PROXY
STATEMENT
FOR 2021 ANNUAL MEETING
OF SHAREHOLDERS
to be held at 1:00 p.m. Eastern Time on Monday, May
17, 2021
This
proxy statement and the accompanying form of proxy are being furnished to the holders of common stock of First Internet Bancorp
(the “Company,” “we,” “our,” or “us”) in connection with the solicitation of proxies
by the Board of Directors (the “Board”) for the 2021 Annual Meeting of Shareholders to be held virtually via the Internet
at 1:00 p.m. local time on Monday, May 17, 2021, and at any adjournments thereof. This proxy statement and the accompanying
form of proxy, or a Notice of Internet Availability of Proxy Materials, are being mailed to our shareholders on or about March 31,
2021.
Important
Notice Regarding the Availability of Proxy Materials for the
Annual Meeting
of Shareholders to be Held May 17, 2021
Copies
of the notice of annual meeting of shareholders, this proxy statement and the 2020 annual report are each available at www.firstinternetbancorp.com.
QUESTIONS
AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
Why
are you conducting a virtual annual meeting?
We
are conducting this year's annual meeting entirely online due to the public health impact of the COVID-19 pandemic and to support
the health and well-being of our employees and shareholders. In addition, we believe the online meeting format will provide shareholders
who would not otherwise be able to attend the annual meeting the opportunity to do so. As in prior years, our shareholders will
continue to be able to vote and ask questions during the meeting.
What
matters will be voted on at the meeting?
There
are three substantive matters to be voted on at the meeting, as follows:
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PROPOSAL
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BOARD
VOTE
RECOMMENDATION
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ADDITIONAL
DETAIL
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Proposal
1: Election of eight directors to serve until the next annual meeting of shareholders
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FOR
each nominee
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Page
5
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Proposal
2: Advisory vote to approve compensation paid to our named executive officers, also
referred to as a “say-on-pay” vote
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FOR
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Page
29
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Proposal
3: Ratification of the appointment of BKD, LLP as our independent registered public accounting
firm for 2021
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FOR
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Page
30
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Why
did shareholders receive a Notice of Internet Availability of Proxy Materials?
All
of our shareholders will receive a Notice of Internet Availability of Proxy Materials (the “Notice”) containing information
on the availability of our proxy materials on the Internet, unless they previously requested a printed copy of the proxy materials.
Shareholders will not receive a printed copy of our proxy materials unless they request the materials in the manner described
in the Notice. The Notice explains how to access and review this proxy statement and our annual report for the year ended December 31,
2020, and how you may vote by proxy.
What
is a proxy?
A
proxy is your legal designation of another person to vote on your behalf. By voting over the Internet, by telephone or, if you
receive a printed copy of the proxy materials, by completing and returning a proxy card, you are giving the persons named, David
B. Becker and Kenneth J. Lovik, the authority to vote your shares in the manner you indicate.
Who
is qualified to vote?
Shareholders
of record as of the close of business on March 22, 2021 are entitled to vote at the annual meeting or any adjournments thereof.
As of March 22, 2021, we had 9,823,831 shares of our common stock outstanding, each of which is entitled to one vote for
each director nominee and one vote on each other item of business properly brought before the meeting.
How
many shares must be present to hold the meeting?
The
presence in person (including virtually) or by proxy of the holders of a majority of the outstanding shares entitled to vote at
the annual meeting, or 4,911,916 shares, is necessary to constitute a quorum for the transaction of business.
What
is the difference between a “SHAREHOLDER OF RECORD” and a “STREET NAME” holder?
These
terms describe how your shares are held. You are a “SHAREHOLDER OF RECORD” if your shares are registered directly
in your name with our transfer agent, Computershare. You are a “street name” holder if your shares are held in the name of
a brokerage, bank, trust or other nominee as a custodian.
How
do I vote my shares?
If
you are a “shareholder of record,” then you have several choices. You can vote your shares by proxy:
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if
you receive a printed copy of the proxy card, by marking, signing, dating and mailing
your proxy card.
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You
will need to have the Notice or, if you received a printed copy of the proxy materials, your proxy card, available when voting
over the Internet or by telephone. Please refer to the specific instructions set forth on the Notice or proxy card. For security
reasons, our electronic voting system has been designed to authenticate your identity as a shareholder. If you vote over the Internet
or by telephone, you do not need to return a proxy card.
If
you hold your shares in “STREET NAME,” then your broker, bank, trustee or other nominee will provide you with materials
and instructions for voting your shares.
What
do I need to do to attend the meeting and how do I vote my shares electronically?
We
intend to hold our annual meeting virtually via the Internet, which you may access at www.virtualshareholdermeeting.com/INBK2021.
Only shareholders who owned our common stock
as of the close of business on March 22, 2021 will be entitled to attend the meeting.
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If
you are a “SHAREHOLDER OF RECORD,” you may vote your shares electronically
and ask questions at the meeting by following the instructions provided on the Notice
or, if you received a printed copy of the proxy materials, your proxy card, to log into
www.virtualshareholdermeeting.com/INBK2021. To participate in the annual meeting, you
will need the 16-digit control number provided on the Notice or your proxy card.
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If
your shares are held in “STREET NAME,” you may receive a voting instruction
form with a 16-digit control number that will allow you to log into www.virtualshareholdermeeting.com/INBK2021,
vote your shares electronically and ask questions. We encourage you to confirm the correct
process for accessing the meeting with your broker, bank, trustee or other nominee in
advance. If you do not receive a 16-digit control number on your voting instruction form,
you must request a legal proxy from your broker, bank, trustee or other nominee that
holds your shares. Please follow the instructions from your broker, bank, trustee or
other nominee or contact your broker, bank, trustee or other nominee to request a proxy
form.
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Even
if you currently plan to attend the meeting, we recommend that you vote by proxy, either via the Internet, by telephone or by
mail, so that your vote will be counted if you later decide not to attend the meeting.
Can
I vote electronically at the meeting?
If
you are a “SHAREHOLDER OF RECORD,” then you may vote your shares electronically at the meeting.
If
you hold your shares in “STREET NAME,” then you must obtain a legal proxy from your broker, bank, trustee or
other nominee, giving you the right to vote your shares electronically at the meeting.
What
are broker non-votes?
A
broker non-vote occurs when a nominee, such as a broker, holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary authority to vote on that particular proposal and has not received instructions
from the beneficial owner as to how to vote its shares. Proposals 1 and 2 each fall into this category. If you do not provide
your broker with voting instructions, none of your shares held by the broker will be voted on either of those proposals.
What
vote is required for each of the proposals to be approved?
For
Proposal 1, the directors receiving a plurality of the votes cast FOR will be elected. Neither abstentions nor broker non-votes
will affect the outcome of this proposal.
Proposals
2 and 3 will be approved if more shares are voted FOR the proposal than AGAINST. Neither abstentions nor broker
non-votes will affect the outcome of either proposal.
What
can I do if I change my mind after I submit my proxy?
If
you are a “SHAREHOLDER OF RECORD,” you may revoke your proxy at any time before it is voted at the meeting
by: (1) sending a written notice of the revocation to our Secretary at 11201 USA Parkway, Fishers, Indiana 46037 that is received
prior to the meeting, (2) submitting a later-dated proxy via the Internet, by telephone or by mail, or (3) by attending the meeting
and voting your shares electronically.
If
your shares are held in “STREET NAME,” you may submit new voting instructions by contacting your broker, bank,
trustee or other nominee holder. You also may vote electronically at the annual meeting if you obtain a legal proxy as described
above.
How
would my shares be voted if I do not specify how they should be voted?
If
you submit a signed proxy without indicating how you want your shares to be voted, the persons named as proxies will vote your
shares in accordance with the Board’s recommendations.
What
is the effect of the say-on-pay advisory vote?
This
proposal is advisory and not binding on the Company, the Board or the Compensation Committee of the Board. We could, if the Board
or the Compensation Committee concluded it was in our best interests to do so, choose not to follow or implement the outcome of
this advisory vote.
Why
did I receive more than one Notice or proxy card?
You
may receive multiple Notices or proxy cards if you hold your shares of record in different ways (e.g., joint tenancy, trusts,
and custodial accounts) or in multiple accounts. If your shares are held in street name by a broker, bank, trustee or other nominee,
you will receive voting instructions from your broker, bank, trustee or other nominee, and you will return your voting instructions
to your broker, bank, trustee or other nominee. You should vote on and sign each proxy card and/or voting instruction form you
receive.
What
happens if additional matters are presented at the annual meeting?
We
know of no other matters other than the items of business described in this proxy statement that will be presented at the meeting.
If you grant a proxy, the persons named as proxy holders will have discretion to vote your shares on any additional matters properly
presented for a vote at the meeting in accordance with Indiana law and our Amended and Restated Bylaws (“Bylaws”).
Can
I review the list of shareholders entitled to vote at the meeting?
A
list of shareholders entitled to vote at the meeting as of March 22, 2021 will be available for inspection for five business
days prior to the annual meeting. If you want to inspect the shareholder list, please contact our Secretary at (317) 532-7900
to schedule an appointment. In addition, the shareholder list will be available during the annual meeting through the meeting
website for those shareholders who choose to attend.
Who
pays for the cost of proxy preparation and solicitation?
We
are paying the costs of the solicitation of proxies. We must also pay brokerage firms and other persons representing beneficial
owners of shares held in street name certain fees associated with:
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forwarding
the Notice to beneficial owners;
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forwarding
printed proxy materials by mail to beneficial owners who specifically request them; and
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obtaining
beneficial owners’ voting instructions.
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In
addition to soliciting proxies by mail, certain of our directors, officers and other employees, without additional compensation,
may solicit proxies personally or by telephone, facsimile or email on our behalf.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information as of March 22, 2021, regarding beneficial ownership of our common stock held by each
director nominee and named executive officer, by all director nominees and executive officers as a group, and by all persons who
are known to be beneficial owners of more than 5% of our common stock. Unless otherwise indicated below, the address of each beneficial
owner listed in the table is the address of the company’s principal executive offices and, to our knowledge, the persons
and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned,
subject to community property laws where applicable.
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NAME
OF BENEFICIAL OWNER
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AMOUNT
AND
NATURE OF
BENEFICIAL
OWNERSHIP(1)
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PERCENT
OF
OUTSTANDING
SHARES
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Directors, nominees
and named executive officers
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David
B. Becker
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328,548(2)
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3.3%
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Kenneth
J. Lovik
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27,485(3)
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*
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Nicole
S. Lorch
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31,780(4)
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*
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C.
Charles Perfetti
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56,535(5)
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*
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Aasif
M. Bade
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-
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*
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Ana
Dutra
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3,273
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*
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John
K. Keach, Jr.
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23,806(6)
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*
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David
R. Lovejoy
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28,582(7)
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*
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Michael
L. Smith
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3,273
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*
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Ralph
R. Whitney, Jr.
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54,274(8)
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*
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Jerry
Williams
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108,238(9)
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1.1%
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Jean
L. Wojtowicz
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53,659(10)
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*
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All
directors, nominees and current executive officers as a group (12 persons)
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719,453(11)
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7.2%
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Stieven
Capital Advisors, L.P.
12412 Powerscourt Drive, Suite 250
St. Louis, MO 63131
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766,583(12)
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7.8%
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BlackRock,
Inc.
55 East 52nd Street
New York, NY 10055
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631,409(13)
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6.4%
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Dimensional
Fund Advisors LP
Building One
6300 Bee Cave Road
Austin, TX 78746
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606,460(14)
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6.2%
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The
Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
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513,377(15)
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5.2%
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(1)
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Unless
otherwise indicated in the footnotes to this table, (a) the listed beneficial owner has
sole voting power and investment power with respect to the number of shares shown, (b)
no director or executive officer has pledged as security any shares shown as beneficially
owned, and (c) deferred stock rights were issued under the Directors’ Deferred
Stock Rights Plan. Excludes fractional shares.
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(2)
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Includes
13,296 shares underlying RSUs scheduled to vest within 60 days of the date of this table;
and 189,400 shares pledged as security for a personal line of credit at an unaffiliated
institution.
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(3)
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Includes
4,547 shares underlying RSUs scheduled to vest within 60 days of the date of this table.
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(4)
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Includes
4,573 shares underlying RSUs scheduled to vest within 60 days of the date of this table.
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(5)
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Includes
3,455 shares underlying RSUs scheduled to vest within 60 days of the date of this table.
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(6)
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Includes
2,076 shares underlying deferred stock rights.
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(7)
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Includes
12,020 shares underlying deferred stock rights.
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(8)
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Includes
26,817 shares underlying deferred stock rights, of which 955 shares were issued under
the 2013 Equity Plan.
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(9)
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Includes
18,190 shares underlying deferred stock rights, 42,500 shares indirectly held through
an IRA and 1,702 shares held by a limited liability company of which Mr. Williams holds
voting and investment power.
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(10)
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Includes
25,862 shares underlying deferred stock rights.
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(11)
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Includes
25,871 shares issuable upon vesting of RSUs scheduled to vest within 60 days of the date
of this table; and 84,965 deferred stock rights.
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(12)
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Based
on information reported to the SEC in a Schedule 13G/A filed by Stieven Capital Advisors,
L.P. on January 22, 2021, and reflects beneficial ownership as of December 31, 2020.
Stieven Capital Advisors, L.P. reported having shared voting and dispositive power with
respect to all shares identified.
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(13)
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Based
on information reported to the SEC in a Schedule 13G/A filed by BlackRock, Inc. on January
29, 2021, and reflects beneficial ownership as of December 31, 2020. BlackRock,
Inc. reported having sole voting power with respect to 621,333 shares and sole dispositive
power with respect to 631,409 shares.
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(14)
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Based
on information reported to the SEC in a Schedule 13G/A filed by Dimensional Fund Advisors
LP on February 12, 2021, and reflects beneficial ownership as of December 31, 2020.
Dimensional Fund Advisors LP reported having sole voting power with respect to 576,779
shares and sole dispositive power with respect to 606,460 shares.
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(15)
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Based
on information reported to the SEC in a Schedule 13G filed by The Vanguard Group on February
10, 2021, and reflects beneficial ownership as of December 31, 2020. The Vanguard
Group reported having sole shared voting power with respect to 6,644 shares, sole dispositive
power with respect to 504,732 shares and shared dispositive power with respect to 8,645
shares.
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PROPOSAL 1:
ELECTION OF DIRECTORS
The
Board, acting on the recommendation of its Nominating and Corporate Governance Committee, has nominated seven incumbent directors
and Mr. Bade for election as directors. Mr. Bade was identified and recommended as a director candidate to the Nominating and
Corporate Governance Committee by our Chief Executive Officer. Each nominee who is elected will serve for a term of one year,
which expires at our next annual meeting of shareholders or such later date as his or her successor has been elected and qualified.
Unless authority is specifically withheld, the shares voting by proxy will be voted in favor of these nominees.
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DIRECTOR
NOMINEE
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AGE
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POSITIONS
AND OFFICES HELD WITH FIRST INTERNET BANCORP
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DIRECTOR
SINCE
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Aasif M. Bade
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40
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Director Nominee
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N/A
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David B. Becker
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67
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Chairman, President,
Chief Executive Officer & Director
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1999
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Ana Dutra
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56
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Director
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2020
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John K. Keach,
Jr.
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69
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Director
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2012
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David R. Lovejoy
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72
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Director, Vice
Chair of the Board
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2006
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Ralph R. Whitney,
Jr.
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86
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Director
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1998
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Jerry Williams
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78
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Director
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1998
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Jean L. Wojtowicz
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63
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Director
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1998
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If
any of these nominees becomes unable to serve, we expect that the persons named as proxies will exercise their voting power in
favor of such other person or persons as the Board may recommend. All of the nominees have consented to being named in this proxy
statement and to serve if elected. The Board knows of no reason why any of the nominees would be unable to serve.
The
names of the persons who are nominees for election and certain other information, including their experience and qualifications
are set forth below. There are no family relationships among any of our directors or executive officers. Except for Mr. Becker’s
employment agreement, which provides that he will be employed as Chairman, President and Chief Executive Officer of our Company,
there is no arrangement or understanding pursuant to which a director or executive officer has been selected as a director or
nominee for election or as an executive officer.
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AASIF
M. BADE
Founder and
CEO, Ambrose Property Group
Mr.
Bade is not a current director and is standing for election for the first time.
He
has served as Chief Executive Officer of Ambrose Property Group, LLC, a private industrial development company, since
founding it in 2008. Previously, he served in various positions of increasing responsibility at Duke Realty Corporation
from 2000 to 2008. He has filled volunteer and leadership roles with the Indianapolis Zoo, Indianapolis 500 Festival,
2021 NBA All-Star Game Local Organizing Committee and Central Indiana Community Foundation. He has served on the Indiana
University Foundation Board of Directors since 2018.
Mr.
Bade’s national commercial real estate experience will bring to our Board knowledge that will benefit the Company’s
commercial real estate lending business. His experience in capital management, customer relations and long-range planning
will make him an important resource for our Board. As a result of his extensive involvement in businesses and community
activities in Indiana, Mr. Bade has developed insights and relationships that uniquely provide him with the ability to
offer a valuable perspective on issues that affect the Company in the communities we serve.
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DAVID
B. BECKER
Chairman,
President and Chief Executive Officer,
First Internet
Bancorp
Mr.
Becker has served as our Chairman since 2006 and as President and Chief Executive Officer since 2007. He founded the Company’s
subsidiary, First Internet Bank of Indiana (the “Bank”), in 1998 and has served as its president and
chief executive officer since its founding and as a director of the Bank since 1999. In 1981, he founded re:Member Data
Services, an electronic data processing services provider focused on credit unions throughout the United States, and served
as its chief executive officer until its acquisition by Open Solutions Inc. in 2004. In 1994, he founded OneBridge, Inc.,
a credit and debit card processing firm, and served as its chief executive officer until it was acquired by Vantiv Inc.
in 2014. In 1995, he founded VIFI, an Internet services provider focused on financial institutions, which was acquired
by Digital Insight Corporation in 2002. In 2002, he founded Dynamic Knowledge Transfer, LLC, a private company that does
business under the name DyKnow and specializes in educational technology for interactive learning experiences, and has
served as a director since 2002. In 2007, he founded RICS Software, Inc., a private provider of web-based inventory control
and point-of-sale solutions for retailers. He served as Chief Executive Officer of RICS Software from 2007 to February
2016 and as a member of its board of directors from 2007 until its acquisition in 2020. He also serves on the board of
directors of Techpoint, a philanthropic organization focused on strengthening Indiana’s tech ecosystem and helping
its tech companies grow.
Mr.
Becker’s more than 40 years of experience as a successful entrepreneur in numerous businesses and his role as our
principal executive officer for over a decade uniquely qualify him for service on our Board.
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PROPOSAL 1:
ELECTION OF DIRECTORS
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ANA
DUTRA
Chief Executive
Officer, Mandala Global Advisors, Inc.
Ms.
Dutra has served as a director of the Company and the Bank since May 2020. She founded Mandala Global Advisors, Inc.,
a provider of advisory services to boards and management to accelerate business growth through innovation, globalization,
M&A and turnaround strategies, in 2013 and currently serves as its Chief Executive Officer. She previously served
as Chief Executive Officer of The Executives’ Club of Chicago, a world-class senior executives organization focused
on the development, innovation and networking of current and future business and community leaders, from 2014 until her
retirement in September 2018. Prior to that she was a Proxy Officer and Chief Executive Officer of Korn/Ferry Consulting
from 2007 until 2013. She has served as a member of the board of directors of CME Group Inc. (Nasdaq:CME) since January
2015, Eletrobas (NYSE:EBR) since January 2019, and Health, Harvest & Recreation, Inc. (NCSX:HARV) since 2014. She
is also a member of the boards of directors of Elkay Manufacturing Company, M. Holland Company, Lifespace Communities,
Inc., Greeley and Hansen LLC, Latino Corporate Directors Association, and Blessings-in-a-Backpack.
Ms.
Dutra’s experience as a current CEO and as a seasoned board member with particular experience in regulated industries
qualifies her for service on our Board.
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JOHN
K. KEACH, JR.
Private Investor
Fmr. 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 ten years
qualifies him for service on our Board.
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DAVID
R. LOVEJOY
Managing Director, Greycourt
& Co.
Mr.
Lovejoy has served as Vice Chair of the Board since 2006. He has been a director of the Company since 2006 and a director
of the Bank since 1999. Mr. Lovejoy previously served as President of the Bank from 2000 to 2006. He is currently a managing
director of Greycourt & Co., which provides investment advisor services. Mr. Lovejoy has extensive experience in financial
services, corporate development and strategy, corporate restructuring and startup. He has served as the Vice Chairman
of Mellon Bank Corporation and Security Pacific Corporation, and as a director of the Los Angeles Branch of the 12th
District Federal Reserve Bank and Phelps Dodge Corporation.
Mr.
Lovejoy’s years of experience in the financial services industry, including his service as an executive of major
financial companies and a director of a Federal Reserve Bank, qualify him for service on our Board.
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RALPH
R. WHITNEY, JR.
Chairman Emeritus, Hammond, Kennedy,
Whitney & Go., Inc.
Partner, Monument Microcap Partners
Mr.
Whitney has been a director of the Company since 2006 and a director of the Bank since 1998. Mr. Whitney has been a partner,
Vice President and Director of Monument MicroCap Partners LLC since its launch in August 2018. He is Chairman Emeritus
and had previously served as principal at Hammond, Kennedy, Whitney & Co., a New York financial intermediary and private
investment banking firm, since 1971. He has served on the boards of directors of Baldwin Technology Company, Inc., Excel
Industries, Inc. and Dura Automotive Systems, Inc. He serves as an advisor to Cheyenne Capital and Access Venture Partners.
Mr. Whitney is also a Trustee of the University of Rochester and serves on the board of the University of Wyoming Foundation.
Mr.
Whitney’s decades of experience in private equity and investment banking and his service on several boards of directors
of public companies qualify him for service on our Board.
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PROPOSAL 1:
ELECTION OF DIRECTORS
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JERRY
WILLIAMS
Private Investor
Fmr. Of Counsel,
Taft Stettinius & Hollister, LLP
Mr.
Williams has been a director of the Company since 2006 and a director of the Bank since 1998. Mr. Williams has been
a practicing attorney for more than 40 years and retired in December 2015 from the Indianapolis office of Taft Stettinius
& Hollister LLP, a Cincinnati-based law firm. Mr. Williams previously served as executive vice president, general
counsel and a director of ADESA Corporation, and was responsible for more than 20 acquisitions. He is a past director
of NNC Group (and chaired its compensation and audit committees), the Indiana Secondary Market for Education Loans, Inc.,
a state-chartered organization originating and acquiring higher education loans, and Gleaners Food Bank of Indiana, Inc.
He is also a minority owner of the Indy Fuel, a professional hockey team and member of the ECHL and serves on the board
of directors for the Link Observatory Space Science Institute.
Mr.
Williams’ career, encompassing his experience in private legal practice in advising businesses and as general counsel
and a director of publicly traded and private companies, qualifies him for service on our Board.
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JEAN
L. WOJTOWICZ
President,
Cambridge Capital Management Corp.
Ms.
Wojtowicz has been a director of the Company since 2006 and a director of the Bank since 1998. Ms. Wojtowicz founded Cambridge
Capital Management Corp., a consulting firm and manager of non-traditional sources of business capital, in 1983 and currently
serves as its President. She served on the board of directors of Vectren Corporation until its acquisition in February
2019. Ms. Wojtowicz also serves on the board of directors of First Merchants Corporation in addition to the One America
Mutual Insurance Holding Company.
Ms.
Wojtowicz’s entrepreneurial skills demonstrated in the founding of her company, her experiences as an advisor to
businesses obtaining financing and as a director of publicly traded companies qualify her for service on our Board.
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The
Board of Directors recommends a vote “FOR” each of the nominees for director.
CORPORATE GOVERNANCE
The
Company is managed under the direction of the Board. The Company is a bank holding company and substantially all business activities
are conducted through the Company’s wholly-owned subsidiary, First Internet Bank of Indiana. The directors of the Company
also serve as the directors of the Bank.
Corporate
Governance Policies
Our
Board believes that good corporate governance is important to ensure that the Company is managed for the long-term benefit of
its shareholders. The Board or one of its committees periodically reviews our Corporate Governance Principles, the written charters
for each of the standing committees of the Board and our Code of Business Conduct and Ethics and amends them as appropriate to
reflect new policies or practices.
Board
Leadership Structure
Our
Board is currently led by Mr. Becker, who is the Chairman of the Board, President and Chief Executive Officer. Mr. Becker has
held all of these positions since 2007 and has experience in leading the Company through a range of cycles in various business
environments. The Board believes that it is most efficient and effective for a single individual to fulfill these two leadership
roles at this time. Combining the Chairman and Chief Executive Officer roles facilitates clear leadership responsibility and accountability,
effective decision-making and a cohesive corporate strategy. Mr. Lovejoy, as Vice Chair of the Board, serves as our lead independent
director and presides over executive sessions among the independent directors.
Our
Board possesses considerable experience and knowledge of the challenges and opportunities that we face as a company. We feel they
are well qualified to evaluate our current and future needs and to judge how the capabilities of our senior management can be
most effectively organized to meet those needs. Our Board currently has 7 independent directors. We have three standing committees
whose membership is limited to independent directors. The Board evaluates the appropriateness of its leadership structure on an
ongoing basis and may change it in the future as circumstances warrant.
Board
Role in Risk Oversight
Our
Board regularly receives reports from our Chief Executive Officer and other members of our senior management team regarding areas
of significant risk to us, including strategic, credit, operational, financial, technology, legal, regulatory and reputational
risks. However, management is responsible for assessing and managing our various risk exposures on a day-to-day basis. In this
regard, management, with the assistance, where appropriate, of its counsel, has established functions that focus on particular
risks, such as legal matters, regulatory compliance, interest rate sensitivity, liquidity management, asset quality and information
security, and has developed a systemic and integrated approach to overall risk management, which includes the identification of
risks and mitigation plans in the strategic planning process.
Our
Board’s role is primarily one of oversight. Our Board oversees our risk management processes to determine whether those
processes are functioning as intended and are consistent with our business and strategy. Our Board
conducts this oversight primarily
through the Audit Committee, although some aspects of risk oversight are performed by the full Board or another committee. The
Audit Committee is assigned with, among other things, oversight of our risks relating to accounting matters, financial reporting
and legal and regulatory compliance. The Audit Committee meets regularly with our Chief Financial Officer, external auditors and
management to discuss our major financial risk exposures and the steps management has taken to monitor and control such exposures,
including our risk assessment and risk management policies. The Audit Committee also receives regular reports regarding issues
such as the status and findings of audits being conducted by our independent auditors, the status of material litigation and material
accounting changes or proposed audit adjustments that could affect our financial statements. Our Audit Committee has standing
items on its quarterly meeting agendas relating to these responsibilities. The Audit Committee members, as well as each of the
other directors, have access to our Chief Financial Officer and any other member of our management for discussions between meetings
as warranted. The Audit Committee provides reports to the full Board on risk-related items.
The
activities of the Compensation Committee with respect to risks relating to our compensation policies and procedures are discussed
below in the Executive Compensation section of this proxy statement.
Director
Independence and Board Meetings
The
Board has determined that each of Ms. Dutra, Mr. Keach, Mr. Lovejoy, Mr. Whitney, Mr. Williams and Ms. Wojtowicz is, and if elected,
Mr. Bade will be, an “independent director” as defined by the listing standards of The Nasdaq Stock Market LLC (“Nasdaq”),
and the director independence rules of the SEC. Our common stock, our $25,000,000 aggregate outstanding principal amount of 6.0%
Fixed-to-Floating Rate Subordinated Notes due 2026, and our $37,000,000 aggregate outstanding principal amount of 6.0% Fixed-to-Floating
Rate Subordinated Notes due 2029 are listed on the Nasdaq Global Select Market. The Board has affirmatively determined that none
of our independent directors have any relationship with us that would impair their independence.
In
reaching its determination of independence, the Board considered Ms. Wojtowicz’s relationship with First Merchants Corporation
(“First Merchants”). Her service on the boards of directors of our Company and the Bank, while simultaneously serving
on the boards of directors of First Merchants and its subsidiary bank, First Merchants Bank (“FMB”), represents a
“management interlock,” subject to the Depository Institution Management Interlocks Act (the “Interlocks Act”).
Pursuant to a formal request for an exemption from the limitations of the Interlocks Act, the Federal Deposit Insurance Corporation
(with respect to the Bank and FMB) and the Board of Governors of the Federal Reserve System (with respect to the Company and First
Merchants), issued general exemptions from the prohibitions of the Interlocks Act for Ms. Wojtowicz’s board service on November
1, 2017 and March 7, 2018, respectively.
Directors
are expected to attend Board meetings, meetings of committees on which they serve and our annual meeting of shareholders, and
to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. During 2020, the Board
held nine meetings.
CORPORATE GOVERNANCE
No member of the board attended fewer than 75% of the aggregate number of meetings of the Board and the committees
on which they served during 2020.
Each
director is expected to be present at the annual meeting of shareholders, absent exigent circumstances that prevents their attendance.
If a director is unable to attend an annual meeting in person but is able to do so by electronic conferencing, then the Company
will arrange for the director’s participation by means where the director can hear, and be heard, by those present at the
meeting. All six of the directors then serving attended the annual meeting of shareholders held virtually on May 18, 2020.
Board
Composition and Refreshment
Our
Board is composed of directors with a mix of tenure, with longer serving directors providing important experience and institutional
knowledge, and newer directors providing fresh perspective to deliberations.
The
Nominating and Governance Committee regularly assesses our directors’ mix of skills, experience, tenure and diversity in
light of the Company’s long-term strategy and advises the Board of its determinations with respect to Board composition
and director refreshment and succession planning. As needed, the Committee identifies and evaluates potential director nominees,
taking into consideration the overall needs, composition and size of the Board.
Our
Board refreshment has been particularly active in the past two years. In the fall of 2019, the Nominating and Corporate Governance
Committee engaged a national search firm to identify prospective director candidates based on areas of complementary and desirable
skills and experience identified through a survey of the full Board and consultation with the search firm. As a result, the Nominating
and Corporate Governance Committee interviewed finalists, with the process resulting in the identification of Ms. Dutra as an
additional nominee for director for the 2020 annual meeting. Two of the seven independent director nominees for election at the
2020 annual meeting were not incumbent directors. For the 2021 annual meeting, Mr. Bade has been nominated for the first time
for election as an independent director.
Committees
of the Board
The
Board has three standing committees which facilitate the oversight responsibilities of the Board in three key areas: audit, compensation
and nominating and governance. All committees are composed entirely of independent directors. The members of the committees, as
of the date of this proxy statement, are identified in the following table. If elected, Mr. Bade is expected to serve on the Compensation
Committee and Nominating and Corporate Governance Committee.
INDEPENDENT
DIRECTOR
|
|
AUDIT
|
|
COMPENSATION
|
|
NOMINATING
AND CORP. GOV.
|
|
Dutra
|
|
Member
|
|
|
|
Member
|
|
Keach
|
|
|
|
Member
|
|
Member
|
|
Lovejoy
|
|
Member
|
|
|
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Chair
|
|
Smith
|
|
|
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Member
|
|
Member
|
|
Whitney
|
|
Member
|
|
Member
|
|
|
|
Williams
|
|
|
|
Chair
|
|
|
|
Wojtowicz
|
|
Chair
|
|
|
|
|
Audit
Committee. The primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities
by reviewing the financial information that will be provided to shareholders and others, the system of internal controls that
management has established, and the audit process. In doing so, it is the responsibility of the Audit Committee to provide an
open avenue of communication between the Board, management and the independent registered public accounting firm. The Audit Committee
appoints and evaluates our independent registered public accounting firm and meets with representatives of that firm and our Chief
Financial Officer to review the scope, cost and results of our annual audit and to review our internal control over financial
reporting, disclosure controls, policies and procedures. The Report of the Audit Committee appears in the Audit-Related Matters
section of this proxy statement.
All
members of the Audit Committee are “independent directors” as such term is defined under the Nasdaq rules and meet
the additional independence criteria for audit committee members set forth in the Nasdaq rules and SEC Rule 10A-3 promulgated
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has determined that Ms. Wojtowicz
qualifies as an “audit committee financial expert,” as defined in Item 407(d)(5)(ii) of Regulation S-K of the Exchange
Act. Shareholders should understand that this designation is an SEC disclosure requirement related to this director’s experience
and understanding with respect to certain accounting and auditing matters. The designation does not impose any duties, obligations
or liabilities that are greater than those which are generally imposed upon such director as a member of the Audit Committee and
the Board. The Audit Committee held four meetings during 2020.
The
Audit Committee operates under a written charter, a copy of which is available on our website at www.firstinternetbancorp.com.
Compensation
Committee. The Compensation Committee is responsible for reviewing and approving the compensation of our executive officers
and directors and overseeing the Company’s overall compensation plans and benefits programs. The Compensation Committee
also oversees the administration of our equity plans, including granting awards to employees and directors under such plans, subject
to appropriate delegation. In determining the compensation of the executive officers other than our Chief Executive Officer, the
Compensation Committee considers the recommendations of the Chief Executive Officer.
All
members of the Compensation Committee are “independent directors” as such term is defined under the Nasdaq rules;
and “non-employee directors” as such term is defined in Rule 16b-3 of the Exchange Act. All of the members also meet
the additional independence criteria for compensation committee members set forth in the Nasdaq rules and SEC Rule 10C-1 promulgated
under the Exchange Act. The Compensation Committee held eight meetings during 2020.
The
Compensation Committee operates under a written charter, a copy of which is available on our website at www.firstinternetbancorp.com.
CORPORATE GOVERNANCE
Compensation
Committee Interlocks and Insider Participation. During the year ended December 31, 2020, no person who served as
a member of our Compensation Committee was, during such period, an officer or employee of the Company, or has ever been one of
our officers, and no such person had any transaction with us required to be disclosed in “Transactions with Related Persons”
below. In addition, during the year ended December 31, 2020, (1) none of our executive officers served as a member of the
compensation committee of another entity, one of whose executive officers served on our Compensation Committee; (2) none of our
executive officers served as a director of another entity, one of whose executive officers served on our Compensation Committee;
and (3) none of our executive officers served as a member of the compensation committee of another entity, one of whose executive
officers served as one of our directors.
Nominating
and Corporate Governance Committee. The Nominating and Corporate Governance Committee assists the Board by identifying
individuals qualified to become Board members, maintains our Corporate Governance Principles and Code of Business Conduct and
Ethics, leads the Board in its periodic self-evaluations, recommends members and chairs for each standing committee, and determines
and evaluates succession plans for our Chief Executive Officer.
All
members of the Nominating and Corporate Governance Committee are “independent directors” as such term is defined under
the Nasdaq rules. The Nominating and Corporate Governance Committee held seven meetings during 2020.
The
Nominating and Corporate Governance Committee is responsible for identifying potential Board members. Director candidates may
be recommended by Board members, a third-party search firm or shareholders.
In
identifying, evaluating and recommending nominees for the Board, the committee examines, among other things, the following qualifications
and skills of director candidates: their character; their business or professional experience and length of service; their areas
of expertise; their independence; their integrity and judgment; their records of public service; their ability to devote sufficient
time to the affairs of the Company; the diversity of backgrounds and experience they will bring to the Board; the current size
and composition of the Board and its need for certain skills or experiences; and their understanding of our business. The Nominating
and Corporate Governance Committee also believes that all nominees should be individuals of substantial accomplishment with demonstrated
leadership capabilities.
Although
the Nominating and Corporate Governance Committee does not assign any particular weighting or priority to any of the factors it
considers in evaluating director candidates, the committee has established the following minimum qualifications which each nominee
to the Board must possess: the highest personal and professional ethics and integrity; proven achievement and competence in the
nominee’s field and the ability to exercise sound business judgment; skills that are complementary to those of the existing
Board; and the ability to assist and support management and make significant contributions to the Company’s success.
The
Nominating and Corporate Governance Committee will consider candidates for director who are recommended by shareholders in the
same manner as other candidates identified by the committee. A shareholder who wishes to recommend a director candidate for consideration
by the committee should send such recommendation to our Chief Financial Officer at 11201 USA Parkway, Fishers, Indiana 46037,
who will forward it to the committee. Any such recommendation must include the candidate’s name, home and business contact
information, detailed biographical data, relevant qualifications, a signed letter from the candidate confirming willingness to
serve, information regarding any relationships between the candidate and the Company and evidence of the recommending shareholder’s
ownership of Company stock. Such recommendations must also include a statement from the recommending shareholder in support of
the candidate, particularly within the context of the criteria for Board membership, including issues of character, integrity,
judgment, diversity, independence, area(s) of expertise, experience, length of service, potential conflicts of interest, other
commitments and the like and personal references.
A
shareholder who wishes to nominate an individual as a candidate for director without the recommendation of the Nominating and
Corporate Governance Committee must comply with the advance notice and informational requirements set forth in our Bylaws, which
are more fully explained later in this proxy statement under “Shareholder Proposals for 2022 Annual Meeting.”
The
Nominating and Corporate Governance Committee operates under a written charter, a copy of which is available on our website at
www.firstinternetbancorp.com.
Shareholder
Communications
The
Board has implemented a process whereby shareholders may send communications to its attention, which is summarized in the Company’s
Corporate Governance Principles, a copy of which is available on our website at www.firstinternetbancorp.com. In cases
where shareholders wish to communicate directly with the independent directors, email messages can be sent to klovik@firstib.com,
or to First Internet Bancorp, 11201 USA Parkway, Fishers, Indiana 46037, Attn: Chief Financial Officer. These messages will be
forwarded to the appropriate committee of the Board or independent director.
Code
of Business Conduct and Ethics
We
have adopted a Code of Business Conduct and Ethics, which applies to all of our directors, officers and employees, including our
principal executive officer, principal financial officer and principal accounting officer. A copy of the Code of Business Conduct
and Ethics is available on our website at www.firstinternetbancorp.com. We will disclose on our website any amendments
or updates to our Code of Business Conduct and Ethics, or any grant of a waiver from a provision of our Code of Business Conduct
and Ethics.
Transactions
with Related Persons
Policy
for Approval of Related Person Transactions
We
maintain a written policy for reviewing, approving and monitoring transactions involving the Company and related persons. The
Audit Committee is responsible for review and oversight of all related party transactions. The Audit
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CORPORATE GOVERNANCE
Committee reviews and the
Board must approve any related person transaction in which the Company is a participant before commencement of the transaction;
provided, however, that if a related person transaction is identified after it commences, it will be brought to the Audit Committee
for review and to the Board for possible ratification. The Board will approve or ratify a transaction only if it determines that
the transaction is beneficial to the Company and that the terms of the transaction are fair to the Company.
For
these purposes, a “related person” includes our directors, nominees for director, executive officers, any holder of
more than 5% of our common stock, and any immediate family member of any of the foregoing persons. A “related person transaction”
means any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which
the Company (including any of its subsidiaries) is a participant and in which a related person has a direct or indirect interest,
other than the following:
|
•
|
payment
of compensation by us to a related person for service as a director or executive officer;
|
|
•
|
transactions
available to all employees or all shareholders on the same terms; and
|
|
•
|
transactions
that, when aggregated with the amount of all other transactions between the related person
and us, involve in any fiscal year the lesser of (i) $120,000 and (ii) one percent of
the average of our total assets at year-end for the last two completed fiscal years.
|
In
determining whether to approve a related person transaction, the Audit Committee and the Board will analyze factors such as whether
the transaction is material to the Company, the role the related person has played in arranging the transaction, the structure
of the transaction and the interests of all related persons in the transaction.
Based
on the results of the Audit Committee’s review, the Board may approve or disapprove any related person transaction. Approval
of a related person transaction may be conditioned upon the Company and the related person following certain procedures designated
in connection with its approval. With regard to any transaction for which ratification is sought, the Audit Committee may require
amendment or termination of the transaction under the authority conferred by the policy.
Banking
Transactions with Related Persons
The
Bank offers loans and banking services to directors, executive officers and employees in the ordinary course of business on substantially
the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with others
not related to the Company, and which do not involve more than the normal risk of collectability or present other unfavorable
features. Federal banking regulations permit executive officers and directors to participate, subject to certain limits, in loan
programs that are available to other employees, so long as the director or executive officer is not given preferential treatment
compared to other participating employees.
Although
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) generally prohibits a public company from
extending credit,
arranging for the extension of credit or renewing an extension of credit in the form of a personal loan to an executive officer
or director, there are several exceptions to this general prohibition, including loans made by an FDIC-insured depository institution
that is subject to the insider lending restrictions of the Federal Reserve Act. All loans to directors and executive officers
are designed to comply with the Federal Reserve Act and the Federal Reserve’s Regulation O.
During
2019 and 2020, the Bank engaged in transactions in the ordinary course of business with some of our executive officers, directors
and entities with which they are associated. These transactions involved loans and other banking services that were in the ordinary
course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others not related to the Company and did not involve more than the normal risk of collectability
or present other unfavorable features. All such loan transactions were performing in accordance with their terms as of the date
of this proxy statement.
EXECUTIVE COMPENSATION
This
section describes and explains the material elements of 2020 compensation for our Chief Executive Officer and our only other executive
officers. Detailed information regarding the compensation of these executive officers, also called ‘‘Named Executive
Officers’’ or ‘‘NEOs,” is set forth in the tables and narrative disclosure in this EXECUTIVE COMPENSATION
section. This section also includes an overview of our executive compensation philosophy and executive compensation program and
summarizes the Compensation Committee’s process for making pay decisions, including its rationale for specific decisions
related to the 2020 performance year. The Compensation Committee is referred to as the “Committee” for the remainder
of this section.
For
2020, our Named Executive Officers are:
|
Name
|
|
Titles
|
|
David B. Becker
|
|
Chairman, President, and Chief Executive Officer
(“CEO”)
|
|
Kenneth J. Lovik
|
|
Executive Vice President and Chief Financial
Officer (“CFO”)
|
|
Nicole S. Lorch
|
|
Executive Vice President and Chief Operating
Officer (“COO”)
|
|
C. Charles Perfetti
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|
Executive Vice President and Secretary
|
You
should reference this EXECUTIVE COMPENSATION section in deciding your vote on Proposal 2: Advisory Vote to Approve Executive Compensation.
This section contains important information that is relevant to your voting decision.
Our
2020 Financial Performance
Because
of the governmental restrictions imposed during the COVID-19 pandemic, many consumers were forced to reevaluate and changed “how”
they obtained products and services from financial institutions. We believe our unique business model of over 20 years as a “digital
bank” or a “branchless bank” proved to be responsive to the desires and needs of consumers in the unique year
of 2020. Our digital business model minimized operational disruptions due to the pandemic and, despite the challenges created
by the pandemic, in 2020 we generated:
|
|
•
|
record
net income of $29.5 million, and
|
|
|
•
|
record
diluted earnings per share of $2.99.
|
We
continue to believe we have created a highly scalable technology driven business with nationwide deposit gathering and national
and regional asset generation platforms, having $4.2 billion in total assets, $3.1 billion in loans, $3.3 billion in deposits,
and $330.9 million in shareholders’ equity as of December 31, 2020.
We
continue to provide innovative products which we anticipate are desired by the market. We were recognized in 2020 in Newsweek’s
America’s Best Banks 2021 as offering the “Best Small Business Checking Account” and were also recognized by
Bankrate and GoBankingRates annual “Best Banking” awards as “Best Online Banks 2021.” In addition, we
continued to expand our SBA national platform and lending team, which we believe complements our existing business lines and further
diversifies our loan portfolio mix and revenue streams.
Execution
of our business strategy by our management team has driven consistent and sustained balance sheet growth, as shown on the next
page.
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EXECUTIVE COMPENSATION
|
TOTAL
ASSETS ($ in millions)
|
TOTAL LOANS ($
in millions)
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|
TOTAL DEPOSITS ($
in millions)
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SHAREHOLDERS’
EQUITY ($ in millions)
|
We believe that our compensation
program does not promote or create economic incentives for excessive risk taking and that various elements of our policies serve
to mitigate excessive risk, such as capped incentive opportunities, stock ownership guidelines, and recoupment of incentive payments.
As a result, our strong credit culture has continued to drive our asset quality.
|
NONPERFORMING ASSETS / TOTAL ASSETS
|
NONPERFORMING LOANS / TOTAL LOANS
|
|
ALLOWANCE FOR LOAN LOSSES / NONPERFORMING
LOANS
|
NET CHARGE-OFFS / AVERAGE LOANS
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EXECUTIVE COMPENSATION
Highlights of our 2020 financial performance include:
|
|
•
|
Net income of $29.5 million during 2020, an increase
of 16.7% over 2019 results.
|
|
|
•
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Net income per fully diluted share of $2.99, an increase
of 19.1% over 2019 results.
|
|
|
•
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Net interest income of $64.5 million, an increase
of 2.5% over 2019 results.
|
|
|
•
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Total assets of $4.2 billion as of December 31,
2020, an increase of 3.6% from December 31, 2019.
|
|
|
•
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Total loans of $3.1 billion as of December 31,
2020, an increase of 3.2% from December 31, 2019.
|
|
|
•
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Total deposits of $3.3 billion as of December 31,
2020, an increase of 3.7% from December 31, 2019.
|
|
|
•
|
Asset quality remained sound, with:
|
|
|
○
|
Nonperforming loans to total loans of 0.33% as of December 31, 2020.
|
|
|
○
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Nonperforming assets to total assets of 0.24% as of December 31, 2020.
|
|
|
○
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Net charge-offs to average loans of 0.06% for the year ended December 31, 2020.
|
Consideration
of 2020 Advisory Vote on Compensation
At the annual meeting of shareholders held in 2020 (the “2020
Annual Meeting”), of the votes cast for or against the non-binding advisory proposal to approve executive compensation (the
“say-on-pay advisory vote”), over 93% of the votes were cast FOR that proposal. The Committee believes that the 2020
Annual Meeting say-on-pay advisory vote reflects the recognition by our shareholders of our responsiveness to the say-on-pay advisory
vote and the changes it implemented to our long-term incentive plan (“LTIP”) in response to the say-on-pay advisory
vote at the 2019 Annual Meeting.
The Committee considered the results of the 2020 Annual Meeting
say-on-pay advisory vote as one factor in its compensation decisions, in addition to other factors discussed in this discussion
of executive compensation. The Committee did not recommend any changes to the executive compensation program based on the 2020
Annual Meeting say-on-pay advisory vote or specific feedback from shareholders.
Best Compensation
Pay Policies & Practices
The goals of our executive compensation
program are to foster the creation of shareholder value while motivating and retaining executives. Our executive compensation
program is grounded in the following policies and practices, which promote sound compensation governance, enhance our pay-for-performance
philosophy and further align our executives’ interests with those of our shareholders:
|
WHAT WE DO
|
|
WHAT WE DO NOT DO
|
|
ü
Significant emphasis on performance-based, “at-risk” compensation
ü
Incentive award metrics that are objective and tied to key company performance
metrics
ü
40% of equity awards vest over three years to promote retention
ü
60% of equity awards “cliff vest” after three-year performance
period to promote achievement of long-term performance goals
ü
Incentive plans with threshold performance and associated payout levels,
below which no incentive awards are paid
ü
Incentive plans with capped maximum payouts
ü
Compensation recoupment “claw-back” policy in both short-term
and long-term incentive compensation plans
ü
Share ownership guidelines (for executives and directors) (see a more
detailed description below)
ü
Consider the Company’s ‘‘say-on-pay’’ vote
results when making compensation decisions
|
|
û Provide tax gross-ups in our compensation plans
û Allow unlimited or unrestricted hedging or pledging
transactions by executive officers or directors
û Provide our executives with significant perquisites
|
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EXECUTIVE COMPENSATION
Stock Ownership Guidelines.
The
Board has approved stock ownership guidelines for NEOs and non-employee directors (“Covered Individuals”). The guidelines
expect that Covered Individuals will own a minimum specified value of the Company’s common stock within five years after
the person becomes a Covered Individual. The securities that count toward satisfaction of the guidelines are shares of common
stock, owned directly or indirectly through a specified entity, vested shares of restricted stock or stock units, and deferred
stock rights.
The current recommended minimum values are 4 times annual base salary for Mr. Becker,
2 times annual base salary for the other NEOs, and $100,000 for each non-employee director. As of December 31, 2020, all Covered
Individuals were either in compliance with their respective recommended minimum values or had made progress toward compliance.
Stock Trading Policy. This policy prohibits executive officers and non-employee
directors from holding Company shares in a margin account or otherwise pledging Company shares as collateral for a loan unless
that person can clearly demonstrate the financial capacity to repay the loan without resort to the pledged securities. The policy
also prohibits executive officers and non-employee directors from entering into hedging, monetization or similar transactions involving
Company shares that are intended to realize the value of, or limit the risks and rewards of owning, Company shares.
Employee, Officer and Director Hedging Prohibition. Each of our directors,
officers, other employees and their designees are prohibited from (i) purchasing financial instruments (including prepaid variable
forward contracts, equity swaps, collars and exchange funds) that hedge or offset, or are designed to hedge of offset, any decrease
in the market value of our equity securities and (ii) otherwise engaging in transactions that hedge or offset, or are designed
to hedge of offset, any decrease in the market value of our equity securities. Notwithstanding the foregoing, portfolio diversification
transactions and investments in broad-based index funds is generally permitted. The prohibition applies to securities granted to
the covered persons as part of compensation for their service to the Company plus any other Company securities held by them, whether
directly or indirectly.
Regularly Meeting with Outside Investors. We constantly strive to ensure
peak alignment of Company and executive performance and seek input from the investment community in this regard. Our NEOs proactively
engage in outreach efforts with our larger institutional investors based on investor interest, which we believe allow them to more
fully understand our executive compensation philosophy and program and provide us with an opportunity to respond to their questions
regarding our public disclosures. In addition, several of our NEOs regularly attend financial conferences with most, if not all,
of the brokerage firms that cover our stock.
Compensation Philosophy
The Committee believes that the Company’s strong record of growth and
unique business model in the market position the Company well for the future, and that shareholder support and a strong executive
compensation structure are essential elements for this success. Our goal is to maintain a competitive, balanced compensation program
that rewards our NEOs for current year performance and for the creation of long-term shareholder value, without exposing the Company
to unreasonable risk, including credit, interest rate, liquidity, reputation, and compliance risk.
Our executive compensation program has been designed to hold executives accountable
for the growth and the financial and operational performance of the Company, by balancing the co-priorities of growth and the appropriate
level of risk. We believe the Company’s significant growth and unique business model position us for a continued dynamic
trajectory.
Our executive compensation philosophy is grounded on three fundamental principles:
|
PRINCIPLE
|
|
GOAL
|
|
HOW IT IS ACCOMPLISHED
|
|
1
|
Pay for Performance
|
|
Drive performance based on the achievement of our overall financial results and individual contributions.
|
|
Establish corporate, departmental, and individual goals consistent with our strategic plan and budget that provide the basis for the short and long-term metrics used to measure our success and the value that we create for shareholders.
|
|
2
|
Competitiveness
|
|
Pay at levels that will attract, motivate, and retain highly-qualified, talented executives responsible for our success.
|
|
Reward our executives for Company, Bank and individual performance.
Align compensation and variable incentives
with measurable, objective, business results and appropriate risk management.
|
|
3
|
Shareholder Alignment
|
|
Reinforce a culture of ownership and long-term commitment to shareholder value creation.
|
|
NEOs are required to be shareholders and own a minimum level of Company
stock throughout their employment.
60% of the LTIP awards are performance-based,
with a 3-year measurement period, and vest at the end of a three-year period ONLY IF the established long-term performance
goals are achieved.
|
|
15
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FIRST
INTERNET
BANCORP
|
EXECUTIVE COMPENSATION
The Process for Compensation Decisions
Three parties play an important role in establishing compensation levels for
the Company’s executive officers: (i) the Committee, (ii) senior management, and (iii) outside advisors. The
sections that follow describe the role each of these parties plays 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 rules of The Nasdaq Stock Market, LLC. 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 in January or February.
The responsibilities of the Committee include:
|
|
•
|
determining our executive compensation
philosophy, objectives, policies and programs;
|
|
|
•
|
administering our compensation programs;
and
|
|
|
•
|
approving or ratifying all compensation-related
decisions for the NEOs.
|
When making executive compensation decisions, the Committee
analyzes and seriously considers the feedback of shareholder advisory firms who are communicating our shareholders’ questions
and concerns.
In addition, the Committee may:
|
|
•
|
engage an independent compensation consultant
and consider input from such compensation consultant; and,
|
|
|
•
|
consider readily available market data
to obtain a general understanding of current compensation practices.
|
Role of Executive Management
For all executives other than our CEO, the Committee considers
the recommendation of our CEO with respect to salary levels for our other NEOs. Our CEO’s compensation is determined solely
by the Committee. The Committee applies the same principles for executive compensation in determining our CEO’s compensation
that it applies in determining the compensation of our other NEOs. The CEO is not present during deliberations or voting on his
compensation.
Role of Outside Consultants
Pursuant to authority in its charter, the Committee may engage a compensation
consultant to assist in compensation matters. In response to the shareholder input received in 2019 with respect to the result
of the say-on-pay advisory vote at the 2019 Annual Meeting, the Committee began the process of re-evaluating its executive compensation
structure and engaged McLagan, as its independent compensation consultant, to assist in this process. Retained directly by the
Committee and reporting directly to the Committee, McLagan prepared a comprehensive “Executive Compensation Review”
report in October 2019. In this report, McLagan provided peer group analysis, an evaluation of the comments received from proxy
advisory firms, as well as other market information to help guide the Committee in its review and redesign. This report helped
inform the direction of the Committee in structuring the NEOs’ 2020 compensation plan. The Committee utilized certain comparative
information provided by McLagan as a data point in its evaluation of the appropriateness and competitiveness of our 2020 and 2021
executive compensation program and on matters of director compensation. The Committee did not engage McLagan or any other compensation
consultant with respect to NEO or director compensation for 2021.
|
16
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FIRST
INTERNET
BANCORP
|
EXECUTIVE COMPENSATION
Compensation of Executives
in 2020
Elements of Compensation
The compensation package of our Named Executive Officers consists primarily
of an annual base salary, short-term incentive compensation and long-term incentive compensation. As our financial data illustrates,
the Company has experienced significant and steady growth under our current senior leadership team with minimal turnover at the
senior level in the past three years. The Committee believes that our attractive yet competitive compensation is an appropriate
reflection of our growth and industry leadership, and has been in an important factor in our executives’ satisfaction performance
and retention.
|
•
|
Annual Base Salaries. We utilize base salaries to compensate
our NEOs for day-to-day contributions and expertise. We believe that offering competitive base salaries is a key factor in
attracting and retaining talent. When deciding on the appropriate annual base salary for each Named Executive Officer, the Committee
takes into consideration the recommendations of our CEO (with respect to the other Named Executive Officers), readily available
market data, as well as the individual’s performance, his or her roles and responsibilities and related experience in the
role.
|
|
•
|
Short-Term
Incentive Compensation. In November 2019 the Committee established
performance targets for 2020 under the Annual Bonus Plan, consisting of target net income,
net interest income, one-year asset growth rate, and ratio of nonperforming assets to
total assets (excluding troubled debt restructurings (“TDRs”)). The Annual
Bonus Plan provides for awards to be earned for a fiscal year under each plan criterion,
independent of the other criteria. For each metric, the Committee determined a threshold,
target and maximum level of achievement based on the Company’s operating plan for
2020. The specific threshold, target and maximum opportunity for each Named Executive
Officer is expressed as a percentage of annual base salary, reflective of the Named Executive
Officer’s role and our compensation philosophy. Awards are interpolated to the
next whole percent between the threshold, target and maximum goals.
In January 2021, the Committee reviewed the Company’s
2020 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 111% of the targeted opportunities. For 2020, the Committee determined that
the performance level with respect to net income, one-year asset growth rate, and nonperforming assets to total assets (excluding
TDRs) exceeded target performance, while net interest income was at 97% of target performance.
|
|
Annual Bonus Plan Recoupment Policy
If, after the payment of any bonus under the Annual Bonus Plan, the Company
restates its financial statements, then the Committee will determine the amount of bonus that should have been paid to the officers
who received them based on the restated financial statements (the “Restated Bonus Amount”). If the Restated Bonus Amount
is greater than the bonus that is paid (if any), then the Company will pay to the employee such difference. If the Restated Bonus
Amount is less than the bonus that is paid (if any), then the employee (or his or her designated beneficiary or estate) will repay
to the Company such difference. The right to receive and the obligation to repay any Restated Bonus Amount applies regardless of
whether the employee is then currently employed with the Company.
|
|
|
•
|
Long-Term
Incentive Compensation. The First Internet Bancorp 2013 Equity
Incentive Plan (the “2013 Equity Plan”) is a shareholder-approved plan that
permits 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 shares and 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.
|
The equity-based awards are generally designed with the following
features:
|
|
○
|
Both performance-based RSUs (PRSUs) (60% of total) and time-vested
RSUs (TRSUs) (40% of total) were awarded for 2020 and 2021;
|
|
|
○
|
Performance goals in PRSUs tied to performance metric (which is revenue
growth for 2020 PRSUs and is return on average assets for 2021 PRSUs) and level of nonperforming assets;
|
|
|
○
|
Performance measurement period is three years;
|
|
|
○
|
If nonperforming asset goal is not met, no PRSU awards vest;
|
|
|
○
|
If nonperforming asset goal is met, the PRSUs vest based upon the
level of performance relative to the performance metric goal;
|
|
Equity Compensation Recoupment
The recoupment provision provides that if there is a restatement of the Company’s
consolidated financial statements, (i) the Company has the right to take appropriate action to recoup from the employee all or
any portion of the award which would not have been earned, vested or paid if based on the restated financial statements, and (ii)
the employee is entitled to any additional portion of the award which he or she would have earned, which would have vested, or
which he or she would have been entitled to be paid if based on the restated financial statements. This recoupment policy is similar
to the recoupment policy for the Annual Bonus Plan discussed above.
|
EXECUTIVE COMPENSATION
|
|
○
|
Number of PRSUs earned scales with performance relative to performance
metric goal;
|
|
|
○
|
PRSUs “cliff vest,” if earned, at end of three-year performance
period; and
|
|
|
○
|
TRSUs vest in three substantially equal installments over three years.
|
We believe that this equity incentive award structure for our NEOs
enhance the alignment of our equity incentive structure for NEOs with current industry standards and shareholder interests.
In 2020, the Committee awarded an aggregate of 47,828 restricted
stock units (“RSUs”) to our NEOs, consisting of 28,698 (60%) PRSUs and 19,130 (40%) TRSUs, under the 2013 Equity Plan
and in accordance with the Company’s long-term incentive program.
|
•
|
Non-Performance Based Benefits. We provide other non-performance
based benefits in an effort to deliver competitive benefits that encourage retention, including retirement and other related benefits,
and limited perquisites.
|
|
|
○
|
Medical, Disability and Life Insurance. All full-time employees,
including the NEOs, participate in insurance benefits coverage to help manage the financial impact of ill health, disability and
death. The NEOs are also eligible to participate in increased life insurance coverage at their election.
|
|
|
○
|
Retirement Benefits. We maintain a 401(k) plan for substantially
all employees, as defined in the plan. Employee contributions are limited to the maximum established by the Internal Revenue Service
on an annual basis. We match contributions equal to 100% of the first 1% of employee deferrals and then 50% on deferrals over 1%
up to a maximum of 6% of an individual’s total eligible salary, as defined in the plan, which vests immediately. Discretionary
employer-matching contributions begin vesting immediately at a rate of 50% per year of employment and are fully vested after the
completion of two years of employment.
|
|
|
○
|
Perquisites. The Committee believes that perquisites are an
integral component in establishing the competitiveness of our overall compensation program. Perquisites offered to our NEOs are
identified in the footnotes to the Summary Compensation Table.
|
|
|
○
|
Employee
Stock Purchase Plan. We maintain an employee stock purchase plan (the “ESPP”), in which all of our full-time employees
are eligible to participate. The ESPP permits employees to acquire shares of our common stock through periodic payroll deductions.
Purchases under the ESPP are not subject to any discount or supplemental employer contribution or subsidy.
|
|
•
|
Culture. We are proud of the numerous employee and customer-focused
awards the Bank has received, such as:
|
|
|
○
|
American Banker’s “Best Banks “ to work for
|
|
|
○
|
“Top Workplaces in Indianapolis” The Indianapolis Star
|
|
|
•
|
Seven
years in a row including being,
|
|
|
○
|
“Best Places to Work in Indiana”
|
|
|
•
|
Five of last seven years
|
We believe that these awards are the result of excellent pay packages,
an industry-best fringe benefits package, a culture of growth and innovation, and Company-wide pride in our superior customer service,
all of which enhance our ability to attract and retain top talent.
|
18
|
FIRST
INTERNET
BANCORP
|
EXECUTIVE COMPENSATION
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. The mix of
compensation is between short-term and long-term incentives, with a substantial portion at risk depending upon our performance,
including the creation of long term shareholder value. If the Company performs well (based on internal objectives), award levels
are intended to be strong, but if the Company underperforms, award levels and values will be negatively impacted.
The mix of compensation awarded in 2020 to our NEOs reflects our compensation
philosophy. A substantial portion of our executives’ compensation is performance-based and at risk. The charts below show
the target total direct compensation of our CEO and our other NEOs for fiscal 2020.
|
(1)
|
Based on target payouts.
|
Competitive Compensation Analysis
In evaluating the competitive nature of the compensation for our NEOs, the Committee
collects compensation data from a group of companies for use as an additional data point in considering the compensation of our
NEOs. Because of our unique business model, the Committee believes it has no “true” peers.
For example, we have a national footprint in that, through our platform, on
a nationwide basis we gather deposits, make mortgage loans, public finance loans, single tenant lease financing loans, healthcare
finance and SBA loans. But unlike most large banks with a national footprint, our footprint 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. As such, in this sense a traditional bank with offices nation-wide is not our traditional
peer.
Similarly, the traditional community banks with assets of $3.5 billion to $6.0
billion do not have our national deposit customer base or a national lending platform. Unlike us, most of these community banks
of similar size have grown in part by acquisitions. Also, unlike us, these community banks frequently have an underutilized branch
network to maintain and manage.
Because of the above, the Committee has struggled to identify a group of peer
financial institutions. With the assistance of McLagan, the Committee identified the following 21 financial institutions of a similar
asset size; however, for the reasons stated above, we do not view these institutions as genuine peers. The common characteristics
of these organizations are:
|
|
•
|
asset size ranging from $2.125 billion to $9.0 billion (the median
asset size is $4.3 billion);
|
|
|
•
|
3-year asset growth rate greater than 12%;
|
|
|
•
|
percent of assets from merger and acquisition transactions in the
3 prior years was below 20%; and
|
EXECUTIVE COMPENSATION
The Committee believes that moving any of those last four metrics above closer
to our actual performance would reduce the number of “peers” to single digits and leave a peer group of such limited
size that it would not be meaningful for comparison purposes. One “exception” to the size parameter above in the peer
group is Axos Financial, Inc., which had $11.2 billion in assets. Axos Financial, Inc., formerly known as BofI Holding, Inc., was
selected to be a part of the peer group because its business model most closely follows our model.
|
1. Altabancorp(1)
|
12. Luther Burbank Corporation
|
|
2. Axos Financial Inc.
|
13. Merchants Bancorp
|
|
3. BCB Bancorp, Inc.
|
14. Meridian Bancorp, Inc.
|
|
4. Bryn Mawr Bank Corporation
|
15. Metropolitan Bank Holding Corp.
|
|
5. Business First Bancshares, Inc.
|
16. Preferred Bank
|
|
6. Cambridge Bancorp
|
17. Republic First Bancorp, Inc.
|
|
7. CNB Financial Corporation
|
18. ServisFirst Bancshares Inc.
|
|
8. ConnectOne Bancorp, Inc.
|
19. Sterling Bancorp, Inc.
|
|
9. First Foundation, Inc.
|
20. TriState Capital Holdings, Inc.
|
|
10. Franklin Financial Network, Inc.(2)
|
21. Western New England Bancorp, Inc.
|
|
11. Live Oak Bancshares, Inc.
|
|
|
(1)
|
People’s Utah Bancorp changed its name to Altabancorp in June 2020.
|
|
(2)
|
Franklin Financial Network, Inc. was acquired in August 2020.
|
The Committee did not specifically target any elements of total compensation
against the peer group, and the peer group data was not a determinative factor in establishing the compensation of our NEOs. The
comparison data was merely one of the data points that the Committee referenced in establishing executive compensation and did
not supplant the analyses of internal pay equity and the individual performance of the Named Executive Officers that it considers
when making compensation decisions.
Because the comparative compensation information is just one of several analytic
tools that are used in setting executive compensation, the Committee has discretion in determining the nature and extent of its
use. Further, given the limitations associated with comparative pay information for setting individual NEO compensation, the Committee
may elect to not use the comparative compensation information at all in the course of making decisions with respect to the compensation
of one or more NEOs.
2020 Base Salaries
In considering the base salary amounts for 2020, the Committee considered each
NEO’s:
|
|
•
|
skills, qualifications and experience;
|
|
|
•
|
responsibilities and future potential;
|
|
|
•
|
salary level for the prior fiscal year; and
|
|
|
•
|
performance, as reflected in his or her performance review.
|
The Committee also reviewed the organic growth of the Company and the related
balance sheet management by management in 2019. The Committee, in determining the salary of Mr. Becker, also considered that Mr.
Becker received no increase in his base salary in 2019 from 2018. The Committee believes that the Company’s senior leadership
team, comprised of Mr. Becker, Mr. Lovik, Ms. Lorch and Mr. Perfetti, have provided strong, steady and seasoned leadership for
the Company, promoted a culture of excellent customer service and provided excellent balance sheet management, which resulted in
additional growth.
The following table sets forth the annual base salary of each of the NEOs for
2019 and the annual base salary established by the Committee for each of those officers for 2020, as well as the percentage increase
between the two years:
|
NAME
|
|
ANNUAL BASE SALARY
|
|
|
|
|
2019
|
|
2020
|
|
% CHANGE
|
|
David B. Becker
|
|
$700,000
|
|
$800,000
|
|
14.3%
|
|
Kenneth J. Lovik
|
|
$304,000
|
|
$320,000
|
|
5.3%
|
|
Nicole S. Lorch
|
|
$310,000
|
|
$330,000
|
|
6.5%
|
|
C. Charles Perfetti
|
|
$230,000
|
|
$255,000
|
|
10.9%
|
The Committee also considered the recommendations of our CEO with respect to
the other Named Executive Officers. In addition, in 2021 the Committee agreed to the request of our CEO that he receive no annual
base salary increase for 2021 and maintain his salary at $800,000 for 2021.
|
20
|
FIRST
INTERNET
BANCORP
|
EXECUTIVE COMPENSATION
2020 Short-Term Incentive Compensation
In November 2019, the Committee established short-term incentive performance
goals for 2020 for senior management, including all of our NEOs, pursuant to the Annual Bonus Plan. The Annual Bonus Plan criteria
for 2020 provided an opportunity for each participant to earn an annual cash bonus based on the Company’s achievement for
2020 (at threshold, target and maximum levels) of budgeted goals for net income, net interest income, one-year asset growth rate
and ratio of nonperforming assets to total assets (excluding TDRs). The Annual Bonus Plan also required that the following conditions
be met for payments to be made with respect to 2020:
|
•
|
The executive must have achieved a satisfactory individual 2020 performance
rating.
|
|
•
|
The Company must have reported positive net income for 2020 (taking
into account the expense of paying all incentive compensation but not any expense attributable to the cost of raising capital).
|
|
•
|
The Company must have declared in 2020 and paid not later than January
31, 2021 a specified amount of cash dividends.
|
|
•
|
The Bank must have received a satisfactory regulatory review for
the immediately preceding fiscal year, as determined by the Committee.
|
If the financial goals and conditions were met, then each Named Executive Officer
would be eligible to receive a bonus that would range from the following minimum and maximum percentages of the officer’s
annual base salary:
|
NAMED EXECUTIVE OFFICER
|
|
PERCENTAGE
OF ANNUAL BASE SALARY
|
|
|
THRESHOLD
(90%)
|
|
TARGET
(100%)
|
|
MAXIMUM
(115%)
|
|
David B. Becker
|
|
20%
|
|
55%
|
|
70%
|
|
Kenneth J. Lovik
|
|
15%
|
|
50%
|
|
60%
|
|
Nicole S. Lorch
|
|
15%
|
|
50%
|
|
60%
|
|
C. Charles Perfetti
|
|
15%
|
|
50%
|
|
60%
|
In January 2021, the Committee reviewed the Company’s 2020 performance
against the performance goals established under the Annual Bonus Plan and determined that the following levels of performance were
achieved:
|
PERFORMANCE
GOAL (RELATIVE WEIGHT)
|
|
CORPORATE
PERFORMANCE LEVEL
|
|
2020
ACTUAL
PERFORMANCE
|
|
PERFORMANCE
LEVEL
ACHIEVED
|
|
WEIGHTED
PAYOUT
PERCENTAGE
|
|
|
THRESHOLD
(90%)
|
|
TARGET
(100%)
|
|
MAXIMUM
(115%)
|
|
|
|
|
Net Income (25%)
|
|
$22,964
|
|
$25,515
|
|
$29,342
|
|
$29,453
|
|
115%
|
|
29%
|
|
Net Interest Income (25%)
|
|
$59,993
|
|
$66,659
|
|
$76,658
|
|
$64,541
|
|
97%
|
|
24%
|
|
One-Year Asset Growth Rate (30%)
|
|
(0.58)%
|
|
(0.64)%
|
|
(0.74)%
|
|
3.6%
|
|
115%
|
|
35%
|
|
Nonperforming Asset Percentage1 (20%)
|
|
1.10%
|
|
1.00%
|
|
0.85%
|
|
0.24%
|
|
115%
|
|
23%
|
|
Total Weighted Percentage Earned
|
|
|
|
|
|
|
|
|
|
|
|
111%
|
(1) Expressed
as a percentage of total assets (excluding TDRs).
For 2020, net income, one-year asset growth rate and nonperforming assets to
total assets (excluding TDRs) exceeded target performance, and net interest income equaled 97% of target performance. The Committee
also determined that the additional conditions for payment in the Annual Bonus Plan had been satisfied for 2020.
Based on the Company’s performance and the individual performance rating
of each Named Executive Officer, the Committee approved the following cash bonus awards for 2020 performance in accordance with
the Annual Bonus Plan:
|
NAMED
EXECUTIVE OFFICER
|
|
ANNUAL
CASH BONUS
EARNED
|
|
PERCENTAGE
OF 2020
ANNUAL BASE SALARY
|
|
David B. Becker
|
|
$509,000
|
|
64%
|
|
Kenneth J. Lovik
|
|
$175,600
|
|
55%
|
|
Nicole S. Lorch
|
|
$181,088
|
|
55%
|
|
C. Charles Perfetti
|
|
$139,931
|
|
55%
|
EXECUTIVE COMPENSATION
2020 Long-Term Incentive Compensation Actions
In January 2020, the Committee granted equity incentive awards to our senior
management, including our NEOs. Previously, the incentive awards were performance-based RSUs measured over a one year period and
did not contain a recoupment provision. Beginning in 2020, equity incentive awards to the NEOs are subject to a recoupment provision,
are comprised of both performance-based RSUs (“PRSUs”) and time-vested RSUs (“TRSUs”), and have a performance
period of three years as detailed below.
The number of RSUs awarded to each executive was determined by dividing a percentage
of the executive’s current annual base salary by a reference price equal to the closing price of a share of common stock
on the last trading day of 2019, which was $23.71 as of December 31, 2019. Mr. Becker received an award representing
75% of his annual base salary, and Mr. Lovik, Ms. Lorch and Mr. Perfetti each received an award representing 60%
of their respective annual base salaries. As a result, the following RSUs were awarded to our NEOs for 2020:
|
NAME
|
|
PRSUs
(TARGET
PAYOUT)
|
|
TRSUs
|
|
TOTAL
RSUs
(TARGET PAYOUT)
|
|
David B. Becker
|
|
15,184
|
|
10,122
|
|
25,306
|
|
Kenneth J. Lovik
|
|
4,859
|
|
3,239
|
|
8,098
|
|
Nicole S. Lorch
|
|
5,011
|
|
3,340
|
|
8,351
|
|
C. Charles Perfetti
|
|
3,644
|
|
2,429
|
|
6,073
|
The PRSUs (60% of total RSUs based on target payout) may be earned by the NEO
depending on the Company’s achievement of performance goals established by the Committee for revenue growth and non-performing
assets, as measured over a three-year period (beginning January 1, 2020 and ending on December 31, 2022). The PRSUs provide:
|
•
|
If the Company fails to achieve the goal for non-performing assets,
as determined by the Committee, at the end of the three-year performance period, none of the PSRUs will vest and all of the PSRUs
shall be forfeited.
|
|
•
|
If the Company achieves the non-performing assets goal at the end
of the performance period, a number of PSRUs 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 revenue growth goal. The number of PSRUs 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)
and 200% if performance is at or above the maximum level.
|
|
•
|
If earned, the PRSUs will be earned and will vest as of December 31,
2022, the end of the three-year performance period (informally referred to as “cliff-vesting”). 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 after attaining the age of 65.
|
The TRSUs (40% of total RSUs) shall become fully vested and nonforfeitable in
three substantially equal installments on December 31, 2020, 2021 and 2022, subject to maintenance of continued employment
through the vesting date or termination of the NEO’s employment because of death, disability, or separation of service after
attaining the age of 65.
|
22
|
FIRST
INTERNET
BANCORP
|
EXECUTIVE COMPENSATION
Compensation Decisions
for 2021
In January 2021, the Committee met and made decisions on the 2021 base salary
for our NEOs, the 2021 Annual Bonus Plan, and the award of RSUs.
2021 Base Salaries
The table below sets forth the annual base salary of each of the Named Executive
Officers for 2020 and the annual base salary established by the Committee for each of those officers for 2021, as well as the percentage
increase between the two years
|
|
|
ANNUAL BASE SALARY
|
|
|
|
NAME
|
|
2020
|
|
2021
|
|
% CHANGE
|
|
David B. Becker
|
|
$800,000
|
|
$800,000
|
|
-
|
|
Kenneth J. Lovik
|
|
$320,000
|
|
$335,000
|
|
4.7%
|
|
Nicole S. Lorch
|
|
$330,000
|
|
$350,000
|
|
6.1%
|
|
C. Charles Perfetti
|
|
$255,000
|
|
$267,000
|
|
4.7%
|
2021 Short-Term Incentive Compensation Actions
In January 2021, the Committee established performance goals for 2021 for
senior management, including our Named Executive Officers, pursuant to the Annual Bonus Plan. No significant changes were made
to the short-term incentive plan from the prior year.
2021 Long-Term Incentive Compensation Actions
In January 2021, the Committee acted to award an aggregate of 40,752 RSUs
to our NEOs, consisting of 24,450 (60%) PRSUs and 16,302 (40%) TRSUs, under the 2013 Equity Plan and in accordance with the Company’s
long-term incentive program. Similar to the awards in 2020, these incentive awards are subject to a recoupment provision and have
a performance period of three years.
The number of RSUs awarded to each executive was determined by dividing a percentage
of the executive’s current annual base salary by a reference price equal to the closing price of a share of common stock
on the last trading day of 2020, which was $28.74 as of December 31, 2020. Mr. Becker received an award representing
75% of his annual base salary, and Mr. Lovik, Ms. Lorch and Mr. Perfetti each received an award representing 60%
of their respective annual base salaries. As a result, the RSUs set forth in the following table were awarded to our NEOs for 2021:
|
NAME
|
|
PRSUs
(TARGET
PAYOUT)
|
|
TRSUs
|
|
TOTAL
RSUs
(TARGET PAYOUT)
|
|
David B. Becker
|
|
12,526
|
|
8,351
|
|
20,877
|
|
Kenneth J. Lovik
|
|
4,196
|
|
2,798
|
|
6,994
|
|
Nicole S. Lorch
|
|
4,384
|
|
2,923
|
|
7,304
|
|
C. Charles Perfetti
|
|
3,344
|
|
2,230
|
|
5,574
|
The PRSUs (60% of total RSUs based on target payout) may be earned by the NEO
depending on the Company’s achievement of performance goals established by the Committee for return on assets and non-performing
assets, as measured over a three-year period (beginning January 1, 2021 and ending on December 31, 2023). The PRSUs provide:
|
•
|
If the Company fails to achieve the goal for non-performing assets,
as determined by the Committee, at the end of the three-year performance period, none of the PSRUs will vest and all of the PSRUs
shall be forfeited.
|
|
•
|
If the Company achieves the non-performing assets goal at the end
of the performance period, a number of PSRUs 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 PSRUs 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)
and 150% if performance is at or above the maximum level.
|
|
•
|
If earned, the PRSUs will be earned and will vest as of December 31,
2023, the end of the three-year performance period (informally referred to as “cliff-vesting”). 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 after attaining the age of 65.
|
The TRSUs (40% of total RSUs) shall become fully vested and nonforfeitable in
three substantially equal installments on December 31, 2021, 2022 and 2023, subject to maintenance of continued employment
through the vesting date or termination of the NEO’s employment because of death, disability, or separation of service after
attaining the age of 65.
EXECUTIVE COMPENSATION
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 to the company’s CEO, CFO, and three highest paid officers
(other than the CEO and CFO) to the extent that the compensation to such officer exceeds $1 million. On March 11, 2021 President
Biden signed into law the American Rescue Plan Act which expands the deduction limitation imposed by Section 162(m) by adding the
next five highest paid employees of the company to this list. Under the rules in effect before 2018, compensation that qualified
as “performance-based compensation” under Section 162(m) of the Internal Revenue Code was deductible without regard
to this limitation. Effective January 1, 2018, the Tax Cuts and Jobs Act of 2017 generally eliminated the performance-based compensation
exemption under Section 162(m).
Despite these limits on the deductibility of performance-based compensation,
the Committee believes that a significant portion of our NEOs’ compensation should be tied to Company performance. Therefore,
it is not anticipated that the changes to Section 162(m) will significantly impact the design of our compensation program going
forward.
Section 409A of the Internal Revenue Code also affects the payments of certain
types of deferred compensation to key employees and includes requirements relating to when payments under such arrangements can
be made, acceleration of benefits, and timing of elections under such arrangements. Failure to satisfy these requirements will
generally lead to an acceleration of the timing for including deferred compensation in an employee’s income, as well as certain
penalties and interest. Our nonqualified deferred compensation arrangements meet the effective requirements of Section 409A as
required by law or regulation.
Summary Compensation
Table
The following table sets forth certain information regarding
compensation of the Company’s Named Executive Officers for the two most recent completed fiscal years.
|
NAME
AND PRINCIPAL POSITION(S)
|
|
YEAR
|
|
SALARY
($)
|
|
STOCK
AWARDS(1)
($)
|
|
NON-EQUITY
INCENTIVE PLAN COMPENSATION(2)
($)
|
|
ALL
OTHER
COMPENSATION(3)
($)
|
|
TOTAL
($)
|
David B. Becker
President and CEO
|
|
2020
|
|
800,000
|
|
699,118
|
|
509,000
|
|
17,231
|
|
2,025,349
|
|
|
2019
|
|
700,000
|
|
636,486
|
|
265,300
|
|
8,222
|
|
1,610,008
|
Kenneth J. Lovik
Executive Vice President and CFO
|
|
2020
|
|
320,000
|
|
223,752
|
|
175,600
|
|
11,298
|
|
730,650
|
|
|
2019
|
|
304,000
|
|
221,199
|
|
99,763
|
|
9,917
|
|
634,879
|
Nicole S. Lorch
Executive Vice President and COO
|
|
2020
|
|
330,000
|
|
230,709
|
|
181,088
|
|
7,055
|
|
748,852
|
|
|
2019
|
|
310,000
|
|
225,416
|
|
101,732
|
|
8,222
|
|
645,370
|
C. Charles Perfetti
Executive Vice President and Secretary
|
|
2020
|
|
255,000
|
|
167,808
|
|
139,931
|
|
6,164
|
|
568,903
|
|
|
2019
|
|
230,000
|
|
167,318
|
|
75,478
|
|
17,911
|
|
490,707
|
|
(1)
|
Amounts shown represent the aggregate grant date fair value of equity awards computed in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, based on the closing
stock price on the grant date, or the next preceding date on which a sale of shares occurred, as reported by Nasdaq. Amounts for
2020 represent performance-based RSUs originally granted on January 30, 2020. Amounts for 2019 represent performance-based RSUs
originally granted on January 22, 2019. Further information regarding these awards is included in the “Outstanding Equity
Awards at Fiscal Year-End” table elsewhere in this proxy statement. The values for RSUs represent payouts based on the achievement
of the performance conditions and were determined using the closing stock price on the date of grant. The potential value of RSUs
granted is as follows (using closing stock prices of $24.62 for 2019 and $27.56 for 2020) and the actual value of dividend equivalents
earned on outstanding RSUs during the applicable year were as follows:
|
|
NAME
|
|
YEAR
|
|
GRANT
DATE FAIR VALUE
OF AWARD(S)
($)
|
|
DIVIDEND
EQUIVALENT(S)
EARNED
($)
|
|
David
B. Becker
|
|
2020
|
|
697,433
|
|
1,685
|
|
|
|
2019
|
|
632,365
|
|
4,121
|
|
|
Kenneth
J. Lovik
|
|
2020
|
|
223,181
|
|
571
|
|
|
|
2019
|
|
219,709
|
|
1,490
|
|
|
Nicole
S. Lorch
|
|
2020
|
|
230,154
|
|
555
|
|
|
|
2019
|
|
224,042
|
|
1,374
|
|
|
C.
Charles Perfetti
|
|
2020
|
|
167,372
|
|
436
|
|
|
|
2019
|
|
166,210
|
|
1,108
|
|
Further information related to the performance-based award program
is included in “Executive Compensation–Compensation of Executives in 2020-2020 Long-Term Incentive Compensation Actions”
elsewhere in this proxy statement.
|
(2)
|
Represents cash bonuses earned during each of the applicable fiscal years under the applicable year’s executive cash
incentive plan and paid in the following year.
|
|
(3)
|
Unless otherwise supplemented, represents life insurance premiums and matching contributions under our 401(k) Plan.
|
|
24
|
FIRST
INTERNET
BANCORP
|
EXECUTIVE COMPENSATION
Outstanding Equity
Awards at Fiscal Year-End
The following table provides information, as of December 31,
2020, for each Named Executive Officer’s outstanding equity awards. The outstanding equity awards consist of RSUs granted
pursuant to the 2013 Equity Plan.
|
NAME
|
|
GRANT
DATE
|
|
STOCK
AWARDS
|
|
|
|
EQUITY
INCENTIVE PLAN AWARDS: NUMBER
OF UNEARNED SHARES, UNITS OR OTHER
RIGHTS THAT HAVE NOT VESTED(1)
(#)
|
|
EQUITY
INCENTIVE PLAN AWARDS: MARKET
OR PAYOUT VALUE OF UNEARNED SHARES,
UNITS OR OTHER RIGHTS THAT HAVE NOT
VESTED(2)
($)
|
|
David. B. Becker
|
|
1/15/2018
|
|
4,725(3)
|
|
135,797
|
|
|
1/22/2019
|
|
17,123(3)
|
|
492,115
|
|
|
|
1/30/2020
|
|
6,748(3)
|
|
193,938
|
|
|
|
1/30/2020
|
|
15,184(4)
|
|
436,388
|
|
Kenneth J. Lovik
|
|
1/15/2018
|
|
1,575(3)
|
|
45,266
|
|
|
1/22/2019
|
|
5,949(3)
|
|
170,974
|
|
|
|
1/30/2020
|
|
2,160(3)
|
|
62,078
|
|
|
|
1/30/2020
|
|
4,859(4)
|
|
139,648
|
|
Nicole S. Lorch
|
|
1/15/2018
|
|
1,537(3)
|
|
44,173
|
|
|
1/22/2019
|
|
6,066(3)
|
|
174,337
|
|
|
|
1/30/2020
|
|
2,227(3)
|
|
64,004
|
|
|
|
1/30/2020
|
|
5,011(4)
|
|
144,016
|
|
C. Charles Perfetti
|
|
1/15/2018
|
|
1,203(3)
|
|
34,574
|
|
|
1/22/2019
|
|
4,500(3)
|
|
129,330
|
|
|
|
1/30/2020
|
|
1,620(3)
|
|
46,559
|
|
|
|
1/30/2020
|
|
3,644(4)
|
|
104,729
|
|
(1)
|
Awards granted prior to 2019 are eligible to receive dividend equivalents converted into additional shares upon vesting of
the underlying RSUs. Awards granted in 2019 and 2020 are eligible to receive dividend equivalents that are settled in cash upon
vesting of the underlying RSUs. The amounts in this column include the following dividend equivalents with respects to shares underlying
awards granted on January 15, 2018:
|
|
NAME
|
|
DIVIDEND
EQUIVALENT
(# SHARES)
|
|
David B. Becker
|
|
266
|
|
Kenneth J. Lovik
|
|
89
|
|
Nicole S. Lorch
|
|
86
|
|
C. Charles Perfetti
|
|
68
|
|
(2)
|
Value is calculated by multiplying the number of shares by $28.74, the closing price of our common stock on December 31,
2020 as reported by Nasdaq.
|
|
(3)
|
Represents RSUs outstanding under the 2013 Equity Plan that were originally earned based on the determination of actual performance
during the applicable fiscal year. The earned RSUs vest in substantially equal installments on March 31 on each of the three
calendar years following the date of grant.
|
|
(4)
|
Represents PRSUs outstanding under the 2013 Equity Plan that remained subject to vesting based on performance metrics over
three-year period ending December 31, 2022. See “Executive Compensation – Compensation of Executives in 2020 –2020
Long-Term Incentive Compensation Actions” starting on page 22 for details regarding vesting criteria.
|
2013 Equity Plan
Our 2013 Equity Plan was approved by the Board and our
shareholders in 2013. The 2013 Equity Plan initially authorized the issuance of 750,000 shares of our common stock. Under the terms
of the 2013 Equity Plan, the pool of shares available for issuance may be used for all types of equity awards available under the
2013 Equity Plan, which include stock options, stock appreciation rights, restricted stock awards, RSUs, stock unit awards and
other stock-based awards.
All employees, consultants and advisors of the Company
or any subsidiary, as well as all non-employee directors of the Company, are eligible to receive awards under the 2013 Equity Plan.
As of December 31, 2020, there were approximately 257 persons employed by the Company and its subsidiaries and seven non-employee
members of its Board, all of whom were eligible to receive awards under the 2013 Equity Plan.
The 2013 Equity Plan is administered by the Committee,
which may in turn delegate its duties, power and authority under the 2013 Equity Plan to any of its members, to officers of the
Company with respect to awards to participants who are not directors or executive officers of the Company or, in connection with
non-discretionary administrative duties, to one or more agents or advisors.
The Committee has the authority to determine the persons
to whom awards will be granted, the timing, type and number of shares or amount of cash covered by each award, and the terms and
conditions of the awards. The Committee also may establish and modify rules to administer the 2013 Equity Plan, interpret the 2013
Equity Plan and any related award agreement, cancel or suspend an award or the exercisability of an award, or modify the terms
of outstanding awards to the extent permitted under the 2013 Equity Plan. Unless an amendment to the terms of an award is necessary
to comply with applicable laws or stock exchange rules, a participant who would be adversely affected by such an amendment must
consent to it.
EXECUTIVE COMPENSATION
Employment Agreement
Mr. Becker’s employment agreement provides for an
annual base salary and an annual bonus, if any, as determined from time to time by the Committee. The annual bonus is to be determined
with reference to the achievement of annual performance objectives established by the Committee for Mr. Becker and other senior
officers. The agreement also provides that Mr. Becker may be awarded additional compensation, benefits or consideration as the
Committee may determine. The term of the agreement was set to expire on December 31, 2020, but automatically renewed for a
successive one-year term, through December 31, 2021.
The agreement provides that if Mr. Becker’s employment
is terminated by us for “cause,” or by him without “good reason,” then he will be paid only the amounts
then due for his services through the date of termination. If his employment is terminated without cause or he resigns for good
reason, then he will be paid, in twelve equal monthly payments beginning the month following termination, an amount equal to the
sum of (x) two times his then-current annual base salary plus (y) two times the amount of the annual bonus he was paid for the
calendar year preceding the termination. If his employment is terminated due to his death, then his estate will be paid an amount
equal to 120% of the annual bonus he was paid for the calendar year preceding the termination. If his employment is terminated
due to disability, then he will be paid an amount equal to the sum of (x) his then-current annual base salary plus (y) 120% of
the annual bonus he was paid for the calendar year preceding the termination. If the agreement is not renewed or his employment
terminates or if he resigns for any reason within twelve months following a change in control, then he will be paid, in twelve
equal monthly payments beginning the month following the end of his employment, an amount equal to the sum of (x) three times his
then-current annual base salary plus (y) two times the 120% of the amount of the annual bonus he was paid for the calendar year
preceding the termination; provided, however, the total payments relating to a change in control will be limited to the maximum
amount that could be paid to him without imposing excise tax under the Code. Unless Mr. Becker’s employment is terminated
by us for “cause,” terminated by him without “good reason,” or terminated pursuant to a non-renewal of
his agreement, then, to the fullest extent permitted by law, all restrictions on any outstanding incentive awards, including equity
awards, will lapse and become 100% vested.
We are not party to any employment agreements with any
other executive officers.
Potential Payments
upon Termination or Change-in-Control
The table below reflects the estimated amount of compensation
payable to each of the Named Executive Officers in the event of his or her termination of employment under various scenarios, assuming
that such termination occurred as of December 31, 2020. Other than our employment agreement with Mr. Becker, we have not entered
into employment agreements, change in control agreements or severance agreements with any of our Named Executive Officers.
The table excludes certain amounts payable pursuant to
plans that do not discriminate in favor of executive officers and that are available generally to all salaried employees. The amounts
shown are only estimates of the amounts that would be payable to the Named Executive Officers upon termination of employment and
do not reflect tax positions we may take or the accounting treatment of such payments. Actual amounts to be paid can only be determined
at the time of separation.
|
NAME
|
|
NONRENEWAL
OF
EMPLOYMENT
AGREEMENT ($)
|
|
INVOLUNTARY
TERMINATION
WITHOUT CAUSE ($)
|
|
DEATH
($)
|
|
DISABILITY
($)
|
|
CHANGE
IN
CONTROL ($)
|
|
David
B. Becker
|
|
|
|
|
|
|
|
|
|
|
|
Severance(1)
|
|
2,400,000
|
|
1,600,000
|
|
-
|
|
800,000
|
|
2,400,000(2)
|
|
Annual
Bonus Plan(3)(4)
|
|
636,720
|
|
530,600
|
|
509,000
|
|
509,000
|
|
636,720
|
|
RSUs
(accelerated)(5)
|
|
-
|
|
1,258,238
|
|
1,258,238
|
|
1,258,238
|
|
1,258,238
|
|
Health
Benefits(6)
|
|
12,911
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Kenneth
J. Lovik
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Bonus Plan(3)
|
|
|
|
|
|
175,600
|
|
175,600
|
|
-
|
|
RSUs
(accelerated)(5)
|
|
|
|
|
|
-
|
|
-
|
|
417,966
|
|
Nicole
S. Lorch
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Bonus Plan(3)
|
|
|
|
|
|
181,088
|
|
181,088
|
|
-
|
|
RSUs
(accelerated)(5)
|
|
|
|
|
|
-
|
|
-
|
|
426,531
|
|
C.
Charles Perfetti
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Bonus Plan(3)
|
|
|
|
|
|
139,931
|
|
139,931
|
|
-
|
|
RSUs
(accelerated)(5)
|
|
|
|
|
|
-
|
|
-
|
|
315,192
|
|
(1)
|
Represents severance payments potentially due under employment agreement. For
additional information, see “Employment Agreement.”
|
|
(2)
|
Represents “double-trigger” severance payment only payable upon termination or nonrenewal of employment or resignation
within 12 months following any change in control.
|
|
(3)
|
For additional information regarding the terms of the Annual Bonus Plan, see the disclosure under the heading “EXECUTIVE
COMPENSATION – Compensation of Executives for 2020 – 2020 Short-Term Incentive Compensation” above.
|
|
(4)
|
Represents greater of amount due (i) under employment agreement and (ii) pursuant to terms of the Annual Bonus Plan.
|
|
(5)
|
Amounts represent the value of unvested RSUs held by the Named Executive Officer that would vest as a result of the specified
termination event. Value is calculated by multiplying the number of unvested RSUs that would vest by $28.74, the closing price
of our common stock on December 31, 2020 as reported by Nasdaq.
|
|
(6)
|
Amount represents the estimated reimbursement cost of premiums for insurance if the executive was paying the premiums for such
coverage at the time of termination.
|
|
26
|
FIRST
INTERNET
BANCORP
|