DEF 14A of First Internet Bancorp
Filed Mar 28, 2024 · FY20230001104659-24-040573
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
| Justin P. Christian President and Chief Executive Officer, BC Forward Mr. Christian has been a director of the Company and the Bank since December 2021. He is the Co-Founder, President and CEO of BCforward, a global IT consulting and workforce fulfillment firm providing services, including digitization and data security, and resourcing for leading businesses as well as government organizations. Before founding BCforward in 1998, he worked in the life-sciences industry with Eli Lilly & Company. Mr. Christian has been recognized for his leadership with the 2020 EY Entrepreneur of the Year US National Award and the 2021 TechPoint Trailblazer award. Mr. Christian was inducted into the Central Indiana Business Hall of Fame in 2017. Mr. Christian has served on the boards of the Indianapolis Children’s Museum, Goodwill of Central Indiana, the Indiana Gaming Commission, and the Indianapolis Bond Bank. He also is a past chairman of the Indianapolis 500 Festival Board of Directors. Mr. Christian currently serves on the boards of the Lumina Foundation, Central Indiana Corporate Partnership, Park Tudor School and AAA Hoosier Motor Club. Mr. Christian’s 25 years of experience leading a global IT consulting and workforce fulfillment company from startup to more than $500 million in annual revenues and his expertise in cybersecurity offer our Board a valuable perspective on key issues and initiatives affecting the Company and qualify him for service on our Board. | Ann Colussi Dee Former Executive VP, General Counsel and Corporate Secretary for Duke Realty Corporation Ms. Dee has served as a director of the Company and the Bank since December 2021. Ms. Dee formerly served as Executive Vice President, General Counsel and Corporate Secretary of Duke Realty Corporation (NYSE: DRE), overseeing legal affairs and risk, including cybersecurity risk. Prior to being named Executive Vice President, General Counsel and Corporate Secretary, Ms. Dee held the position of Senior Vice President, General Counsel and Corporate Secretary from January 1, 2013 until June 17, 2013 and the position of Deputy General Counsel and Senior Vice President from June 23, 2008 until January 1, 2013. Ms. Dee joined Duke Realty in 1996 as a Corporate Attorney. Prior to joining Duke Realty, Ms. Dee worked in the real estate departments of major law firms in Columbus, Ohio and Indianapolis, Indiana. Ms. Dee currently serves on the board of The Center for the Performing Arts and has served on the boards of the Indiana Repertory Theatre and the Indianapolis Chamber Orchestra. Ms. Dee’s experience leading the legal department of an NYSE-listed REIT and overseeing cybersecurity and other risk qualifies her for service on our Board. | | JOSEPH A. FENECH Founder and Chief Investment Officer, GenOpp Capital Management LP Mr. Fenech founded and currently serves as Chief Investment Officer of GenOpp Capital Management LP, an investment management firm focused primarily on the bank sector. For over twenty-five years, and prior to founding GenOpp in late 2020, he worked for several leading investment banking firms, including Sandler O’Neill + Partners, L.P., Deutsche Bank Securities Inc., Prudential Equity Group LLC, and Hovde Group LLC as an equity research analyst and investment banker. Mr. Fenech is also the founder and Managing Principal of SMBT Consulting LLC, which provides financial sector research and consulting services to companies in the banking industry. Mr. Fenech’s deep experience in the banking industry and the capital markets provide important expertise to our Board. | JOHN K. KEACH, JR. Private Investor; Former Chairman, President and Chief Executive Officer, Indiana Community Bancorp Mr. Keach has served as a director of the Company and the Bank since November 2012. He is currently a private investor. From 1994 to September 2012, he was Chairman of the Board, President and Chief Executive Officer of Indiana Community Bancorp, a bank holding company headquartered in Columbus, Indiana, which was acquired by Old National Bancorp in September 2012. Mr. Keach’s experience as the chief executive officer of a publicly-held bank holding company for more than fifteen years qualifies him for service on our Board. |
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| WHAT WE DO | WHAT WE DO NOT DO | | ✓ Significant emphasis on performance-based, “at-risk” compensation. ✓ Incentive award metrics that are objective and tied to key company performance metrics. ✓ 40% of equity awards vest over three years to promote retention. ✓ 60% of equity awards are performance-based and “cliff vest” after three-year performance period to promote achievement of long-term performance goals. ✓ Incentive plans with threshold performance and associated payout levels, below which no incentive awards are paid. ✓ Incentive plans with capped maximum payouts. ✓ A “claw-back” is required under our Compensation Recoupment Policy. ✓ Share ownership guidelines for executives and directors. ✓ Consider our ‘‘say-on-pay’’ vote results when making compensation decisions. | ✗ Provide tax gross-ups in our compensation plans. ✗ Allow unlimited or unrestricted hedging or pledging transactions by executive officers or directors. ✗ Provide our executives with executive-only perquisites. ✗ No dividends paid on unvested equity awards for NEOs. |
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Compensation Mix The Committee strives to establish a total compensation package that appropriately rewards our NEOs for performance, aligns the interests of our NEOs with shareholders’ interests, is competitive with the market, does not encourage or incentivize inappropriate risk, and complies with all legal and regulatory guidelines. Incentive compensation is predominantly long term, with a substantial portion at risk depending upon our performance, including the creation of long term shareholder value. The mix of compensation awarded in 2023 to our NEOs reflects our compensation philosophy. The only element of compensation not subject to risk, other than fringe benefits, is the NEO’s base salary; as such, a substantial portion of our executives’ compensation is performance-based and at risk, thereby further aligning the interests of our NEOs and our shareholders. The charts below show the target total direct compensation of our CEO and our other NEOs for fiscal 2023, broken down by base salary, annual cash incentive bonus plan, time-vested restricted stock units (“TRSUs”) and performance-based restricted stock units (“PRSUs”).
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| (1) Based on target payouts. |
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Indiana’s Top Workplaces” by The Indianapolis Star for ten years in a row. We believe that our excellent pay packages, a culture of growth and innovation, and Company-wide pride in our exemplary customer service all enhance our ability to attract and retain top talent. The Process for Compensation Decisions The Committee, our CEO and outside advisors all play a role in compensation decisions. The sections that follow describe these parties’ respective roles in the compensation-setting process, as well as other important factors that impact compensation decisions. Role of the Compensation Committee The Committee is composed entirely of independent directors as determined under the Nasdaq rules. The 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 Committee sets the appropriate goals and measures under the Annual Bonus Plan and LTIP and communicates those goals and measures to covered NEOs. The responsibilities of the Committee include:
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| ● | engages an independent compensation consultant and considers input from such compensation consultant; and, |
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| ● | considers readily available market data to assess the appropriateness and competitiveness of our current compensation practices. |
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| ● | Short-Term Incentive Compensation. In December 2022, the Committee established performance targets for 2023 under the Annual Bonus Plan, consisting of target net income, net interest income, ratio of nonperforming assets to total assets and Texas Ratio. The Annual Bonus Plan provides for awards to be earned for a fiscal year under each plan criterion, independent of the other criteria. For |
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| each metric, the Committee determined a threshold, target and maximum level of achievement based on the Company’s operating plan for 2023. The specific threshold, target and maximum opportunity for each NEO is expressed as a percentage of annual base salary, reflective of the NEO’s role and our compensation philosophy. Awards are interpolated to the next whole percent between the threshold, target and maximum goals. The four performance metrics were evenly weighted at 25% each for 2023. |
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In March 2024, the Committee, utilizing the Company’s audited financial statements, reviewed and determined the Company’s 2023 performance against the applicable performance targets under the Annual Bonus Plan and determined that the corporate performance goals were achieved on a weighted combined basis at 58% of target. For 2023, the Committee determined that the performance level with respect to net income was below threshold, net interest income was below threshold, the nonperforming assets to total assets metric was over the maximum metric and the Texas Ratio metric was over the maximum metric.
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| ● | Long-Term Incentive Compensation. The First Internet Bancorp 2013 Equity Incentive Plan (the “2013 Plan”) and the First Internet Bancorp 2022 Equity Incentive Plan (the “2022 Plan”) are shareholder-approved plans that permitted (in the case of the 2013 Plan) or permit (in the case of the 2022 Plan) the Committee to provide executives with equity-based compensation opportunities. The Committee believes that equity-based awards that include multi-year vesting requirements provide our executives with an ownership stake in the Company, promote executive retention and are prudent in light of competitive market conditions. The Committee also believes that grants of restricted stock units are an effective means to align the interests of executives more closely with those of our shareholders and that grants of performance-based equity awards directly link executive compensation with performance. |
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| o | Performance goals in PRSUs are tied to performance metrics, which were return on average assets and nonperforming asset ratio (i.e., total dollar amount of nonperforming assets divided by dollar amount of total assets) for 2021 through 2023 PRSUs; |
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The Committee believes that shareholder value is and will be driven more by an increase in net income and resulting increase in return on average assets. In making this decision, the Committee considered the non-performing asset ratio metric essential to assure that the Company was not encouraging excessive risk taking by management. We believe that this equity incentive award structure for our NEOs aligns our compensation structure for NEOs with current industry standards and shareholder interests. In 2023, the Committee awarded an aggregate of 49,153 restricted stock units (“RSUs”) to our NEOs, consisting of 29,492 (60%) PRSUs (at target level) and 19,661 (40%) TRSUs, under the 2022 Equity Plan and in accordance with the Company’s long-term incentive program. In March 2024, the Committee, utilizing the Company’s audited financial statements, reviewed the Company’s 2023 performance to determine whether the Company had achieved the nonperforming assets ratio and return on average assets goals governing PRSUs granted to NEOs in 2021. The Committee determined that the nonperforming assets ratio goal had been met, but that the return on average assets goal had not been met. The Committee therefore determined that none of the PRSUs granted to NEOs in 2021 had vested, and those PRSUs were forfeited.
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Peer Group Competitive Compensation Analysis In evaluating whether compensation for our NEOs is competitive, the Committee collects compensation data from a group of companies for use as an additional data point. However, the Company’s unique business model limits the efficacy of “peer group” data. For example, we have a national footprint in that, through our platform, we gather deposits, make public finance loans, single tenant lease loans, healthcare finance loans, franchise finance loans and small business loans on a nationwide basis. But unlike most large banks with a national footprint, our footprint thus far is the result of organic growth and is without the benefit of any acquisition of another financial institution, without a wealth management division, and without an insurance affiliate. Further, unlike most large banks with a national footprint we have no “brick and mortar” branch network, nor its resulting overhead. Similarly, traditional community banks with assets of $3.5 billion to $6 billion generally do not have our national deposit customer base or a national lending platform. Unlike our company, most of these community banks of similar size have grown in part by acquisitions. Also, unlike us, these community banks frequently have a branch network to maintain and manage. As a result of the foregoing, the Committee has been challenged to identify a suitable peer group for use in making compensation decisions. Nonetheless, with the assistance of Aon plc, in 2022 the Committee identified a group of bank and financial holding companies for use in making compensation decisions for 2023. The selected peer group was less focused on high growth peers and more focused on peers who, similar to the Company, are without significant wealth management, insurance, or mortgage servicing revenue. With the assistance of Aon plc, the Committee identified the following financial institutions:
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The Committee considered the recommendations of our CEO with respect to the other NEOs. In addition, pursuant to the CEO’s request, the CEO did not receive an annual base salary increase for 2023. 2023 Short-Term Incentive Compensation The Committee also established short-term incentive performance goals for 2023 for senior management, including all of our NEOs, pursuant to the Annual Bonus Plan. The Annual Bonus Plan criteria for 2023 provided an opportunity for each participant to earn an annual cash bonus based on the Company’s achievement (at threshold, target and maximum levels) of budgeted goals for net income, net interest income, ratio of nonperforming assets to total assets and Texas Ratio. The budgeted goals are those which were established in the 2023 annual budget of the Company approved by the Board of Directors. These budgeted goals were $21.0 million for net income, $90.8 million for net interest income, 1.00% for the ratio of nonperforming assets to total assets and 10.0% for Texas Ratio. The Annual Bonus Plan also required that the following conditions be met for payments to be made with respect to 2023:
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| PERFORMANCE GOAL (RELATIVE WEIGHT) | CORPORATE PERFORMANCE LEVEL | | | 2023 ACTUAL PERFORMANCE | PERFORMANCE LEVEL ACHIEVED | WEIGHTED PAYOUT PERCENTAGE | | | THRESHOLD (90%) | TARGET (100%) | MAXIMUM (115%) | | | | | Net Income (25%) | $18,938 | $21,042 | $24,198 | $8,417 | 0% | 0% | | Net Interest Income (25%) | $81,760 | $90,844 | $104,471 | $74,904 | 0% | 0% | | Texas Ratio (25%) | 11.0% | 10.0% | 8.5% | 2.8% | 115% | 29% | | Nonperforming Asset Percentage(1) (25%) | 1.10% | 1.00% | 0.85% | 0.20% | 115% | 29% | | Total Weighted Percentage Earned | | | | | | 58% |
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(1) Expressed as a percentage of total assets. The Committee also determined that the additional conditions for payment in the Annual Bonus Plan had been satisfied for 2023. Based on the Company’s performance and the individual performance rating of each NEO, the Committee approved the following cash bonus awards for 2023 performance in accordance with the Annual Bonus Plan:
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| NAMED EXECUTIVE OFFICER | ANNUAL CASH BONUS EARNED | PERCENTAGE OF 2023 ANNUAL BASE SALARY | | David B. Becker | $280,000 | 35% | | Nicole S. Lorch | $175,000 | 35% | | Kenneth J. Lovik | $109,200 | 30% |
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2023 Long-Term Incentive Compensation Actions In January 2023, the Committee granted equity incentive awards to our senior management, including our NEOs. These equity incentive awards to the NEOs are comprised of both PRSUs and TRSUs and have a vesting and/or performance period of three years, as detailed below. The number of RSUs awarded to each NEO was determined by dividing a percentage of the NEO’s annual base salary by a reference price equal to the closing price of a share of common stock on the last trading day of 2022, which was $24.28. Mr. Becker and Ms. Lorch each received an award representing 75% of his or her respective annual base salary, and Mr. Lovik received an award representing 60% of his annual base salary. As a result, the following RSUs were awarded to our NEOs for 2023:
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| NAME | PRSUs (TARGET PAYOUT) | TRSUs | TOTAL RSUs (TARGET PAYOUT) | | David B. Becker | 14,827 | 9,885 | 24,712 | | Nicole S. Lorch | 9,267 | 6,178 | 15,445 | | Kenneth J. Lovik | 5,398 | 3,598 | 8,996 |
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| ● | If the Company achieves the goal for non-performing assets, a number of PRSUs will be eligible to vest at the end of the performance period based on the achievement by the Company of the return on average assets goal, as determined by the Committee. The number of PRSUs that will vest will range from 0% (if performance is below the threshold level), 50% (if performance is at the threshold level), 100% (if performance is at target) to 150% (if performance is at or above the maximum level.) |
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The TRSUs (40% of total RSUs) will become fully vested and nonforfeitable in three substantially equal installments on January 31, 2024, 2025 and 2026, subject to continued employment through the vesting date, unless the NEO’s employment terminates because of death, disability, or separation of service without cause after attaining the age of 65, in which event only a prorated portion of the award would vest. In March 2024, the Committee, utilizing the Company’s audited financial statements, reviewed the Company’s 2023 performance to determine whether the Company had achieved the nonperforming assets ratio and return on average assets goals governing PRSUs granted to NEOs in 2021. The Committee determined that the nonperforming assets ratio goal had been met, but that the return on average assets goal had not been met. The Committee therefore determined that none of the PRSUs granted to NEOs in 2021 had vested, and those PRSUs were forfeited.
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Compensation Decisions for 2024 2024 Peer Group Subsequent to the 2023 Annual Meeting, the Committee again utilized Aon plc to advise as to a peer group for use in making determinations on 2024 compensation. In general, the Committee determined to utilize substantially similar criteria as it had in determining the peer group for 2022 and 2023 but made some slight revisions to account for the Company’s growth in asset size and servicing revenue. Criteria were:
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This resulted in a number of changes to the peer group. The peer group utilized by the Committee as one element of making determinations on 2024 compensation consisted of the following:
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2024 Short-Term Incentive Compensation Actions The Committee, relying on the Company’s budget and priorities for 2024, determined not to change the performance metrics that will be used to determine each NEO’s eligibility for cash bonuses on account of 2024 performance under the Annual Bonus Plan. The Committee believes that the metrics appropriately balance the goals of increasing income and net interest income with prudent credit risk management. Each of the four performance metrics (net income, net interest income, ratio of nonperforming assets to total assets and Texas Ratio) are weighted at 25%.
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2024 Long-Term Incentive Compensation Actions In January 2024, the Committee acted to award an aggregate of 50,816 RSUs to our NEOs, consisting of 30,490 (60%) PRSUs and 20,326 (40%) TRSUs, under the 2022 Plan and in accordance with the Company’s long-term incentive program. Similar to the awards in 2023, these awards have a performance and/or vesting period of three years. The number of RSUs awarded to each executive was determined by dividing a percentage of the executive’s 2024 base salary by a reference price equal to the closing price of a share of common stock on the last trading day of 2023, which was $24.19. Mr. Becker and Ms. Lorch each received an award representing 75% of his or her respective annual base salary, and Mr. Lovik received an award representing 60% of his annual base salary. As a result, the following RSUs were awarded to our NEOs for 2024:
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| NAME | PRSUs (TARGET PAYOUT) | TRSUs | TOTAL RSUs (TARGET PAYOUT) | | David B. Becker | 15,329 | 10,219 | 25,548 | | Nicole S. Lorch | 9,581 | 6,387 | 15,968 | | Kenneth J. Lovik | 5,580 | 3,720 | 9,300 |
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| ● | If the Company achieves the nonperforming assets goal at the end of the performance period, a number of PRSUs will be eligible to vest at the end of the performance period, based on the achievement by the Company, as determined by the Committee, of the return on asset goal. The number of PRSUs that will vest will range from 0% (if performance is below the threshold level), 90% (if performance is at the threshold level), 100% (if performance is at target) to 150% (if performance is at or above the maximum level). |
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| ● | If at least threshold performance is met, a number of PRSUs depending on performance will be earned and will vest as of December 31, 2026, the end of the three-year performance period. The vesting will be further conditioned upon the NEO maintaining continued employment with the Company through the vesting date or the termination of the NEO’s employment because of death, disability, or separation of service without cause after attaining the age of 65, in which event only a prorated portion of the award would vest. |
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The TRSUs (40% of total RSUs) become fully vested and nonforfeitable in three substantially equal installments on January 31, 2025, 2026 and 2027, subject to continued employment through the vesting date or termination of the NEO’s employment because of death, disability, or separation of service without cause after attaining the age of 65, in which event only a prorated portion of the award would vest. Taxes and Accounting Considerations Section 162(m) of the Internal Revenue Code generally disallows a federal tax deduction to a public company for compensation in any tax year paid to certain “covered employees” to the extent that the compensation to such officer exceeds $1 million. Despite these limits on the deductibility of performance-based compensation, the Committee believes that a significant portion of our NEOs’ compensation should be tied to Company performance. The Committee’s ability to continue to provide a competitive compensation package to attract, motivate and retain the Company’s most senior executives is considered critical to the Company’s success and to advancing the interests of its stockholders. Section 409A of the Internal Revenue Code also affects the payments of certain types of deferred compensation to key employees and includes requirements relating to when payments under such arrangements can be made, acceleration of benefits, and timing of elections under such arrangements. Failure to satisfy these requirements will generally lead to an acceleration of the timing for including deferred compensation in an employee’s income, as well as certain penalties and interest. Our nonqualified deferred compensation arrangements are exempt from, or meet, the requirements of Section 409A. Report of the Compensation Committee The Committee has reviewed the above Compensation Discussion and Analysis and discussed that analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. This report is provided by the following independent directors who comprise the Compensation Committee:
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| NAME AND PRINCIPAL POSITION(S) | YEAR | SALARY ($) | STOCK AWARDS(1)(2) ($) | NON-EQUITY INCENTIVE PLAN COMPENSATION(3) ($) | ALL OTHER COMPENSATION(4) ($) | TOTAL ($) | | David B. Becker Chairman and CEO | 2023 | 800,000 | 623,880 | 280,000 | 23,442 | 1,727,322 | | | 2022 | 800,000 | 606,670 | 392,000 | 17,483 | 1,816,153 | | | 2021 | 800,000 | 645,269 | 458,000 | 17,008 | 1,920,277 | | Nicole S. Lorch President, COO and Corporate Secretary | 2023 | 500,000 | 388,816 | 175,000 | 11,201 | 1,075,017 | | | 2022 | 470,000 | 354,233 | 230,300 | 10,331 | 1,064,864 | | | 2021 | 402,078 | 225,748 | 215,876 | 8,270 | 852,602 | | Kenneth J. Lovik Executive Vice President and CFO | 2023 | 364,000 | 226,970 | 109,200 | 13,087 | 713,257 | | | 2022 | 350,000 | 212,155 | 149,333 | 11,917 | 723,405 | | | 2021 | 335,000 | 216,120 | 166,663 | 11,434 | 729,217 |
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| NAME | FEES EARNED OR PAID IN CASH ($) | STOCK AWARDS(1)($) | TOTAL ($) | | Aasif M. Bade | 55,450 | 52,000 | 107,450 | | Justin P. Christian | 46,575 | 52,000 | 98,575 | | Ann Colussi Dee | 52,700 | 52,000 | 104,700 | | Joseph A. Fenech | 18,750 | 52,000 | 70,750 | | John K. Keach, Jr. | 55,450 | 52,000 | 107,450 | | David R. Lovejoy(2) | 18,325 | | 18,325 | | Jean L. Wojtowicz | 69,817 | 52,000 | 121,817 |