
| (3)(2) | These amounts represent the amount that Messrs. Norman L. Lowery, McHargue, Clary and Norman D. Lowery’sLowery, and Ms. Milienu’s Pension Plan benefit exceeds their ESOP benefit pursuant to the floor offset arrangement.arrangements. |
| (4) |
(3) | This amount represents the amount Mr.Messrs. Norman L. Lowery, McHargue, and Norman D. Lowery’s Executive Supplemental Retirement benefit exceeds his Executive Deferred Compensation benefit. |
| (5) | Because Mr. Clary was over 55 years of age and had more than five years of service as of December 31, 2012, he would have qualified for early retirement benefits equal to approximately 73%, of his full retirement benefit if he had retired at December 31, 2012. |
The benefits provided under the Pension Plan are based on the executive officers’ years of credited service and final average compensation, and are targeted to provide an annual retirement annuity equal to approximately 66% of final average compensation for retirement at age 65 with 25 years of service. Actuarial adjustment is made for payments commencing before or after age 65. Final average compensation is based on the five consecutive years over the last ten in which amount of base salary and bonus were the highest. The actual benefit payable under the Pension Plan is subject to offset (reduction) by the benefits provided under the ESOP. The offset works in
Applicable IRS rules limit the
following manner. If a participant’s ESOP benefit exceeds the benefit he hasamount of benefits that may be accrued under
the Pension Plan, the participant will receive his ESOP benefit in lieu of the Pension Plan benefit. For example, a
participant’s ESOP benefit is $120,000 and his Pension Plan benefit is $100,000. The $120,000 benefit will be paid from the ESOP and $0 will be paid fromqualified plan, such as the Pension Plan.
However, if a participant’s Pension Plan benefit exceeds his ESOP benefit, then the participant will receive his ESOP benefit along with the amount the Pension Plan benefit exceeded the ESOP benefit paid from the Pension Plan. For example, a participant’s ESOP benefit is $100,000 and his Pension benefit is $120,000. The $100,000 benefit will be paid from the ESOP and $20,000 will be paid from the Pension Plan.The benefits provided under the ESRP and 2005 ESRP are intended to provide benefits that would be paid under the Pension Plan but for such limitations. These benefits are subject to offset by the benefits providedpayable under the EDCExecutive Deferred Compensation Plan (“EDC”) and the 2005 EDC respectively. The offset works in the following manner. The offset between the ESRP and the EDC works in the same manner as the ESOP/Pension Plan offset. If a participant’s EDC benefit exceeds the benefit he has accrued under the ESRP, the participant will receive his EDC benefit in lieu of the ESRP benefit. For example, a participant’s EDC benefit is $120,000 and his ESRP benefit is $100,000. The $120,000 benefit will be paid from the EDC and $0 will be paid from the ESRP. However, if a participant’s ESRP benefit exceeds his EDC benefit, then the participant will receive his EDC benefit along with the amount the ESRP benefit exceeded the EDC benefit paid from the ESRP. For example, a participant’s EDC benefit is $100,000 and his ESRP is $120,000. The $100,000 benefit will be paid from the EDC and $20,000 will be paid from the ESRP.
described below.
Nonqualified Deferred Compensation
For 2012for 2014
Pursuant to
the EDC and the 2005 EDC, we permit certain executive officers and highly compensated employees to defer a portion of their
current compensation and also provide supplemental benefits to certain highly compensated employees to recompense the employees for benefits lost due to the imposition of Code limitations in the ESOP. The amounts shown below represent the accumulated benefit cost to the Corporation for these plans. The table also shows amounts which were earned and deferred under the 2001 LTIP and 2005 LTIP.
NONQUALIFIED DEFERRED COMPENSATION
Name | | Plan Name | | Executive Contributions in last Fiscal Year ($) | | | Registrant Contributions in Last Fiscal Year ($) (1) | | | Aggregate Earnings in Last Fiscal Year ($) | | | Aggregate Withdrawals / Distributions ($) | | | Aggregate Balance at Last Fiscal Year-End ($) | |
Donald E. Smith | | 2001 LTIP | | | — | | | | — | | | | 90,529 | | | | 155,876 | | | | 1,270,479 | |
| | 2005 LTIP | | | — | | | | — | | | | 145,620 | | | | 250,733 | | | | 2,043,639 | |
| | | | | | | | | | | | | | | | | | | | | | |
Norman L. Lowery | | EDC | | | — | | | | — | | | | 20,847 | | | | — | | | | 381,590 | |
| | 2005 EDC | | | — | | | | 73,127 | | | | — | | | | — | | | | 248,174 | |
| | 2001 LTIP | | | — | | | | — | | | | 89,099 | | | | 140,227 | | | | 1,256,555 | |
| | 2005 LTIP | | | — | | | | — | | | | 142,323 | | | | 223,992 | | | | 2,007,150 | |
| | | | | | | | | | | | | | | | | | | | | | |
Rodger A. McHargue | | 2005 LTIP | | | — | | | | — | | | | 7,552 | | | | — | | | | 219,887 | |
| | 2005 EDC | | | — | | | | 3,515 | | | | — | | | | — | | | | 3,678 | |
| | | | | | | | | | | | | | | | | | | | | | |
Thomas S. Clary | | 2001 LTIP | | | — | | | | — | | | | 6,081 | | | | — | | | | 177,067 | |
| | 2005 LTIP | | | — | | | | — | | | | 14,719 | | | | — | | | | 428,558 | |
| | 2005 EDC | | | — | | | | 2,051 | | | | — | | | | — | | | | 2,150 | |
| | | | | | | | | | | | | | | | | | | | | | |
Norman D. Lowery | | 2001 LTIP | | | — | | | | — | | | | 4,882 | | | | — | | | | 142,149 | |
| | 2005 LTIP | | | — | | | | — | | | | 7,552 | | | | — | | | | 219,887 | |
| | 2005 EDC | | | — | | | | 3,876 | | | | — | | | | — | | | | 4,057 | |
|
| | | | | | | | | | | | | | |
Name | Plan Name | | Executive Contributions in last Fiscal Year ($) | | Registrant Contributions in Last Fiscal Year ($) (1) | | Aggregate Earnings in Last Fiscal Year ($) | | Aggregate Withdrawals / Distributions ($) | | Aggregate Balance at Last Fiscal Year- End ($) |
Norman L. Lowery | EDC | | — | | — | | (11,150 | ) | | — | | 448,744 |
|
| 2005 EDC | | — | | 48,370 | | 33,199 |
| | — | | 351,034 |
|
| 2001 LTIP | | — | | — | | 81,441 |
| | 140,228 |
| | 1,142,945 |
|
| 2005 LTIP | | — | | — | | 130,089 |
| | 223,992 |
| | 1,825,674 |
|
Roger A. McHargue | 2005 EDC | | — | | 441 | | (9 | ) | | — | | 972 |
|
| 2005 LTIP | | — | | — | | 8,099 |
| | — | | 235,807 |
|
Steven H. Holliday | 2005 EDC | | — | | 220 | | — |
| | — | | 220 |
|
Norman D. Lowery | 2005 EDC | | — | | 802 | | (12 | ) | | — | | 1,668 |
|
| 2001 LTIP | | — | | — | | 5,236 |
| | — | | 152,441 |
|
| 2005 LTIP | | — | | — | | 8,099 |
| | — | | 235,807 |
|
Karen L. Milienu | 2001 LTIP | | — | | — | | 5,236 |
| | — | | 152,441 |
|
| 2005 LTIP | | — | | — | | 8,099 |
| | — | | 235,807 |
|
| |
(1) | These amounts are included in the named executive officer’s compensation in the Summary Compensation Table. |
Employment Agreement with Norman L. Lowery
| · | Term: The Corporation and the Bank entered into a three-year employment agreement with Mr. Lowery effective December 1, 2012 (the “Employment Agreement”). The Employment Agreement may be extended each year only by affirmative action of the Committee for an additional year. |
| · | Restrictive Covenants:Mr. Lowery must satisfy the terms of the Employment Agreement, including the nonsolicitation, noncompetition and nondisclosure provisions discussed below, to receive the severance benefits discussed below in addition to any benefits he is due under the Corporation’s qualified and nonqualified employee benefit plans. |
| o | Nonsolicitation. For a one-year period after termination for any reason or the expiration of the term, Mr. Lowery will not: (i) solicit any non-legal business of any party which is a customer of the Corporation at the time of such termination or during the one-year period immediately preceding such termination, (ii) request or advise any customers or suppliers of the Corporation to terminate, reduce, limit or change their business or relationship with the Corporation, or (iii) induce, request or attempt to influence any employee of the Bank to terminate his employment with the Corporation. |
| o | Noncompetition. In the event Mr. Lowery voluntarily terminates his employment with the Corporation or the Bank, he will not during the period of his employment, and for a one-year period following termination: (i) engage in the same trade or business as the Corporation which would conflict with the interests of the Corporation or in a trade or business competitive with that of the Corporation; or (ii) offer or provide employment to any person who then currently is, or who within one year prior to such offer has been, a management-level employee of the Corporation. |
| o | Nondisclosure Mr. Lowery will not, directly or indirectly, use any “confidential information” (as defined in the Employment Agreement) for any purpose other than for the benefit of the Corporation or communicate, deliver, exhibit or provide any confidential information except as required in the normal course of his service as a consultant or employee of the Corporation during the term of the Employment Agreement and following termination of the Employment Agreement until either (i) such confidential information becomes obsolete; or (ii) such confidential information becomes generally known in the Corporation’s trade or industry by means other than a breach of this covenant. |
| · | Termination For Cause, Death or Disability: If Mr. Lowery is terminated for “cause” (as defined below), death or disability, he is entitled to receive the base salary, bonuses, vested rights, and other benefits due him through his date of termination. Any benefits payable under insurance, health, retirement, bonus, incentive (including, but not limited to, the 2001 LTIP and the 2005 LTIP), performance or other plans as a result of his participation in such plans through such date of termination will be paid when and as due under those plans. |
For purposes
Norman L. Lowery has a written employment agreement (the “Employment Agreement”) with the Corporation and the Bank pursuant to which he is employed as President and Chief Executive Officer of the EmploymentCorporation and the Bank. The material terms of that Agreement “cause”are summarized as follows:
Term: The Agreement is defined as: (i)effective as of January 1, 2014, and is for an intentional actinitial period of fraud, embezzlement, theft, or personal dishonesty; willful misconduct, or breach of fiduciary duty involving personal profitthree years. The term may be extended for one-year periods by the Mr. Lowery in the course of his employment or director service; (ii) intentional wrongful damage by Mr. Lowery to the business or property of the Corporation; (iii) breach by Mr. Lowery of any confidentiality or non-disclosure obligation; (iv) gross negligence or insubordination in the performance of his duties; or (v) removal or permanent prohibition of Mr. Lowery from participating in the Bank’s affairs by order under the Federal Deposit Insurance Act. | · | Termination by Corporation Without Causeor by Employee For Good Reason: If Mr. Lowery is terminated without “cause” or if he terminates his employment for “good reason” (as defined below), and such termination does not occur in connection with, or within 12 months after a “change in control” (as defined below), he will receive an amount equal to the sum of the following benefits as if he had terminated employment on December 31, 2012 provided, in the event of a good reason termination, he gives proper notice of the circumstances giving rise to the termination which are not remedied by the Corporation or the Bank: (i) three times his base salary and bonuses; (ii) the Corporation’s portion of the cost of obtaining health insurance for himself and his spouse and child living in his home for a period of three years; (iii) the cost of obtaining disability insurance for a period of three years; (v) the cost of obtaining life insurance for a period of three years; (vi) the cost of existing professional and club dues for a period of three years, (vii) the cost of continuing legal education for a period of three years; (viii) the cost of automobile benefits for a period of three years; (ix) three times the benefit accrued in 2012 under the 2005 ESRP; (x) three times the benefit accrued in 2012 under the 2005 EDC; (xi) three times the benefit accrued in 2012 under the Employees’ Pension Plan; (xii) three times the benefit accrued in 2012 under the Employee Stock Ownership Plan.Compensation Committee.Base Compensation: The amounts provided in the prior sentence will be provided net of all income and payroll taxes that would not have been payable by Mr. Lowery had he continued participation in the benefit plan or program instead of receiving cash reimbursement. |
For purposes of the Employment Agreement “good reason” means the occurrence of any of the following events, which has not been consented to in advance by Mr. Lowery in writing: (i) the requirement that Mr. Lowery move his personal residence more than 30 miles from his Terre Haute, Indiana office; (ii) a reduction of ten percent or more in Mr. Lowery’s base salary, unless part ofprovides for an institution-wide reduction and similar to the reduction in theinitial base salary of all other executive officers of the Bank; (iii) the removal of Mr. Lowery from participation in any incentive compensation plan or bonus plans unless the Company terminates participation in the plan with respect to all other executive officers, (iv) the failure by the Bank to continue to provide Mr. Lowery with the base salary, bonuses or benefits provided for in the Employment Agreement, as the same$630,297, which may be increased from time to time, or withtime. Prior to a change-in-control, base salary may be decreased if the Corporation’s operating results are significantly less favorable than those for the fiscal year ended December 31, 2009, and the Corporation makes similar decreases in the base salaries of the other executive officers. Mr. Lowery is entitled to participate in other compensation programs and benefits substantially similar to thoseas provided to other senior officers of the Corporation and as provided in the Employment Agreement.
Restrictive Covenants: To protect the Corporation and our business, the Agreement obligates Mr. Lowery to comply with non-solicitation, non-competition, and non-disclosure requirements. In general, the non-solicitation and non‑competition remain in effect for one year after termination of employment for any reason.
Termination for Cause, Death or Disability: If employment is terminated for “cause” (as defined in the Agreement), death, or disability, Mr. Lowery (or his estate) is entitled only to his base salary, bonuses, vested rights, and other benefits due to him through his date of termination, and any benefits payable under insurance, health, retirement, bonus, incentive performance or other plans as a result of his participation in such plans through such termination will be paid in accordance with those sectionsplans.
Termination Due to Retirement: Upon retirement, Mr. Lowery will receive life and disability coverage for himself and lifetime Medicare supplemental coverage for himself and his spouse. He is also entitled to receive a
life insurance policy on his life in the amount of $350,000 and a life insurance policy on his life in the amount established by the Bank’s insurance program for executive officers.
Termination by Corporation Without Cause or by Employee for Good Reason: If Mr. Lowery is terminated without “cause,” or if he terminates his employment for “good reason” (as defined in the Employment Agreement), and such termination does not occur in connection with, or within 12 months after a “change in control” (as defined in the Employment Agreement), he will receive an amount equal to the sum of the following amounts he would have received through the expiration date of the Employment Agreement: (i) his base salary and bonuses (based on prior year bonus); (ii) the Corporation’s portion of the cost of obtaining health insurance for himself and his spouse, (iii) the cost of obtaining disability insurance; (iv) the cost of professional and club dues, (v) the cost of continuing legal education; (vi) the cost of automobile benefits; (vii) benefits under anythe Pension Plan and ESRP based on the most recent year’s accruals; and (viii) benefits under the ESOP and 2005 EDC based on the most recent year’s contributions. The amounts provided in the prior sentence will be provided net of all income and payroll taxes that would not have been payable by Mr. Lowery had he continued participation in the benefit plan or program instead of receiving cash reimbursement.
Termination Following Change in which he now or hereafter becomes eligible to participate, or the taking of any action by the Bank which would directly or indirectly reduce any such benefits or deprive Mr. Lowery of any such benefit enjoyed by him, unless part of an institution-wide reductionControl: If there is a “change in control” (as defined in his Employment Agreement), and applied similarly to all other executive officers of the Bank; (v) the assignment to Mr. Lowery of duties and responsibilities materially different from those normally associated with his position; (vi) a failure to elect or re-elect Mr. Lowery to the Board of the Bank or a failure on the part of the Corporation to honor its obligation to nominate him to the Board of the Corporation; (vii) a material diminution or reduction in the Mr. Lowery’s responsibilities or authority (including reporting responsibilities) in connection with or within 12 months following the “change in control” our CEO’s employment is terminated for other than “cause” or he resigns for “good reason,” then following such termination he would be entitled to an amount equal to the greater of the (i) amount he would receive if he was terminated by the Corporation without cause as described above, or (ii) (A) the product of 2.99 times the sum of (1) his employment withbase salary in effect as of the Bank;date of the change in control and (2) an amount equal to any annual discretionary or (viii) a material reductionperformance-based incentive bonuses received by or payable to him in or for the secretarial or administrative support of Mr. Lowery. | · | Termination due to Retirement: If Mr. Lowery voluntarily retires, at or after attaining age 65, he will receive full health, life and disability coverage for himself, his spouse and his children living in his home until both he and his spouse are eligible for Medicare. When both Mr. Lowery and his spouse are eligible for Medicare, the Bank agrees to pay for supplemental coverage until both his and his spouse’s death. He is also entitled to receive a life insurance policy on his life in the amount of $350,000 and a life insurance policy on his life in the amount established by the Bank’s insurance program for executive officers. |
| · | Termination Following Change in Control: If Mr. Lowery is terminated for other than “cause” or is constructively discharged and this occurs in connection with, or within 12 months following a “change in control” (as defined below) of the Bank or Corporation he would be entitled to an amount equal to the greater of the amount he would receive if he was terminated by the Corporation without cause; or, the product of 2.99 times the sum of (i) his base salary in effect as of the date of the change in control; (ii) an amount equal to the bonuses received by or payable to him in or for the calendar year prior to the year in which the change in control occurs; and (iii)calendar year prior to the year in which the change in control occurs; and (B) cash reimbursements in an amount equal to his cost of obtaining, for a period of three years, beginning on the date of termination, all benefits which he was eligible to participate in or receive as of the date of termination. Mr. Lowery is also entitled to the payment provided for in this paragraph if a change in control occurs that was not approved by a majority of the Board regardless of whether his employment is terminated within 12 months. If, as a result of a change in control, Mr. Lowery becomes entitled to any payments which are determined to be payments subject to the Code Section 280G, then his benefit will be equal to the greater of (i)his benefit under the agreement reduced to the maximum amount payable such that when it is aggregated with payments and benefits under all other plans and arrangements it will not result in an “excess parachute payment” under Code Section 280G, or (ii) his benefit under the agreement after taking into account the amount of the excise tax imposed under Code Section 280G due to the benefit payment. Mr. Lowery is not entitled to any “gross up” payments under the terms of the Employment Agreement. |
For purposes of the Employment Agreement, “change in control” means:
(i)Change in Ownership. Any person or group of persons acquires ownership of stock of the Bank or the Corporation that, together with stock held by the person or group, constitutes more than 50% of the total fair market value or total voting power of the stock. However, if any person or group is considered to own more than 50% of the total fair market value or total voting power of the stock, the acquisition of additional stock by the same person or group is not considered to cause a change in the ownership of the Bank or the Corporation.
(ii)Change in the Effective Control. (a) Any person or group acquires, or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person(s), ownershiptermination, all benefits which he was eligible to participate in or receive as of stock of the Bank or the Corporation possessing 30% or more of the total voting power; or (b) a majority of members of the Board is replaced during any twelve-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Bank’s or the Corporation’s Board prior to the date of the appointment or election.
(iii)Change in the Ownershiptermination. If, as a result of a Substantial Portion of the Bank’s or First Financial Corporation’s Assets.Any person or group acquires, or has acquired during the 12-month period ending on the date of the most recent acquisition by such person(s), assets from the Bank or the Corporation that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets immediately prior to such acquisition(s). Gross fair market value means the value of the assets of the Bank or the Corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. However, there is no change in control, Mr. Lowery becomes entitled to any payments which are determined to be payments subject to the Code Section 280G, then his benefit will be equal to the greater of his benefit under the agreement reduced to the maximum amount payable such that when thereit is a transfer toaggregated with payments and benefits under all other plans and arrangements it will not result in an entity that is controlled by“excess parachute payment” under Code Section 280G, or his benefit under the shareholdersagreement after taking into account the amount of the Bank orexcise tax imposed under Code Section 280G due to the Corporation immediately afterbenefit payment. Mr. Lowery is not entitled to any excise tax “gross up” payments under the transfer.
Notwithstanding the foregoing, the acquisition of Bank or the Corporation stock by any retirement plan sponsored by the Bank or an affiliateterms of the Bank will not constitute a change in control.
If Mr. Lowery qualifies as a “key employee” at the time of his separation from service, the Corporation may not makeEmployment Agreement.
To comply with Section 409A, certain payments
earlier thanto our CEO following termination of employment may be delayed until six months following
the datehis termination of
his separation from service (or, if earlier, the date of his death). In this event, payments to which Mr. Lowery would otherwise be entitled during the first six months following the date of his separation from service will be accumulated and paid to Mr. Lowery on the first day of the seventh month following his separation from service. Mr. Lowery is currently considered a “key employee” for this purpose.employment.
Potential Payments Upon Termination or Change in Control of the Corporation
2001 and 2005 Long-Term Incentive Plans
The Corporation entered into award agreements with Messrs. Smith, Norman L. Lowery, McHargue, Clary and Norman D. Lowery under the 2001 and 2005 LTIPs. They are entitled to the following benefits upon a “change in control” (as defined below):
Mr. Smith: In addition to the benefits otherwise payable, if Mr. Smith is terminated within 12 months following a change in control, for reasons other than “cause” (as defined below), disability or death, he will be paid the vested account balance under the 2001 and 2005 LTIPs. Any payments from the Corporation or the Bank which are determined to be payments subject to the “golden parachute” rules of the Code, the amount due will be increased to include payment equal to the amount of excise tax imposed under Code Sections 280G and 4999 (the “Excise Tax Payment”) and the amount necessary to provide the Excise Tax Payment net of all income, payroll and excise taxes. The applicable amount will be paid in one single sum, for the 2001 and 2005 LTIPs, within 180 days following termination of employment.
Mr. Norman L. Lowery:In addition to the benefits otherwise payable, if Mr. Lowery is terminated within 12 months following a change in control, for reasons other than cause, disability or death, he will be paid the vested account balance under the 2001 and 2005 LTIPs. Any payments from the Corporation or the Bank which are determined to be payments subject to the “golden parachute” rules of the Code, the amount due will be increased to include payment equal to the amount of excise tax imposed under Code Sections 280G and 4999 (the “Excise Tax Payment”) and the amount necessary to provide the Excise Tax Payment net of all income, payroll and excise taxes. The applicable amount will be paid in one single sum, for the 2001 and 2005 Plans, within 180 days following termination of employment.
Messrs. McHargue, Norman D. Lowery, and Clary: In addition to the benefits otherwise payable, if Messrs. McHargue, Norman D. Lowery, or Clary is terminated within 12 months following a change in control, for reasons other than cause, disability or death, they will be paid the vested account balance under the 2001 and 2005 LTIPs as of the December 31 of the year preceding the year of termination under both LTIPs.
For purposes of the 2001 and 2005 LTIPs, “cause” is defined as: (i) an intentional act of fraud, embezzlement, theft or personal dishonesty, willful misconduct or breach of fiduciary duty involving personal profit by the participant in the course of his employment or director service. No act or failure to act shall be deemed to have been intentional or willful if it was due primarily to an error in judgment or negligence. An act or failure to act shall be considered intentional or willful if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in the best interest of the Corporation or its subsidiaries; (ii) intentional wrongful damage by the participant to the business or property of the Corporation or its subsidiaries, causing material harm to the Corporation or its subsidiaries; (iii) breach by the participant of any confidentiality or non-disclosure and non-solicitation agreement in effect from time to time with the Corporation or its subsidiaries; (iv) gross negligence or insubordination by the participant in the performance of his or her duties; or (v) removal or permanent prohibition of the participant from participating in the conduct of the affairs of the Corporation or any of its subsidiaries, by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 USC 1818(e)(4) and (g)(1).
For purposes of the 2001 and 2005 LTIPs, “change in control” is defined as:
(i)Merger. The Corporation merges into or consolidates with another corporation or business entity, or merges another corporation or business entity into the Corporation, and as a result less than 50% of the combined voting power of the resulting corporation or business entity immediately after the merger or consolidation is held by persons who were the holders of the Corporation’s voting securities immediately before the merger or consolidation;
(ii)Acquisition of Significant Share Ownership. A report on Schedule 13D, or a successor form or schedule is filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the report discloses that the filing person or persons acting in concert has or have become the beneficial owner of 20% or more of a class of the Corporation’s voting securities after the effective date of the 2001 or 2005 LTIP, but this provision shall not apply to beneficial ownership of voting shares of the Corporation held in a fiduciary capacity by a subsidiary of the Corporation or to beneficial ownership of voting shares of the Corporation held by the ESOP;
(iii)Change in Board Composition. During any period of two consecutive years, individuals who constitute the Board at the beginning of the two year period cease for any reason to constitute at least a majority thereof. However, each director who, by a vote of at least two-thirds of the directors who were directors at the beginning of the period, is first (a) nominated by the Board for election by shareholders, or (b) elected to fill a vacancy on the Board, shall be deemed to have been a director at the beginning of the two-year period.
(iv)Sale of Assets. The Corporation (a) transfers substantially all of its assets to another corporation or business entity which is not a wholly-owned subsidiary of the Corporation, or (b) sells substantially all of the assets of a subsidiary or affiliate which constitutes 20% or more of the assets of the Corporation and is a subsidiary or affiliate as of the effective date of the 2001 or 2005 LTIP.
2010 Long-Term Incentive Compensation Plan
Messrs. Smith, Norman L. Lowery, McHargue, Clary and Norman D. Lowery received long-term incentive performance cash awards under the 2010 LTIP. In the event of a “change in control” (the same definition used for Mr. Norman L. Lowery’s employment agreement above), they will be 100 percent vested in their award which will be paid within 30 days of the date of the change in control. In the event a participant dies or incurs a termination due to disability, retirement, a termination by the participant for “good reason” or is terminated by the Corporation or the Bank without “cause” (the same definition as provided in the 2001 and 2005 LTIPs), he will become vested in his award and will receive payment within 30 days of the termination for purposes of the 2010 LTIP. “Good reason” means the occurrence of any of the following events which hasn’t been consented to in writing: (i) the requirement that the Participant move his personal residence, (ii) a reduction of ten percent or more of the participant’s salary unless part of an institution-wide reduction and similar to the reduction of all other similarly situated officers, (iii) the removal of the participant from participation in any incentive compensation plans or bonuses unless the company terminates participation in the plan or plans with respect to other similarly-situated officers; (iv) the assignment of duties and responsibilities materially different from those normally associated with his position; or (v) a material diminution or reduction in responsibilities or authority in connection with his employment.
The following table sets forth the incremental retirement, cash severance and change in control benefits forstock awards payable to each named executive officer under the specifically described scenarios as if suchretirement, termination of employment or change in control andcontrol-related termination occurred as of December 31, 2012.2014. No amounts are shown for the occurrence of a change in control without termination of employment, because no automatic acceleration of outstanding stock awards or other amounts arise upon a change in control.
The amounts shown in the table do not include payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment,
includingsuch as accrued salary and vacation pay,
or payments
of vested amounts under the
Savings Plan,qualified and nonqualified pension plans and deferred compensation plans. Amounts attributable to the
ESOP and Pension PlanName | | Plan Name | | Termination of Employment (Executive Deferred Compensation, 2005 Executive Deferred Compensation, Executive Supplemental Retirement, 2005 Executive Supplemental Retirement, 2001 LTIP, 2005 LTIP) ($) | | | Termination Due to Retirement ($) | | | Termination by Corporation Without Cause, by Executive for Good Reason or Within 12 Months After Change in Control ( Employment Agreement) ($) | |
Donald E. Smith | | 2001 LTIP | | | 1,270,479 | | | | — | | | | — | |
| | 2005 LTIP | | | 2,043,639 | | | | — | | | | — | |
| | 2010 LTIP | | | 138,207 | (4) | | | — | | | | — | |
| | | | | | | | | | | | | | |
Norman L. Lowery | | 2001 LTIP | | | 1,256,555 | | | | — | | | | — | |
| | 2005 LTIP | | | 2,007,150 | | | | — | | | | — | |
| | 2010 LTIP | | | 113,268 | (4) | | | — | | | | — | |
| | EDC | | | 381,590 | | | | — | | | | — | |
| | 2005 EDC | | | 248,174 | | | | — | | | | — | |
| | Employment Agreement | | | — | | | | 354,292 | (1)(2) | | | 3,219,234 | (3) |
| | | | | | | | | | | | | | |
Rodger A. McHargue | | 2005 LTIP | | | 219,887 | | | | — | | | | — | |
| | 2010 LTIP | | | 21,374 | (4) | | | — | | | | — | |
| | | | | | | | | | | | | | |
Thomas S. Clary | | 2001 LTIP | | | 177,067 | | | | — | | | | — | |
| | 2005 LTIP | | | 428,558 | | | | — | | | | — | |
| | 2010 LTIP | | | 23,231 | (4) | | | — | | | | — | |
| | | | | | | | | | | | | | |
Norman D. Lowery | | 2001 LTIP | | | 142,149 | | | | — | | | | — | |
| | 2005 LTIP | | | 219,887 | | | | — | | | | — | |
| | 2010 LTIP | | | 21,724 | (4) | | | — | | | | — | |
2011 EIP are based upon the $35.62 closing price for our common stock on December 31, 2014.
|
| | | | | | | | | | | | | | | |
Name | | Plan Name | | Termination Due to Retirement ($) (1) | | Termination by Corporation Without Cause, by Executive for Good Reason or Within 12 Months($) (2) | | | | Termination by Corporation Without Cause, by Executive for Good Reason or Within 12 Months After Change in Control ($) (3) | | |
Norman L. Lowery | | 2011 EIP | | 487,068 |
| | — |
| | | | — |
| | |
| | Employment Agreement | | 375,411 |
| | 3,144,786 |
| | (4) | | 4,263,400 |
| | (5) |
Rodger A. McHargue | | 2011 EIP | | — |
| | 101,375 |
| | | | 101,375 |
| | |
Steven H. Holliday | | 2011 EIP | | — |
| | 62,869 |
| | | | 62,869 |
| | |
Norman D. Lowery | | 2011 EIP | | — |
| | 99,166 |
| | | | 99,166 |
| | |
Karen L. Milienu | | 2011 EIP | | — |
| | 36,154 |
| | | | 36,154 |
| | |
| |
(1) | Calculation of the health insurance amounts were based on the assumptions used for financial reporting purposes under generally accepted accounting principles assuming (i) termination occurred on December 31, 2012; (ii) termination was as a result of retirement or change in control; and (iii) a 4.05% discount rate. Calculation of the life insurance amounts were based on the cost of buying a fully paid policy asAs of December 31, 2012.2014, only Mr. Norman L. Lowery had attained retirement age. The amounts shown in this column for the 2011 EIP reflect the value of outstanding restricted stock awards which would vest upon retirement, and for the Employment Agreement include the value of continuation of Medicare supplemental coverage and life insurance benefits. |
| |
(2) | Amounts in this column reflect the severance benefits and the value of accelerated vesting of restricted stock that would become payable upon termination without cause or resignation for good reason. For Mr. Norman L. Lowery, the amounts shown in this column are in addition to the amounts to which he would be entitled upon retirement described in footnote (1) above. For the other NEOs, the 2011 EIP amount reflects the value of outstanding restricted stock awards which would vest in full upon termination without cause or resignation for good reason. |
| |
(3) | Amounts in this column reflect the severance benefits and the value of accelerated vesting of restricted stock that would become payable if the termination without cause or resignation for good reason was in connection with a change in control. For Mr. Norman L. Lowery, the amounts shown in this column are in addition to the amounts to which he would be entitled upon retirement described in footnote (1) above. For the other NEOs, the 2011 EIP amount reflects the value of outstanding restricted stock awards which would vest in full upon termination without cause or resignation for good reason. |
| |
(4) | This cash severance amount consists of (a) two times (i) $229,500annual base salary and 2013 STIP bonus of $912,314, (ii) annual amounts paid for health, lifedues and disability coverage;professional associations, automobile allowance and (ii) $124,792continuing education of $9,664, and (iii) annual ESOP and EDC contributions of $61,370, plus (b) pension accruals of $1,032,763. Also includes $145,327 to reimburse taxes due on payments for the $350,000 life insurance policy.benefits that would not be taxable if provided in connection with continuing employment. |
| (3) |
(5) | This cash severance amount consists of (a) 2.99 times (i) $1,860,891 forannual base salary and bonuses;2013 STIP bonus of $912,314, (ii) $229,500annual amounts paid for health, lifedues and disability coverage;professional associations, automobile allowance and continuing education of $9,664, and (iii) $124,792annual ESOP and EDC contributions of $61,370, plus (b) pension accruals of $1,171,899. Also includes $151,291 to reimburse taxes due on payments for the $350,000 life insurance policy; (iv) $13,413 for professional and club dues; (v) $1,554 forbenefits that would not be taxable if provided in connection with continuing legal education; (vi) $9,132 for automobile benefits; (vii) $485,082 for his Pension Plan benefit; (viii) $39,609 for his ESOP benefit; (ix) $219,381 for his ESRP benefit; (x) $235,880 representing the payment of items (ii)-(vi) net of all income and payroll taxes.employment. |
| (4) | All participants in the plans are entitled to receive their respective vested benefits upon the occurrence of any change of control as defined in the plan. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 4, 2013,February 20, 2015, there were 13,307,49812,952,169 shares of our common stock issued and outstanding.The following table shows, as of March 4, 2013,February 20, 2015, the number and percentage of our common stock held by each person known to us to own beneficially more than five percent of the issued and outstanding common stock, by the executive officers named in the beneficial ownership table below and our directors, and by our executive officers and directors as a group. Unless otherwise specified, the address of each person listed is: One First Financial Plaza, P.O. Box 540, Terre Haute, IN 47808, and each
person has sole voting and investment control of the shares specifiedspecified. . |
| | | | | | | | |
Five Percent Shareholders, Directors, Nominee and Certain Executive Officers | | Amount and Nature of Beneficial Ownership | | | | Percent of Outstanding Shares |
Directors and Named Executive Officers: | | | | | | |
W. Curtis Brighton | | 13,500 |
| | | | * |
|
B. Guille Cox, Jr. | | 79,349 |
| | (1) | | * |
|
Thomas T. Dinkel | | 15,367 |
| | | | * |
|
Anton H. George | | 2,668 |
| | | | * |
|
Gregory L. Gibson | | 96,738 |
| | | | * |
|
William R. Krieble | | 7,216 |
| | | | * |
|
Steven H. Holliday | | 4,102 |
| | (12) | | * |
|
Norman D. Lowery | | 31,385 |
| | (2)(12) | | * |
|
Norman L. Lowery | | 64,270 |
| | (3)(12) | | * |
|
Rodger A. McHargue | | 11,998 |
| | (4)(12) | | * |
|
Karen L. Milienu | | 5,913 |
| | (5)(12) | | * |
|
Ronald K. Rich | | 4,050 |
| | | | * |
|
Virginia L. Smith | | 1,471 |
| | | | * |
|
William J. Voges | | 134,668 |
| | (6) | | 1.04 | % |
All Executive Officers and Directors as a Group (15 persons) | | 472,695 |
| | | | 3.65 | % |
Five Percent Shareholders: | | | | | | |
Princeton Mining Company | | 1,310,074 |
| | (7) | | 10.11 | % |
First Financial Corporation Employee Stock Ownership Plan | | 672,483 |
| | (8) | | 5.19 | % |
Blackrock, Inc. | | 731,396 |
| | (9) | | 5.65 | % |
Dimensional Fund Advisors LP | | 721,050 |
| | (10) | | 5.57 | % |
The PNC Financial Services Group, Inc | | 993,323 |
| | (11) | | 7.67 | % |
Five Percent Shareholders,
Directors, Nominee and
Certain Executive Officers |
| | Amount and
Nature of
Beneficial
Ownership | | | Percent of
Outstanding Shares | |
| | | | | | | | |
W. Curtis Brighton | | | 13,500 | | | | * | |
Thomas S. Clary | | | 2,431 (1)(12) | | | | * | |
B. Guille Cox | | | 79,349 (2) | | | | * | |
Thomas T. Dinkel | | | 14,901 | | | | * | |
Anton H. George | | | 2,668 | | | | * | |
Gregory L. Gibson | | | 87,752 | | | | * | |
William R. Krieble | | | 3,230 | | | | * | |
Norman D. Lowery | | | 27,302 (3)(12) | | | | * | |
Norman L. Lowery | | | 49,687 (4)(12) | | | | * | |
Rodger A. McHargue | | | 7,974 (5)(12) | | | | * | |
Ronald K. Rich | | | 2,050 | | | | * | |
Virginia L. Smith | | | 1,471 | | | | * | |
Donald E. Smith | | | 208,397 (6)(12) | | | | 1.57 | % |
William J. Voges | | | 268,313 (7) | | | | 2.02 | % |
Princeton Mining Company | | | 1,310,074 (8) | | | | 9.84 | % |
First Financial Corporation Employee Stock Ownership Plan | | | 898,607 (9) | | | | 6.75 | % |
Blackrock, Inc. | | | 682,093 (10) | | | | 5.13 | % |
Dimensional Fund Advisors LP | | | 679,116 (11) | | | | 5.10 | % |
All Executive Officers and Directors as a Group (14 persons) | | | 772,734 (12) | | | | 5.78 | % |
| (1) | Includes 1 share held for Mr. Clary’s account in the ESOP. |
| (2)(1) | Mr. Cox, under certain circumstances, has the power, with the consent of others, to vote an additional 117,968117,986 shares (.89%)(0.91% of the outstanding shares). These shares are not reflected in the number of shares or percent of class attributed to him in the above table. |
| (3) |
(2) | Includes 4,2485,285 shares held for Mr. Norman D. Lowery’s account in the ESOP. |
| (4) |
(3) | Includes 6,5257,683 shares held for Mr. Norman L. Lowery’s account in the ESOP. |
| (5) |
(4) | Includes 2,6803,633 shares held for Mr. McHargue’s account in the ESOP. |
| (6) |
(5) | Includes 185,3903.044 shares held for Mr. Smith’sMs. Milienu’s account in the ESOP. |
| (7) |
(6) | Includes 254,202114,557 shares held in trust. Mr. Voges, as Trustee, has the power to vote these shares. |
| (8) |
(7) | Based solely on information provided by Princeton Mining Company, Inc. in a Schedule 13G filed with the Securities and Exchange Commission on February 5, 2013.2015. The CompanyCorporation has been advised that the shares held by Princeton Mining Company are voted by the President of Princeton Mining Company, Virginia L. Smith, at the direction of its Board of Directors. The Board of Directors of Princeton Mining Company is comprised of 7 individuals, including the following directorsnine individuals: Virginia L. Smith, a current director of the Corporation: Donald E. Smith (the ChairmanCorporation; Anton H. George, a current director of the Board andCorporation; Norman D. Lowery, the PresidentChief Operating Officer of the Corporation); Virginia L. Smith; Anton H. George; and, W. Curtis Brighton. In addition,Corporation; Sarah J. Lowery, the daughter of Mr. Smith and the wife of Norman L. Lowery, (thewho is the Vice Chairman, and Chief Executive Officer and President of the Corporation) is a directorCorporation; Lesley V. Bell, the daughter of Princeton Mining Company.Virginia L. Smith; Anton H. George, Jr., the son of Anton H. George; Richard Shagley; Henry T. Smith, the son of Virginia L. Smith; and Jeffrey B. Smith, the son of Virginia L. Smith. The address of Princeton Mining Company is State Road 46 South, Terre Haute, IN 47803. |
| (9) |
(8) | Unless the terms of the ESOP or the fiduciary duties of the ESOP trustee require otherwise, the trustee will vote the ESOP shares as instructed by the participant. If the participant does not return the voting instruction card in a timely manner or if the voting instruction card is returned unsigned or without indicating how to vote the shares allocated to the ESOP account, the Compensation and Employee Benefits Committee will direct the ESOP trustee to vote the shares allocated in the same proportion and in the same manner as the shares with respect to which timely and proper instructions by participants were received. The Compensation and Employee Benefits Committee consists of Anton H. George, Ronald K. Rich, and William J. Voges. The Compensation and Employee Benefits Committee is appointed by the Board of Directors and may be changed by the Board at any time. |
ESOP account, the Compensation and Employee Benefits Committee will direct the ESOP trustee to vote the shares allocated in the same proportion and in the same manner as the shares with respect to which timely and proper instructions by participants were received. See “Additional Information About the Board of Directors-Compensation and Employee Benefits Committee,” which identifies the directors serving on this committee.
| (10) |
(9) | Based solely on information provided by Blackrock, Inc. in a Schedule 13G/A filed with the Securities and Exchange Commission on February 4, 2013.2, 2015. The Schedule 13G/A indicates that the reporting person has sole power to vote and/or dispose of all shares beneficially owned and that the reporting person expressly disclaims beneficial ownership of these securities.owned. The address of Blackrock, Inc. is 4055 East 52nd Street, New York, NY 10022. |
| (11) |
(10) | Based solely on information provided by Dimensional Fund Advisors, LP in a Schedule 13G/A filed with the Securities and Exchange Commission on February 4, 2013.5, 2015. The Schedule 13G/A indicates that the reporting person has sole power to vote and/or dispose of all shares beneficially owned and that the reporting person expressly disclaims beneficial ownership of these securities. The address of Dimensional Fund Advisors, LP is Palisades West Building One, 6300 Bee Cave Road, Austin, TX 78746. |
| |
(11) | Based solely on information provided by The PNC Financial Services Group, Inc. (“PNC”) and certain affiliates (collectively, the “PNC Group”) in a Schedule 13G/A filed with the Securities and Exchange Commission on February 12, 2015. Of the 993,323 shares reported as beneficially owned, the Schedule 13G/A indicates that PNC shares the power to vote and/or dispose of 993,230 shares. These shares are held in accounts for trusts for which PNC Bank, N.A., and Mitchell E. Daniels, Jr., serve as co-trustees, each of whom may deemed to share voting and dispositive power of such shares. In a Schedule 13G/A filed by Mr. Daniels with the Securities and Exchange Commission on February 10, 2015, Mr. Daniels expressly disclaims beneficial ownership of these securities. The address of PNC Group is One PNC Plaza, 249 Fifth Avenue, Pittsburgh, PA 15222, and the address for Mr. Daniels is Purdue University, 610 Purdue Mall, West Lafayette, Indiana 47907. |
| |
(12) | Includes 50,59541,767 shares of restricted common stock of the Corporation issued to our named executive officers as award opportunities under our Omnibus Equity Incentive Plan2011 EIP as follows: Mr. Smith, 16,498 shares; Mr. Norman L. Lowery, 24,65025,148 shares; Mr. McHargue, 4,7745,289 shares; andMr. Holliday, 4,193 shares; Mr. Norman D. Lowery, 4,6735,212 shares; and Ms. Milienu, 1,925 shares. TheseUpon issuance, shares are restricted in accordance with our Omnibus Equity Incentive Plan and aof restricted stock award agreement with each named executive officer, and will vest annually in one-third increments over a three-year period commencing on December 31, 2013, December 31, 2014 and December 31, 2015, respectively.period. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
All of the fees and services described above under “audit fees,” “audit-related fees,” “tax fees” and “all other fees” were pre-approved by the Audit Committee. The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors.public accounting firm. These services may include audit services, audit-related services, tax services and other services. The Audit Committee has adopted a policy for the pre-approval of services provided by the independent auditors.public accounting firm. Under the policy, pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the Audit Committee may also pre-approve particular services on a case-by-case basis. For each proposed service, the independent auditorpublic accounting firm is required to provide detailed back-up documentation at the time of approval. The Audit Committee
The U.S. Securities and Exchange Commission’s e-proxy rules require companies to post their proxy materials on the internet and permit them to provide only a Notice of Internet Availability of Proxy Materials to shareholders. For this proxy statement, we have chosen to follow the SEC’s “full set” delivery option, and therefore, although we are posting a full set of our proxy materials (this proxy statement and our Annual Report to Shareholders for the fiscal year ended December 31, 2012) 2014)