UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________

SCHEDULE 14A

 

(RULE 14a-101)

INFORMATION REQUIRED IN

PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

________________

Filed by the Registrant þ             Filed by a Party other than the Registrant ¨ 

 

Check the appropriate box:

 

¨ Preliminary Proxy Statement

¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) 

þ Definitive Proxy Statement

¨ Definitive Additional Materials

¨ Soliciting Material Pursuant to §240.14a-12

 

OFG Bancorp

 

 

Payment of Filing Fee (Check the appropriate box):

 

þ    No fee required

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)     Title of each class of securities to which transaction applies:

 

(2)     Aggregate number of securities to which transaction applies:

 

(3)     Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

(4)     Proposed maximum aggregate value of transaction:

 

 

(5)     Total fee paid:

 

¨    Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)     Amount Previously Paid:

 

(2)     Form, Schedule or Registration Statement No.:

 

(3)     Filing Party:

 

(4)     Date Filed:

 

 

March 12, 2015

 

Dear Shareholder:

 

You are cordially invited to attend our annual meeting of shareholders, which will be held at our offices located at Oriental Center, 254 Muñoz Rivera Avenue, Ground Floor, San Juan, Puerto Rico, on Wednesday, April 22, 2015.  The meeting will begin promptly at 10:00 a.m. (EST).

 

Details of the business to be conducted at the annual meeting are given in the attached notice of annual meeting and proxy statement.  Only shareholders of record as of February 26, 2015, are entitled to notice of, and to vote at, the annual meeting or any adjournments or postponements thereof.

 

Your vote is important.  Please review the enclosed proxy statement and complete, sign and return your proxy card promptly in the accompanying reply envelope, even if you plan to attend the meeting.

 

If you attend the meeting, you must show at the entrance to the meeting proof of ownership of our shares of common stock, such as a broker’s statement showing the shares held by you and a proper identification card.  If your shares are not registered in your own name and you plan to attend the meeting and vote your shares in person, you must contact your broker or agent in whose name your shares are registered to obtain a broker’s proxy issued in your name and bring it to the meeting in order to vote.  Remember that you may also vote by telephone or over the Internet.  For more details and instructions, please refer to the enclosed proxy statement and proxy card.

 

We look forward to seeing you at the annual meeting.

 

Sincerely,

 

 

 

 

 

Julian S. Inclán

Chairperson

 

P.O. Box 195115

San Juan, Puerto Rico 00919-5115

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

TO BE HELD ON APRIL 22, 2015

 

Notice is hereby given that the annual meeting of shareholders of OFG Bancorp (“we,” “us,” “our,” or the “Company”), a financial holding company and corporation organized under the laws of the Commonwealth of Puerto Rico, is scheduled to be held at Oriental Center, 254 Muñoz Rivera Avenue, Ground Floor, San Juan, Puerto Rico, commencing at 10:00 a.m. (EST) on Wednesday, April 22, 2015, to consider and vote upon the following matters described in this notice and the accompanying proxy statement:

 

1.        To elect three directors for three-year terms expiring at the 2018 annual meeting of shareholders and one director for a two-year term expiring at the 2017 annual meeting, and when their successors are duly elected and qualified;

 

2.     To provide an advisory vote on executive compensation;

 

3.     To ratify the selection of the Company’s independent registered public accounting firm for 2015; and

 

4.    To transact such other business as may properly come before the annual meeting or at any adjournments or postponements thereof.  Except with respect to procedural matters incident to the conduct of the annual meeting, the Company is not aware of any other business to be brought before the annual meeting.

 

These matters are described more fully in the accompanying proxy statement, which you are urged to read thoroughly.  The Company’s Board of Directors recommends a vote “FOR” each of the proposals.  Only shareholders of record at the close of business on February 26, 2015, are entitled to notice of, and to vote at, the annual meeting.

 

To assure representation at the annual meeting, shareholders are urged to return a proxy as promptly as possible either by voting through the Internet or telephone, or by signing, dating and returning a proxy card in accordance with the enclosed instructions.  Any shareholder attending the annual meeting may vote in person even if he or she previously returned a proxy.

 

In San Juan, Puerto Rico, on March 12, 2015.

 

By order of the Board of Directors,

 

 

Carlos O. Souffront

Secretary

 

TABLE OF CONTENTS

 

 

_______________

 

PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON WEDNESDAY, APRIL 22, 2015

 

This proxy statement contains important information related to the annual meeting of shareholders of OFG Bancorp (“we,” “us,” “our,” or the “Company”) to be held on Wednesday, April 22, 2015 at 10:00 a.m. (EST), at its offices located at Oriental Center, 254 Munoz Rivera Avenue, Ground Floor, San Juan, Puerto Rico, or any adjournments or postponements thereof.  This proxy statement and the accompanying proxy card are expected to be made available to shareholders on or about March 12, 2015.

 

 

GENERAL QUESTIONS ABOUT THE ANNUAL MEETING

 

What information is contained in this proxy statement?

 

The information in this proxy statement relates to the proposals to be voted on at the annual meeting, the voting process, our Board of Directors and its committees, the compensation of our directors and executive officers, and other required information.

 

Who is soliciting my vote?

 

Our Board of Directors is soliciting your vote at the annual meeting.

 

Who will bear the costs of soliciting proxies for the annual meeting?

 

This solicitation of proxies is made on behalf of our Board of Directors, and we will bear the costs of solicitation.  The expense of preparing, assembling, printing and mailing this proxy statement and the materials used in this solicitation of proxies also will be borne by us.  It is contemplated that proxies will be solicited principally through the internet or mail, but our directors, officers and employees may solicit proxies personally or by telephone.  Upon request, we will reimburse banks, brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for distributing these proxy materials to our shareholders.

 

We have retained Georgeson Inc., an independent proxy solicitation firm, to assist us with the solicitation of proxies for a fee not to exceed $12,500, plus reimbursement for out-of-pocket expenses.

 

What is the purpose of the annual meeting?

 

At the annual meeting, shareholders will act upon the matters outlined in the accompanying notice of annual meeting of shareholders, including the election of four directors, the advisory vote related to executive compensation, the ratification of the selection of the Company’s independent registered public accounting firm for 2015, and the transaction of any other business that may properly come before the meeting or any adjournments or

 

postponements thereof.  Proxies solicited hereby may be exercised only at the annual meeting, including any adjournments or postponements thereof, and will not be used for any other purpose.

 

Who is entitled to vote?

 

Only shareholders of record at the close of business on the record date, February 26, 2015, are entitled to receive notice of the annual meeting and to vote the shares of common stock that they held on that date at the meeting, or any adjournments or postponements thereof.  As of the close of business on February 26, 2015, there were 44,660,765 shares of our common stock outstanding.

 

What is the difference between a holder of record and a beneficial owner of shares held in street name?

 

Holder of Record.  If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, you are considered the holder (or shareholder) of record with respect to those shares.  As a holder of record, you should have been furnished this proxy statement and a proxy card directly by us.

 

Beneficial Owner of Shares Held in Street Name. If your shares are held in an account at a securities broker, bank or other similar organization acting as a nominee, then you are considered the beneficial owner of shares held in “street name.”  The organization holding your account is considered the holder of record for purposes of voting at the annual meeting.  As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account.  Accordingly, you should have been furnished this proxy statement and a voting instruction form by that organization.

 

How can I vote?

 

Holder of Record. If you are a holder of record, you may vote either in person at the annual meeting, via the Internet (by following the instructions provided on the proxy card), by telephone (by calling the toll free number found on the proxy card), or by mail (by filling out the proxy card and returning it in the reply envelope provided).

 

Beneficial Owner of Shares Held in Street Name. If you hold your shares in “street name,” you should receive a voting instruction form from your securities broker, bank or other similar organization acting as a nominee asking you how you want to vote your shares.  If you do not, you should contact your securities broker, bank or other similar organization acting as a nominee and obtain a voting instruction form from them.  If you plan to attend the annual meeting and vote your shares in person, you must contact the securities broker, bank or other similar organization acting as a nominee in whose name your shares are registered to obtain a broker’s proxy issued in your name and bring it to the annual meeting in order to vote.

 

How many votes do I have?

 

Each outstanding share of our common stock entitles its holder to cast one vote on each matter to be voted upon, except with respect to the election of directors in which you may cumulate your votes.

 

Pursuant to our articles of incorporation and by-laws, you have the right to cumulate your votes at annual meetings in which more than one director is being elected.  Cumulative voting entitles you to a number of votes equal to the number of shares of common stock held by you multiplied by the number of directors to be elected.  As a holder of our shares of common stock, you may cast all or any number of such votes for one nominee or distribute such votes among any two or more nominees as you desire.  Thus, for example, for the election of the four nominees being considered at this annual meeting, a shareholder owning 1,000 shares of our common stock is entitled to 4,000

 

votes and may distribute such votes equally among the nominees for election, cast them for the election of only one of such nominees, or otherwise distribute such votes as he or she desires.

 

If you return an executed proxy but do not expressly indicate that your votes should be cumulated in a particular fashion, the votes represented by your proxy will be distributed equally among the four nominees designated by our Board of Directors or in such other fashion as will most likely ensure the election of all the nominees.

 

How does our Board of Directors recommend that I vote?

 

Our Board of Directors recommends that you vote “FOR” the election of each nominee to the Board, “FOR” the advisory vote related to the compensation of our executives, and “FOR” the ratification of our independent registered public accounting firm for 2015.

 

Each proxy also confers discretionary authority on our Board of Directors to vote the proxy with respect to:  (i) the approval of the minutes of the last annual meeting of shareholders; (ii) the election of any person as director if any nominee is unable to serve or, for good cause, will not serve; (iii) matters incident to the conduct of the annual meeting; and (iv) such other matters as may properly come before the annual meeting.  Except with respect to procedural matters incident to the conduct of the annual meeting, we are not aware of any business that may properly come before the meeting other than those matters described in this proxy statement.  However, if any other matters should properly come before the annual meeting, it is intended that proxies solicited hereby will be voted with respect to those other matters as recommended by our Board of Directors or, if no recommendation is given, in accordance with the judgment of the proxy holders.

 

What constitutes a quorum at the annual meeting?

 

The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum, permitting us to hold the meeting.  As of the record date, 44,660,765 shares of our common stock were outstanding.  Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting for purposes of determining quorum.  A “broker non-vote” occurs when a securities broker, bank or other nominee indicates on the proxy card that it does not have discretionary authority to vote on a particular matter.  Votes cast by proxy will be counted by Broadridge Financial Solutions, Inc., an independent third party.  We urge you to vote by proxy even if you plan to attend the meeting, so that we will know as soon as possible that enough votes will be present for us to hold the meeting.

 

How do I vote?

 

You can vote either in person at the meeting or by proxy even if you plan to attend the meeting.  If you complete and properly sign the accompanying proxy card and return it in the enclosed reply envelope, it will be voted as you direct.  If you are a shareholder of record and attend the meeting, you may deliver your completed proxy card in person.  Alternatively, in lieu of signing the accompanying proxy card and returning it in the enclosed reply envelope, shareholders of record can vote their shares over the Internet, or by calling a specially designated telephone number.  Internet and telephone voting procedures are designed to authenticate shareholders’ identities, to allow shareholders to provide their voting instructions and to confirm that their instructions have been recorded properly.   Specific instructions for shareholders of record who wish to use the Internet or telephone voting procedures are set forth in the enclosed proxy card.

 

Beneficial owners of shares held in “street name” who wish to vote at the meeting will have to obtain a proxy from the securities broker, bank or other nominee that holds their shares.  Such beneficial owners may vote their

 

shares by telephone or the Internet if the brokers, banks or other nominees that hold their shares make those methods available.  If that is the case, each broker, bank or other nominee will enclose instructions with the proxy statement.

 

To avoid delays in ballot taking and counting, and in order to ensure that your proxy is voted in accordance with your wishes, we respectfully request that you give your full title when signing a proxy as attorney, executor, administrator, trustee, guardian, authorized officer of an entity, or on behalf of a minor.  If shares are registered in the name of more than one shareholder of record, all shareholders of record must sign the proxy card.

 

Can I change my vote after I return my proxy card?

 

Yes.  After you have submitted your proxy card, you may change your vote at any time before the proxy is exercised.  To do so, just send in a new proxy card with a later date or cast a new vote by telephone or over the Internet, or send a written notice of revocation to the Secretary of our Board of Directors, P.O. Box 195115, San Juan, Puerto Rico 00919-5115, delivered before the proxy is exercised.  If you attend the meeting, and want to vote in person, you may request that your previously submitted proxy not be used.  Attendance at the meeting will not by itself revoke a previously granted proxy.

 

What vote is required to approve each item and how are abstentions and broker non-votes treated?

 

Action with respect to the election of directors will be taken by a plurality of the votes of the shares represented in person or by proxy at the annual meeting and entitled to vote.  In other words, to be elected, each director nominee must receive more votes cast “FOR” such nominee’s election than votes cast “WITHHOLD AUTHORITY” for such nominee’s election.  Abstentions and broker non-votes will not be counted as either an affirmative vote or a negative vote regarding the election of directors and, therefore, will not have a legal effect on such election.

 

For the advisory vote on the compensation of our executives and the ratification of our independent registered public accounting firm for 2015, the affirmative vote of the holders of a majority of the shares represented in person or by proxy at the meeting and entitled to vote will be required for approval.  Abstentions will have the same effect as a negative vote, and broker non-votes will not be counted in determining the number of shares necessary for approval.

 

What happens if I do not give specific voting instructions?  

 

Holder of Record. If you are a holder of record and you sign and return a proxy card without giving specific instructions, then the proxy holders will vote your shares in the manner recommended by our Board of Directors on all matters presented in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the meeting.

 

Beneficial Owner of Shares Held in Street Name. If you are a beneficial owner of shares held in “street name” and do not provide the organization that holds your shares with specific voting instructions, under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on routine matters but cannot vote on non-routine matters.  If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization that holds your shares will inform us that it does not have the authority to vote on such matter with respect to your shares (that is, a “broker non-vote”).  We believe that each of the proposals set forth in this proxy statement will be considered non-routine under the rules of the New York Stock Exchange (which apply to brokers), and therefore, there could be broker non-votes on such proposals.

 

 

What happens if the annual meeting is adjourned or postponed?

 

Your proxy will still be valid and may be voted at the adjourned or postponed meeting.  You will still be able to change or revoke your proxy before it is exercised.

 

How can I obtain directions to attend the annual meeting?  

 

If you need directions to be able to attend the annual meeting and vote in person, please visit our website at www.ofgbancorp.com  or contact Anreder & Company, our investor relations firm, at (212) 532-3232 or (800) 421-1003; email: ofg@anreder.com.

 

 

PROPOSAL 1:  ELECTION OF DIRECTORS

 

Our by-laws provide that the Board of Directors will consist of such number of directors as fixed from time to time by resolution of the Board.  The number of directors, as established by resolution, is presently nine.  Our articles of incorporation and by-laws also provide that the Board of Directors will be divided into three classes of directors as nearly equal in number as possible.  Each member is elected until the end of the term of their class and until their successors are duly elected and qualified.  Each class serves a term of three years, and only one class’s term ends annually.

 

There are no arrangements or understandings between us and any person pursuant to which such person has been elected as a director.  No director is related to any of our directors or executive officers, by blood, marriage or adoption (excluding those that are more remote than first cousin).

 

Julian S. Inclán, Pedro Morazzani and Radamés Peña have been nominated by our Board of Directors for election as directors for three-year terms expiring in 2018.  Jorge Colón-Gerena has been nominated by our Board for election as director for a two-year term expiring in 2017.  Set forth below is certain information with respect to each nominee.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If any person named as a nominee is unable or unwilling to stand for election at the time of the annual meeting, the proxy holders will nominate and vote for a replacement nominee or nominees recommended by our Board of Directors.  At this time, the Board knows of no reason why any of the nominees listed above may not be able to serve as a director if elected.

 

Our Board of Directors recommends that you vote “FOR ALL” in this proposal.

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information as to our shares of common stock beneficially owned by persons, including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), known to us to be beneficial owners of more than 5% of the outstanding shares.  The information is based exclusively upon filings made by such persons or entities pursuant to the Exchange Act.

 

 

The following tables set forth information as to the number of our shares of common stock and serial preferred stock beneficially owned as of December 31, 2014, by (i) the directors; (ii) the Chief Executive Officer, Chief Financial Officer, the three most highly compensated executive officers, other than the CEO and CFO, who were serving as executive officers on December 31, 2014, and a former executive officer who would have been among the three most highly compensated executive officers, other than the CEO and CFO, in 2014 (collectively, the “Named Executive Officers” or “NEOs”); and (iii) the directors and executive officers, including the NEOs, as a group.  The information is based upon filings made by such individuals pursuant to the Exchange Act, and information furnished by each of them.

 

 

________________________________ 

1.     Unless otherwise indicated, each of the persons named in the table beneficially holds less than 1% of the outstanding shares of common stock.  This percentage is calculated on the basis of the total number of our shares of common stock outstanding as of December 31, 2014, which is 44,613,615.

2.     This amount includes 31,226 shares as to which he has shared investment and voting power and 2,250 restricted units that are subject to a restricted period that will lapse within 60 days.

3.      This amount includes 254,332 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days and 6,500 restricted units that are subject to a restricted period that will lapse within 60 days.  It also includes 6,122 shares that he owns through our 401(k)/1081.01(d) Plan, and 7,000 shares owned by his wife.

4.      This amount includes 2,250 restricted units that are subject to a restricted period that will lapse within 60 days.  It also includes 9,461 shares owned by his spouse.

5.      This amount includes 1,250 restricted units that are subject to a restricted period that will lapse within 60 days and 1,400 shares owned by his wife.

6.      This amount includes 1,000 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days and 2,250 restricted units that are subject to a restricted period that will lapse within 60 days.

7.      This amount includes 1,250 restricted units that are subject to a restricted period that will lapse within 60 days.

 

 

________________________________ 

1.     Unless otherwise indicated, each of the persons named in the table beneficially holds less than 1% of the outstanding shares of common stock.  This percentage is calculated on the basis of the total number of our shares of common stock outstanding as of December 31, 2014, which is 44,613,615.

2.      This amount includes 254,332 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days and 6,500 restricted units that are subject to a restricted period that will lapse within 60 days.  It also includes 6,122 shares that he owns through our 401(k)/1081.01(d) Plan, and 7,000 shares owned by his wife.

3.      This amount includes 13,668 shares that he owns through our 401(k)/1081.01(d) Plan, 82,693 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days, 3,700 restricted units that are subject to a restricted period that will lapse within 60 days.

4.      This amount includes 6,700 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days and 800 restricted units that are subject to a restricted period that will lapse within 60 days.

5.      This amount includes 14,200 shares that he may acquire upon the exercise of stock options that are exercisable or that will become exercisable within 60 days and 800 restricted units that are subject to a restricted period that will lapse within 60 days.

6.      Mr. Norberto González’s employment ended effective July 3, 2014.

7.      This amount represents 756 shares that he owns through our 401(k)/1081.01(d) Plan.

8.      The group consists of 15 persons including all directors, Named Executive Officers, and executive officers who are not directors.

 

________________________________

1.      Unless otherwise indicated, each of the persons named in the table beneficially holds less than 1% of the outstanding shares of such preferred stock.

2.      The group consists of 15 persons including all directors, Named Executive Officers, and executive officers who are not directors.

 

 

________________________________

1.      Unless otherwise indicated, each of the persons named in the table beneficially holds less than 1% of the outstanding shares of such preferred stock.

2.      The group consists of 15 persons including all directors, Named Executive Officers, and executive officers who are not directors.

 

________________________________

1.      Unless otherwise indicated, each of the persons named in the table beneficially holds less than 1% of the outstanding shares of such preferred stock.

2.      The group consists of 15 persons including all directors, Named Executive Officers, and executive officers who are not directors.

 

 

For purposes of the foregoing tables, beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act, pursuant to which shares are deemed to be beneficially owned by a person if he or she directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares the power to vote or direct the voting of the shares, and/or the power to dispose or direct the disposition of the shares, whether or not he or she has any economic interest therein.  Unless otherwise indicated in the foregoing tables, the named beneficial owner has sole voting and investment power with respect to the shares, subject, in the case of those directors and officers who are married, to the marital community property laws of Puerto Rico.  Under Rule 13d-3, a person is deemed to have beneficial ownership of any shares of common stock which he or she has a right to acquire within 60 days, including, without limitation, pursuant to the exercise of any option, warrant or right.  Shares of common stock which are subject to such options or other rights of acquisition are deemed to be outstanding for the purpose of computing the percentage of outstanding common stock owned by such person, but are not deemed outstanding for the purpose of computing the percentage of common stock owned by any other person.

 

 

 

INFORMATION WITH RESPECT TO CERTAIN DIRECTORS AND

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

 

Set forth below is certain information with respect to each director whose term continues.

 

Directors whose terms expire in 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors whose terms expire in 2017

 

 

 

 

 

 

 

 

 

 

 

Executive officers who are not directors

 

The following information is provided with respect to the executive officers who do not serve on our Board of Directors.  There are no arrangements or understandings pursuant to which any of the following executive officers was selected as an officer of the Company.  No executive officer is related to any of our directors or executive officers, by blood, marriage or adoption (excluding those that are more remote than first cousin).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOARD INDEPENDENCE, LEADERSHIP STRUCTURE AND RISK OVERSIGHT

 

Except for José Rafael Fernández, who is our President and CEO, all of our directors are “independent” pursuant to the corporate governance listing standards adopted by the New York Stock Exchange (“NYSE”) for listed companies.

 

Our Board of Directors has adopted standards and definitions to assist it in the evaluation of the independence of its members.  The standards and definitions adopted by the Board describe various types of relationships that could potentially exist between a director and the Company and sets thresholds at which such relationships would be deemed to be material.  If no relationship or transaction exists that would disqualify a director from being independent under such standards and definitions, and no other relationships or transactions exist of a type not specifically mentioned therein that in the Board’s opinion, taking into account all facts and circumstances, would impair a director’s ability to exercise his or her independent judgment, the Board will deem such director to be independent.  Such standards and definitions are available on our website at www.ofgbancorp.com. 

 

Our corporate leadership structure entails a split in the roles of the Chairperson of the Board and the CEO.  The position of Board Chairperson is held by Mr. Inclán, an independent director, whereas the position of CEO is held by Mr. Fernández.  We believe that the separation of the Chairperson and CEO positions is the most appropriate structure for us at this time because it (i) promotes a balance of power; (ii) provides a more effective channel for our Board of Directors to express its views on management; (iii) provides our CEO with more independent guidance and feedback on his performance; and (iv) allows our Board of Directors to more effectively monitor corporate governance, risk oversight, and fulfill regulatory requirements.  Moreover, such split allows our CEO to focus on leading the Company, while our Chairperson can focus on leading the Board.

 

 

In order to align the interests of our directors and top executives with our shareholders, the Board adopted the Officers and Directors Stock Ownership Policy.  Pursuant to such policy, our directors are required to hold common and preferred stock of the Company with a total value that is not less than four times their annual cash compensation within a period of 3 years of their first equity award.

 

Our Board of Directors, its Audit Committee, Compensation Committee, and Risk and Compliance Committee, the Credit Committee of Oriental Bank’s Board of Directors and management’s Asset and Liability Management Committee (the “ALCO Committee”), Executive Credit Committee and Risk Management and Compliance Committee, are actively involved in overseeing the management of the risks involved in our business and operations.  However, the Board ultimately determines the level of risk that is acceptable for the Company within general guidelines and regulatory requirements.  The Board considers that effective risk management is a fundamental part of good management practice and is committed to maintaining sound risk management systems.  To this end, the Board is responsible for adopting several risk policies and reviewing the effectiveness of our risk management program.  In order to appropriately discharge their risk oversight functions, the Board, the Audit Committee, the Compensation Committee, and the Risk and Compliance Committee have access to senior management and the right to consult with and retain independent legal and other advisors at our expense pursuant to our Corporate Governance Principles and Guidelines.  The Board, the Audit Committee and the Risk and Compliance Committee also regularly meet with and receive written reports from senior management, including our Chief Risk Officer and Internal Audit Department, who evaluate significant risk exposures and contribute to our risk management and internal control system.  The Compensation Committee assists the Board in ensuring that our compensation program encourages decision-making that is in the best long-term interest of the Company and its shareholders as a whole, and does not encourage excessive or inappropriate risk-taking.  Moreover, the ALCO Committee has responsibility for overseeing the management of our assets and liabilities to balance our risk exposures.  Its principal objective is to enhance profitability while maintaining appropriate levels of liquidity and interest rate risks.  The Credit Committee of the Bank’s Board and the Executive Credit Committee have responsibility for setting strategies to achieve our credit risk goals and objectives in accordance with the credit policy approved by our Board of Directors.  The Risk Management and Compliance Committee has responsibility for the implementation of our risk management program.  In sum, all such committees assist and report to the Board in connection with the monitoring and oversight of certain risks and/or the implementation of the policies and objectives adopted by the Board.

 

 

BOARD MEETINGS

 

Our Board of Directors held thirteen meetings in 2014.  No incumbent director attended fewer than 75% of the aggregate of the total number of Board meetings and the total number of meetings of Board committees in which he served in that year.  Board members are required to attend our annual meeting of shareholders.  All Board members then in office attended last year’s annual meeting of shareholders, except for Mr. Francisco Arrivi who was excused.

 

 

EXECUTIVE MEETINGS OF NON-MANAGEMENT DIRECTORS

 

Our Board of Directors holds regular meetings of “non-management directors” (that is, directors who are not executive officers of the Company) to promote open discussions and better communication among such directors concerning our CEO’s performance.  Julian S. Inclán, the Chairperson of the Board, has been chosen to preside at such meetings.

 

 

 

BOARD COMMITTEES

 

Our Board of Directors has four standing committees: the Audit Committee, the Risk and Compliance Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee.

 

The Audit Committee assists our Board of Directors in its oversight of our financial reporting process and meets regularly without management’s presence.  It fulfills its oversight responsibilities by reviewing:  (a) the integrity of the financial reports and other financial information provided by us to any governmental or regulatory body or to the public; and (b) our auditing, accounting, and financial reporting processes generally.  The members of this committee are Pedro Morazzani, Chairperson, Rafael F. Martínez, Radamés Peña, and Julian S. Inclán.  Our Board of Directors has determined that each member of this committee is financially literate or has accounting or related financial management expertise, and that Pedro Morazzani is the “audit committee financial expert,” as such term is defined in Item 407(d)(5) of U.S. Securities and Exchange Commission (“SEC”) Regulation S-K.  It met 11 times in 2014.

 

The Audit Committee operates pursuant to a written charter that has been approved by our Board of Directors, a current copy of which is available on our website at www.ofgbancorp.com.  All of its members are independent directors as required by the NYSE and the SEC.

 

The newly formed Risk and Compliance Committee assists our Board of Directors in its oversight of our internal controls, enterprise risk management, and legal and regulatory compliance, and meets regularly without management’s presence.  It fulfills its oversight responsibilities by reviewing our systems of internal controls regarding finance, accounting, legal and regulatory compliance, and ethics that management and our Board of Directors have established.  The members of this committee are Rafael F. Martínez-Margarida, Chairperson, Francisco Arriví, Juan C. Aguayo, and Julian Inclán.  It met 4 times in 2014.

 

The Risk and Compliance Committee operates pursuant to a written charter that has been approved by our Board of Directors, a current copy of which is available on our website at www.ofgbancorp.com.  All of its members are independent directors.

 

The Compensation Committee discharges the responsibilities of our Board of Directors relating to compensation of our directors and executive officers, and meets regularly without management’s presence.  Its general responsibilities are:  (a) reviewing and approving corporate goals and objectives relevant to the compensation of the CEO; (b) evaluating the CEO’s performance in light of those goals and objectives; (c) making recommendations to our Board of Directors with respect to CEO, director, and executive officer compensation, incentive and equity-based compensation plans; (d) producing a committee report on executive compensation; and (e) conducting an annual performance evaluation of itself.  This committee also administers our equity-based compensation plan and is given absolute discretion to, among other things, construe and interpret the plan; to prescribe, amend and rescind rules and regulations relating to the plan; to select the persons to whom plan awards will be given; to determine the number of shares subject to each plan award; and to determine the terms and conditions to which each plan award is subject.  The members of this committee are Francisco Arriví, Chairperson, José E. Rossi, Jorge Colón-Gerena, and Julian Inclán.  It met 2 times in 2014.

 

The Compensation Committee operates pursuant to a written charter that has been approved by our Board of Directors, a current copy of which is available on our website at www.ofgbancorp.com.   All of its members are independent directors as required by the NYSE.

 

The Corporate Governance and Nominating Committee assists our Board of Directors by:  (a) identifying individuals qualified to become directors consistent with criteria approved by the Board; (b) selecting or

 

recommending that the Board select the director nominees for the next annual meeting of shareholders; (c) developing and recommending to the Board a set of corporate governance principles applicable to us that are consistent with sound corporate governance practices and in compliance with applicable legal, regulatory, or other requirements; (d) monitoring and reviewing any other corporate governance matters which the Board may refer to this committee; and (e) overseeing the evaluation of the Board and management.  It meets regularly without management’s presence.  The members of this committee are Juan Carlos Aguayo, Chairperson, José E. Rossi, Jorge Colón-Gerena, and Julian S. Inclán.  It met two times in 2014.

 

The Corporate Governance and Nominating Committee operates pursuant to a written charter that has been approved by our Board of Directors, a current copy of which is available on our website at www.ofgbancorp.com.  All of its members are independent directors as required by the NYSE.

 

Pursuant to our by-laws, no nominations for directors, except those made by our Board of Directors upon the recommendation of the Corporate Governance and Nominating Committee, will be voted upon at the annual meeting unless other nominations by shareholders are made in writing, together with the nominee’s qualifications for service and evidence of his or her willingness to serve on our Board of Directors, and delivered to the Secretary of the Board at least 120 days prior to the anniversary date of the mailing of proxy materials in connection with last year’s annual meeting.  Ballots bearing the names of all of the persons nominated by our Board of Directors and by shareholders, if properly made, will be provided for use at the annual meeting.  The Corporate Governance and Nominating Committee has not established any specific, minimum qualifications that it believes must be met by a nominee recommended by such committee for a position on our Board of Directors.  The committee instead considers general factors, including, without limitation, the candidate’s experience with other businesses and organizations, the interplay of such experience with the experience of other Board members, and the extent to which the candidate would be a desirable addition to the Board and any of its committees.

 

The Corporate Governance and Nominating Committee generally identifies qualified candidates on the basis of recommendations made by existing directors, management, or independent consultants.  There are no differences in the manner in which the committee evaluates nominees for director based on whether the nominee is recommended by a shareholder.  The committee will consider potential nominees by management, shareholders or other members of the Board, and develop and evaluate information from a variety of sources regarding the potential nominee before making a decision.

 

Pursuant to its charter, the Corporate Governance and Nominating Committee considers diversity, among other factors such as competencies, experience, age and other appropriate qualities, to determine which candidates it recommends to our Board of Directors for approval as nominees.  The committee focuses mainly on achieving a balance of experience on the Board that represents a cross-section of the local community, including directors with experience in the public and private sector, experience in the medical, legal and accounting professions, and experience in a variety of industries relevant to our business needs.  To achieve such balance, the committee annually updates and reviews a Board skills matrix to determine any shortcomings in the diversity and competencies of the Board and to assist in identifying nominees for directors that have the skills and knowledge to strengthen the Board.

 

 

CORPORATE GOVERNANCE PRINCIPLES AND GUIDELINES

 

We have adopted a set of Corporate Governance Principles and Guidelines to promote the functioning of our Board of Directors and its committees, to protect and enhance shareholder value, and to set forth a common set of expectations as to how the Board, its various committees, individual directors and management should perform their functions.  We have also adopted a Code of Business Conduct and Ethics that reaffirms our basic policies of

 

business conduct and ethics for our directors, officers, employees and agents.  It consists of basic and general standards of business as well as personal conduct.  The Corporate Governance Principles and Guidelines and the Code of Business Conduct and Ethics are available on our website at www.ofgbancorp.com. 

 

Any shareholder who desires to contact our Board of Directors or any of its members may do so by writing to:  Chairperson of the Board, OFG Bancorp, P.O. Box 195145, San Juan, Puerto Rico 00919-5145.  Alternatively, any interested party, including, without limitation, shareholders and employees, may communicate directly with the independent members of the Board or report possible legal or ethical violations, including, without limitation, concerns regarding questionable accounting or auditing matters.  Any such interested party may direct his or her written communication or report, anonymously, to the Chairperson of the Audit Committee.  The mailing, postage prepaid, should be marked “confidential” and addressed as follows:

 

 

 

PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), we are required to have a separate non-binding shareholder vote to approve the compensation of our Named Executive Officers at least once every three years.  This is commonly known as a “say-on-pay” vote.  At the annual meeting of shareholders held in 2011, a majority of our shareholders voted in favor of holding the say-on-pay vote every year.  As previously disclosed, the Company has decided to hold such vote every year until the next shareholder advisory vote on the frequency of future advisory votes on executive compensation.

 

We have in place a comprehensive executive compensation program under the oversight of the Compensation Committee of our Board of Directors.  Our program is described under the heading “Compensation Discussion and Analysis” and in the tabular and narrative disclosures related to Named Executive Officers in this proxy statement.  The Compensation Committee continually monitors the program as well as general economic, regulatory and legislative developments affecting executive compensation.

 

Our executive compensation program is intended to reward achievements of individual and business performance objectives, and to align such objectives with our corporate governance principles and the creation of shareholder value.  Our main objective is to attract and retain the most talented and effective executive team for the Company by providing an appropriate mix of fixed versus variable compensation while emphasizing pay-for-performance in accordance with our short and long term goals.  We will continue to pursue compensation arrangements that are intended to align the financial interests of our executives with the long-term interests of our shareholders.

 

This proposal gives you the opportunity to vote for or against, or abstain from voting on, the following resolution related to the compensation of our Named Executive Officers:

 

RESOLVED, that the compensation paid to the Company’s named executive officers disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.

 

 

Since your vote is advisory, it is not binding on the Company or our Board of Directors, and may not be construed as overruling any of our executive compensation decisions.  However, our Board of Directors and its Compensation Committee may take into account the voting results when considering future compensation arrangements.

 

Our Board of Directors recommends that you vote “FOR” this proposal.

 

 

Proposal 3: Ratification of SELECTION of Independent REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of our Board of Directors intends to appoint KPMG LLP (“KPMG”) as our independent registered public accounting firm for the year ending December 31, 2015, and has further directed that the selection of such firm be submitted for ratification by the shareholders at this annual meeting.  KPMG has served as our independent registered public accounting firm since 2005.  Neither our articles of incorporation nor our by-laws require that our shareholders ratify the selection of such firm.  If our shareholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain KPMG, but may nonetheless retain it.  Even if the selection is ratified, the Audit Committee, in their discretion, may change the appointment at any time during the year if they determine that such change would be in our best interest.

 

KPMG will have representatives present at the annual meeting who will have an opportunity to make a brief statement if they desire to do so, and who will be available to respond to appropriate questions that may arise.

 

Our Board of Directors recommends that you vote “FOR” this proposal.

 

 

INDEPENDENT AUDITOR

 

KPMG LLP (“KPMG”) served as our independent registered public accounting firm for the year ended December 31, 2014.  The services that KPMG provided to the Company and its subsidiaries included the examination of our consolidated financial statements, limited revisions of our quarterly reports, audits of some of our subsidiaries, audits of our employee benefits plan, services related to our filings with the SEC and other regulatory agencies, and consultations on various tax and accounting matters.

 

The Audit Committee reviewed and approved all audit and non-audit services rendered by KPMG to the Company and its subsidiaries, and concluded that the provision of such services was compatible with the maintenance of KPMG’s independence in the conduct of its auditing functions.  The Audit Committee has adopted a pre-approval policy regarding the procurement of audit and non-audit services, which is available on our website at www.ofgbancorp.com.  The Audit Committee intends to review such policy periodically.

 

KPMG will have representatives present at the annual meeting who will have an opportunity to make a brief statement if they desire to do so, and who will be available to respond to appropriate questions that may arise.

 

 

The aggregate fees billed by KPMG for the years ended December 31, 2014 and 2013 for the various services provided to the Company and its subsidiaries were as follows:

 

 

As defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the audit of our annual financial statements, including the audit of our internal control over financial reporting, and review of financial statements included on our Forms 10-Q, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those years; (ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements, and consisted of employee benefit plan audits, accounting consultations, and services rendered in connection with a report required by the shared-loss agreements with the FDIC; (iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant, other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.”

 

 

COMPENSATION RISK ASSESSMENT

 

Our compensation program is a key component of the Company’s overall compliance and pay-for-performance culture.  The Board’s Compensation Committee, with the assistance of our internal risk management staff, regularly reviews this program and does not believe that the risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on the Company.

 

We believe that our approach to setting goals and targets with payouts at multiple levels of performance and the evaluation of annual performance results assist in mitigating excessive risk-taking that could harm our value or reward poor judgment by our executives.  Several features of our compensation program reflect sound risk management practices, including our Compensation Recoupment Policy and our Directors and Officers Stock Ownership Policy, which are described below under the heading “Compensation Discussion and Analysis.”

 

We allocate compensation among base salary and incentive compensation (bonus and equity awards) to target opportunities in such a way as to not encourage excessive risk-taking.  Furthermore, although the performance measures that determine bonus and equity awards for certain business unit leaders are based in part on the achievements of their respective business units, the measures that determine payouts for all of our executives include company-wide metrics.  Such metrics, which are not controlled or overly influenced by the results of any single business unit, are given greater weight in the case of NEOs.  This is based on our belief that applying company-wide metrics encourages decision-making that is consistent with our philosophy and that is in the best long-term interests of the Company and its shareholders as a whole.  Moreover, the mix of equity awards in our incentive program, which includes full value awards such as restricted stock units, and the minimum stock ownership requirements applicable to our top executives also mitigate risk.  In addition, the multi-year vesting of our equity awards properly accounts for the time horizon of risk.  Finally, each employee’s compliance with our internal policies and procedures, including ethics standards, is an important element of our annual bonus determinations.

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Overview

 

We are guided by the principle that our compensation program must not only promote our long-term success, but also provide significant rewards for outstanding financial performance while establishing clear consequences for under-performance.  To this end, each element of compensation takes into account not only our competitive position and goals, but also each executive’s individual performance, commitment and achievements.

 

Compensation Philosophy and Objectives

 

The compensation program for our executives, including our Named Executive Officers, is intended to reward achievements of individual and business performance objectives, and align such objectives with our corporate governance principles and the creation of shareholder value.  It is also intended to attract and retain the most talented and effective executive team for us.  Accordingly, the main objectives of our compensation program are to:

 

•            Attract and retain seasoned executives;

 

•            Reward superior performance and risk management at competitive levels;

 

•            Promote teamwork and collaboration;

 

•            Create long-term financial incentives; and

 

•            Increase stock ownership.

 

Our general philosophy for setting executive compensation is to increase base salary only in the case of promotions or as necessary in light of compensation data for comparable positions at peer group companies.  Furthermore, a significant component of our compensation program for executives, including the NEOs, is incentive (variable) compensation that is tied to financial, operational and strategic results.  Therefore, such compensation may vary depending on the level of achievement of specific performance measures linked to our business goals.

 

The Compensation Committee of our Board of Directors plays a key role in the development of our compensation program.  It consists entirely of independent directors and operates under a written charter approved by our Board of Directors, which is publicly available at www.ofgbancorp.com.  Each meeting of the Compensation Committee has an agenda established in accordance with an annual calendar set by its Chairperson in consultation with the Chairperson of the Board, senior management and the committee members.  Additional discussion topics related to external or internal events are added to the agenda from time to time as necessary.  The Compensation Committee receives and reviews materials in advance of each meeting, including information on management’s analyses and recommendations.  As appropriate, it looks to our senior management and our Human Resources and Internal Audit Departments for support in its work.  Our senior management has considered in making its recommendations, among other information, an industry compensation and benefits study sponsored by the Puerto Rico Bankers Association and prepared by a compensation consultant.  While the Compensation Committee values input and advice from these and other sources, it meets from time to time in executive sessions without the presence of management and exercises its independent judgment in reaching its decisions.

 

We are cognizant of our competitive environment for superior executive talent and seek to maintain a compensation strategy that is competitive in the financial services industry in Puerto Rico.  In evaluating our compensation program and authorizing bonus or equity grants under this program, the Compensation Committee

 

takes into account several factors, including the total compensation package, individual and business performance, risk management, total compensation-related expense, and percentage of income allocated to compensation-related costs.

 

2014 Advisory Vote on Executive Compensation

 

At the 2014 annual meeting of shareholders, our shareholders expressed their continued support of our executive compensation program by approving the compensation of NEOs.  Approximately 97.91% of the votes cast supported our executive compensation program.  Following the advisory vote, we continue to believe that our executive compensation program is designed to support the Company and our business strategies in concert with our compensation philosophies and objectives.

 

Elements of Compensation

 

To assure the appropriate mix of fixed versus variable compensation and focus on both short and long-term business performance, we have established four basic elements for our executive compensation program: base salary, annual cash bonus awards, long-term equity-based compensation, and change-in-control compensation.  It is the Compensation Committee’s intention that the compensation paid to our NEOs be deductible by the Company for Puerto Rico income tax purposes, unless there are valid compensatory reasons for paying nondeductible amounts in order to ensure competitive levels of total compensation.

 

Base Salary.  Base salary is generally designed to be competitive with comparable executive positions in peer group companies in the U.S. and Puerto Rico.  However, each executive’s actual salary varies based on the complexity and unique challenges of his or her position, individual skills, experience, background and performance.  Survey data for corporate executive salaries in Puerto Rico is also taken into consideration in determining any periodic increases.  Base salaries for NEOs are reviewed at least annually by the Compensation Committee.

 

Annual Cash Bonus Awards.  Our annual cash bonus awards reflect a combination of two key elements: level of attainment of business performance targets and individual performance ratings.  Business performance targets consist of company and business unit targets based on annual performance goals approved by the Compensation Committee.  We maintain performance scorecards for measuring financial, operational and strategic results to determine the level of attainment of our annual performance goals, and assign a weight to each performance measure, with the sum of the weights equal to 100%.  Each executive’s performance bonus is based on one or more of the corporate scorecard and the business unit scorecards applicable to the executive.  Individual performance evaluations are also considered for our Senior Vice Presidents.  A minimum rating on the individual performance evaluations is always required to be eligible for any annual cash bonus.  Each target bonus is expressed as a percentage of the executive’s base salary.  We may also grant additional special bonuses from time to time to executives in recognition of extraordinary contributions that may not be reflected in the results of their scorecards.

 

The annual cash bonus award for our Chief Executive Officer and Chief Financial Officer is based solely on the results of our corporate scorecard.  For our other Senior Vice Presidents, it is based on a combination of the corporate scorecard and the scorecard results of one or more business units.  In addition to the corporate and business unit scorecards, the annual cash bonuses for our Senior Vice Presidents take into account the results of their individual performance evaluations.

 

Long-Term Incentive Compensation.  Our long-term incentives are designed to ensure that executives have a continuing stake in our success and to encourage executives to focus on multi-year performance goals that will enhance the value of our franchise and capital stock.  Such incentives are also designed to retain key executives, reward risk management, and link executive performance to the creation of franchise and shareholder value. 

 

Pursuant to our Officers and Directors Stock Ownership Policy, we require our NEOs (among other officers) to own a minimum amount of our common and preferred stock equal to four times annual base salary in the case of our CEO, three times annual base salary in the case of certain executive officers, including our CFO, and two times annual base salary in the case of other key officers, including our Chief Risk Officer, Chief Accounting Officer and Treasurer.  We believe that this policy further aligns their interest with that of our shareholders.  Furthermore, our equity awards have long-term vesting and restricted periods of three to five years.

 

Our Omnibus Plan, an equity based performance incentive plan, provides for awards of stock options, restricted shares, restricted stock units, performance shares, performance units, stock appreciation rights, and dividend equivalent rights.  The Compensation Committee has discretion to grant awards from time to time under the Omnibus Plan, to determine the eligible individuals to whom awards will be granted, and to establish the terms and conditions of each award.  Moreover, the Compensation Committee has approved the establishment of performance metrics in connection with the issuance of equity awards.  The Company expects the performance metrics to be determined and taken into consideration for the equity awards to be granted to our executives for their performance in 2014.  We believe that the Omnibus Plan reflects current trends at peer group companies and that it strengthens the link between executive performance and shareholder value.

 

Change-in-Control Compensation.  An important objective of our compensation program is not only the recruitment of seasoned executives but also their retention and commitment to our long-term success.  Therefore, to promote their retention and reduce any concerns that they may be adversely affected in the event of a change-in-control of the Company, we have entered into a change-in-control compensation agreement with our CEO and CFO pursuant to which the executive is entitled to a cash payment equal to two times the sum of his or her annual base salary and last cash bonus if there is a change in control and as a result thereof or within one year thereafter his or her employment is terminated.

 

Fringe Benefits and Allowances.  We provide several fringe benefits, including a defined contribution plan and healthcare coverage, to our NEOs.  These benefits do not constitute a significant portion of the NEOs’ total compensation package and are generally available to all of our employees.  We also offer our NEOs a non-qualified deferred compensation plan for the deferral of taxable income and certain allowances.  Such allowances are offered on a case-by-case basis and are not intended to constitute a significant portion of the executive’s compensation.  Our non-qualified deferred compensation plan is more fully described hereinbelow.  We provide these benefits to retain and attract an appropriate caliber of talent and recognize that other companies with which we compete for talent provide similar benefits to their officers and employees.  Such benefits and allowances are reviewed annually by the Compensation Committee.

 

Compensation Recoupment.  Our Compensation Recoupment Policy, adopted in anticipation of the proposal and implementation of new SEC regulations and NYSE listing standards pursuant to the Dodd-Frank Act, requires that our top executives, who received incentive-based compensation (e.g., bonus, annual incentive or other performance-based cash or equity compensation awards) in the three-year period prior to a restatement of the Company’s financial statements due to material non-compliance with financial reporting requirements under the applicable securities laws, return to the Company the amount of such compensation that the executive would not have received but for the misstated financial statements.  It is anticipated that this policy may need to be amended in order to conform to the listing standards to be adopted by the NYSE.

 

Determination of Compensation Decisions

 

Our decision-making process for determining executive compensation begins with a review of our strategic objectives and business plans.  We then consider the scope of responsibilities of each executive, the compensation of

 

similar executives at peer group companies, and the relationship between pay and performance.  We further evaluate whether our compensation program meets our goals by monitoring the performance and retention of our executives.

 

The Compensation Committee is responsible for establishing our compensation program and for making recommendations to our Board of Directors with respect to the compensation of our CEO.  In order for the Compensation Committee to perform its functions, the following process for determining executive compensation is followed:

 

Determining Goals.  Prior to the beginning of the year, senior executives and department or division heads meet and discuss goals for the Company in the upcoming year.  At the beginning of such year, the Board reviews and approves an annual budget for the Company as a whole and for its banking subsidiary.  The Compensation Committee then reviews and assesses performance goals presented by management and determines the structure of the annual bonus awards.  These goals include minimum performance thresholds that must be met to earn any bonus awards, as well as performance levels required to achieve maximum payouts.  Performance goals are established for each department or division of the Company and for certain executives.

 

The establishment of performance goals and the review of the level of achievement of such goals play an essential role in the determination of performance awards.  On a quarterly basis during the course of the year, senior management and our Board of Directors review our actual financial performance against the goals set for the year.  In addition, our Board of Directors receives quarterly reports detailing our actual financial performance compared to these goals.  Such reports are discussed in the corresponding Board meetings.

 

Determining Executive Compensation.  Our method of determining compensation for each NEO varies from case to case based on a discretionary but objective determination of what is appropriate in light of several factors, such as the scope, complexity and degree of challenge of each executive’s responsibilities, as well as his or her performance, skills and experience.  Our Board of Directors and its Compensation Committee may also take into account other relevant factors in making compensation decisions or recommendations for NEOs, including salary data for comparable positions at peer group companies in Puerto Rico and the U.S., and compensation levels at the Company.

 

On a quarterly basis, department or division heads assess their progress against the goals set for the year and at the end of the year evaluate their results.  These self-assessments are reviewed by the CEO who together with our Human Resources Department undertakes an evaluation of each executive’s performance based, in part, on objective measures set forth in the performance scorecard.  The CEO considers the financial performance of the Company, the performance of each department or division, and the individual performance of each executive relative to the goals set for the year.  In the interest of fairness, he may also recommend subjective or non-formulaic factors for consideration by the Compensation Committee.

 

The Compensation Committee annually reviews the performance evaluations of each executive and evaluates the compensatory recommendations provided by our management.  Although the Compensation Committee is not obligated to follow any specific recommendation or formula, it generally takes the same formula-based approach in making its own decisions.  At different times throughout the year, upon the recommendation of the CEO or otherwise, the Compensation Committee may grant equity awards to executives and/or directors.

 

Determining CEO Compensation.  The Board approves the compensation of the CEO.  His compensation level is guided by the terms of his 2013 Employment Agreement.  As provided therein, the Compensation Committee has discretion to increase his salary after the first year, and his target performance bonus under our annual bonus plan is set at 70% of his base salary.

 

 

In conducting its annual evaluation of the CEO’s performance, the Compensation Committee considers the CEO’s contributions to the overall performance of the Company, including his personal attributes and merits.  It also reviews our key operating results along with the accomplishment of our key strategic initiatives and considers the standard of living in San Juan, Puerto Rico, where our main offices are located.  As part of this process, the Compensation Committee reviews all relevant information or data, including the results of our CEO’s performance scorecard and compensation levels for chief executive officers at peer group companies.  Furthermore, the Chairmen of our Board of Directors and Compensation Committee meet periodically with our CEO to discuss his performance.  The progress results of these meetings are reported to our Board of Directors.  The CEO does not participate in any decision regarding his compensation.  Upon completing its evaluation of the CEO’s compensation, the Compensation Committee submits its recommendations to our Board of Directors at its next regularly scheduled meeting.

 

Compensation Consultant

 

In 2013, pursuant to a request for proposals to which two consulting firms responded, our Compensation Committee engaged an independent compensation consultant to review the financial terms proposed for the 2013 Employment Agreement with our CEO and prepare a comparison of such terms with CEOs in comparable positions at peer financial institutions.  It was also engaged to perform an evaluation of our compensation system for our key executives, including a comparison of our compensation practices with comparable positions at peer financial institutions, and to develop a compensation framework for such executives that reflects our desired emphasis on incentive pay for performance, our transformational business strategy and organizational structure, and our unique labor market for executive talent.

 

Analysis of Compensation Decisions

 

After extensive consideration by our Compensation Committee with the assistance of the independent compensation consultant, which took into account a competitive review of peer banks, shareholder preferences, regulatory guides on best practices, and our compensation philosophy and objectives, our Compensation Committee adjusted the compensation package of our CEO and CFO by increasing their base salaries and decreasing their target cash bonus percentages effective July 1, 2013.  Such decisions remained effective during 2014.  The base salaries of our Chief Risk Officer, Chief Accounting Officer and Treasurer were increased in 2013 and 2014 in recognition of their individual performance.

 

In order to determine each NEO’s performance bonus, the target cash bonus percentage is multiplied by the executive’s base salary, which then is multiplied by the result of his performance scorecard.  Our Internal Audit Department verifies the accuracy of such results.

 

The table below shows the target cash bonus percentages for the NEOs in 2014.

 

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1.        For purposes of this table, the performance score was rounded to the nearest hundredth and the performance bonus is rounded up to the next hundred dollars.

 

 

The table below presents our company-wide metrics for measuring performance on our corporate scorecard, including the weight of each metric and the percent of achievement of the target amount.

 

 

 

The Compensation Committee also approved equity awards to the NEOs for performance in 2014 as follows:

 

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1.        Mr. Ortiz agreed to cap his annual performance bonus at $30,000 and to stop receiving equity awards in exchange for a reimbursement by the Company of up to $90,000 in education expenses towards obtaining an executive M.B.A.

 

The Compensation Committee decided to grant such awards to continue its policy of providing long-term financial incentives and increasing stock ownership among our executives to align their interests with our shareholders.  The actual amount awarded to such NEOs was based on their percentage targets for cash bonus awards.  In making these awards, the Compensation Committee expects to continue to maintain our ability to retain key executives.  Each award is subject to service conditions that must be met by the executive in order for the award to vest.  Generally, each award has a vesting schedule of two to five years.

 

We have entered into a change in control compensation agreement with our CEO and CFO.  The following table presents the estimated cash compensation under their respective change-in-control compensation agreements based on their salaries and bonuses for 2014.  No such payout has been required to date under any such agreement by the Company.

 

 

 

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Risk Assessment and the Compensation Discussion and Analysis (“CD&A”) with management and, based on such review and discussion, the Committee recommended to the Board of Directors that the Compensation Risk Assessment and the CD&A be included in this proxy statement.

 

Submitted by:

 

Francisco Arriví, Chairperson

José E. Rossi

Jorge Colón-Gerena

Julian S. Inclán

 

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

None of the members of the Compensation Committee has served as an officer or employee of the Company or any of its subsidiaries, nor did any of them have any relationship with the Company requiring disclosure under Item 404 of Regulation S-K of the SEC.  None of our executive officers served as a director of another entity, or as a member of the compensation committee of another entity, one of whose executive officers served as a member of our Board of Directors or as a member of its Compensation Committee at any time during 2014.

 

 

EXECUTIVE COMPENSATION

 

The following table summarizes the total compensation earned in each of the last three years by the Named Executive Officers.

 

Summary Compensation Table

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1.      All of the Company’s employees, including each NEO, received an additional week of compensation in advance of schedule on December 28, 2012 in order to align the Company’s payroll schedule with that of the acquired Puerto Rico operations of Banco Bilbao Vizcaya Argentaria, S.A.

2.      These amounts represent bonuses awarded in recognition of outstanding individual performance.  The bonus awarded in 2012 is for the executive’s outstanding performance in connection with the successful acquisition of BBVAPR.

3.      Aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718.  For a discussion of the assumptions that we made in the valuation of the option awards, please refer to the notes to our audited financial statements.

4.      The non-equity incentive plan payments for each year were made in the first quarter of the following year and intended as compensation for performance of the NEOs during the previous year, except for $600 advanced in the last quarter of the applicable year as a Christmas bonus.

5.      This amount represents $91,440 for reasonable personal expenses in the performance of his duties, our matching contribution pursuant to our 401(k)/1081.01(d) Plan, and payment of life insurance premiums.

6.      This amount includes the value of 30,000 restricted units granted pursuant to his 2013 Employment Agreement.

7.      This amount represents $59,924 for reasonable personal expenses in the performance of his duties, our matching contribution pursuant to our 401(k)/1081.01(d) Plan, and payment of life insurance premiums.

8.      In recognition of his outstanding performance in connection with the successful acquisition of BBVAPR, Mr. Kumar received a one-time special award of 10,000 additional restricted units.

9.      This amount represents $10,000 for car allowance, $26,891 of educational expenses and reimbursement of reasonable personal expenses in the performance of his duties, our matching contribution pursuant to our 401(k)/1081.01(d) Plan, and payment of life insurance premiums.  Mr. Ortiz agreed to cap his annual performance bonus at $30,000 and to stop receiving equity awards in exchange for a reimbursement by the Company of up to $90,000 in education expenses towards obtaining an executive M.B.A.

10.    This amount represents $18,000 for car allowance, our matching contribution pursuant to our 401(k)/1081.01(d) Plan, and payment of life insurance premiums.

11.    Mr. González’s employment ended effective July 3, 2014.

12.    This amount represents $22,138 for reasonable personal expenses in the performance of his duties, our matching contribution pursuant to

 

our 401(k)/1081.01(d) Plan, and payment of life insurance premiums.

 

2013 Employment Agreement

 

José Rafael Fernández entered into a three-year employment agreement with the Company on August 22, 2013 (the “2013 Employment Agreement”).  Mr. Fernández is our President and Chief Executive Officer and the Vice Chairperson of our Board of Directors.  The 2013 Employment Agreement is effective as of July 1, 2013, and replaced the employment agreement, dated December 3, 2010 (the “2010 Employment Agreement”), between the Company and Mr. Fernández.

 

As provided in the 2013 Employment Agreement, Mr. Fernández reports directly to our Board of Directors and has overall responsibility for the business and affairs of the Company.  During the term of the 2013 Employment Agreement and in any election of directors in which Mr. Fernández’s term as director is set to expire, the Board will nominate and recommend to the shareholders of the Company his election as a Board member and, if elected, will appoint him its Vice Chairperson.  He is compensated as follows: (i) annual base salary of $865,000, which may be increased by the Compensation Committee of our Board of Directors after the first year; (ii) annual performance bonus based on an annual target bonus of 70% of his annual base salary under our non-equity incentive bonus plan; (iii) annual allowance of $85,000 for the payment of his car-related expenses, membership expenses for social, business and professional organizations, and any other expenses which in his judgment are reasonably appropriate for the performance of his duties as President and Chief Executive Officer of the Company; (iv) the renewal for an additional 10-year term of his existing life insurance policy in the amount of $3,000,000 covering his life and having as beneficiaries his spouse and heirs or other beneficiaries designated by him; (v) an award of 30,000 restricted stock units of the Company pursuant to the Omnibus Plan upon the execution of the 2013 Employment Agreement; and (vi) additional equity incentive awards under the Omnibus Plan of up to 85% of his annual base salary at the discretion of the Compensation Committee.

 

The 2013 Employment Agreement may be terminated by our Board of Directors for “just cause” (as defined therein).  In the event it is terminated for just cause or if Mr. Fernández is removed or barred from office under applicable law, he will have no right to compensation or other benefits for any period after such termination.  However, if the 2013 Employment Agreement is terminated by our Board of Directors other than for just cause and other than in connection with a change in control of the Company (as defined in his Change in Control Compensation Agreement with the Company), or if Mr. Fernández terminates the 2013 Employment Agreement for “good reason” (as defined therein), the Company will be required to pay him as severance, in lieu of any further compensation for periods subsequent to the date of termination, a lump sum equal to the product of (a) his annual base salary, bonus (equal to the average cash bonus paid to him in the last two fiscal years prior to the termination date), expense allowance, and equity awards (equal to the average of the aggregate grant date fair value of the equity awards granted to him in the last two fiscal years prior to the termination date), multiplied by (b) three.

 

Change-in-Control Compensation Agreements

 

We have entered into Change-in-Control Compensation Agreements with José Rafael Fernández and Ganesh Kumar.  Each agreement remains in full force as long as the person is employed by us.

 

Under the agreements, the aforementioned persons are entitled to certain cash payment compensation in the event there is a “change in control of the Company” and as a result thereof or within one year after the change in control, the person’s employment is terminated by us or our successor in interest.  The cash compensation will be an amount equal to two times the sum of such person’s annual base salary at the time the termination of his or her employment occurs and his or her last cash bonus paid prior to the termination of his or her employment.

 

For purposes thereof, a change in control is deemed to have occurred if (i) any person or entity (including a group) acquires direct or indirect ownership of 50% or more of the combined voting power of the Company’s then

 

outstanding common stock as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise; or (ii) the shareholders of the Company approve (a) any consolidation or merger of the Company in which the Company is not the surviving corporation (other than a merger in which the holders of the Company’s common stock immediately prior to the merger have the same or substantially the same proportionate ownership of the surviving corporation immediately after the merger), or (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the Company’s assets to an entity which is not a wholly-owned subsidiary of the Company.

 

Life Insurance

 

We provide each of our NEOs with a life insurance policy, which in the event of death would pay his heirs or beneficiaries up to a maximum of $700,000 or, if the NEO qualifies, $1,000,000.  We also provide our CEO with an additional key man life insurance policy, which in the event of his death would pay $3 million to his heirs or beneficiaries and $10 million to the Company.

 

401(k)/1081.01(d) Plan

 

All of the Company’s employees, including the employees of its subsidiaries, are eligible to participate in our cash or deferred arrangement profit sharing plan (the “401(k)/1081.01(d) Plan”).  The 401(k)/1081.01(d) Plan is a defined contribution plan under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and is qualified under Sections 1081.01(a) and 1081.01(d) of the Puerto Rico Internal Revenue Code of 2011, as amended (the “Puerto Rico Internal Revenue Code”).  The 401(k)/1081.01(d) Plan offers eligible participants several investment alternatives, including several U.S. mutual funds, a money market account, and shares of common stock of the Company.  Contributions made through payroll deductions not in excess of a specified amount may be accumulated per year as before-tax savings.  The Company contributes 50% of the employee’s contribution up to a maximum employee contribution for matching purposes of 4% of the employee’s salary.  The matching contribution is invested in accordance with the employee’s election, which may be shares of common stock of the Company.

 

Grants of Plan-Based Awards

 

The following table presents information concerning each grant of an award under the Omnibus Plan made to the Named Executive Officers in 2014, except for the non-equity incentive awards, which reflect cash incentives pursuant to our annual bonus plan.